TheChek News Flow

AstraZeneca has sold the US and Canadian rights to its Zoladex cancer treatment to TerSera Therapeutics, in a deal worth more than $320m (£257m), as it looks to focus its efforts on developing new medicines.

Private equity-backed TerSera will pay an initial fee of $250m upon completion of the deal, $70m after certain sales-related milestones are reached, plus further quarterly payments of a “mid-teen per cent” of product sales.

AstraZeneca will also continue to manufacture and supply the treatment, which is used to treat prostate cancer, breast cancer and some gynaecological disorders, and has been approved for use in the US and Canada since 1989.

The company has been increasingly focusing on research and development in new areas such as immuno-oncology in an effort to offset expiring patents on some older drugs. Shares in the Anglo-Swedish group jumped last week after it reported positive results from one new treatment tipped for blocbuster status.

Mark Mallon, AstraZeneca executive vice president for global product and portfolio strategy, said:

This agreement allows us to retain a significant share of the value of Zoladex in the US and Canada, while concentrating our resources on our innovative new oncology medicines. It also ensures patients have continued access to Zoladex, with TerSera’s dedicated focus helping to expand the potential of this important medicine.

Profits at the housebuilder Bovis Homes dropped by 3 per cent to £154.7m in what the company admitted had been a “difficult year” of customer complaints about its building standards.

In the year to the end of December, the FTSE 250 group said it had set aside £7m for customer care after “weaknesses in our production process and a high level of customer service issues”. It said these problems followed a period of “ambitious growth”.

Bovis’ chief executive, David Ritchie, resigned last month after a profit warning in December prompted by the group’s failure to complete about 180 of its planned homes by the end of the year.

It then emerged that hundreds of customers were complaining of poorly built and unfinished homes, and some had been paid to move into incomplete homes before the end of the financial year.

Issuing final results on Monday, the Kent-based group said it would carry out a “deliberate slowing of our rate of production” as part of “re-setting the business and delivering on our clear operational priorities”.

Despite the problems, Bovis will increase its dividend by 13 per cent to 45p a share. It said revenues were up 11 per cent to £1.1bn as it completed 3,977 homes, up 1 per cent from a year earlier.

Earl Sibley, interim chief executive, said:

With our focus on higher levels of customer service, improved build efficiency, and a refreshed culture, we are confident we will generate enhanced shareholder returns over the medium term.

*Air France-KLM Raised to Buy at Citi, PT EU7.50

*Cellnex Raised to Outperform at Main First Bank AG, PT EU18

Mining Giants Ride Copper’s Wave

Anglo American, BHP Billiton, Glencore to report earnings this week on back of copper surge

Copper bulls are looking smart—for now.

Some of the world’s biggest mining companies, which have giant copper portfolios, are now poised to reap the rewards, with Anglo American PLC, BHP Billiton Ltd. and Glencore PLC set to report full- or half-year earnings this week.

The industrial metal has surged more than 30% in the past year, providing rocket fuel for companies that were staring into the abyss a year ago. Shares in Anglo and Glencore have more than tripled in the past 12 months. BHP, which has faced headwinds from a fatal tailings-dam disaster at one of its mining operations in Brazil, is up 62%.

Rio Tinto PLC, which is focusing more on its copper business, offered a preview of how miners’ fortunes have flipped to the upside when it reported earnings earlier this month. The Anglo-Australian mining giant said it returned to a profit in 2016 with $4.62 billion in earnings, increased its dividend and announced a $500 million share buyback.

Overall, the miners’ results are expected to highlight a head-snapping turnaround in the past 12 months that has seen the industry pull back from the precipice of financial disaster.

“The past year has brought some reprieve,” said Anglo Chief Executive Mark Cutifani in a speech this month in South Africa. “While market watchers were ready to sound a death knell on mining’s prospects, we are still here, stronger than we were before.”

A year ago, miners were haunted by hair-raising worst-case scenarios in commodities as growth in China stalled, investors panicked and prices fell to what Barclays called their lowest levels in 30 years.

Anglo said it would cut its workforce in half. Glencore frantically raised $4.7 billion from asset sales to trim its debt. Investors told Glencore executives they worried copper could dip below $4,000 a metric ton, threatening the stability of the miner’s debt-laden balance sheet.

