FT : Eczema drug from Regeneron tipped for blockbuster status

Eczema drug from Regeneron tipped for blockbuster status
Analysts predict first medicine for skin illness will make $6bn in annual sales

When Morgan Burns’ severe eczema cleared up at the age of 13, he thought he had been handed a reprieve from the painful condition that plagued his childhood.

“But in law school it came back with a vengeance and it was all over the place — my hands, elbows, feet, knees, back,” recalls Mr Burns, 47. “No part of my body was spared.”

He embarked on an unsuccessful “20-year quest” to treat his cracked and bloody skin, until one day he secured a place on a trial of a new drug discovered by Regeneron, the New York-based biotech company. The medicine, Dupixent, changed his life.

“Over the next six to eight weeks, there was a continuous improvement until one day my skin was basically clear,” says Mr Burns, a lawyer, who has been injecting himself with the drug each week for the past 14 months.

The US Food and Drug Administration is due to decide whether to approve the new medicine for moderate to severe eczema, or atopic dermatitis, this month, and analysts are predicting blockbuster sales for Regeneron and its commercial partner, French drugmaker Sanofi.

If Dupixent is given a green light, it is expected to be the most lucrative drug launch of the year, with annual revenues of $4.6bn by 2022, according to EvaluatePharma, the research group.

There are no approved medicines for moderate or severe atopic dermatitis, which affects 8.5m adults in the US and EU, so patients must make do with steroid creams and other, sometimes questionable, treatments.

Adnan Butt, analyst at RBC, is forecasting peak annual sales of up to $6bn, a figure predicated on a price tag of roughly $25,000 per patient per year for Dupixent, which patients will probably have to take for life. He says the dearth of options for patients will make it easier for Regeneron and Sanofi to charge such a price.

But some physicians think insurers and pharmacy benefit managers — often referred to as “payers” — could demand steep discounts, or require doctors and patients to jump through several hoops before agreeing to reimburse the drug.

“Payers have their antenna up and . . . they will be aggressive in containing utilisation,” says Dr Peter Bach, a pricing expert at Memorial Sloan Kettering Cancer Center. He points to the difficulty that Amgen, Regeneron and Sanofi have had securing reimbursement for their new cholesterol-lowering drugs, and similar problems for Novartis’ recently launched heart medicine.


Faced with the economics of an older and sicker population, US payers have increasingly been driving a harder bargain with drugmakers. They have been emboldened by the public outcry over egregiously priced medicines such as the $10,000 acne cream and the $750 Aids pill.

Analysts say the launch of Dupixent will be a test of whether drugmakers can convince buyers to foot the bill for new medicines with premium prices. In a sign of the importance of the negotiations, Leonard Schleifer, Regeneron’s chief executive, has handled them personally.

“There is no competition, so from a market perspective we would be free to price the drug at a very robust price,” says Dr Schleifer. “But I feel that we should be responsible, and price the drug responsibly.”

In return, he says, he wants payers to agree to a “grand bargain” where they will reimburse the medicine for patients who need it.

“I’m very optimistic that this formula of working together with a breakthrough product but being responsible in pricing will lead payers to be equally appropriate on how they make the drug accessible,” he says.

Regeneron says there are roughly 300,000 patients in the US who do not have their atopic dermatitis under control, but some analysts think the number could be as high as 500,000.

Before trying Dupixent, Mr Burns attempted lots of treatments, including standing in a sunbed-style lightbox and slathering himself with vegetable oil once a day. “It sort of helps until you realise all your clothes are stained,” he says.

In the most serious cases, doctors use toxic drugs that suppress the immune system such as cyclosporine, which is used in organ transplant patients, and methotrexate, more commonly associated with cancer treatment. Neither medicine has been endorsed by regulators, meaning physicians use them “off label”.

“All of them increase the risk of infections and [cancer] down the road, so they are associated with some pretty heavy baggage,” says Dr Jonathan Silverberg, a dermatologist at Northwestern Medicine in Chicago who conducted trials of Dupixent.

By targeting a biological pathway that triggers atopic dermatitis, Dupixent can control the condition without suppressing other parts of the immune system, meaning it is much safer than drugs such as cyclosporine.

