>>> Italian Referendum Previews (GS,HSBC, Oddo, UBS, Dbk, Credit Ag., Capita)

BERENBERG BANK:

 

 

Ever since the Brexit vote, we have viewed a potential political crisis in Italy as the top event risk in Europe for 2017. ‎Unlike Brexit, which poses a severe risk to the UK but not to the Eurozone, Italian problems could theoretically spark a systemic crisis in the Eurozone. Fortunately, the real systemic tail risk, namely that Italy could choose to leave the euro, remains highly unlikely. Nonetheless, we will have to watch Italian politics closely if Prime Minister Matteo Renzi loses the constitutional referendum on 4 December. A protracted period of political uncertainty after a “no” vote could exacerbate the Italian banking issues, unsettle the Italian bond market and weigh on business and consumer confidence.

 

60% risk that Renzi loses

Ahead of the official two-week blackout period that started nine days ago, opinion polls had projected a 53.5% to 46.5% lead for the "no" camp, with momentum in favour of a “no”. Of course, polls are no reliable guide to the outcome. ‎Some whispers suggest that more than half of the up to 20% undecided voters may back Renzi in the end. Also, many of the rebellious young people who oppose Renzi may not bother to vote. Whereas the outcome is thus no foregone conclusion, I put the probability of a "no" vote at 60%.

 

What if Renzi resigns?

In early 2016, Renzi tied his political fate to the outcome of the constitutional referendum. In case of a “no”, expect him to resign. If so, Italy’s president, Sergio Mattarella, would likely do his utmost to avoid a protracted period of political and financial instability or even new elections ahead of the regular elections in May 2018. In rapid consultations with key party leaders, he would likely explore three options:

 

1)     He could re-appoint Renzi. If the result of the referendum had been close and if Renzi believes that he would still win confidence votes in both houses of parliament, Renzi may possibly stay on. If so, this could be settled within ten days after the referendum.

 

2)     If Renzi cannot or will not remain prime minister, Mattarella could give the mandate to form a new government to a different member of Renzi’s centre-left, who would need to be confirmed by confidence votes in both houses of parliament eventually. Potential candidates could be finance minister Pier Carlo Padoan or economic development minister Carlo Calenda. With luck, this could also happen fast, possibly even still before Christmas, in order to curtail the damaging period of uncertainty.

 

3)     If post-referendum defections among those parliamentarians who currently support the Renzi government in the two houses of parliament make it impossible to more or less carry on with the current government, Mattarella may try to persuade Berlusconi’s centre-right to either join or at least support a caretaker or technocratic government. Such a government could be given clearly defined tasks, namely to stay the course on fiscal policy, reform the election law for the lower house of parliament and – possibly - devise a new constitutional reform. These tasks could easily keep such a government busy until the end of the regular parliamentary term in May 2018.

 

In all three cases, Italy would avoid early elections and the political and financial risks which they would entail. If none of these three options seems viable, new elections could come onto the agenda as a last resort.

 

Could Five Stars come to power?

In the unlikely case that new elections had to be called, the radical populist “Five Star” movement could be the major beneficiary. Opinion polls currently put the Five Stars at 28%, modestly behind the 32.5% for Renzi’s centre-left. If Renzi loses the referendum, the Five Stars may pick up a little extra momentum. The recently reformed “Italicum” election law automatically awards at least 54% of the seats in the lower house to the strongest party that either garners at least 40% of the vote or wins in a run-off vote. However, this election law would likely be changed before early new elections anyway. If the current parliament does not change the law on its own, the Constitutional Court would probably demand it when it issues a verdict on the Italicum early next year. And even if Five Stars were to win a majority in the lower house, a “no” in the referendum would preserve the Senate as a chamber with equal power. The Senate would continue to be elected under different voting rules. That Five Stars could win a majority in both houses of the Italian parliament looks highly unlikely. One way or the other, Five Stars would have to build alliances with other parties if it ever wanted to exert power. That could help to soften the populists’ edges. In a way, a “no” in the referendum would make it more difficult for Five Stars to do serious damage in the future as a “no” would preserve the checks and balances which make it so arduous to change Italy for the better - or for the worse.

