>>> Intercept Pharma (ICPT) Gains as Novartis (NVS) Said Interested in Bid

Intercept Pharma (ICPT) Gains as Novartis (NVS) Said Interested in Bid

Intercept Pharma (NASDAQ: ICPT) is gaining 5% mid-day on word Novartis (NYSE: NVS) is interested in a takeover of the company in a deal that could be announced in the mid-January, according to a source. In the past, Gilead Sciences (NASDAQ: GILD) was also said to be interested.

The company wasn't available to comment at the time of this publication.

FT : Engineer Weir considers moving production to UK after Brexit

Engineer Weir considers moving production to UK after Brexit
Weaker pound a factor in decision whether to make more industrial equipment in Yorkshire

Weir, the engineer, is examining whether to move production of some equipment from overseas to the UK to benefit from the weaker pound.

The UK company’s Todmorden foundry in West Yorkshire casts metal components for heavy-duty pumps found in mines in countries including Chile, Finland and Russia, as well as in Canada’s tar sands.

Before the UK’s EU referendum, the site in the Calder Valley had already benefited from its status as one of the most cost-effective facilities run by the FTSE 250 group, with a significant manufacturing workload transferred there this year.

Jon Stanton, chief executive, said the lower exchange rate following the vote for Brexit would figure in calculations about whether more should follow.

“At the moment, it is all about how the demand profile develops from a European and global perspective. That will dictate how we potentially move some production there,” he told the Financial Times.

“The weakening of sterling makes [the Todmorden] facility potentially more competitive and that will be a consideration as we think about production allocation.”

Weir, which also makes pumps and valves for the energy industry, operates foundries in Australia, Brazil, Chile Malaysia and South Africa as well as the UK.

The prospect of manufacturing being “reshored” to Britain would be a boost from Brexit. While the pound’s devaluation — it is down 10.5 per cent against a basket of trade-weighted currencies since the referendum result — should make British goods more competitive, so far the impact on the sector appears mixed.

Factory order books were at their most full for 20 months in the three months to December, according to a survey by the CBI employers’ organisation. But the Office for National Statistics said there was only limited evidence that currency depreciation had boosted exports.

Mr Stanton said a sustained weaker pound would make Britain a “relatively more attractive” place to invest, balanced against any possible trade tariffs under a final Brexit settlement.

But he stressed this was not immediately shaping Weir’s decisions: “At the moment I’m not saying I need to put more capital into the UK relative to anywhere else”.

In his first formal interview since taking the helm in October after six years as finance director, he said his strategy would be one of “evolution rather than revolution”.

This suggests a continuation of the path set out by Keith Cochrane, his predecessor who continued the company’s expansion in part through a series of acquisitions.

After benefiting from the boom in global energy and mining production, the Scotland-based group has grappled with a downturn in both of its main markets in the past few years, as customers have slashed investment in response to the collapse in commodity prices.

This is particularly pronounced in Weir’s oil and gas division, which is the largest provider of frac pumps to the North American shale industry. Group sales fell by more than a fifth in 2015 to £1.92bn, and the company recently warned profits would be lower than previously expected this year.

The downturn has also hit UK-listed peers such as IMI, Smiths Group and Rotork, which also supply the oil and gas sector.

Even so, Weir’s management has been credited by analysts for navigating the storm with harsh cost-cutting measures, such as reducing its workforce by more than 10 per cent and closing plants.

Mr Stanton said there were “signs of recovery” in Weir’s markets. The US oil rig count has risen, crude prices were “more supportive” and miners’ profit margins had increased with the rebound in commodity prices, he said.

Investors seem to be pricing in an eventual upturn. Weir’s share price has rallied 87 per cent this year, placing it among the top 10 performing stocks in the mid-cap index. But, trading at around £19, the shares remain below a peak of £28 before the crude price crash in 2014.

Some City analysts have queried whether the company’s collection of businesses needs refining. Weir’s third and smallest division provides flow control systems such as valves for industry.

Harry Philips, analyst at Peel Hunt, said: “Can a portfolio contain two businesses [minerals and oil and gas] with such incredibly different cyclical profiles in an efficient manner? People would like to see . . . that core assumption retested”.

