TheChek News Flow

Western companies drive Chinese biotech licensing deal blitz

Merck, GSK and AstraZeneca have all signed deals

Western pharmaceutical companies and investors are driving a record number of licensing deals with Chinese drugmakers that have insufficient capital to fund late-stage drug development and global expansion.

Merck, GSK and AstraZeneca have all signed licensing deals in a wave of biotech investment that hit a record $44.1bn last year, according to UBS research. The momentum has been sustained in 2024, with $9.8bn worth of biotech licensing deals signed in the first quarter.

Western pharma companies are seeking to expand their product pipelines as they confront patent expiries of lucrative drugs in the coming years, while Chinese drugmakers are struggling to raise funds domestically for drug development and clinical trials during a stock market slump. A Hong Kong-listed index of 50 “innovative” biotech stocks has fallen 57 per cent over the past three years.

“Over a decade ago, China started pouring investment into biotech. Now the results of that investment are coming out just as the Chinese companies face funding constraints,” said Helen Chen, head of LEK Consulting’s healthcare practice in Shanghai.

She added that Chinese drugmakers were facing challenges in the domestic market following a pricing regime overhaul that has forced them to drop prices of innovative drugs to qualify for the national medical insurance scheme. Beijing’s campaign to drive down prices has forced drugmakers to search for growth overseas.

The interest in Chinese pharma defies a broader exodus of foreign capital from the country at a time of rising geopolitical tension and slowing economic growth. China’s funding crunch has created an opportunity for drugmakers to expand their product pipelines.

“Many large global pharmaceutical companies are sitting on cash piles following the pandemic,” said Chen Chen, a healthcare analyst at UBS. “At the same time, they are looking to expand their portfolio as many drug patents are due to expire in the next few years.”

Most of the deals involve US or European pharmaceutical companies licensing Chinese-made drugs for a low price and then providing the capital needed for more development, clinical trials and commercialisation. Some of the deals are to license the rights to sell within China. “It’s a form of venture capital investment,” said Chen Chen.

In December 2023, Merck made an upfront payment of $70mn for the Chinese rights to license Shanghai-based biotech group Abbisko’s treatment for benign joint tumours that affect mobility. The licence is to commercialise in China with the option to go overseas.

New investors are coming to the sector. “One of the most interesting developments is the entry of private equity, seeking Chinese assets for internationalisation with the hope of exiting to large pharmaceutical companies within one to three years,” said Helen Chen of LEK.

This month, Shanghai-listed Jiangsu Hengrui Pharmaceuticals said it sold the overseas licence for a portfolio of weight loss drugs to Hercules CM NewCo, a company formed by a consortium of investors including Bain Capital Life Sciences, the US buyout group’s pharma arm.

It has licensed three drug candidates for $110mn, with later payments upon hitting regulatory targets and royalties if the product is rolled out to the public. Hengrui also received a 20 per cent stake in Hercules.

Hengrui struck a less favourable deal in August to sell the global rights for its adult asthma treatment to Aiolos Bio, then known as One Bio, for an initial upfront payment of $21.5mn, with up to $1bn more if it gains approval overseas.

In October, Aiolos raised $245mn from a group of backers including Bain Capital Life Sciences and venture capital firms Atlas Venture, Forbion and Sofinnova.

Months later, GSK announced it had acquired Aiolos for an upfront payment of $1bn, with a further $400mn to be paid after clearing regulatory milestones. GSK will also pay Hengrui if the drug hits certain milestones and royalties if it commercialises.

The deal has prompted criticism within the Chinese pharmaceutical industry, where some are calling for more government support.

“Why is China selling its own innovative drugs so cheaply to foreigners?” said one Chinese biotech start-up executive who sold their drug licensing rights after struggling to raise capital from investors. “Beijing should help good enterprises to develop promising products and not just let them be sold to foreign companies.”

Hedge funds hit by lack of private equity exits

Failure of private equity firms to return cash to investors is blocking institutions from backing hedge funds

Private equity’s struggle to return money to clients is hitting hedge funds, which rely on the same pension plans, foundations and endowments for fundraising.