 

Could Italy leave the euro?

Five Stars and some right-wing parties (Lega Nord, Brothers of Italy) would likely campaign in early new elections with a promise to call a referendum on the euro. However, the Italian constitution does not allow a referendum on international treaties. Changing the constitution or finding another way around this constitutional provision would be rather difficult. And if the Five Stars called for, say, just an informal online petition on euro membership, I doubt that all Five Star members of parliament would feel bound by the unrepresentative result in the end. While most Five Star activists seem to agree with the demand for a referendum, that does not mean that all of them would actually vote either in parliament or in a referendum. In addition, the turmoil into which a serious debate about euro membership could throw Italian markets and the economy would probably serve as a timely reminder of the risks of such a step. In the end, the risk that Italy would want to leave the safety of the euro looks rather remote.

 

What is Berlusconi’s party up to?

Nobody knows for sure. Having first agreed key reforms including the constitutional reform with Renzi, Berlsuconi’s “Forza Italia” is now campaigning for a “no”. Occasionally, Forza Italia even makes some euro-sceptic noises. The party languishes at 12% in opinion polls and would probably have nothing to gain from early elections. The recent behaviour of Forza Italia suggests that the party wants to (re-)gain some respectability and would like to be taken more seriously again. “Forza Italia” seems to argue for a “no” in the referendum in order to force Renzi (or a Renzi successor from the centre left) to once again negotiate key policy questions with Forza Italia. It hence looks likely that Forza Italia could back a new government in return for being given a say in the re-design of the electoral law for the lower house and a potential new attempt to reform the Italian constitution.

 

What is the referendum about?

On Sunday, Italians will cast their vote on a constitutional reform that would make it easier to govern and reform Italy in the future. First, the reform would downgrade the role of the Senate so that most laws in the future will have to be approved only by the lower house of parliament, and not by both houses. Second, the reform would streamline Italy’s public administration. A “no” to the constitutional reform would preserve the system of extensive checks and balances which has made it so difficult to reform Italy in the past.

 

What is Italy’s underlying problem?

Italy’s economy still bears the scars of the rapid transition from mass market to luxury goods producer forced upon it by the rise of China. Few other developed countries had to bear such an adjustment burden. Deep-seated structural rigidities compound the problem. Recent pro-growth reforms have improved the outlook considerably. But they need time to work. ‎At the moment, political uncertainty hampers business investment and makes it difficult to attract fresh capital to shore up the banks. In addition, the rise and demise of Silvio Berlusconi, who had been prime minister repeatedly between 1994 and 2011, has left a splintered and disorientated centre-right in its wake. As a result, Italy is the only major country in the eurozone without an obvious responsible and broadly pro-European political alternative to the current government. A political crisis could thus open up a bigger can of worms in Italy than it would elsewhere.‎

FT : Quest to cure Alzheimer’s disease shows symptoms of failure

Quest to cure Alzheimer’s disease shows symptoms of failure
Failed drug trials have led some scientists and Big Pharma executives to doubt the central theory behind its cause

The suspense inside the offices of Eli Lilly this autumn was all but unbearable. After working on a drug to fight Alzheimer’s disease for 15 years, employees of the Midwestern drugmaker were about to find out if the medicine — known as Solanezumab, or Sola — actually worked. Some staff compared the experience to being pregnant.