Weir said it was on track to meet a target of £100m from disposals this year. Asked whether there would be further sales next year, Mr Stanton said he did not “see anything in the wings”.

WSJ : Takata Nears Settling U.S. Criminal Probe Over Defective Air Bags

Takata Nears Settling U.S. Criminal Probe Over Defective Air Bags
Company and Justice Department aim to settle case by early 2017, sources say

Takata Corp. is nearing a settlement with federal prosecutors to resolve allegations of criminal wrongdoing in the Japanese automotive supplier’s handling of rupture-prone air bags linked to numerous deaths and injuries, said people familiar with the discussions, with an agreement expected early next year.

Takata’s lawyers and U.S. Justice Department officials are discussing the prospect of the company pleading guilty to criminal misconduct as part of the settlement, the people said. The two sides are aiming to settle a criminal case against Takata as soon as January, though the timing could slip, the people said.

Takata is expected to pay a financial penalty of up to $1 billion to settle the case developed by federal prosecutors, though the final figure could be in the high hundreds of millions of dollars, the people said.

The Japanese company faces significant financial pressures from an onslaught of recalled air bags. Under settlement terms being discussed, Takata is expected to pay some of the financial penalty up front and the rest over a number of years, the people said. The total financial penalty isn’t likely to eclipse $1 billion, they said.

Prosecutors are weighing charging Takata with wire fraud after determining the company likely made misleading statements and concealed information about air bags that can explode and spray shrapnel in vehicle cabins, a safety problem linked to 11 deaths and 184 injuries in the U.S., the people said.

One focus of the criminal probe centers on Takata providing misleading testing reports to customers including Honda Motor Co., the people said. Takata has acknowledged the lapses, while adding the discrepancies weren’t tied to later air-bag ruptures.

The expected settlement of a criminal case would mark one bookend to an unprecedented safety crisis gripping Takata, regulators, motorists and nearly all car companies across the globe.

In the U.S. alone, 19 auto makers are recalling 42 million vehicles with nearly 70 million Takata air bags that risk rupturing. The crisis represents the largest automotive safety recall in U.S. history and has sparked widespread litigation and government probes.

The Justice Department and other government agencies are racing to complete long-running corporate investigations before Inauguration Day. The practice, common in an administration’s waning days, reflects top officials’ eagerness to finish work before leaving their perches and some uncertainty over how the incoming Trump administration will approach open cases.

Two European banks agreed last week to pay $12.5 billion in cash and help to consumers to resolve financial crisis-era investigations into the banks’ selling of mortgage securities. Volkswagen AG earlier this month agreed to a second civil settlement with the Justice Department over emissions-cheating claims, though discussions to resolve a related criminal probe are likely to languish into the next administration, according to people familiar with the matter. Volkswagen, which has admitted to the emissions cheating and promised to make amends, has said it is cooperating with U.S. officials.

For Takata, a settlement that further cements future financial liabilities would likely help smooth negotiations with suppliers bidding for control of the Japanese company to put it on surer footing. Takata is expected to reach a deal with a rival supplier next year and eventually seek bankruptcy protection to address mushrooming recall costs and help clear a path for a takeover, people familiar with the matter have said.

Takata earlier admitted to failing to alert regulators within five days of uncovering safety defects as legally required, according to a November 2015 civil settlement with the National Highway Traffic Safety Administration. The agency found Takata several times produced testing reports with “selective, incomplete or inaccurate data” and failed to “clarify inaccurate information” provided to regulators during a January 2012 presentation, according to settlement documents.


With the expected Justice Department settlement, Takata is likely to agree to an independent monitor who will audit the company’s safety practices, the people familiar with the matter said. It isn’t clear whether that monitor would be separate or the same as one assigned to Takata in the previous settlement with regulators.

Auto makers so far have recalled 29 million vehicles with 46 million Takata air bags, according to regulators. As of Dec. 2, roughly 12.5 million air bags have been fixed.

U.S. regulators this month increased pressure on Takata and auto makers to address the rupture-prone air bags, setting new deadlines for recalling and fixing millions of the devices. A government order parcels the air bags into a dozen priority groups based on their risk of exploding and requires auto makers to launch recalls by certain dates and complete them within 2½ years.

