WSJ : China’s Movies Are a Hit With Investors

China’s Movies Are a Hit With Investors

With an annual growth rate of 30%, China’s film industry is attracting a flood of new money, much of it from risky financial instruments

Chinese filmmakers used to have a hard time finding financing; now investors can’t wait to get into show business.

The film sector is one of few boom industries in China, with an annual growth rate of more than 30%. As a result, movies have become a top draw for high-risk financial instruments.

The flood of cash has been a boon for actors, directors and others tied to the industry; salaries of movie stars just below the top tier doubled in the past few years to more than 10 million yuan ($1.5 million) per film, according to talent agencies and producers.

Much of the money has been attracted by the success of movies such as “The Mermaid,” a comedy about a romance between a business tycoon and a mermaid, directed by Hong Kong hit maker Stephen Chow. Before it opened in February, Hehe Pictures, a film company affiliated with state-run China Minmetals Group, set up a private-equity fund to secure the distribution rights. Together with two studios, they bet the movie would gross at least 1.5 billion yuan, say executives among the sponsors.

It was a daring bet. At the time, only two films in China had grossed more than 2 billion yuan. But it paid off: The film broke all Chinese box-office records and still is in theaters after regulators granted it an extended screening period. It has grossed nearly 3.4 billion yuan so far.


On the one hand, more money enables Chinese filmmakers to make further gains on Hollywood. China is the world’s fastest-growing and second-largest movie market, with a 49% increase in box-office takes last year to $6.8 billion, according to the Motion Picture Association of America, or MPAA. That compares with $11.1 billion in the U.S., a rise of 8%.

On the other hand, ample funding means more movies get made than there is a market for. According to Beijing-based film-research company EntGroup, only 372 of 686 domestic films made last year were able to get theatrical releases, in a market where the profit on a movie comes almost entirely from box-office receipts.

Last year, 166 film-focused private-equity funds were set up; 10 years earlier, there were only five such funds, according to Beijing-based Zero2IPO Research, which researches financial institutions.

Cash for movies also is flowing in from other industries, like real estate and energy firms, which had long invested in them to get access to perks such as dinners with movie stars. Now as their main businesses feel the effects of China’s slowdown, they are looking more seriously at film projects.

The investment bonanza is having significant ripple effects in an industry whose revenue didn’t reach 10 billion yuan until 2010.

“For someone who has been in the industry for over two decades, it is rare to see so much new money and so many people who are eager to get into this industry,” said Ben Ji, managing director of Beijing marketing firm Reach Glory. He sees an upside: “All the attention could help the industry become more resilient.”

However, much of the fundraising is from online-lending platforms subject to little transparency and with practices that are strictly banned in other sectors, such as using the same collateral for more than one loan.

Zhao ChunXia, founder of online-lending platform itouzi.com, said it isn’t unusual for a movie-focused wealth-management project aiming to raise more than 10 million yuan and offering an 8% to 12% annual yield to be closed in just a few minutes after being released.

A scandal in March involving “Ip Man 3,” a Chinese-made martial-arts movie featuring Mike Tyson, shows how such financing has exacerbated murky practices in the industry. The movie’s main distributor, Dayinmu Film Distribution, was part of a network of companies affiliated with “shadow bank” lender Shanghai Kuailu Group that financed “Ip Man 3” largely with money raised on online platforms. Some of that was used to buy tickets in bulk to raise box-office numbers, which drove up stock prices of the listed Kuailu affiliates with stakes in the movie.

After Dayinmu admitted to spending nearly $9 million on tickets and “ghost screenings,” regulators suspended its operations for a month and the shares slid. Shanghai Kuailu has since halted redemptions on wealth-management products for a quarter-million clients.

By contrast, Hollywood has resisted nontraditional fundraising for movies. In 2010, the MPAA objected to plans by two Wall Street firms to launch an exchange based on film futures, saying it could open the door to financial irresponsibility. There is no comparable trade group in China to shield the industry from disruption.