But while copper flirted with the $4,000 level, it never breached it. On Friday, copper prices were over $6,000 a metric ton.

The metal’s resurgence partially has been driven by a government economic stimulus program in China, where over 40% of the world’s copper is consumed.

At the same time, supply has come off the market. This year, there have been snags at two of the world’s largest copper mines—labor problems at Chile’s Minera Escondida, jointly owned by Rio Tinto and BHP, and a permit dispute with the Indonesian government for Freeport-McMoRan Inc.’s Grasberg mine. The two mines account for about 8% to 9% of global copper supply, according to analysts.

Glencore took direct action to move copper supplies out of the market, shutting down a large African mine in 2015 in hopes of refurbishing it and reopening it this year when prices rebound. The company also shut down some of its production of coal and zinc in a similar bid to boost prices.

“We’ve contributed to restoring balance in the supply fundamentals,” Glencore CEO Ivan Glasenberg said in a company tweet last week.

While most experts say they expect copper prices to remain strong in the near term, China’s economy hangs over the market. The slightest hiccup there can send painful ripples through the industry.

“It’s China that’s driving the market,” said Paul Benjamin, global director of copper markets at Wood Mackenzie.

To be sure, miners’ are also buoyed by the surging price of other metals and commodities such as coal and iron ore. And most miners’ stocks remain well below the nosebleed levels they reached several years ago at the height of the China-fueled commodity “supercycle.”

But more than the other materials, the resurgence of copper prices is a boon for strategic bets made recently by big miners.

Rio Tinto recently said it would advance production at a major mine in Mongolia that will be one of the world’s biggest when it starts producing in 2020. Rio Tinto has bulked up its copper profile to help diversify away from iron ore and coal, and CEO Jean-Sebastian Jacques was installed last year after running the company’s copper division.

Glencore on Monday raised its copper bet with a $534 million deal to buy out a large partner’s stakes in Katanga and another big Congolese copper mine.

Copper accounted for 33% of Glencore’s earnings before interest, taxes, depreciation and amortization in the first half of 2016, and 18% of Anglo’s total.

“We see copper moving from a headwind in 2016 to a tailwind in 2017” for Glencore, Credit Suisse said in a Feb. 17 note.

Demand for copper is expected to outpace production in 2017, putting the market in a supply deficit for the first time in years. While total copper production is expected to come in at 22.64 million metric tons, consumption is expected to reach 22.92 million tons, resulting in a deficit of 275,000 tons, according to commodity consultancy Wood Mackenzie. In 2016, the copper market was oversupplied by 345,000 tons.

Negotiating a deal to secure citizen rights faces numerous obstacles

When Greenland left the European Community in the 1980s, the legacy rights of expatriate citizens were guaranteed with a legal act of extraordinary simplicity: the operative article runs to just 85 words.

The fate of 4m EU and British expatriates looks far more uncertain and complex. One senior Brexit negotiator fears talks on citizen rights could sink into “a horrible legal morass”.

“It’s immense. Every time you think you’re across it, you turn another corner and find another mess,” said another senior EU diplomat.

Both London and the EU-27 agree on a broad goal: a reciprocal deal to guarantee the rights of 3m EU citizens in Britain, and some 1m British expats within the union. But within the detail of that superficial agreement lies an expat lifetime’s worth of politically-sensitive choices.

Residence definitions, pension rights, unborn children, the ability to move, claim benefits, marry, divorce, even commit crime and avoid deportation — an entire cycle of modern life is potentially touched by the Brexit agreement.

“We can’t hide the fact that it is complex,” said Guy Verhofstadt, the European Parliament’s chief Brexit negotiator.

“But if we base ourselves on the principles of reciprocity and a uniform approach by the EU-27 then in my view there is no reason why we cannot find a lasting and equitable solution.”

Here the FT runs through seven obstacles to a deal.

Nothing can be taken for granted

There is no systematic register of when expats arrived in their current place of residence. Worse still, EU officials think it is not feasible to create a comprehensive one before the expected Brexit date in 2019. So even if some rights are guaranteed, citizens will need to prove eligibility. Britain’s 85-page residency form offers an insight on the bureaucracy ahead.