In an interview in October, just weeks before the trial concluded, Hong Liu-Seifert, a statistician at Lilly, described the atmosphere as one of “excitement, anticipation and anxiety”. She and her fellow workers were experiencing sleepless nights, she said.
When Ms Liu-Seifert and colleagues sat down last week to sift through data from the trial of 2,100 patients with mild Alzheimer’s, they concluded the drug had flunked the study.
Although those on the drug performed slightly better than patients taking a placebo, the benefit on cognition was so small it could not be deemed statistically significant. The news wiped $10bn off Lilly’s market capitalisation in a single day, and knocked around 5 per cent off Biogen, a biotech company developing a rival medicine.
Analysts had predicted that Sola could transform the group’s fortunes, generating up to $3bn in peak annual sales and making it the company’s best-selling medicine by some distance.
But the failure of the study has ramifications well beyond Lilly’s sprawling corporate campus in downtown Indianapolis. The trial was one of the biggest tests of the amyloid hypothesis, which holds that Alzheimer’s is caused by the build-up in the brain of a sticky plaque called beta amyloid.
For the past 25 years, neurologists have coalesced around this theory, believing it offered the best chance of finding a treatment for the nearly 44m people who suffer from Alzheimer’s worldwide. In the absence of a medical breakthrough, the number of people aged over 65 with Alzheimer’s is forecast to nearly triple to 13.8m by 2050 in the US alone, according to the Alzheimer’s Association. Drugmakers followed suit, spending billions of dollars researching drugs designed to clear beta amyloid.

Now some scientists and pharmaceutical executives are asking if it is time to accept that the hypothesis is flawed.
“The problem with Alzheimer’s is we still don’t really know or understand how the disease happens,” says Dr Amit Roy, a founding partner at Foveal Research. “We do see changes in the brain like plaques, but it could be an association not a cause.”
The focus on medicines that target beta amyloid is akin to developing a “drug for lung cancer that targets yellow fingernails”, Dr Roy argues. “The amyloid hypothesis has been around for a long time and it always fails,” he adds. “It looks nice but it’s unproven, and it falls over again and again.”
‘Throwing spaghetti at the wall’
It is almost a decade since the first drug designed to rid the brain of beta amyloid, Tramiprosate, made by the now-defunct Neurochem, failed in the final “phase III” stage of testing — and there has been a near-constant string of high-profile failures ever since. The most notable was Bapineuzumab, developed by a consortium of Pfizer, Johnson & Johnson and Elan, which crashed out of trials in 2009. Not only was it ineffective, it also caused dangerous brain swelling in some patients.
Sola also failed in two Phase III trials in 2012, although Lilly believed it could succeed by retesting the drug, this time limiting the study to patients with mild disease. The company blamed the original failed trials on the fact that many Alzheimer’s sufferers are actually misdiagnosed, and are in fact suffering from other forms of dementia.
Lilly believed — wrongly, it now turns out — that it could generate a positive result by excluding these miscategorised patients through the use of a new type of brain scan that can detect plaques.
Despite the disappointments, drugmakers have persevered, attracted by the economics of an ageing population and the rich financial rewards if they succeed. Of the 10 new drugs for Alzheimer’s currently being tested in late-stage trials, six target beta amyloid, including medicines from Biogen, Roche, Johnson & Johnson, Lilly, AstraZeneca and Merck and Co in the US.
Less charitable observers argue the potential profits on offer are so large — some estimate as much as $13bn a year for a single drug — that Big Pharma is happy to back trials that are founded on shaky science. “They’re just throwing spaghetti at the wall in the hope that something will stick eventually,” says one executive at a drugmaker not involved in Alzheimer’s research. Lilly has spent $3bn on its Alzheimer’s programme in the past three decades.
That said, drugmakers are often accused of being too timid, of focusing their research budgets on medicines that offer incremental benefits in areas where there are already several treatments on offer. “I don’t fault them,” says one investor in Lilly. “You’ve got to take the risk sometimes, and I thought it was a reasonable bet.”
Few doubt that beta amyloid and Alzheimer’s are linked; upon autopsy, many patients are found to have brains that are riddled with the plaques. Genetically modified mice inserted with diseased human genes also develop the sticky deposits and have tended to respond well to amyloid-clearing drugs.
But there is less proof that the build-up of beta amyloid is the primary culprit, or that it is more important than other factors, such as twisted protein tangles in the brain, known as tau.
“How many times do you need to disprove the same hypothesis before you reject it?” asks Vivek Ramaswamy, chief executive of Axovant, which is developing a drug for Alzheimer’s that does not target amyloid. “I believe it’s time for the field to take a step back and evaluate new approaches. This may be a wake-up call.”