Hedge funds seeking to raise money from institutional investors are being rebuffed on the grounds that the institutions lack the cash to give them. 

The difficulty is at least in part due to a slowdown in distributions that investors have received from private equity funds.  

“The lower rate of distributions from private equity, [private] debt and venture funds is having a knock-on effect, leading some allocators to pause on new investments into illiquid funds and reduce new investments in more liquid hedge funds,” said Michael Monforth, global head of capital advisory at JPMorgan Chase.

Buyout-backed exits fell to $345bn last year — their lowest level in a decade, according to Bain & Co’s annual private equity report. This has left the private equity industry sitting on a record backlog of 28,000 companies worth more than $3tn, the Bain & Co report found, as a slowdown in dealmaking made it harder to return money to their backers. 

“Private equity distributions have gone down, the IPO market has been very thin and M&A has been held back,” said Nick Moakes, chief investment officer of the £36.8bn Wellcome Trust. “If you’re not going to get bought and can’t get listed, PE is scratching its head on how to do distributions.”

Hedge funds and private equity managers are often competing to raise money from the so-called “alternatives” allocation of institutional investors, which can also include private credit, infrastructure and real estate assets. As investors receive distributions from existing holdings, the money is recycled into new commitments.

“For the vast majority of institutions, private equity and hedge funds come out of the alternatives bucket,” Sunaina Sinha Haldea, head of private capital advisory at wealth manager Raymond James, said.

“The lack of distributions out of private markets portfolio is going to impact the ability to make new commitments in other parts of the alternatives portfolio . . . that includes hedge funds.”

Last year assets in the global private capital industry ballooned to $14.5tn, according to the Bain & Co report, more than treble the $4tn it managed a decade earlier.

In contrast, inflows to hedge funds have been muted for the past decade, with investors pulling cash on a net basis in five years out of the last 10, according to Hedge Fund Research. 

The capital constrained environment is also having an impact on the market for new hedge fund launches.

Former Millennium co-chief investment officer Bobby Jain has been forced to scale down day-one fundraising ambitions for his new hedge fund, Jain Global, ahead of its July launch.

One hedge fund manager currently trying to raise capital said investors often cited the lack of distributions they had received from their private equity investments as a reason why they would not invest. Investors were waiting to receive more money back before reinvesting, they added.

“What you are seeing is a failure to exit on the private equities, and it’s kind of having this follow on effect where its leading to a lower velocity of capital flowing throughout all alternatives,” Sam Diedrich, a managing director at Partners Capital, said. “It’s becoming a real issue.”  

Shipping rates spike as businesses expect more Red Sea attacks

Companies prepare to ship goods for festive season early as attacks by Yemen’s Houthis force ships to take longer route

The cost of international shipping has shot up as businesses prepare to ship goods for the festive season far earlier than usual, in a sign of the far-reaching effects of disruption from attacks in the Red Sea.

The average cost of shipping a 40ft container between the Far East and northern Europe at short notice, the figure that is most sensitive to market prices, hit $4,343 last week, roughly three times higher than the same period last year, according to freight market tracker Xeneta.

Prices have not yet surpassed the peak seen immediately after Yemen’s Houthi militant group began targeting vessels in November. But they are rebounding during a usually quiet period for shipping in the spring months.

Typically the peak period occurs between late summer and autumn, when retailers start importing goods for the November Black Friday sales and Christmas shopping season.

“The peak season has been brought forward,” said Michael Aldwell, head of sea logistics at Kuehne + Nagel, one of the large freight forwarders that handles goods and sets the price of shipping for retailers.

Industry figures said the resurgence in shipping costs had multiple causes. But these were largely linked to the attacks in the Red Sea, which the Houthis have said are in support of Gaza’s Palestinians during Israel’s war with Hamas, they said.

These have constrained the global supply of shipping space and containers as shipowners travelling between Asia and Europe are forced to take a longer route around Africa.

Because of the war in Gaza, shipowners are preparing for the attacks to disrupt global supply chains through the autumn months when retailers normally import Christmas goods.

Aldwell said some Kuehne + Nagel customers had pre-booked shipments for the festive shopping period as early as April, while others were stocking up on summer goods such as outdoor furniture and barbecues.