“The current Chinese film-industry organizations were founded by the government, and they don’t really represent stakeholders, unlike MPAA,” said Liu Haodong, former director of industry research center of the state-backed China Film Association. “It’s everyone for themselves.”

Regulators say they have had trouble keeping up with developments in the sector. “When we spot problems, we are not able to apply regulations one by one to punish [perpetrators] accordingly,” said Li Dong, deputy director of a department under China’s top media regulator—the State Administration of Press, Publication, Radio, Film and Television—at a recent industry seminar.

Some in the industry also worry the ramped-up financial resources are creating bubbles.

“Right now I see more harm than good from these so-called financial innovations, because they are not what the movie industry really needs,” said Ann An, president of Desen International Media, a major Chinese film studio. “They just use films for a quick profit.”

Bill Borden, co-executive producer of “The Mermaid” and a veteran Hollywood producer, said the new money is driving up the prices in a way that hurts Chinese filmmakers.

“In Hollywood, you’re worth this money because that is how much we think we can sell you for,” he said. “China is wide open,” with money that used to “build bridges and dams for billions.”

Barron's : Why China’s Economy Won’t Land Softly

Why China’s Economy Won’t Land Softly

The country has reverted to its old tricks by fueling growth with more credit. Debt is now growing at historic rates.

By all accounts, the economic slowdown in China was the major cause of the nasty U.S. stock market corrections in both August of last year and during the first six weeks of this year. The fear, of course, was that trouble in the Middle Kingdom would drag down global growth and stunt the U.S.’s muddling recovery.

But seemingly overnight in February, investor psychosis over China evaporated, and the Standard & Poor’s 500 index came roaring back 13% before settling back some last week. Nonetheless the S&P 500 and the Dow Jones Industrial Average are still slightly up for the year on a total-return basis, after being given up as roadkill in February.

Traders were seemingly emboldened by some better first-quarter numbers out of China that indicated at least some stabilization in its economy. First-quarter industrial production perked up slightly. Beijing reported year-over-year growth in gross domestic product of 6.7%. In March, China’s foreign-currency reserves grew for the first time in months, as the yuan steadied in value and capital flight seemed to abate.

BUT U.S. INVESTORS SHOULDN’T put too much stock in the China turnaround story. The government is notorious for inflating its GDP and other growth numbers. It’s a nation that appears to be drowning in too much debt.

Perhaps of greatest moment, Beijing in the first quarter seemed to panic, shoving nearly $1 trillion in new credit into the Chinese economy. That’s an epic amount for any economy, especially in a nation with a GDP of $10 trillion. The liquidity boost is the largest quarterly credit surge on record.

So for all the talk of Beijing restructuring away from an industrial and into a consumer-based economy, China seems to be resorting to an old model of debt-fueled growth that has seen its debt-to-GDP ratio surge from around 150% to well over 300% since 2008. This calculation of the ratio—higher than some other estimates—was made by Victor Shih, an associate professor at the University of California, San Diego, and an expert on the Chinese financial system. This ratio exceeds by a wide margin the debt burden of most developing economies.

China is paying the price for the past six years of malinvestment that resulted in mountain ranges of empty apartment buildings, vanity infrastructure projects comprised of unused highways, bridges, and exposition centers, and redundant industrial capacity. These projects yielded temporary GDP boosts during construction, but then lapsed into the netherworld of nonperformance, unable to generate the cash flow necessary to service underlying debt.

As a result, bad credit abounds, largely hidden from sight by loans that are “evergreened” and capital infusions from government-related entities to hide defaults. Perhaps hedge fund legend George Soros posed the issue most baldly in a statement he made a few weeks ago at New York’s Asia Society. He raised the possibility of the Chinese economy enduring a hard landing in the near future. He said the debt problem in the Chinese economy “eerily resembles what happened during the financial crisis in the U.S. in 2007 and 2008, which was similarly fuelled by credit growth…Most of the money that banks are supplying is needed to keep bad debts and loss-making enterprises alive.”