>>> Private equity racing for exits

Private equity racing for exits

Even before the surprise victory of Donald Trump in the US presidential election, private equity firms were exiting positions far earlier than expected, according to an analysis by this news service.
So far this year, 24 private equity firms have exited platforms after holding them for less than two years. In 2015, there were 46 such exits, a nearly 50% increase from 2014, when there were 33. Frequently, the portfolio companies in question were traded to other sponsors.
For example, Nautic Partners sold medical home care services company All Metro Health Care Services to One Equity Partners in February, after only 17 months. In August, Clearlake Capital sold Amquip Crane Rental to Apollo Global Management [NYSE:APO] after only 19 months. Terms of both deals were not disclosed.
A financial sponsor banker said that the strength of the debt markets has been a huge factor in fueling faster-than-usual private equity exits. “You’re seeing guys that bought businesses back in 2014 and 2015—even in the middle market—that have managed to double EBITDA in two years and are now getting out,” he said. While they could keep growing the businesses and hope to sell them at an even higher EBITDA multiple down the road, the credit markets are so strong now that it’s not worth the risk, he explained.
The election of Donald Trump has only exacerbated this situation. One private equity investor said the market is as frothy as he’s ever seen it. “People want to sell everything that’s not nailed down. Valuations are completely ridiculous right now and at some point interest rates will go up,” he observed.
Just about every sector was represented in the mix of speedy exits this past year, but packaging has been particularly prominent in this regard. This week, Novolex announced it will be acquired by The Carlyle Group [NASDAQ:CG]. Wind Point Partners acquired a majority stake in Novolex in 2012, but TPG Growth only purchased its minority stake in November 2015. Similarly, in October of this year, Wellspring Capital Management sold ProAmpac to Pritzker Group Private Capital after holding it for only 14 months. Packaging has long been a favorite subsector of PE, due to its attractive cash flow profile.
Among the deals where terms were disclosed, on 14 November, General Atlantic sold Too Faced Cosmetics to Estée Lauder[NYSE:EL] for USD 1.45bn after owning the company for only 17 months. And in June, Bain Capital sold Bluecoat Systems, a security and networking solutions company, to Symantec [NASDAQ:SYMC] for USD 4.65bn after only 15 months.

Reuters : Some Actelion shareholders would be attracted by a $27 billion bid for

Some Actelion shareholders would be attracted by a $27 billion bid for the Swiss biotech
One source familiar with the matter has told Reuters the two companies are discussing a bid close to that price, or 250 Swiss francs per share.
That would be a 60 percent premium to Actelion's market value before the companies confirmed last week they were in talks, and tempting for shareholders who would prefer to cash in now rather than bet on an uncertain future.


"If I look at the (drugs) pipeline that Mr. Clozel is excited about, I am perhaps less excited about it and see perhaps a greater risk than reward," said Eleanor Taylor Jolidon, a fund manager at Union Bancaire Privee in Geneva, which is among the top 40 investors in Actelion and holds 0.23 percent of outstanding shares, according to Reuters data.
An offer around 250 francs per share would be "something we could start looking at", Taylor Jolidon said. Should Clozel reject such a price, she added, "he would have a lot of explaining to do."
Clozel has, in the past, guarded Actelion's independence, helped by fellow shareholder Swiss billionaire Rudolf Maag and a supportive Swiss investor base.
In 2011, for example, he fended off a campaign by U.S. hedge fund Elliott Advisors to put the company up for sale. At the time, Elliott suggested Actelion was worth 70 francs per share, about a third of its current price.
And in 2015, Clozel reportedly saw off bid interest from British drugmaker Shire.
The source familiar with the matter said Johnson & Johnson (J&J) had increased its offer - which has not yet been made public - after nearly two months of informal talks.
The main stumbling block is Actelion wants J&J to become a major shareholder in a new entity, while the U.S. firm favors a straightforward takeover, the source added.
Citigroup is advising J&J, while Bank of America is working with Actelion, two sources said.
Both banks and firms have declined to comment on the talks.