“[Dupixent] is able to target very specifically this inflammation without the collateral damage of hitting other parts of the immune system that are needed to fight off infections,” says Dr Silverberg.

During late-stage clinical trials, around two-thirds of patients taking Dupixent with a steroid cream saw a dramatic improvement in their eczema, while nearly 40 per cent achieved clear or almost clear skin. Participants also reported a marked reduction in itching, the number one complaint among sufferers of atopic dermatitis.

The pathway targeted by Dupixent is also thought to cause several other allergic conditions, and Regeneron is trialling the medicine in people with asthma, nasal polyps, food allergies, as well as children with atopic dermatitis.

Mr Butt describes the product as a “pipeline within a drug”, and compares it to anti-inflammatory agents such as AbbVie’s Humira and Johnson & Johnson’s Remicade. The medicines were first approved for arthritis but went on to become the world’s top-selling drugs after being proven to work in a wide range of illnesses, generating a combined $23bn in sales last year.

Many atopic dermatitis patients also suffer from asthma and other allergic illnesses, and Regeneron and Sanofi are hoping that Dupixent could help control two or more conditions. That would allow the companies to make a “two-for-the-price-of-one” argument when negotiating with cash-strapped healthcare systems.

“If you have one molecule that does two things you essentially have a cost-effective way of doing combination therapies,” says Elias Zerhouni, president of global research and development at Sanofi, likening the approach to “sending a missile with multiple warheads”.

Dr Zerhouni stresses that the drug is intended to be used only in patients for whom there is no effective treatment. “We do not want Dupixent to be used for millions of patients who don’t really need it. We want it to be used for the thousands of patients that really need it.”

>>> The Body Shop attracts interest from CVC; former L’Occitane managing directo

The Body Shop attracts interest from CVC; former L’Occitane managing director Jacques Osti working with CVC - report

The Body Shop International’s auction has attracted interest from the private equity firm CVC Capital Partners, according to a Sunday Times report. The newspaper said former L’Occitane [HKG: 0973] managing director Jacques Osti is leading the CVC bid, but did not cite a source for the information.
L’Oreal [EPA:OR], the French cosmetics company that owns The Body Shop, announced last month that it was considering strategic options for the UK-based cosmetics company. The Financial Times reported on 8 February that L’Oreal had hired the investment bank Lazard to advise on a potential sale of The Body Shop.
CVC is working on a GBP 850m (EUR 968m) bid for The Body Shop, The Sunday Times item said.
The private equity firms Advent International and Apax Partners are among the parties interested in buying The Body Shop, according to the newspaper.
The report went on to cite City sources who said some prospective bidders had been deterred by The Body Shop’s international partnerships, which make gauging the business’ overall strength difficult.

(ZH) "Civil War" Breaks Out At White House Over Trade... And Goldman Is Winning

"Civil War" Breaks Out At White House Over Trade... And Goldman Is Winning


Earlier this week, when we discussed Peter Navarro's jarring op-ed in the WSJ in which he alleged that the persistent US trade deficit "would put US national security in jeopardy", we said that "a better question than what is Navarro's purpose by writing it, is why he is writing it, and does his use of a public forum like the WSJ mean that there is friction between him and Trump camp, especially since in recent weeks it appears that a core pillar of Trump's trade policies, namely the border adjustability, appear to no longer be on the docket of actionable items."
As it turns out, that was precisely the correct question, because as the FT reports, "a civil war has broken out within the White House over trade, leading to what one official called "a fiery meeting" in the Oval Office pitting economic nationalists close to Donald Trump against pro-trade moderates from Wall Street."
More notably, the person at the center of this "civil war" is none other than Navarro, who as we expected is now said to be losing influence, and as a result he resorted to using the WSJ as a means to appeal directly to the general public. It may have been a prudent gamble: the WSJ op-ed may have helped Navarro salvage some of his credibility with Trump, according to the FT:


