TheChek News Flow

27-Nov-2020 13:26:43

By Pamela Barbaglia, Oliver Hirt and Arno Schuetze

LONDON/ZURICH, Nov 27 (Reuters) - Swiss drugmaker Vifor Pharma VIFN.S had a recent takeover approach from at least one private equity firm, but talks were halted due to differences over price, two sources familiar with the situation said.

The financial investors behind the initial approach suspended the discussions after failing to agree on a deal that would have seen Vifor delisted from Switzerland's SIX exchange, the sources told Reuters on condition of anonymity.

Vifor declined to comment on Friday.

Reuters was not immediately able to determine the names of the interested parties in Vifor, which at a price of 123 Swiss francs per share, is valued at around 8 billion Swiss francs ($8.82 billion).

The deal which had been under discussion would have valued Vifor at about 10 billion Swiss francs, one of the sources said.

It was not immediately clear whether negotiations would be resumed or whether other companies from the healthcare industry might also consider making an approach for Vifor.

Investor Martin Ebner and his wife Rosmarie are Vifor's largest shareholders with a combined stake of around 20%, so any takeover is unlikely to succeed without their approval.

A spokesman for Ebner declined to comment.

Sources familiar with the situation said the Ebners could sell their stake under certain conditions.

Etienne Jornod, who led Vifor as chairman for more than two decades, resigned in May.

Vifor was listed in 2017 as part of the break-up of Swiss drugmaker Galenica GALE.S. Its main business is making active ingredients for iron deficiency such as Ferinject.

Vifor sold its immunotherapeutics subsidiary OM Pharma to Jornod's Optimus Holding for 435 million francs in September. (Full Story)

This streamlining of the portfolio has made Vifor a more attractive target, financial sources have said.

The company increased sales in 2019 by 18.5% to 1.88 billion Swiss francs and posted a profit of 159 million. For the current year, it has forecast growth will slow to 5% in local currencies.

Vifor also operates a joint venture with Fresenius Medical Care FMEG.DE, which develops and markets drugs for kidney disease. Its smallest business is a drug against elevated potassium levels.

In Miguel de Cervantes’s great epic Don Quixote, the eponymous protagonist sallies across Spain in the deluded belief he alone fights for universal justice. Beleaguered Banco de Sabadell has taken its tragic heroism one step further by breaking off takeover talks with larger rival BBVA, insisting it too can go it alone in a noble quest to boost shareholder value. Boss Jaime Guardiola must hope a vaccine-led rebound leads to happier ending than befell the pitiful knight errant.

Less than two weeks after Sabadell and BBVA announced they were in talks to create Spain’s second-largest domestic lender, with combined assets in excess of 600 billion euros, the pair broke off talks. BBVA boss Carlos Torres will be smarting from the joust. Having just agreed to sell the lender’s U.S. arm for almost 10 billion euros, a quick-fire Sabadell takeover would have allowed him to deploy some of the proceeds to nearly double BBVA’s local market share to 20% and boost its proportion of lending to small- and medium-sized businesses.

Sabadell, however, has ended up with the bigger bruise. According to Spanish media, BBVA’s bid valued it at around 2.5 billion euros, or roughly 45 cents per share. That’s one-third higher than Sabadell’s closing price on Nov. 13, before BBVA’s U.S. sale fed takeover rumours.

Guardiola may have demanded his shareholders receive a larger portion of the potential benefits from a deal, which could produce cost savings with a net present value of around 6 billion euros, according to a Breakingviews calculation. However, the bank’s independent future is hardly alluring: it’s expected to earn a return on tangible equity of just 1% next year, according to forecasts compiled by Refinitiv. A possible sale of loss-making UK offshoot TSB also seems unlikely to transform its prospects.

A vaccine-fuelled recovery next year, when the International Monetary Fund predicts Spain’s economy will expand by a meaty 7.1%, could yet vindicate Guardiola’s stubbornness by limiting bad debt charges. Even after a 13% drop on Friday, Sabadell shares are trading above their level when BBVA came along, implying investors think a deal is still possible. Given the riches on offer from a union, Guardiola’s quixotic bravery need not have a tragic end.