He added demand had also been boosted by customers who previously slashed inventories in expectation of weak consumer demand this year. With consumer demand now not as depressed as some businesses expected, they “are very quick to pay higher prices to get access to [the limited shipping] capacity”.

Peter Sand, chief analyst at Xeneta, which supplies data to traders, said importers had learned the hard way during the pandemic that the best way to build resilience in their supply chains was “to stock up as fast as you can”.

He said businesses had told Xeneta that some decided to “bring in Christmas goods if [they] can now because [they] may be short of capacity come the traditional peak season”.

“This is a direct response to the disruption coming about with the Houthi attacks,” he added. “Nobody is really sure of when it will go away.”

Facing a weak global economy and an oversupply of vessels last year, “the main shipping lines were all suggesting [that their financial outlook] was going to be really quite soft” before the attacks in the Red Sea began, said Marco Forgione, director-general of the Institute of Export & International Trade, which represents UK traders.

Now, the disruption is expected to continue later into the year, he said.

Even after the Red Sea disruption is resolved, “supply chains are going to be different in the future”, as globalisation is threatened by repeated geopolitical instability, Forgione added. “We are going to see inventory management much more at the forefront,” he said.

Unilever enjoys surge in demand for high-end cosmetic brands

Despite cost of living crisis, consumer goods group enjoys strong performance in its premium products

Demand for Unilever’s high-end cosmetic brands has surged despite the cost of living crisis in contrast to its mass market businesses in food, soap and detergent, says the head of the group’s premium beauty arm.

The company aims to overturn years of disappointing performance by focusing on top brands and offloading lower-margin divisions such as ice cream and unloved personal care products.

“Beauty is recession proof,” said Vasiliki Petrou, chief executive of Unilever Prestige, who has led the business since its launch 10 years ago.

Prestige has 10 brands including skincare products Tatcha and Dermalogica, Hourglass make-up and Living Proof haircare.

“If there is a downturn, people will always sacrifice an expensive bag or dress for a skincare item or a lipstick because it links back to their confidence . . . it’s part of self esteem,” she added.

The Prestige division has delivered 13 consecutive quarters of double-digit sales growth up to the first quarter of this year, and turnover for 2023 was €1.4bn compared with €700mn in 2020.

Sales across the company as a whole grew 4.4 per cent in the first three months of the year and 7 per cent in 2023, while turnover fell 0.8 per cent to €59.6bn in 2023 compared with the year before.

The company’s premium brands make up 30 per cent of its products, with more than half in the mass market bucket while the rest are classed as value goods.

The Prestige division was established in 2014 after the company had fallen behind competitors in premium categories, which have driven much of the sector’s growth in the past decade.

Petrou was given the task of acquiring a portfolio of luxury brands that Unilever could then grow.

Two of the division’s 10 brands, Dermalogica and Paula’s Choice, are now among Unilever’s so-called power brands — the 30 that make up 70 per cent of group sales.

The business model of the Prestige division has a different approach to other parts of the business, Petrou said, as she outlined its strategy.

Acquisitions, for example, are left to function independently rather than merged into the group. Most recent acquisitions were haircare brand K18, which has a strong presence on TikTok, and Paula’s Choice, founded as one of the first online beauty brands in 1995.

“With mass market, you have to have widespread distribution, but in the luxury market you go for the selective beauty business model, which is all about quality of education, content and advice. Scarcity, sometimes, is key to desirability.”

The decentralised model at Prestige means the soul of the new brands are not lost, Petrou said.

“Unilever has a reputation for a mixed M&A record at best,” wrote Barclays analysts in a recent note. “However, when it comes to building out its Prestige and wellness business, it has made very few mistakes.”

Barclays estimates that together, Prestige beauty and its other fast-growing division, Health and Wellbeing, could reach as much as €10bn in annual revenues by 2030. Profits margins for the two divisions are close to 60 per cent, compared with 30 per cent in ice cream.

Petrou said the US was its largest market, making up 60 per cent of sales, and she was also focused on “winning” in the UK and China, its second-largest market, where consumer demand has been sluggish.