The officials and people dealing with the White House said Mr Navarro appeared to be losing influence in recent weeks. But during the recent Oval Office fight, Mr Trump appeared to side with the economic nationalists, one official said.
Facing off the "hardline group" of Navarro, and other "nationalists" such as Steve Bannon, is a a "faction" led by former Goldman COO Gary Cohn, a career globalist, who leads Mr Trump’s National Economic Council.
But what is just as important, is that if the FT is right, then allegations that Trump has "sold out" to his Goldman advisors may be premature: in fact, if anything, Trump appears to be playing off one camp, the "nationalists", against its polar opposite, the "Goldman globalists":


The battle over trade is emblematic of a broader fight on economic policy within the Trump’s administration. It comes ahead of a visit to Washington next week by Ms Merkel, the German chancellor, and amid preparations for a meeting of G20 finance ministers in Germany next week at which allies’ concerns over protectionism are likely to be high on the agenda.

While the White House was non-committal, providing the FT with the following brief statement:


“Gary Cohn and Peter Navarro are both valued members of the president’s economic team. They are working together to enact the president's economic agenda, protect American workers and grow American businesses.”
... the "globalists" led by Cohn and others "have seized on Mr Navarro’s public comments — and widespread criticism by economists of his stand on trade deficits and other matters — to try and sideline him."


That has led to discussions over moving Mr Navarro and the new National Trade Council he leads out of the White House and to the Commerce Department, headed by another Wall Street veteran, Wilbur Ross.
And, if the FT is correct, it appears that the Goldman-led faction is winning:


Cohn has also been featuring more prominently in discussions over the renegotiation of the North American Free Trade Agreement with Canada and Mexico, one of Mr Trump’s top trade priorities. After a meeting with Mr Cohn and other White House officials on Thursday, Mexico’s foreign minister, Luis Videgaray, said the goal was to wrap up talks quickly and by the end of this year. That contradicted Mr Ross, who has called for deeper and potentially longer talks that could drag well into next year.
Cohn's sidelining of Navarro has only picked up recently, and in an attempt to alienate him from Trump, he has become "an increasingly isolated figure in the administration. He has been operating with a very small staff out of an office in the Old Executive Office Building adjacent to the White House while Mr Cohn, who has been adding staff to his NEC base inside the president’s residence itself."
Meanwhile, Cohn has been beefing up his staffing ranks with more, like-minded "globalist" supporters, such as Andrew Quinn, a former trade official who served as a senior negotiator during the Obama administration’s push for a Trans-Pacific Partnership with Japan and 10 other countries. In other words, someone who is desperate for much more, not less, global trade alliances. The White House last month announced Mr Quinn would serve on the NEC as a “special assistant to the president” for international trade. Quinn's appointment led to an outburst from Breitbart, which labelled the career official an “enemy within” the Trump administration earlier this month.
The bottom line, however, is that the fate of Trump's trade policies may rest in the fate of Navarro, and to a lesser extent Bannon: the two are the last bastion to push for Trump's initial protectionist policies; should they fade, it will be the policies of "Goldman" that end up being enacted. As the FT further notes, "Mr Navarro’s apparent sidelining have been helped ease some foreign officials’ concerns about the prospects of the Trump administration acting on campaign threats to raise tariffs and take other aggressive steps that could lead to a trade war."
“The situation is less worrying than it was two months ago because [Mr] Navarro seems to be more and more marginalised,” said one European official. “His influence seems to be diminishing quickly.”
And while Navarro's ultimate fate remains unclear, a new, and more interesting "civl war" may emerge should he lose all influence: American trade unions vs "Goldman Sachs."


Thea Lee, a top trade official at the AFL-CIO, the US’s largest union, and a member of the president’s recently-appointed manufacturing council, said Mr Trump appeared to be bending to the growing influence of the administration’s Wall Street veterans and walking away from his campaign promise for a fresh approach to trade.

“At the moment it appears that the Wall Street wing of the Trump administration is winning this battle and the Wall Street wing is in favour of the status quo in terms of US trade policy,” Ms Lee said.
In retrospect, those who said Trump will ultimately do Wall Street's bidding, may have been correct all along

(Recode.net) SoundCloud needs more money, or it may sell at a fire-sale price

SoundCloud needs more money, or it may sell at a fire-sale price
In 2014, the streaming music service thought it was worth $700 million. It could sell for much less.

SoundCloud needs more money, or it needs a buyer.