Changed climate in Washington has a chilling effect on deals

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Today’s tech giants were built on innovation — just not always their own. At key moments in their history, Google and Facebook made savvy acquisitions of smaller companies that supercharged their growth or snuffed out future competition.

Now that strategy has big obstacles. The latest sign came this month when the US Department of Justice sued to halt Visa’s $5.3bn acquisition of fintech group Plaid. The deal “must be stopped”, the government lawyers wrote, as it would “eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers”.

Visa controls about 70 per cent of online debit transactions in the US. Plaid, which was founded in 2013 as a developer of software to share financial data between bank accounts and third-party apps, is not even in the payments market but is developing its own debit tool. 

The DoJ peppered its lawsuit with incriminating-sounding messages from Visa’s executives. Acquiring Plaid when it was preparing to launch a “threat to our important US debit business” would be an “insurance policy”, chief executive Al Kelly told his CFO. Another executive is quoted as saying: “I don’t want to be IBM to their Microsoft.”

Colourful though this may be, substantively it is all quite weak. The clue is in the word “nascent”.

“Normally, with mergers you worry about, one firm has 40 per cent and another has 30 per cent,” said George Hay, a professor and antitrust expert at Cornell Law School. “It's nothing like that here. No matter how you define the market, Plaid is tiny. There’s not a lot of good case law on acquisitions of very small firms that might grow into a potential competitor.”

As Mr Hay points out, the government’s case has an additional prong that might prove more effective: going after Visa as a monopolist. The main reason the DoJ is likely to prevail, however, is nothing to do with the merits of the case. Companies tend to abandon mergers rather than fight the government in court, even when they have a significant chance of victory.

Most companies do not need a lawsuit to know the mood music in Washington has changed. In 2007, Google’s acquisition of internet advertising platform DoubleClick was approved by competition authorities. Facebook’s acquisitions of photo app Instagram in 2012 and messaging app WhatsApp in 2014 were waved through. Yet in the past few weeks, the Federal Trade Commission has been reported to be reviewing those acquisitions all over again and the DoJ has sued Google, accusing it of illegally protecting a monopoly in search advertising. A growing number of lawmakers want big tech companies broken up.

This climate has a chilling effect on deals. One Big Tech employee recalls being warned off a move to the company’s M&A team four years ago on the basis that it would no longer be an exciting place to work. That has been borne out.

Data from Dealogic show that 2014 was the peak in both dollar and volume terms for acquisitions from Facebook, Amazon, Apple, Netflix, Alphabet and Microsoft: $37bn and 77 deals in total.

Last year, despite the combined firepower being so much greater thanks to roaring valuations and strong profits, spending dropped to $10bn in 48 deals. This year the spending has increased to $19bn but that is swollen by Silicon Valley’s scrabble for minority stakes in India’s Reliance Jio. The number of deals has fallen again, to 44.

Buying success is no longer a safe strategy. Big Tech needs some big new ideas.

Foreign buyers push up prime sales in Milan

The city’s cosmopolitan feel attracts overseas buyers but locals are being priced out

After spending three months cooped up in a one-bedroom apartment during Milan’s first lockdown, Giovanni and Silvia Porzio needed to get out. “We had never both stayed at home all day before the lockdown situation. It made us realise that we didn’t have enough space to live together peacefully,” Giovanni says. 

Trying to sell their home in the middle of the pandemic, the couple assumed real estate prices would be crashing. But less than two weeks after putting the flat on the market, it sold for £400,000 — 25 per cent more than they had paid for it in 2017. 

“We were afraid that the pandemic would make prices decrease and make it not profitable for us, so it was very surprising that we sold it high, and we sold it very quickly,” Giovanni says. 