Indeed, the first-quarter credit surge has led to false signals that the long collapse in commodity prices is over because of a revival in all-important Chinese industrial demand. Trading in iron-ore contracts on the Dalian Futures Market has soared more than 400% from a year ago, with daily volume topping Chinese annual imports during many trading sessions (see Asian Trader). Coking-coal futures trading has also gone into hyperdrive. Both steel ingredients soared in price by about 40% this year, until the exchanges intervened early last week to raise margin requirements.

Yet this activity doesn’t reflect any increase in demand in the real Chinese economy. In fact, JCapital, a research outfit that closely tracks the Chinese economy, contends its on-the-ground surveys show steel and copper demand is expected to decline by 4% to 6%.

The heavy trading is more than likely a reflection of speculative bubbles akin to the bubble in Chinese stocks that died over the past year. Chinese punters will play any market if liquidity is available. Likewise, in the event of any devaluation of the yen, commodity players would see their futures contracts or physical holdings revalued upward.

Some U.S. investors insist that whatever happens in China will stay in China. The rest of the global economy has scant exposure to Chinese debt or equities. After all, Japan’s debt-fueled travails of the past 25 years had little effect on the rest of the world.

We feel this is a naive notion. Just ask Apple, which suffered its first quarterly revenue drop in 13 years in large part from a decline in Chinese sales.

FT : Shire chief shrugs off shareholder protests

Shire chief shrugs off shareholder protests

Shire chief executive Flemming Ornskov brushed off shareholder protests against his $21.6m pay package even as the drugmaker revealed a surge in sales and profits.
Almost half of investors who voted at Shire’s annual meeting on Thursday rejected the drugmaker’s remuneration policy — one of the biggest in a series of shareholder rebellions over pay at UK-listed companies this spring.

Asked about the vote on Friday, Mr Ornskov told the Financial Times: “It’s up to my board to enter into that dialogue. My role is to focus on delivering results.”
Since he took charge three years ago, Shire’s stock has risen 119 per cent compared with a slight fall in London’s FTSE 100 index. The group’s status as one of the fastest-growing companies in the pharmaceuticals sector was reinforced on Friday by first-quarter results which showed a 15 per cent increase in sales to $1.71bn and a 15 per cent jump in operating profits to $544m.
Performance-related incentives and bonuses helped fuel a fivefold increase in Mr Ornskov’s total pay last year; but it was the 25 per cent increase in his fixed salary to $1.69m which most upset critics.
Shire’s board said the raise was needed to bring Mr Ornskov’s pay into line with peers in the pharma and biotech sectors “to ensure the CEO’s retention given his attractiveness as a potential recruitment target”.
The 58 year-old Dane would not comment on whether he had been approached about other jobs. He said he was “absolutely focused” on driving further expansion in Shire as it prepares to complete the $32bn acquisition of Baxalta.
Mr Ornskov said the transaction — the biggest in Shire’s 30-year history — was on course to close in early June, six months after his long pursuit of the US biotech company ended in an agreed takeover.
The financial benefits from the deal include the reduction of Baxalta’s high US corporate tax rate when it is absorbed into Ireland-based Shire.
While the deal is not a “tax inversion” of the kind that has roused controversy in Washington, there have been questions over whether it could be affected by a recent US Treasury clampdown on tax rules governing cross-border deals.
Jeff Poulton, chief financial officer, said Shire was still confident that the combined group would have a tax rate of 16-17 per cent, compared with Baxalta’s 23 per cent as a standalone company.
“We’ve been through all 500 pages [of the Treasury document] and concluded that it is not going to impact what we can deliver,” he added.
Shire’s increased first quarter sales were broadly in line with market expectations, while earnings-per-share of $3.19 were well ahead of analysts’ consensus forecast for $3.04. Growth came from newer rare disease drugs, such as those acquired from NPS Pharma last year for $5.2bn, but also from its older Vyvanse treatment for attention deficit hyperactivity disorder, which was up 22 per cent at $509m.
Shares in Shire closed nearly 2 per cent higher at £42.61 on Friday, although they are down almost a fifth in the past year after a sell-off in biotech stocks.