Sources say the streaming music service has been trying to raise more than $100 million since last summer, without success. It has also talked to potential acquirers, including Spotify, without closing a deal.

The upshot, according to people familiar with the company: SoundCloud is now at a point where it may sell for less than the $700 million investors thought it was worth a few years ago. One source thinks it will consider bids, as long as they’re above the total investment it has raised to date — about $250 million.

SoundCloud’s struggle is taking place while there’s renewed investor interest in streaming music. Even though the industry’s economics are challenging, users have embraced streaming, and are even willing to pay for it: Spotify, which would like to go public next year, says it has more than 50 million paid subscribers worldwide. Apple Music says it has more than 20 million paid subs.

SoundCloud’s stall has been out in the open for some time. Investors pegged its value at $700 million in 2014, and since then it has raised money twice — including last year’s $70 million Twitter investment — at the same valuation.

The service says it has 175 million monthly unique users, but it hasn’t updated that number since 2014, either.

A SoundCloud spokesperson would only say the company is talking to potential investors and strategic partners. The spokesperson added that the conversations, led by new CFO Holly Lim, “reflect the market interest in our differentiated platform, unmatched user reach and strong outlook for 2017 and beyond.”

Meanwhile, efforts to boost revenue by adding a paid subscription model to its free, core service, don’t seem to have generated much traction. SoundCloud launched a $10-a-month service a year ago, after long negotiations with the big music labels and publishers; it just recently introduced a $5 tier. The company said it expects sales to grow by two and a half times this year thanks to its new subscription service.

Last fall, SoundCloud had talks with Spotify about a sale, though it’s unclear how far those went. It has also talked to Google in the past, people familiar with the company say.

Barron's : Blackstone Units Have 40% Upside and Yield More Than 8%

Blackstone Units Have 40% Upside and Yield More Than 8%
The alternative-asset manager has been raking in far more money than its peers.
Blackstone Group ’s complex operating structure seems almost designed to turn ordinary investors away from its shares—technically, its units. They recently fetched $28.94, down from an initial offering price of $31 nearly 10 years ago. Yet the alternative-asset manager’s cash distributions could soon grow too large to ignore. Wall Street predicts a yield of more than 8% this year, based on a combination of steady, predictable management fees and lumpier performance fees that Blackstone earns when it exits profitable investments. Earnings used to fund those distributions could double in five years, judging by the pace at which Blackstone has been raising new cash and putting it to work.
As payments swell, income investors are likely to warm to the units, driving the price higher and closing the discount to better-understood peers in asset management. At 10 times forward earnings, Blackstone (ticker: BX) trades at about a one-third discount toT. Rowe Price Group (TROW), which runs actively managed mutual funds, and is barely half as expensive as BlackRock (BLK), a giant in exchange-traded funds that track market indexes.

There have been false starts for Blackstone unit holders, and Barron’s made an ill-timed recommendation of the shares nearly two years ago at $41 (“Blue Skies for Blackstone,” May 2, 2015). What has changed since then, apart from Blackstone’s 13% growth last year in fee-earning assets under management, is nearly everything in Washington, D.C., raising the prospect of a sweeping tax overhaul.
It bodes well for Blackstone investors that firm co-founder and CEO Stephen Schwarzman is chair of President Donald Trump’s Strategy and Policy Forum. “Steve called me up the day after the election—it might have even been the same night, Jamie, to be honest with you, you know Steve,” the president said during a White House gathering of the forum last month, whose members include JPMorgan Chase (JPM) chief James Dimon. But even if tax changes make Blackstone’s limited partnership structure less advantageous than that of standard C corporations, they could benefit Blackstone indirectly. It could simply choose to convert to a corporation. That would insert the company into major stock market indexes and probably set off a spree of institutional buying.
AS DETAILS OF A TAX OVERHAUL emerge, even the possibility of such a conversion could spark a rally in Blackstone’s partnership units. Management says only that it will weigh its options. With or without a conversion, the units have significant upside potential. Credit Suisse analyst Craig Siegenthaler, who calls Blackstone his top pick among asset managers for 2017, has a price target of $40. That’s nearly a 40% gain, not including the distributions.
In one sense, Blackstone’s business model could hardly be simpler. It turns money into more money on behalf of investors, and collects a fee for its troubles. Those investors buy into Blackstone’s funds or other vehicles, which deploy cash mainly in real estate, private equity, hedge funds, and loans. The investors who buy Blackstone’s publicly traded units get exposure to these asset classes indirectly. What they’re really betting on is Blackstone’s ability to continue to bring in money, find good deals, and generate hefty returns.
Over the past three years, Blackstone has raised nearly as much capital as its four largest public competitors combined: Apollo Global Management (APO), KKR (KKR),Carlyle Group (CG), and Oaktree Capital Group (OAK). Fee-earning assets under management were $277 billion last year, and dry powder was $101 billion. Blackstone has more cash than debt, an A-plus credit rating, and a remarkable ability to borrow cheaply. In October, it raised 600 million euros ($640 million) at 1% interest for 10 years—less than half what the U.S. government pays to borrow. Over the long term, the firm has earned 20% a year on its real estate investments and 18% in private equity. “We know more than other investors because of our market data,” Schwarzman told Barron’s last week. “We typically have some control, whereas regular stock investors are stuck with what they’ve got. And we can use leverage to enhance performance.”