Not all expats are the same

No British politician has questioned the right to remain of legitimate EU migrants. But that is only one small sliver of EU citizen rights. At issue are work rights, welfare access, health provision, discounted student fees, even the ability to draw a UK state pension 50 years from now. And these rights depend on circumstances.

Under EU law, migrant workers have different rights to students, pensioners or jobseekers. Residing in a country for more than five years — and thereby gaining “permanent residence” — is an important threshold for gaining rights. But decisions will depend on proof.

Circumstances change

Managing change will be hard. If an expat marries, what rights would their partner enjoy, and would their nationality matter? Could they bring in-laws to the country? Similarly an expat’s legal status may evolve over time, should they lose their job or move country.

The law, too, will evolve. The EU may legislate to change rights post-Brexit. EU nationals may want to challenge Britain’s application of their rights. Would that be in British courts or European courts? And whose interpretation of EU law would prevail? A big role for European courts would cross a red line for London.

The two sides want to guarantee different rights

The EU-27 want to maintain full rights for EU expats but this could be tricky for Mrs May. If existing welfare rights remain intact, for instance, EU migrants could still claim UK child benefit for dependants in Paris or Warsaw — long a British tabloid bugbear. Full ​EU rights would also restrict Britain’s ability to deport an EU migrant who ​has ​committed crimes​ after Brexit.

A third example is pensions. Presently a Brit moving to Australia can draw their UK state pension, but it would be frozen, and not increased in line with inflation and earnings. A Slovak or German migrant worker who leaves Britain, by contrast, would enjoy better rights: their full UK pension drawn overseas and uprated every year.

There may need to be dozens of deals

Brexit poses two questions on citizen rights: the legacy rights of current expats, and what terms future expats may enjoy.

Britain may seek to tackle both in one deal — reciprocated by the EU. That would apply a single — probably less generous — regime of rights to all present and future EU migrants, covering health, benefits and citizenship.

Potential problems will arise from watering down EU rights. That is because the EU-27’s first and foremost concern is preserving full rights for the existing 3m migrants, rather than future flows.

Depart too much from the EU’s legal baseline and EU negotiators warn a citizen rights deal may not be possible under the Article 50 exit clause. Instead country-by-country bilateral deals may be necessary with each of the 27 members. That is hard to negotiate and ratify, and even harder for expats to understand and apply.

Beware the cut off point

No Brexit deal on rights can be open-ended. Negotiators are looking at various cut-off points: the lifetime of the eligible expats; a period of time, say 5 or 10 years; or until the point at which the expat gives up their enhanced rights by moving country. All three options have political and technical upsides and downsides.

One complication is that some rights — such as pensions — will be for life and even cover former expats. Then there is the eligibility date. British ministers want to draw a line on EU free movement rights and are looking at three options: the point of the Brexit referendum, the Article 50 notification, or Britain’s exit. EU-27 negotiators see nothing to discuss: EU rights and obligations continue until the point Britain leaves.

Early, late or hard?

Expat rights will be one of the first topics to be discussed in Brexit talks. Both sides want a quick deal but that may be impossible. Diplomats are scrambling to work out what would happen in the event of no deal. Expats would basically be at the mercy of national governments.

But there are some protections. EU law does cover safeguard rights for some third-country nationals. And a raft of dormant UK bilateral agreements with European countries on welfare — superseded by EU membership — may be revived. One such agreement dug up: a 1923 Anglo-Finnish treaty on “the disposal of the estates of deceased seamen”.

- Hopes the ECB can scale down its bond-buying program, not raise interest rates, before year-end

Buffett and Lemann feared public battle could have been damaging

Kraft Heinz, the Warren Buffett-backed US food group, dropped its $143bn pursuit of consumer products rival Unilever on Sunday, only two days after publicly confirming its interest in acquiring the Anglo-Dutch rival.

Kraft Heinz said in a joint statement with Unilever that it had “amicably agreed to withdraw its proposal for a combination of the two companies”.

A takeover would have created the world’s second-largest consumer goods group by sales behind Nestlé, combining brands such as Kraft Mac & Cheese and Heinz Tomato Ketchup with Unilever’s Dove soap and Magnum ice cream.