Since 2017, house prices in Milan have shot up, driven by the city’s increasing appeal to wealthy international buyers who have been lured by relatively low property prices and a new flat tax regime for rich foreigners. But while international demand is leading to more luxury developments, locals are finding themselves unable to move up the property ladder.

And although prices have continued to rise throughout the pandemic, experts warn there are cracks under the surface. With Milan now in its second lockdown, the effect of the crisis may yet be to come.

According to data from the Italian real estate website Immobiliare, average asking prices in Milan this September were €4,756 per sq m, up 6 per cent from January this year and a rise of 29 per cent since 2016. 

“The big difference is that Milan used to only attract business, it was not considered an international city for real estate. Those were the ‘art’ cities: Florence, Rome, Venice,” says Diletta Giorgolo, head of Italy sales at Sotheby’s International Realty. “But there has been a very big change in new demand from international buyers, because now people know it for fashion, shopping, entertainment.” 

Two glitzy new districts built to serve this demand are Porta Nuova in the north of the city — home to the Bosco Verticale (Vertical Forest), two tower blocks draped in thousands of trees, shrubs and plants — and CityLife in the west, where some buildings were designed by Zaha Hadid. 

In the first quarter of this year, asking prices for prime properties — those in the top 5 per cent of the market by value — were up 4 per cent year on year, according to Knight Frank.

Julie, who has lived around the world for her job and now owns an apartment in Porta Nuova, made the move to Milan in 2017 and has since noticed a change in the city as more international buyers have followed in her footsteps. 

“I definitely hear more English on the street, and I was so shocked because a local café here used to only have the local Italian newspaper, and more recently they started having the international New York Times and Financial Times,” she says. “That made me realise: ‘Wow, there must be the demand.’”

Maurizio, a Brazilian in his seventies who only wanted to give his first name, is one of these recent buyers. After ruling out the UK and the US because of Brexit, Trump’s presidency and both countries’ handling of the pandemic, he turned to Milan for a second home, where he paid €3m for a 250 sq m apartment in a boutique building in the Risorgimento neighbourhood.

“For Milan this is a very high price for an apartment, but it’s a 20-minute walk to the Duomo; it’s in front of a park and you have a 360-degree view,” he says. “It’s still a cheap place to buy compared with the rest of Europe, and it’s becoming increasingly cosmopolitan.”

In a sign of how substantially demand has risen for luxury homes, COIMA, the developer behind the Bosco Verticale, is marketing its penthouse apartment this autumn for the first time since the building was completed in 2014.

Manfredi Catella, chief executive, says the decision was made now that prices in the tower blocks are above €10,000 per sq m, and the neighbourhood is “established”. The price of the apartment has not been set, but the developers are looking for more than €15m.

Meanwhile, Sotheby’s says that despite the pandemic it has sold more top-tier properties this year than last year, with US buyers replaced by those able to avoid quarantines and travel bans, such as the French — until they went into their second national lockdown at the end of October. 

Then, at the beginning of November, Italy placed Milan under a “red zone” lockdown for at least two weeks, closing most non-essential shops and urging residents to stay at home. House viewings are still allowed as long as they are socially distanced, but people cannot enter or leave the “red zone”, meaning overseas buyers are unable to view properties. 

“For the international buyers this winter will be difficult,” Giorgolo says.

Some Milanese might welcome fewer international buyers, whose influx has been blamed for preventing locals from buying. Despite the gains the Porzios made on the sale of their flat, they had to move a few streets away to afford to upsize. 

“It’s becoming a problem for people to change their homes, because now you have to consider buying a smaller house or going to an area of town that two years ago you wouldn’t have even considered living in,” says Ricardo Ferrão, co-owner of the Italian Style Real Estate Agency. 

But, Porzio adds, deals can still be had if you know the city well. “If you just cross one street you can find a good deal because that street is not too trendy,” he says. “Just a 500m walk away we could find a price per sq m much lower, and we could buy a 100 sq m flat at less than €600,000. If we stayed in the very same street it would have been €800,000.”