Last year, however, the market for initial public offerings turned tepid. For Blackstone, the result was a moderate case of financial constipation. Deal exits slowed from 2015, pulling down performance fees. With less money paid out to investors, there was a bit less opportunity to raise and invest fresh cash. Investment performance was solid, but distributable earnings plunged 43%.
Therein lies the complication with Blackstone. Cash payouts depend on deal exits, and those don’t always line up neatly with calendar years. Consolidated Edison (ED) will pay investors 3.7% this year, sure as Manhattan’s lights come on. Blackstone will pay them anything from 4%, counting only steady fees plus performance fees that are already locked in, to 8% or more if the firm cashes in winning investments this year, as analysts predict. Moreover, generally accepted accounting principles, as U.S. bookkeeping rules are called, can tell tidy stories about companies that turn raw materials into widgets, or that buy widgets and sell them at a markup, but they can confuse Blackstone unit holders. Last year, GAAP earnings attributable to Blackstone surged 46%, to $1.04 billion. A non-GAAP measure called economic net income, which is more closely watched among alternative-asset managers, rose 11%, to $2.39 billion.
WHILE BLACKSTONE’S deal making dipped from peak levels last year, it was by no means sleepy. Top transactions announced or completed included a $6.1 billion purchase of medical staffing concern TeamHealth Holdings, an $8 billion takeover of BioMed Realty Trust, whose tenants include drug researchers, and a €3.3 billion deal with fallen German real estate firm IVG Immobilien to buy OfficeFirst, a collection of buildings in cities like Frankfurt and Berlin. Blackstone used the plunge in crude oil and Brexit as opportunities to add holdings in energy and United Kingdom real estate.
Investment returns based on carrying values were solid, from 11% for private equity and real estate up to 18% for distressed debt and 23% for performing debt. The Standard & Poor’s 500 index last year returned 12% including dividends.
One way to think about Blackstone’s distributable earnings, or DE, is as the product of money put to work five or so years before. DE per unit peaked in 2015 at $3.23 a share, but the fuel for that was the $110 billion in fee-earnings assets back in 2010. DE per unit was just $1.78 last year, but based on Blackstone’s assets, it’s set up to jump to $6 or $7 at the next cycle peak, probably sometime between 2019 and 2021, according to Credit Suisse’s Siegenthaler. If he’s right, the unit price could double by then even without an expanding price/earnings ratio.
“We’re a relatively new asset class, so investors don’t fully understand us,” says Schwarzman. “And we launched just before the financial crisis, which poisoned the well. Even so, the valuation seems odd and illogical.” Blackstone, if anything, has a more stable business model than mutual fund companies, he says, because its investors are locked in for the long term, while mutual fund investors can flee.
Recent growth initiatives include investment funds for what Schwarzman calls retail investors, by which he means wealthy families, and real estate vehicles that seek more moderate returns with reduced risk. And with Trump pushing $1 trillion in fresh spending for roads, bridges, and airports, Blackstone is looking at infrastructure.

Barron's : Insider Selling Spikes: Sign of an Airy Market?