In terms of beauty trends, Petrou said younger people were increasingly interested in skin health, “much more than we have seen before”, adding that there was also a big opportunity in the market for men’s products.

“That’s the next explosive wave. And the good thing about men is that they are much more loyal. When they discover something they stick with it.”

Japanese group says it will ‘step up’ artificial intelligence outlays without stretching finances

SoftBank is prepared to commit close to $9bn a year to artificial intelligence investments, even as the Japanese tech group holds back firepower for bigger deals aimed at accelerating what could be its most radical transformation to date.

Founder Masayoshi Son has been vocal about his belief in AI and the need to reshape the company in the hunt for deals that can support the group’s crown jewel, UK-based chip designer Arm, which has soared in valuation since it went public last year.

SoftBank’s outlay for investments and commitments has more than doubled to $8.9bn in the 12 months since Son said the company was ready to go on the “counteroffensive”. SoftBank said it was ready to maintain, or even exceed, the amount for the right mega-deal.

“We will, in principle, be keeping the same kind of trend in terms of the pace of investment activities,” SoftBank’s chief financial officer Yoshimitsu Goto told the Financial Times. “From now on, we want to step up investments in AI companies.

“The reason we’ve been keeping our balance sheet at a very safe level is because we would like to be prepared,” he added, “and we would like to be flexible if there is anything that we would like to move on.”

Son built SoftBank from an internet broadband business into a regulated mobile phone network company, snapping up Vodafone Japan and Sprint along the way. He then radically transformed the group into an investment giant with backing from Saudi Arabia and Abu Dhabi, while also capitalising on a wildly successful investment in Alibaba.

In his belief that AI will be the source of future growth, the billionaire is attempting to reshape SoftBank, and its risk-taking Vision Funds, to remain relevant in what he considers humanity’s next stage.

However, it faces stiff global opposition. Big tech groups such as Microsoft, Amazon and Google have committed billions of dollars to partnerships with start-ups building AI models, while top venture capital firms are hunting for deals with groups building AI products and applications.

SoftBank has also suffered in recent years from some of its bigger investments, including about $14bn in WeWork before the desk-renting start-up went bankrupt.

The group’s balance sheet has been strengthened since those darker moments and, on Wednesday, rating agency S&P upgraded SoftBank back to double B plus, its highest non-investment grade, citing an “improvement in asset quality”.

That increasing strength gives SoftBank capacity to do a large-scale deal, but Goto said he would not allow its finances to be stretched in that pursuit.

Highlighting a loan-to-value ratio of about 8.5 per cent and a net asset value of ¥27.8tn ($180bn) — driven by Arm — SoftBank’s CFO said it had the balance sheet capacity to make big deals worth tens of billions of dollars. But he cautioned that investors should not expect SoftBank to finance such moves alone or without using structured or non-recourse financing.

“That [strength] doesn’t mean that we are ready to spend $10bn, $20bn, $30bn . . . that’s not something that we expect to come out from our balance sheet,” he said.

Dealmaking appears to be picking up. SoftBank this month led an investment of more than $1bn into UK self-driving car start-up Wayve, marking Europe’s largest AI deal to date.

Son was personally involved in the deal because of its size and the fact that it was an AI-related investment, said Kentaro Matsui, head of new business at SoftBank and a managing partner in its Vision Funds.

Goto has also outlined some areas that he sees as ripe for the kind of investment needed in order to help the AI sector grow and benefit Arm, including power generation and data centres.

But he refused to comment on press reports that Arm and SoftBank were considering producing an AI chip. The group is also in talks to buy another UK chip designer, Graphcore, according to a person familiar with the discussions. SoftBank declined to comment.

Having stepped back from presenting earnings more than a year ago, Son is due to speak at SoftBank’s annual shareholders’ meeting in June, when Goto suggests he could reveal more details about his AI plan.

For some investors, those plans could distract the group from its core businesses, including Arm and its telecoms subsidiary SoftBank Corporation.

“If you look at their investments, the volatility is such that whether they do $10bn or $20bn doesn’t matter . . . and it will be all or nothing if they go in on AI chips,” said one long-term investor in Tokyo. “Yes, they have Arm and they can write big cheques, but moving from planning to execution is not going to be easy.”