FT : Telefónica would consider other buyers for O2

Telefónica would consider other buyers for O2

Telefónica would talk to other buyers for its British mobile business if the £10.5bn sale to CK Hutchison were blocked by the European competition authorities.
On Friday, the Spanish group said that there were a number of options for the business such as a full or partial sale or a flotation if the European Commission blocked the Hutchison sale as expected.

Telefónica could also keep the O2 business, and suggested the possibility of a strategic review to expand into other areas in the telecoms and media market.
Hutchison wants to merge O2 with Three to create the UK’s largest mobile operator. However, Brussels competition officials have baulked at the prospect of losing one of the four mobile operators in the UK market, which they fear will raise prices and lower innovation. A final decision is expected in two weeks.
José María Álvarez-Pallete, the new chief executive of Telefónica, told analysts that the company would consider other options for the business if the sale to Hutchison were blocked.
He added that the remedies offered to counter concerns over competition were enough to pass the deal, but added that it could still be blocked for political reasons. “A negative decision cannot be disregarded,” Mr Pallete said.
Ángel Vilá, Telefónica’s finance officer, stressed that the group was in no rush, however, and opened the possibility of raising up to €5bn in hybrid debt.
Telefónica wanted the money from the sale of its British business to pay down debt, although it says that it can help cover its dividend this year in shares if necessary.
Telefónica said it was bound to the agreement with Hutchison until the second quarter of 2016.
Ronan Dunne, chief executive of O2 in the UK, said that the business was “in good shape”, which “created opportunity for us and our shareholders”.
“The UK business is a quality asset,” he said.
Analysts at Haitong said over the short term that Telefónica had “limited options” that would provide the same ability to reduce debt as the sale of O2, including a flotation that would be likely to be at a lower valuation than the deal with Hutchison.
They said: “Spinning off the asset would not allow for any cash in, while a sale of the asset to another buyer would take several months before it is completed.”

Barron's : Some Options Traders Are Betting Big on “Sell in May�

Some Options Traders Are Betting Big on “Sell in May”

Investors have amassed massive positions that will increase in value if the S&P 500 drops in May, and the CBOE Volatility index surges.

Recent trading patterns suggest that some investors are making a high-stakes bet that the “sell in May and go away” seasonal trading pattern soon will be roiling stocks.

For weeks, investors have amassed massive positions that will increase in value if the Standard & Poor’s 500 index drops in May and the CBOE Volatility index surges.

We’ve mentioned this unusual May VIX call trading before, but have had a hard time explaining the cause. But recent trading in calls in the SPDR S&P 500 ETF Trust (ticker: SPY), which would hedge VIX calls, has sparked some trading-desk chatter that major investors are pursuing the “sell in May” trade. Before we get into the details, it’s important to understand the seasonal pattern.

Some studies show that anyone who sold stocks in May, and bought stocks again in November, would radically outperform buy-and-hold investors. From 1950 to 2009, those who owned stocks from April to November turned $10,000 into about $527,000, according to research I did for my 2012 book, The Indomitable Investor. In contrast, owning stocks from May to October shrank the $10,000 to $474 over the same period.

THE DISCREPANCY reinforces the idea that, in summer months, equities are often listless, while they reach their highest levels of volatility in the fall, particularly September and October.

Yet, it is hard to find anyone who commits real money to the seasonal pattern. Why? No one wants to have to tell clients that they missed a huge rally because their broker was timing the market. But this year seems different. Many institutional investors are on the wrong side of the market and desperate to catch up. This seems to be the reason why some are using derivatives, which naturally cost less than the underlying stock, to mount the sell-in-May trade.

The basic construct seems to be buying May 27 and 30 calls on the CBOE Volatility Index, and hedging them with upside calls on the S&P 500. If stocks drop in May, the upside VIX calls’ value rises. If shares rally, losses are offset with the upside SPY calls.

One investor recently bought 99,000 SPY May 212 calls that expire May 13. Another purchased 330,000 May 215 calls that also expire that day.

It’s hard to tell why so many investors are suddenly so interested in trading the May 13 expiration in the SPDR S&P 500. The action is so large that it’s thought to complement upside VIX calls, or a massive short position in the stock market.