Insider Selling Spikes: Sign of an Airy Market?
Although all market declines are preceded by bearish ratios, not every bearish ratio predicts a decline.

Insiders, like every other investor, have enjoyed the 9% rally in the market since President Donald Trump was elected. Given the spike, it isn’t entirely surprising that they are reaping the fruits of their gains, but lately they have been selling in droves.

Indeed, in the week that ended Feb. 24, there were 188% more companies with open-market sales than purchases, a ratio not reached since December 2013, according to Insiderinsights.com, which tracks such statistics. The following week, the ratio totaled 143%. While that isn’t necessarily predictive of a market swoon, it does bear watching.

“Although strong market declines are preceded by bearish insider ratios, not every bearish ratio is predictive of a decline,” says Jonathan Moreland, director of research at Insiderinsights.com. But he notes that the December 2013 spike in the ratio was followed by a flattening of the market after a huge surge, and then a notable dip in early 2014.

Of somewhat greater concern to Moreland is the strong recent rise in volatility, which indicates a lack of conviction by executives. In fact, the only time his indicator has been this volatile was “sometime leading into the 2008 market decline,” he says.

Given that worrying trend, Insiderinsights.com has advised investors to raise their level of cash to 20% from 10%. But the outfit still recommends overweights in banks, biotechs, basic materials, and infrastructure.

That said, Moreland concedes that the market “does look airy.” Consider yourself warned.

Barron's : Why Chinese Growth Will Snap Back to 10%

Why Chinese Growth Will Snap Back to 10%
The country’s electricity production, freight traffic, and credit growth all point higher.

China’s premier Li Keqiang has stated that he needs to track only three indicators to have a good appreciation of the state of China’s economy. They are electricity production, railway freight traffic, and bank credit.

The latest report from China’s National Bureau of Statistics, or NBS, says China’s electricity production was 8.5% higher than a year ago in December, the latest monthly report. In the previous six monthly reports, electricity production has ranged from 8% to 9% above the same month a year earlier. Prior to July, we had not seen a figure higher than 8% since December 2013, if you ignore January-February fluctuations related to the timing of the Lunar New Year. Pretty good.

NBS also reports that rail freight traffic was 10.4% higher than a year ago in January, also the latest month reported. Traffic has been from 7% to 13.9% higher than a year ago in each of the five most recently published reports. Rail freight traffic was actually lower than year-earlier levels in every monthly report from January 2014 through last July. Also pretty good.

The People’s Bank of China, the nation’s central bank, reports that domestic credit growth is running at 9.7% year over year, slowing from unsustainable levels over the past decade. Just the same, 9.7% growth in bank lending is pretty accommodative by any standard.

Few forecasts speak in a louder voice than ones that predict some kind of disaster for China’s economy. The usual form indulges in an airplane analogy: a hard landing, a tailspin, or a crash. Lacking from all of these forecasts is any hard basis in fact or theory for expecting such an outcome—other than free-floating anxiety.

Now, the latest data hint at a better outcome.

How fast can China grow? China has a business cycle. All economies do. You can identify three complete cycles in the 39 years for which consistent economic data are available. The average length of a cycle over this period has been a fraction more than 10 years. The present episode—now in its sixth year—is the down phase of a fourth cycle. It is neither deeper nor longer than the ones that preceded it. China demonstrates its sustainable gross-domestic-product growth rate as the average of what it achieves over all of the ups and downs of a complete business cycle.

Remarkably, China’s sustainable growth rate over all cycles has been rock steady at just under 10%. In fact, China’s average compound growth rate over the entire 39 years of its documented modern history has been nearly 10%. The present 10-year moving average of China’s growth rate is 9%, despite 6.7% GDP growth last year. That is because a decade ago, China’s economy grew at a 14.2% rate. This is how averages work.

SO IF YOU BELIEVE in economic cycles, as you should, China’s economy should move back to GDP growth greater than 10% over the next four or five years. Premier Li’s three indicators tell us that China’s economy is ready to blossom back toward trend growth or beyond. Anecdotes from recent travelers to China support that notion, as well.