Within SoftBank, however, the direction of travel appears set. Its Vision Funds are already a very different beast from the years when they wrote large cheques to start-ups. They have increasingly shifted from finding investments to exiting in order to deliver returns, and that has led to billions of dollars in sales in the past year.

As its pace of investment slows down, the Vision Funds are increasingly folding themselves into SoftBank, rather than operating as their own fiefdom. This is not least because the vast majority of money left to invest — housed in the second Vision Fund — is Son’s.

The shift has resulted in an increased blurring of roles for executives at the Vision Funds. Last year SoftBank created its so-called Platform Group, which is made up of Vision Funds advisers scouting for AI investment opportunities.

Crucially, those investments are not necessarily made by the Vision Funds but instead are financed through the group’s balance sheet — a decision that is defined by whether SoftBank views the asset as strategic, rather than one which will eventually be sold to realise returns.

“We’ve actually merged and call our international businesses ‘One SoftBank’ internally as a way to remind ourselves that look, the goal is bringing money home,” said Alex Clavel, co-chief executive of SoftBank’s Vision Funds.

With $14 Billion U.S. Steel Deal in Limbo, Nippon Steel Seeks Community Support

Japanese steelmaker’s vice chairman visits Pittsburgh area and says company is ready to ‘share all the fruits of our technology’

Nippon Steel has launched a charm offensive to win support for its planned acquisition of U.S. Steel in a bid to counter the deal’s staunchest critics.

U.S. Steel shareholders overwhelmingly approved the company’s $14.1 billion takeover in April, but the deal remains bogged down by federal regulatory review and a raft of opposition. Leaders of the United Steelworkers union, some members of Congress and Cleveland-Cliffs, U.S. Steel’s main rival, have panned the purchase. President Biden has expressed skepticism about it.

Takahiro Mori, vice chairman of the Tokyo-based steelmaker, met this past week with business executives and government leaders in the Pittsburgh area, which includes U.S. Steel’s headquarters and its Mon Valley Works operation. Mori hosted a dinner and a presentation for about 150 people that lasted more than two hours.

“This transaction is about growth,” Mori said in an interview. “We’re going to share all the fruits of our technology.”

The company said it would invest at least $1.4 billion to improve the performance of U.S. Steel’s older mills, which also include operations in Indiana. Nippon Steel spends more than $500 million a year on research and development, compared with about $40 million by U.S. Steel, according to the companies. Mori said Nippon Steel’s chief technology officer will visit the Mon Valley Works as part of the planning for production improvements.

Residents of some of the small towns surrounding the Mon Valley plants have complained for years about air pollution and a lack of investment in maintenance. Mori has pledged to use hydrogen energy to reduce Mon Valley’s carbon-dioxide emissions from burning coal in blast furnaces.

Elaina Skiba, borough manager of Glassport, Pa., said she and other community officials have been skeptical about the acquisition and concerned about the future for the Mon Valley operation, but she left the presentation with more confidence in Nippon Steel’s plans.

“Nippon has no intention of closing this mill,” she said. “They want it to succeed. They’re not going to put this kind of money on the table to close it.”

Mori is planning several stateside visits this summer, but didn’t meet with union leaders in the latest visit. The union is seeking commitments from Nippon Steel on specific plant upgrades and has been dissatisfied with the Japanese company’s attempts to maintain the current labor agreement with U.S. Steel.

The union said Mori’s visit was a “desperate last gasp” by the two companies to save the deal and accused Nippon Steel of trying to escape its obligations under the union’s contract with U.S. Steel.

The union endorsed Cleveland-Cliffs’ attempt to buy U.S. Steel last year. In turn, Cleveland-Cliffs Chief Executive Lourenco Goncalves is backing the union’s opposition to the sale to Nippon Steel. He said recently that the deal is dead without the union’s support.

Nippon Steel is seeking to close its purchase by year’s end, pushing back the deadline by a few months. It has said it would refrain from plant closings and layoffs through the end of U.S. Steel’s union labor agreement in 2026.