GOOD TIMING
Since Actelion's founding in 1997, Clozel and his wife, Chief Scientific Officer Martine Clozel, have built up a world-leading drug portfolio to treat deadly pulmonary arterial hypertension (PAH) and have been lauded for building Europe's biggest biotech from scratch.
They aim to expand in drugs for multiple sclerosis and diarrhea-causing clostridium difficile, but regulatory approvals for those are years away.
The company is also counting on its new PAH treatments Opsumit and Uptravi, which combined are forecast to bring in nearly 4.5 billion francs ($4.4 billion) in annual sales by 2020, according to Reuters data.
The 61-year-old CEO and Maag together own just over 8.5 percent of Actelion stock.
Some investors think J&J has timed its approach well.

"At this juncture and at his age, Mr. Clozel might be willing to consider new opportunities for Actelion," said Alexandre Stucki of AS Investment Management in Geneva, who owns Actelion stock in a portfolio worth "several hundred million Swiss francs".
"If J&J is willing to offer 200 francs or more per share, they probably see good value in the pipeline as well."
Another investor, who declined to be named, said that if J&J offered 250-270 francs per share, Actelion would "have to sell."
At 1405 GMT (09:05 a.m. EDT), the stock was down 2.3 percent at 204.3 francs.
An offer that values the company at nearly $10 billion more than it was worth just last week could cause even Clozel loyalists to jump ship, given questions about its pipeline.
"At the right price, Actelion management might have to engage with a deal – or will face having to justify to shareholders why the long-term direction is more valuable in their hands," Barclays analyst Olivia Capra wrote.

NYT - Italy’s Turn to Vote

Italy’s Turn to Vote

Sunday will be Italy’s turn to hold one of those fateful votes — like Britain’s referendum to leave the European Union — that have spread angst through Western democracies. This one, called by Prime Minister Matteo Renzi, would impose constitutional changes that would give the government more stability and power to enact needed economic reforms.
When Mr. Renzi took office in February 2014 he was 39, the youngest Italian prime minister ever, and known as Il Rottamatore, “the Demolisher,” who would shake up Italy’s paralyzed political establishment. The referendum he proposed was meant to do that by streamlining a political system that has had more than 60 governments come and go over 70 years.

The main reform on the ballot would sharply reduce the role of the Senate, the upper house of Parliament. That, alongside a new law that would give considerable power to the party that wins a plurality in the lower house, the Chamber of Deputies, was envisioned as a way to make it far easier for Mr. Renzi’s government to get needed reforms passed.
But referendums, as the British learned, have a way of taking their own direction, and what seemed like a sure “yes” now seems more likely to be a “no” on the wave of anti-establishment voting — an ironic reaction in this case, since Mr. Renzi’s reforms were meant to upend that very establishment.
If “no” prevails, Mr. Renzi has vowed to resign, a possibility that some Europeans fear could set off a banking crisis in the eurozone’s third-largest economy and open the door to the populist, anti-European Union Five Star Movement. That concern, in turn, has led to pressure on Mr. Renzi to revoke his vow to quit, including President Obama’s statement in October that he should “hang around for a while no matter what.”
A victory for Mr. Renzi’s reforms, however, would also pose a serious risk in the long term. There is no question that the equal powers of the Senate and the Chamber of Deputies have sometimes contributed to legislative deadlock, but there is little evidence that this is the chief reason for the dearth of reform, or for the revolving-door governments. The main explanation lies in the nature of Italy’s fragmented politics and resistance to change, and the constitutional amendment wouldn’t alter that. It would, however, enhance the government’s authority to a degree unseen in Italian politics since World War II.
Italy’s unique bicameral system was designed to put an extra check on executive powers in a country once led by Benito Mussolini and more recently by Silvio Berlusconi. Lifting it might make it easier for Mr. Renzi to enact reforms, but also for a different leader to achieve far less savory goals. The Five Star Movement of Beppe Grillo, a former comedian who wants to hold a referendum on dropping the euro, is not far behind Mr. Renzi’s Democratic Party in the polls.
Mr. Renzi cannot undo his unwise push for a referendum, a political shortcut that too often ends up biting its originator. But he can mitigate some of the potential fallout by declaring that he will stay in office for a while no matter what the outcome. That would calm the markets and Italy’s neighbors and help smooth transition to the reality the referendum ushers in.