THE SELL-IN-MAY THESIS could prove to be a nonevent, and the trading patterns may prove to be as odd and inexplicable as the crop circles that appear out of nowhere on farmland. Nonetheless, size equals conviction. At a time when strong convictions are rare commodities, the emergence of these outsize trades serves as a reminder of the prudence of rechecking position risks and exposures as the stock market dances around historic highs.

LAST WEEK, the options market passed a major milestone. The CBOE, which introduced listed options trading, celebrated its 43rd birthday on April 26. In 1973, the first options contract was traded in the smoking lounge of the Chicago Board of Trade. By day’s end, 911 calls had traded on just 16 stocks. The original list included Atlantic Richfield, Ford Motor (F), Northwest Airlines, and Xerox (XRX).

Puts were introduced in 1977. Now, 15 million or more contracts on about 4,000 options classes often trade each day on 14 exchanges. The once mighty CBOT has become a subsidiary of the Chicago Mercantile Exchange, while the CBOE has become one of the world’s most respected exchanges, and options are increasingly discussed as an asset class, like stocks and bonds.

Barron's : Russia Beckons Brave Investors

Russia Beckons Brave Investors

Russian stocks are enjoying a rebound, and bargains abound. But investors must be prepared to bail out if the rally peters out.

Invest in Russia? Seriously? The downtrodden market has gotten a lift recently from stabilizing oil prices and warming sentiment toward emerging markets. In fact, the Market Vectors Russia exchange-trade fund (ticker: RSX) is up 20% this year, outrunning an 8% advance in all global emerging markets.

“Russia is one of the cheapest markets in the emerging world,” says Mark Mobius, the dean of emerging markets at Franklin Templeton. “You could look at a list of Russian companies and find a bargain, whether it be in oil, mining, banks, or consumer companies.” Credit Suisse issued two Russia upgrades during April, shifting to neutral versus 50% underweight in the EM asset class.

Russia’s advance invites comparison with that of Brazil—another unloved, commodities-heavy BRIC (Brazil, Russia, India, China)—up 40% since Jan. 1. Brazil bulls hope the political pandemonium there eventually will lead to better governance and economic fresh air. In Russia, President Vladimir Putin isn’t going anywhere soon. The outlook is stable, for better or worse—mostly worse.

The case for Russia rests on its stoic endurance in the face of the global oil crash and Western sanctions, which have cramped credit availability. Unlike the leaders of some other one-trick-pony oil exporters, Putin & Co. haven’t drained the nation’s reserves to maintain its living standards. Instead, they’ve let the population suffer, with a ruble that has lost more than half of its value since mid-2014, while a hawkish central bank has made savvy bond investors a fortune. Spreads on Russian sovereign Eurobonds have tightened from 700 basis points (seven percentage points) above U.S. Treasuries in late 2014 to 250 bps now, reports Jan Dehn, London-based Ashmore Investment Management’s research chief.

NOW IT MAY BE EQUITIES’ TURN. The ruble has rebounded with oil, rising 18% against the dollar in two months. That has cooled Russia’s punishing inflation, from 15% year on year last November to 7% in March. That should let the Bank of Russia cut its key interest rate from 11%, unfreezing economic activity. Credit Suisse spots an uptick both in real wages and consumer spending since the start of this year, though Russia’s economics ministry sees a second year of recession, with gross domestic product shrinking by up to 1%.

One internal reform may also jog the market, says Jacob Grapengiesser, a founding partner at Stockholm-based regional investor East Capital. Prime Minister Dmitry Medvedev recently directed state-owned companies to pay out 50% of net profits in dividends, double the current rate. That reflects the government’s need for more cash, but also spells a windfall for outside shareholders in Gazprom and other state-dominated giants—if managements can’t wriggle out of it. Gazprom’s London shares have already jumped by a third this year, and East Capital expects a further run. “We don’t like Gazprom as a company, but we have been buying a lot of it,” Grapengiesser says.