Why and how can China’s economy grow so fast? It is enjoying growth by modernization. That is a process identified by Nobel laureate Simon Kuznets in the 1970s to describe an emerging economy as it progressively shifts its population out of agricultural employment into the industrial or services sector. Historically, moving a worker in China off the farm and into the city increases his or her contribution to GDP fivefold, although that pickup diminished a bit in the preliminary result published for 2016. Last year, China moved 17 million people from farms to cities, a pace that has varied by 12 million to 22 million per year over the past decades. With 590 million people remaining in rural areas, plenty of scope remains for this migration to continue—and surely there are enough 15- to 30-year-olds to move, despite the one-child-policy experiment. Demographic dividends can and will support modernization.

Perhaps a better analogy for China’s growth ought to be continued steady flight at altitude, in turbulence. Rather than mulling ways in which China’s economy might fail, perhaps it is more productive for investors to look at China’s destination if it continues on its four-decade course toward its historic position as the largest and most dominant economy on Earth. Right now, China’s course is set to resume rapid economic growth.

CARL B. WEINBERG is the chief economist at High Frequency Economics.

WSJ : Alitalia’s Turnaround Strategy Is a Flop

Alitalia’s Turnaround Strategy Is a Flop
Etihad’s three-year effort to improve Italian airline’s service hasn’t translated into profit

Less than three years after Etihad Airways saved Alitalia SpA from bankruptcy, the Italian airline is once again on the brink.
After spending €400 million ($427 million) to buy effective control of Alitalia in 2014, the Abu Dhabi-based carrier launched a much-ballyhooed effort to improve the Italian airline’s service, expand its international routes and make the domestic business leaner.
But the drive has done little to push up passenger numbers or beat back fierce competition from low-cost carriers, leaving Alitalia at risk of bankruptcy. It only weeks away from grounding its fleet and seeking another reboot.

On Thursday, Alitalia’s board examined a new business plan—including cost cuts—and a management shake-up for a former state-controlled airline that hasn’t turned a profit in nearly 20 years. The board is set to approve the plan next week.
When Etihad bought 49% of Alitalia in 2014, many in Italy hoped the Middle Eastern carrier would provide a fresh start to an airline laid low by years of mismanagement and political interference.
With a goal of turning a profit by this year, Alitalia cut unprofitable domestic routes and overhauled its aging fleet. Hoping that better service would lure travelers away from low-cost carriers, Etihad retrained Alitalia employees, teaching them everything from proper make-up application to foreign languages.


But the strategy has flopped. The airline had 23 million passengers last year, 270,000 fewer than when Etihad entered in 2014. Meanwhile, Ryanair Holdings PLC, which overtook Alitalia as market leader in Italy in 2014, saw passengers rise 25% to 32.6 million over the same period. Alitalia’s load factor—or the percentage of seats filled—was about 76% in 2016, below both Ryanair’s about 95% and the 80% target management had set, according to research institute Bruno Leoni.
Alitalia declined to comment on the estimates, and said its revenue was hit last year after terrorist attacks in Europe led to reduced air travel across the continent.
“[Alitalia] expected the market would react better to the improvement of the service,” said Oliviero Baccelli, transportation expert at Milan’s Bocconi University.
Etihad said that Alitalia’s turnaround isn’t yet complete and it is still addressing longstanding issues at the Italian carrier.
One major handicap has been the more lucrative long-haul routes. Alitalia has added just six intercontinental routes in two years. The company said it has struggled to expand further because of the hundreds of millions required to establish new intercontinental routes—they typically lose money for some time—and because a long-standing joint venture Alitalia has with Air France and Delta prevents the Italians from expanding North American destinations, which are among the most profitable for the Italian carrier.

As a result, Alitalia remains focused on routes dominated by low-cost carriers, competing with budget airlines on 70% of its flights. At the same time, Alitalia’s costs are high, even after shedding 2,000 employees since 2014.
For instance, the company typically spends up to 15% more than rivals on leasing aircraft and fuel. Alitalia said in the past its troubled financial condition has made it difficult to negotiate leasing and fuel contracts, but it is planning to look to improve the terms. The company also covers hotel costs for its flight attendants after a flight, unlike some no-frills airlines. Alitalia now loses at least €1.5 million a day, according to Bruno Leoni. Alitalia said it is losing money, but declined to comment on this estimate.
Analysts say the failed turnaround also exposes flaws in Etihad’s strategy of spending heavily to stitch together a network of disparate airlines that would route traffic through its Abu Dhabi hub and enable it to compete with mega-carriers such as Emirates Airlines. Stakes in carriers such as India’s Jet Airways and Virgin Australia Holdings Ltd. and Air Berlin PLC have brought meager returns.