WSJ : Altice Plans Fiber Upgrade That Could Leave Rivals in the Dust

Altice Plans Fiber Upgrade That Could Leave Rivals in the Dust
Cable company to convert its systems into an ultrafast fiber-to-the-home network capable of 10 gigabits-per-second speeds

Altice USA, the fourth largest U.S. cable operator, said it plans to convert its entire network into an ultrafast fiber-to-the-home network capable of 10 gigabits-per-second speeds within the next five years, a bold plan that takes aim at the company’s fierce rival,Verizon Communications Inc.’s Fios.
With a 1 gbps connection, a customer can download a high-definition movie in about 30 to 40 seconds. A 10 gbps connection would download the movie in just a few seconds. With a 50 megabits-per-second Verizon Fios connection, it would take about 14 minutes.
Altice’s announcement marks the most ambitious fiber-to-the-home rollout yet from a major U.S. cable operator. The European telecom group earlier this year closed a deal to buy Cablevision Systems Corp., a longtime New York cable operator, and last year bought Suddenlink Communications, which serves customers in more rural markets. Altice USA has 4.6 million home and business customers in 20 states.

Altice is departing from the approach taken by its industry peers. Other cable operators, including Comcast Corp., have extended high-capacity fiber lines all the way to homes in only select “greenfield” markets and are largely banking on a new cable technology called “DOCSIS 3.1” to deploy gigabit speeds over their existing networks. Traditionally in cable networks, fiber only runs to a central point in local areas, with lower-capacity coaxial cables wired to each home.
Deploying DOCSIS 3.1 avoids the hassle and investment associated with wiring fiber all the way to homes, though operators still need to make substantial investments in back-end infrastructure and deploy new customer modems to reach gigabit speeds. Comcast has already started offering one gigabit-per-second speeds in markets like Atlanta, Nashville and Chicago with that technology. Comcast’s 2 gigabits-per-second option, which it offers in several cities, is only for customers who live near its existing fiber backbone, and it requires a special installation to bring fiber to the home.
Altice, however, believes that it doesn’t make sense to take intermediate steps. In an interview, Altice Chief Executive Dexter Goei said DOCSIS 3.1 will only get cable so far, but fiber will always be a superior technology and yield faster speeds.
“We know that there will be applications and demand for further bandwidth going forward, whether that is in two, three, four or five years,” Mr. Goei said.
He also believes that 5G, a coming wireless standard that AT&T and Verizon have said may rival cable broadband’s speeds, will never match the performance of fiber.
Altice plans to start rolling out its fiber deployment next year, with initial markets to be announced in the coming months. Mr. Goei said the rollout shouldn’t be disruptive to customers, except that a truck may show up in their neighborhoods to change out the coaxial lines to fiber.
Altice’s investment could spell headaches for Fios, which has taken market share from Cablevision since Verizon deployed it nearly a decade ago. Verizon stopped building out its fiber network to new areas in 2010 and of late has refocused its business around wireless and digital content initiatives.

Google recently decided to pull back from its own investments in fiber optic broadband. That doesn’t faze Mr. Goei, who noted that Google’s initial deployment was from scratch, while Altice will be making more manageable upgrades to an existing network.
He believes that the cost savings Altice is achieving from its austere corporate policies—including by shuttering projects under prior management, like Cablevision’s R&D center in California—will be enough to offset the fiber rollout. The company said it doesn’t expect a “material” change in its overall capital budget.