Slowing market

A weakening American steel market threatens to add uncertainty to Nippon Steel’s investment plans. Falling steel demand and low prices would ratchet up the pressure on the company to conserve cash and reduce expenses.

Manufacturing activity has receded in some steel-consuming industries, including parts of the construction industry, commercial trucks, farm machinery and home appliances. Contributing to the downturn is the absence in recent years of panic buying caused by Covid-related supply bottlenecks, Russia’s war in Ukraine and other market shocks that drove up prices.

Some steel mill executives describe reluctant buyers as being on a diet. The U.S. spot-market price for hot-rolled coiled sheet steel was $750 a ton on Friday, down nearly 30% from a year earlier, according to S&P Global Commodity Insights. The benchmark price sank to $690 in September when a strike against U.S. automakers chilled steel buying, but went as high as nearly $2,000 a ton in 2021.

A decline in shipments hurt U.S. Steel’s first-quarter performance, with sales falling 7% from a year earlier and net income shrinking 14%.

Mori said a soft American steel market wouldn’t sidetrack spending to improve U.S. Steel. Nippon Steel executives have been dealing with a yearslong slump in Japan, where the company is the country’s largest steel producer.

Japan’s estimated steel consumption—which includes domestic steel production and imports minus exports—sank 17% from 2019 to 2023, according to the Japan Iron and Steel Federation. Nippon Steel has closed some plants in Japan in response to falling demand.

American steel consumption slipped 7% during the same period, according to the American Iron and Steel Institute.

Presidential campaign issue

Nippon Steel has the economics worked out on the deal, but the politics is a work in progress.

Biden, who won Pennsylvania in the 2020 election, has signaled opposition to foreign ownership of U.S. Steel, though he hasn’t explicitly said he would block the deal, which is now under national-security review by a Treasury Department-led committee.

The presumptive Republican presidential nominee, Donald Trump, has publicly criticized the deal, which could become an important issue in Pennsylvania, seen as a battleground state in the presidential contest.

The Justice Department is also reviewing the merger for market-concentration concerns. Nippon Steel is part owner of a steel mill in Alabama with the steel company ArcelorMittal.

“We are confident that we will be able to clear the issue if we are properly screened,” Mori said.

Nippon Steel said the deal reflects confidence in the U.S. steel market in the long run. The American market features some of the highest steel prices in the world, helped in part by tariffs on lower-cost imports. Domestic steel demand in recent years has been underpinned by spending on factory and warehouse construction and government-funded technology and infrastructure projects.

“It’s kind of an ideal place,” said Martin Englert, an analyst for Seaport Research Partners.

The purchase of U.S. Steel would double Nippon Steel’s overseas steel production capacity and profit. The company’s long-range goal is to raise its overall production capacity to 100 million metric tons a year.

‘Nuclear transmutation’ could cut highly radioactive waste by 80%, says national body

Switzerland has endorsed a long sought-after technology known as “nuclear transmutation” to dramatically reduce the amount of radioactive waste from atomic power plants. 

Nagra, the Swiss national body that manages nuclear waste, said it had spent several months exploring the method proposed by Geneva-based start-up Transmutex and had concluded that the technology could cut the volume of highly radioactive waste by 80 per cent.

Storing highly radioactive material for hundreds of thousands of years has always been a huge and expensive problem for the nuclear industry. 

While more than 20 countries, including the US, France, the UK and South Korea, agreed at the UN COP28 climate negotiations last year to triple nuclear energy capacity by 2050, there is currently no long-term storage site in operation. 

Finland is building the world’s first such facility, which it says will safely guard waste for 100,000 years. 

“Transmutex is trying to solve the problem we have had for a long while in nuclear, which is not safety, actually, but waste,” said Albert Wenger, an investor at Union Square Ventures, which is financing the start-up.  

Nuclear transmutation is the conversion of one element into a different form, known as an isotope, or another element altogether. Transmutation has been a concept of fascination since the days when alchemists tried in vain to turn base metals into gold.

The idea of using the technique for managing nuclear waste has been a subject of interest for decades. Several countries have launched significant programmes to explore transmutation, according to the Nuclear Energy Agency of the intergovernmental OECD. 