Etihad said that the Italian carrier, as well as Air Berlin, has “required deeper restructuring and change,” but that the investments in those and other companies have also allowed it to save money “by joint procurement activities and other business synergies.” It added that the investments helped generate traffic via its Abu Dhabi hub.
Now, Alitalia—Etihad’s biggest investment—is considering an aggressive new plan involving €1 billion in cost cuts by 2019, a management shake-up and hundreds of layoffs. It wants to segment its passengers more aggressively, with so-called naked, or no frills, seats for penny pinchers and full-service tickets for others, a person familiar with the matter says. Under this plan, the company anticipates turning a profit within three years.
Unions—which staged a strike last month to protest the coming job cuts—reckon the airline needs €2 billion in fresh cash to overcome its troubles and expand its intercontinental routes. Under the plan, shareholders will invest about €1 billion over the next five years, the person familiar said.
Meanwhile, the government has firmly ruled out fresh help for a carrier that gobbled up €10 billion in taxpayers’ money over the years, according to Bruno Leoni. Alitalia declined to comment on the figure.
“Nobody admitted they made mistakes,” says Nino Cortorillo, one union leader. Now “they need to go back to starting point.”

>>> BP and Exxon Mobil refuse to comment on talk of bid approach; Shell tipped a

BP and Exxon Mobil refuse to comment on talk of bid approach; Shell tipped as potential bidder - speculative reports

BP [LON:BP], an FTSE-100 oil company and Exxon MobilCorporation [NYSE:XOM], its Irving, Texas-based counterpart, have both refused to comment on Friday, 10 March regarding suggestions that Exxon had made a bid approach to BP shareholders, The Times reported. The newspaper’s market report did not cite a source for the rumour regarding the approach.
The speculation met with scepticism by some investors, who suggested that the Texas-based oil company Anadarko Petroleum Corporation [NYSE:APC] was a more attractive prospect for Exxon.
The item also mentioned talk that FTSE-100 rival Royal Dutch Shell [AMS:RDSA] [LON:RDSB] might get involved, but did not specify which company it might be interested in.
A market report in The Daily Telegraph on Friday, 10 March had noted talk the previous day that Exxon had approached BP shareholders.
The Daily Mail’s market report section on Saturday mentioned talk of an offer exceeding 600p per share, but did not cite a source for the speculation. An offer at that level would value BP at close to GBP 120bn (EUR 136bn), the item said.
The report also mentioned talk that Shell would also make an offer for BP if Exxon proceeds with a bid.
All companies involved dismissed what they described as speculation and emphasised that similar gossip has been in circulation for years, the newspaper said.
The market report section in Saturday’s Daily Telegraph said the limited increase in BP’s share price suggests that traders do not entirely believe the takeover speculation.
BP’s share price closed 16.7p up at 470.7p in London on Friday, valuing the company at GBP 92.07bn (EUR 105.56bn).

Link to The Times
Link to Daily Mail

>>> BT may be interested in takeover of ITV following resolution of Openreach re

BT may be interested in takeover of ITV following resolution of Openreach regulatory review - speculative report

BT Group [LON:BT/A], an FTSE-100 telecoms company, may be interested in acquiring the UK-based television broadcaster ITV [LON:ITV], according to speculation cited by The Times. The newspaper’s market report section cited talk in London’s Square Mile that BT might be interested in ITV now that the telecoms group has reached an agreement with the UK telecoms regulator about its network infrastructure arm Openreach, but did not cite a source for the speculation.
BT has agreed to separate Openreach from the rest of its business but will retain ownership of the unit, the item noted.
The speculation did not boost ITV’s share price, which closed 0.8p down at 207.7p, giving the company a market capitalisation of GBP 8.36bn (EUR 9.52bn).