The companies said: “Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.”

The announcement came after a report in FT Alphaville on Friday forced Kraft Heinz to confirm it had approached Unilever about a combination to create a juggernaut in packaged foods and household items.

Kraft Heinz said in a separate statement that its “interest was made public at an extremely early stage. Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction.”

It added: “It is best to step away early so both companies can focus on their own independent plans to generate value. We remain focused on driving long-term value while always putting our consumers first.”

Two people close to the talks said Warren Buffett and 3G Capital’s Jorge Paulo Lemann, Heinz Kraft’s main shareholders, decided on Sunday morning to withdraw the bid after they concluded that a protracted public battle to take over Unilever would have caused more damage than good.

Mr Buffett’s Berkshire Hathaway and Mr Lemann’s 3G control just under 50 per cent of Kraft Heinz shares. The duo, who would have contributed significant new capital to fund the deal, were also spooked by the hostile response from UK politicians, according to one of these people. The British government had raised concerns about another large company being acquired by a foreign group in the aftermath of the vote to leave the EU

Another person said the early leaking of Kraft’s interest in Unilever made it hard for the US company to negotiate a deal that would have been attractive to both sides. “Kraft Heinz was ready to make a lot of concessions, including taking on the Unilever name, to make this deal happen but unfortunately it leaked too early and that made it hard to negotiate,” this person said. Kraft Heinz was prepared to “substantially increase” its offer.

Both companies began meetings with the UK government over the weekend after British prime minister Theresa May ordered senior officials to examine the proposed takeover to see if it warranted government intervention.

The Kraft Heinz bid would have been a big test for the UK government’s industrial policy. Mrs May had already called for greater powers to prevent predatory takeovers, citing Kraft Foods’ 2010 takeover of UK chocolate maker Cadbury, where the acquirer later reneged on promises to retain factories in Britain.

Sir Vince Cable, business secretary during the coalition, tweeted: “Good news #kraft back off #unilever takeover. But many less famous names are sitting ducks thanks to post #Referendum devaluation.”

The decision by Kraft Heinz to walk away, marks a significant victory for Unilever chief executive Paul Polman, who becomes the first consumer industry leader to defeat 3G in a public takeover battle.

A deal would have brought together two companies with radically business cultures. With a stable of slower-growing brands, Kraft Heinz is heavily concentrated in the US and was formed in the last few years through debt-laden deals.

Using 3G’s approach to management, it implements aggressive cost-cutting strategies to generate margin expansion that allow it to repay the debt and bolster shareholder returns. Meanwhile, Unilever is better known for its strong brands and presence in some of the biggest emerging markets. Under Mr Polman, it has also attempted to focus on trying to better balance profitability with environmental sustainability.

The Anglo-Dutch company said on Friday that the $50-a-share cash and stock offer, an 18 per cent premium to its closing price on Thursday, “fundamentally undervalues Unilever”.

It added: “Unilever rejected the proposal as it sees no merit, either financial or strategic, for Unilever’s shareholders. Unilever does not see the basis for any further discussions.”

The unusually strong rejection meant the US group faced an uphill battle to strike a deal. One person close to Kraft Heinz said the US company had a cordial dialogue in the weeks leading up to the proposal, which was made about 10 days ago, and was surprised by the terse language in the public rejection on Friday.

The end of Kraft Heinz’s bid for Unilever will also restart speculation over its next big acquisition target, as analysts had previously thought the US company was more like to go after targets such as Mondelez International, the snacks company, or cereals group General Mills.

Shares in both Unilever and Kraft Heinz are expected to fall on Monday. Unilever’s UK-listed shares had risen 13.4 per cent to £37.97 by the end of last week, making its equity worth £114bn. Kraft Heinz stock climbed 10.7 per cent to $96.65, giving it a market value of $130.2bn, as its investors anticipated the benefits of the company’s next megadeal.

Unilever was defended by law firm Linklaters and bankers at Centerview Partners, Morgan Stanley, UBS and Deutsche Bank. Kraft Heinz was working with law firm Paul Weiss and bankers at Lazard.