Transmutex proposes to use a particle accelerator coupled to a reactor to combine subatomic neutron particles with thorium, a slightly radioactive metal. This produces a uranium isotope that then fissions, releasing energy. Unlike uranium, thorium does not produce plutonium, or other highly radioactive waste.

“If it can be demonstrated to work, you basically get the best of both worlds,” said Jack Henderson, chair of the nuclear physics group at the UK’s Institute of Physics and a researcher at the University of Surrey. “You are able to reduce the level of radioactivity produced by burning up some of the longer-lived isotopes produced in your reactor — and you get energy out at the same time.”

Franklin Servan-Schreiber, chief executive of Transmutex, said transmutation was the “first technology that has been taken seriously by a nuclear waste agency to reduce the amount of nuclear waste”. 

He said it could be used on 99 per cent of the world’s nuclear waste and would reduce the time it remains radioactive to “less than 500 years”.

“This is very significant because you can guarantee waterproof storage for 1,000 years,” he said. He added that the process also reduced the volume of waste by 80 per cent. 

Servan-Schreiber said the idea behind the process had been conceived by Carlo Rubbia, the former director-general of the Cern particle physics laboratory. 

A potential obstacle to the viability of transmutation is the cost of set-up. The price of building a reactor coupled with a particle accelerator is unclear, but the Large Hadron Collider at Cern cost about $4.75bn. 

The study undertaken by Nagra and Transmutex found that the technology could “dramatically reduce the volume of high-graded radioactive waste and reduce the lifetime for a very significant part of that waste category tremendously,” said Matthias Braun, head of Nagra. 

Switzerland voted in a 2017 referendum not to replace its existing four nuclear reactors but Servan-Schreiber said the results gave “credence to this technology for other countries”, adding that he was in talks with at least three countries over a possible deal.

BlackRock encouraged Anglo to extend talks with BHP

FTSE 100 group rebuffed third takeover proposal for mining megamerger

Anglo American was pressed by key shareholders including BlackRock to extend talks with BHP over its proposed £38.6bn mining megamerger.

Shareholders were crucial in convincing the FTSE 100 group to begin negotiations with its Australian rival, according to people familiar with the matter. This week, Anglo received a third proposal valuing it at £31.11 per share — a level in the ballpark of “fair value” for some shareholders.

Anglo, however, rejected this “final” offer from BHP on Wednesday, but surprised the market by extending talks by another week, keeping hopes of the deal alive. BHP has until 5pm on Wednesday to make a formal bid or walk away.

BlackRock, which owns a 9.6 per cent stake in Anglo, was among a handful of investors that encouraged meaningful negotiations with BHP, the people close to the situation added.

Much of BlackRock’s stake is held via passive funds tracking an index but the world’s largest asset manager holds a large sway in the sector through Evy Hambro, its chief investment officer for natural resources and a veteran of the mining industry. It also holds 6.9 per cent of BHP.

BlackRock and Anglo declined to comment.

Two other significant shareholders, Ninety One and Sanlam Investments, told the Financial Times they also backed the decision to extend, despite concerns about a deal structure that requires Anglo to spin off its stakes in its South African platinum and iron ore units.

“We’ve been advocates of what’s in the best interests of Anglo shareholders and wanted them to at least have a discussion with BHP,” said one shareholder.

The investor said that they were keen that the company weighed up the merits of the BHP bid relative to Anglo’s own proposal to break itself up.

Dawid Heyl, portfolio manager at Ninety One, which owns 1.8 per cent of Anglo, said that “we think an agreed deal would be a good outcome, and it looks like it could be heading that way”.

He added that £31 is “coming into the range of the sort of premium you’d expect for a change of control at a company”.

The deadline extension — which coincides with South Africa’s general election — marked a turning point in proceedings, with Anglo showing the first signs of willingness to engage.

However, its executive team, led by Duncan Wanblad, believes its own plans to hive off four major units will create more value than a takeover.

The distance between the two sides and the national election could mean negotiations are extended again.

The two sides are trying to bridge estimates of the risks involved in conducting two demergers and a change of control at one of South Africa’s most iconic companies.