Although prices continued to rise during Milan’s first lockdown in March, experts warn it is too early to think they are safe from the effects of the pandemic — and that the middle market is likely to suffer, as financial inequality widens.

“In Italy and especially in Milan, the effects of the 2008 crisis were very delayed, you didn’t have a major break in the sales and the prices, they held for a couple of years — it wasn’t until 2016 when we got the lowest prices of all,” says Ferrão. 

“Right now we are experiencing the highest prices ever — in a year and a half, despite Covid, the prices rose a lot. But not everything is roses. If we look at the number of houses sold, right now we have almost 27 per cent fewer sales in the second quarter of 2020 compared to 2019.”

Giulio Pascazio, chief executive of UniCredit Subito Casa, a real estate company that is part of the Italian banking group, says this is the first sign that prices will drop in the future.

“First you see a decrease in transactions and then after at least three quarters you see a decrease in prices,” he says. How soon — and how severely — that happens will depend on this winter, and the severity of the second wave of the pandemic.

“It’s important to see how long the winter lockdown will be, and if there will be a total lockdown,” says Giorgolo, referring to one that is more severe than the current “red zone” limits. “When people have to close their businesses again, then the mid-market will suffer,” she adds. “The mid-market has a big question mark.”

Philip Green’s Arcadia working on options to secure its future

Owner of Topshop, Burton and Wallis has been seen as a potential Covid casualty

Philip Green's Arcadia group, which includes Topshop, Burton and Wallis, confirmed it is “working on a number of contingency options to secure the future of the group’s brands” after the coronavirus pandemic hit its struggling business hard.

The group has more than 500 stores in the UK, employing around 15,000 people.

“The forced closure of our stores for sustained periods as a result of the Covid-19 pandemic has had a material impact on trading across our businesses,” it added.

The statement came after Sky News reported that the group was poised to appoint Deloitte as administrators early next week.

Arcadia had long been considered a potential Covid-19 casualty. It used a company voluntary arrangement to close stores and cut rents last year, but its sales and profits were squeezed by Covid-19 and more nimble rivals, such as Primark and online-only operators like Asos and Boohoo.

Allen Wu denies conflict of interest over $100m fund and claims chip designer was aware of his plans

Allen Wu has defended his move to seize control of Arm’s China business, as new details emerged about the personal $100m investment fund that caused him to fall out with the UK chip designer and its backers.

In his first interview with an international media outlet, Mr Wu said Arm and its Chinese partner Hopu had no right to try to oust him as the head of Arm China in June.

He denied it was a conflict of interest to be personally invested in companies that would benefit from cheaper licences from Arm. He also said that Arm and Hopu both knew and supported his plans.

Mr Wu claimed that his fund, Alphatecture, had been “discussed and disclosed to the board from the beginning. We have received support.”

He claimed that a 7-1 vote by Arm China’s board in June to dismiss him was invalid, because of an agreement he had with Hopu that they both needed to be in “alignment and agreement” on all major issues regarding Arm China. He also suggested the procedure for calling the board meeting had been incorrect “and that is one of the issues we are working on”.

Hopu’s legal counsel said the agreement did not cover board decisions. Arm said the board of the joint venture “determined that a leadership change was required and we are confident a resolution will be reached soon”.

Arm’s failure to actually remove Mr Wu, who continues to be in legal control of the China unit, is a stumbling block to a $40bn takeover of the UK chip company by Nvidia.

“All these challenges can be solved . . . it is natural for people to have different opinions,” Mr Wu said. 

Meanwhile, it emerged that Pavilion Capital, a wholly owned subsidiary of Singapore state investor Temasek, had pledged $50m for Mr Wu’s personal fund, according to three people familiar with the matter. Pavilion declined to comment.

Mr Wu also lined up investments from two Arm China board members last year. One of the board members then sought an investment from Arm China this year.