Air bags at the greatest risk of rupturing are older and have had prolonged exposure to heat and humidity that can destabilize the chemical compound used to inflate the devices. That prioritizes air bags in humid climes such as Texas and Florida.

>>> US Gapping down

Gapping down

In reaction to earnings/guidance: LIVE -0.7% (light volume).

European financial related names showing weakness: DB -2.4%, BCS -1.4%, CS -0.8% (ticking lower)

In the news:

  • ANTH -57.7% (announces top line results of the SOLUTION clinical study in cystic fibrosis patients with exocrine pancreatic insufficiency; study 'narrowly missed' CFA non-inferiority margin of the primary modified Intent to Treat analysis)
  • QCOM -1.5% (Korea Fair Trade Commission found certain of its business practices violate Korean competition law and intends to issue a corrective order relating to the specific practices at issue and impose an administrative fine of approx. $865 mln)
  • ACAD -0.3% (continued weakness)
  • HTZ -0.2% (Glenview Capital lowers passive stake)

Analyst comments: GME -1.7% (indicated lower following Piper comments suggesting sluggish initial holiday sales and comps decline)

>>> US Gapping up

Gapping up

Brazil ADRs extending yesterday's move higher - iShares Brazil ETF (EWZ +0.5%): GGB +2.7%, VALE +2.4%, CIG +1.8%, BBD +1.1%, BBL +3%

Select metals/mining names are trading higher: BBL +3%, RIO +2.5%, BHP +2.4%, GFI +1%, GOLD +0.9%, PAAS +0.4%

Semi/tech names seeing continued strength: NVDA +1.6%, AMD +1.5%, MU +0.6%

Other news:

  • CEMP +3.4% (light volume, closed down 5% on the day)
  • GLBL +2.5% (Knighthead Capital Management increases active stake to 6.43%)
  • MDXG +1.8% (EpiFix product has received coverage from insurer Aetna)
  • YELP +2.6%, CHK +1.1% and ALV +1.1% (still checking)
  • CETX +0.8% (will launch its previously announced $15.0 million subscription rights offering tomorrow)
  • PAA +0.3% (discloses equity distribution agreement; to sell $500 mln in Class A shares representing limited partner interests)
  • AAPL +0.2% (Apple Insider reported that Apple plans to introduce iPhone 7S with 5 inch screen in 2017)
  • BP +0.2% (Woolworths confirms sale of 527 Woolworths sites and 16 development sites for A$1.785 bln)

Analyst comments:

  • BK +1% (upgraded to Strong Buy from Outperform at Raymond James; tgt raised to $57 from $50)
  • AMZN +0.3% (named Top Pick for 2017 at Evercore, Buy rating reiterated at Cantor Fitzgerald)
  • BABA +0.2% (named top Internet picks for 2017 at Evercore)

>>> US Early premarket gappers

Early premarket gappers

Gapping up: YELP +11.5%, CEMP +3.5%, BBL +3%, GFI +2.8%, NVDA +1.9%, RIO +1.9%, BHP +1.9%, MDXG +1.8%, IRG +1.6%, ALV +1.4%, MU +1.3%, GOLD +1.2%

Gapping down: ANTH -58.2%, DB -2%, AA -1.1%, BCS -0.8%

FT : German states battle over tax avoidance clampdown

German states battle over tax avoidance clampdown
Billions of euros at stake in banking cum/cum trades dispute

A dispute has erupted among Germany’s regions over a planned clampdown on a tax avoidance strategy that could cost the country’s banks billions of euros.

A group of Social Democrat-led administrations headed by the industrial North Rhine-Westphalia state, Germany’s most populous, is pressing for tough action against the banks. Other states such as Hesse, home to the financial centre of Frankfurt, where chancellor Angela Merkel’s conservatives hold sway, want a less aggressive approach.

The dispute concerns how to deal with so-called cum/cum trades, a contentious practice that allows foreign investors to avoid a German withholding tax on dividends.

“This conflict is about billions of income for the banks and what happens to the banks if the tax authorities say ‘We want this money’ and German banks have to pay €10bn or more,” said Gerhard Schick, parliamentary finance spokesman for the Green party.