A number of Anglo shareholders still oppose the deal. Old Mutual, which owns 2.2 per cent, was not convinced the final offer had the knockout premium needed for its backing.

“It still suffers from the problem that whatever happens, you’re tied into a fixed rate waiting for them to unbundle Kumba and Amplats, which could take 18-months to two years,” says Old Mutual analyst Ian Woodley. “At least with Anglo’s plan, you could get a value for Anglo which, if copper soars as some think it could, would be more fairly reflective.”

Woodley adds that for a deal to be achieved, “the question is — will BHP be willing to amend the structure?”

The structure needs altering or BHP must pay up more, people close to Anglo say.

But people familiar with BHP’s thinking insist there is no more wriggle room on the structure or price — only smaller, creative structures to better share the risks.

Andrew Snowdowne, equity analyst at Sanlam, which owns 0.6 per cent of Anglo, said that “we do think more needs to be allowed for a deal premium,” as he called the decision to extend talks “prudent”.

South African government-owned Public Investment Corporation (PIC), the second largest Anglo shareholder, said on Wednesday that any deal would require a “meaningful revision” to account for “material risks” for shareholders.

Proportion of investment-grade companies at risk of falling to junk now exceeds those likely to be upgraded

A rising share of the $8.9tn high-grade US corporate bond market is at risk of being slashed to junk status, with rating agencies’ expectations of downgrades exceeding upgrades for the first time since the end of 2021.

The proportion of the lowest-quality investment-grade bonds that rating agencies have on so-called “negative watch” or “negative outlook” — meaning their ratings are more likely to be downgraded — stood at 5.7 per cent this week, according to analysis by BofA Securities, including names such as Paramount Global and Charter Communications. That is almost double the level of 2.9 per cent at the start of this year.

In contrast, the percentage of these bonds on “positive watch” — meaning they are more likely to be upgraded — stood at 5.3 per cent, down from 7.9 per cent in early January.

While the share of bonds at risk of downgrade is still relatively small compared with the total, the shift highlights the challenges facing pockets of corporate America as economic growth slows by more than expected this year in the face of high borrowing costs.

BofA noted that while investment grade credit fundamentals are “generally strong, the risk of downgrades [of some bonds] to high yield has increased recently”.

The broad shift in rating dynamics comes after a year in which upgrades from junk to investment grade — known as “rising stars” — drastically exceeded moves in the opposite direction — so-called “fallen angels” — as the US economy defied fears of a recession to rank as the world’s fastest-growing advanced economy.

Data from Goldman Sachs shows that net rising stars totalled $119bn in 2023, the highest figure in records going back to at least 2010.

In comparison, this year’s net rising stars stand at just $20bn, according to Goldman’s figures, signalling a normalisation away from dramatic volumes of upgrades.

Helping drive the greater share of bonds on negative outlook than positive outlook this year are a number of big companies with large amounts of borrowing. BofA highlights Paramount and Charter as two such names.

Strategists at the bank noted that Boeing, with a $46bn capital structure, was recently cut to the lowest rank of investment-grade and put on negative outlook by Moody’s. However, BofA’s analyst sees a downgrade to junk as a “low probability event”.

Moody’s said in April that “the negative outlook captures the material degree of execution risk in Boeing’s plan to restore compliance and higher quality to its commercial aircraft assembly operations.”

Large volumes of new bonds entering the high-yield market can cause changes in pricing, leading to spreads — the premiums over government yields paid by borrowers to issue debt — rising. Currently the entire double-B universe is worth just $667bn, according to Ice BofA data, down from an all-time peak of more than $830bn in late 2021.

However, investor demand for credit has been particularly strong this year. Cash-laden buyers, keen to lock in attractive yields before the Federal Reserve begins to cut US interest rates from their current 23-year highs, are coming off the sidelines to scoop up corporate paper.

Analysts suggested that this should mean any new supply is more easily absorbed than it would be in less favourable market conditions.

“Usually, when there are big downgrades, it’s negative for spreads,” said Yuri Seliger at BofA. But this time “it will probably be not as bad as it was before.”