“Nobody on the board knew about a lot of the behind-the-scenes arrangements,” said one Arm China board member. “There were so many interests that were intertwined.”

Fundraising documents seen by the Financial Times show Mr Wu played on his position at Arm China to attract investors and used its employees to run the fund. “Mr Wu staying as the core leadership of Arm China makes sure our fund is best positioned to access its value chain resources,” the materials said.

Mr Wu said it was “common practice in our industry” to invest in partners. 

To prove that Arm was aware of his plans, he asked an external lawyer, Jason Cheng at Dentons, to briefly show notes apparently from a board meeting where Simon Segars, Arm’s chief executive, had spoken positively about the fund. The notes also showed the Arm China board “approved” a $30m investment in Mr Wu’s fund.

One person close to the board later sent the FT what seemed to be the same document which showed the word “approved” crossed out in pencil and replaced with “idea to be further explored”. The person said Mr Wu’s initial draft of the August 2019 meeting had been rejected. 

Arm said: “The Arm China board advised Allen Wu that he could explore the possibility of setting up a fund, but Alphatecture was never approved by the board.”

Growing body of research looking at U.S. and Chinese real-estate markets suggests long booms may drag on productivity of the economy

This October, U.S. housing sales hit their highest level since 2006. China’s residential real-estate investment was up 14% relative to the same month last year. Around the world, many housing markets have shrugged off a colossal economic slump, helped by low interest rates.

In the short term, such investment is a boost to economic activity in a year where headline figures have collapsed. But there are significant downsides. The fact that housing booms can be a longer-term risk to financial stability is well known, but a growing body of research suggests that even where there is no market blowup, surges in prices and investment can have a deleterious impact on productivity.

New evidence comes from the Bank for International Settlements, with a paper by economist Sebastian Doerr showing that among U.S. listed companies, those with a higher share of real-estate assets are persistently less productive than their industry peers.

That alone wouldn’t be a problem as such. Some companies are always more productive than others. But rising real-estate prices make it easier for companies that own real estate to access funding because of their growing collateral, so multiyear booms in property prices compound the problem.

Looking at data covering the U.S. from 1993 to 2008, capital was reallocated toward productivity laggards over time, worsening the overall picture for the economy. For every 10% increase in real-estate prices, an industry would record a 0.6% relative decline in total-factor productivity due to the effect of skewed capital allocation.

Much of the field of research suggesting a similar effect focuses on China, showing that the country’s particularly extreme real estate boom is already eating away at productivity and the effective working of the economy. One paper shows that Chinese borrowing costs rise for manufacturing companies in places where housing booms are particularly extreme.

These sorts of findings, which haven’t become a major topic of conversation among policy makers, could have huge implications for the way regulators and economists think about house prices and real-estate investment.

If the mainstream view shifts toward the idea that real estate booms cause capital misallocation so large that it becomes a drag on productivity, policy toward housing markets and the real-estate sector broadly could change considerably. The emerging research here is worth keeping an eye on.

Most of the money will be used to buy new aircraft

Japan’s ANA Holdings plans to raise up to ¥332.1bn ($3.2bn) through a new share offering to survive a collapse in travel demand caused by the global pandemic.

ANA’s share sale, its first since 2012, comes as Japan’s biggest carrier is forecasting its largest ever annual loss of ¥510bn. American Airlines and Japan Airlines have also issued equity to shore up their balance sheets even though the move will dilute the stakes of existing shareholders.

In a statement on Friday, ANA said it planned to use ¥200bn of the funds to buy Boeing 787 aircraft. The share sale will be 72 per cent aimed towards domestic investors.

The share offering comes despite Japanese carriers faring better than some international rivals during the coronavirus crisis. ANA’s equity ratio — which measures shareholders’ equity as a proportion of total assets — fell from 41 per cent last March to 32 per cent at the end of September, but that is still much higher than global peers. 

ANA picked Nomura, Goldman Sachs, and SMBC Nikko as global co-ordinators for the equity issuance.