“This burden would fall more on some banks than others. A bank could fail. There is a conflict between protecting the banks and recovering unpaid tax. This is a big issue for German banks.”

A cum/cum trade involves a German bank borrowing a foreign investor’s shares in a company in the run-up to the company’s dividend payment. By doing so banks can take advantage of a loophole in German law that lets domestic investors claim a credit on taxes on dividends.

Such trades were prohibited this year but Germany’s 16 regions, which collect taxes and collectively decide key regulations, are split on how to deal with transactions made before 2016.

How much a retrospective penalisation of cum/cum trades would cost Germany’s banks depends on how far back the regions reach and how many trades they pursue.

The Association of German banks said it was “working constructively” with a parliamentary committee investigating the trades and would “not engage in any speculation” about the possible outcome.

With elections due next year in both North Rhine-Westphalia and nationally, the dispute is gathering political momentum as the SPD, Ms Merkel’s junior coalition partner in Berlin, seeks to differentiate itself from her CDU/CSU bloc.

North Rhine-Westphalia wants a 2015 ruling by Germany’s Federal Fiscal Court, the country’s highest arbiter of tax disputes, to be applied in such a way that regions can seek back taxes from banks involved in all cum/cum transactions before 2016. The state this month persuaded its peers to reject a narrower draft proposal from the federal finance ministry.

Officials in North Rhine-Westphalia say that billions of euros in back taxes are at stake.

“All in all, the chance is now growing to penalise tax tricks by the owners of securities and see them for what they are: massive tax avoidance to the cost of the whole community,” said Norbert Walter-Bojans, North Rhine-Westphalia finance minister.

Other regions say North Rhine-Westphalia’s maximalist approach would be self-defeating. “Retrospectively outlawing all cum/cum trades might be something you dream of doing, but unfortunately the legal situation was not clear until the end of 2015,” said Thomas Schäfer, Hesse’s finance minister. “Looking back, I want to concentrate on the extreme cases where we have a realistic chance of winning.”

Critics warn that if Germany’s regions take too long to agree how to proceed the amount of taxes that could be reclaimed could shrink as older trades start to fall outside the statute of limitations.

“We need a new finance ministry paper which makes clear that cum/cum deals from 2010-15 should be investigated,” says Mr Schick. “The sooner the better.”

FT : Bovis shares slide on warning of December slowdown

Bovis shares slide on warning of December slowdown
Housebuilder says 2016 completions will be lower than expected

Shares in Bovis Homes fell 5 per cent in early trading on Wednesday after the UK housebuilder warned that a slowdown in home completions in December would dent full-year profits.

The FTSE 250 company said in a trading statement ahead of its year end that the number of homes built by the end of the month would be “lower than previously anticipated”, resulting in the deferral of about 180 sales into next year.

It said profits before tax for the year to December 31 would be lower than forecast at between £160m and £170m. This compares with profits of £160.1m in 2015.

Analysts were expecting profits of £183m, according to Thomson Reuters.

Bovis said it expected revenues for 2016 to be between £1.04bn and £1.06bn. Land sales were also forecast to fall compared with 2016, both in revenues and profits.

Bovis shares were down 4.6 per cent at 816p in morning trade in London, having closed at 855p on Friday.

The update from Bovis weighed on the share prices of industry peers with Crest Nicholson, Berkeley Group and John Laing all falling.

Bovis said in the statement: “We expect the volume delivery for 2016 will be lower than previously anticipated at between 3,950 and 4,000 homes, the exact number depending on the extent of legal completions in the remaining days of the year.”

It added that “slower than expected build production” during December meant sales of about 180 homes expected to complete this year would be “deferred into early 2017”.

Bovis said, however, that the level of building starts was 7 per cent higher than 2015 at more than 4,200 units. It had secured detailed planning for all homes expected to be completed in 2017, which was “an improved position on the start of 2016”.

The news from Bovis surprised markets after the company said in November that it expected to deliver record revenues in 2016.

Until now, housebuilders have been reporting healthy profits and increasing sales against a backdrop of rising house prices, with little sign yet of any significant fallout from the Brexit vote.

However, a number of companies that supply building materials had struck a downbeat tone. Some have been closing branches and cutting jobs.