The argument against Russia is that, for the foreseeable future, it will still be Putin’s country and too bogged down by corruption and byzantine bottlenecks to grow much, under even the best of circumstances. The economy expanded by a meager 1.3% in 2013, when Brent oil averaged more than $100 a barrel. With Brent under $50, the nation will struggle. “It’s still early to talk about steady growth at some acceptable rate,” says Dmitry Polevoy, chief economist for Russia at ING Bank in Moscow.

The Russian stock market is likely to sputter again at some point. But there may be a wave to catch before it crashes.

Barron's : Get Ready for China’s Commodities Crash

Get Ready for China’s Commodities Crash

China’s commodities rally has extended beyond its futures market into equities. But now the government is putting on the brakes—and investors could be hit hard.

China’s commodity futures markets are looking like its stock markets a year ago, when hordes of investors bet huge sums, setting the stage for a painful crash.

Money started to pile into metals futures in March, after China’s rubber stamp National People’s Congress expanded the country’s fiscal deficit to pump up growth, and approved reforms to reduce overcapacity in the steel and coal industries. Trading momentum got a further boost after China’s real estate market showed green shoots in the form of home-price increases in lower-tier cities.

“Most investors believe the government will do whatever it takes to meet its short-term GDP growth target,” says Bank of America Merrill Lynch strategist David Cui. And what’s a more direct bet on this phenomenon—also known as the “Beijing put”—than commodity futures?

By late April, daily trading volumes of five major futures contracts in steel and coking coal—essentially bets on an extended building boom—grew fivefold from a year prior. On April 21, when steel-rebar futures hit a year-to-date peak return of 53%, 225 million tons changed hands on paper, greater than China’s entire 2014 output of 215 million tons. On the same day, turnover of this futures contract alone reached 606 billion yuan ($93.5 billion), bigger than the combined transaction value of China’s two stock markets.

The commodities rally has extended beyond the futures market into equities. Across Asia, this year’s best performers are metals miners and steel makers. Australia’s iron-ore miner Fortescue Metals Group (ticker: FMG.Australia) has soared 76%, Korea’s steel maker Posco (005490.Korea) is up 42%, and India’s Tata Steel (500470.India) has gained 34%.

Last week, Beijing suddenly got cold feet. The Shanghai and Dalian Futures Exchanges increased transaction fees and warned repeatedly against speculative trading. Rebar futures dropped 7% from their April 21 high, but were still up 41% this year. Trading volume almost halved.

ANALYSTS ARE NOW WONDERING if this rally has fundamental support. Even if the government manages, as promised, to cut 150 million tons of steel capacity—which would trigger millions of job losses and cost billions of yuan in asset write-downs—China’s steel industry still has about 300 million tons of overcapacity this year. Steel mills have to keep their furnaces empty about 30% of the time, or we will see too much steel flooding the market again, according to Credit Suisse.

Next to its massive stock markets, China’s commodity futures market is still very small. Security deposits stand at only CNY400 billion, a fraction of the CNY1.7 trillion deposited in stock-brokerage accounts. That means a small inflow into the futures market can create a lot of trading momentum, says Merrill’s Cui.

China’s opaque asset-management industry likes leverages and simple narratives. Last year, it was a liquidity-driven stock bull, and this year, a cyclical recovery story. In the first quarter, China’s money supply grew 13.4% from the year prior, well above its gross-domestic-product growth rate. That money has to go somewhere. For China’s fund managers, if their bets pay off, they win big; but if they lose, Cui notes, it’s “the investors’ shirt anyway.”

>>> Medivation suitors need to account for oncology pipeline, Xtandi upside

MergerMarket

Medivation suitors need to account for oncology pipeline, Xtandi upside - sources

Medivation (NASDAQ:MDVN) does not have an incentive to sell if suitors do not take into account upside in its oncology pipeline and its marketed prostate cancer drug Xtandi (enzalutamide), a source familiar with the matter and industry bankers said.

On 28 April, France’s Sanofi (EPA:SAN) launched an unsolicited takeover proposal to acquire San Francisco-based Medivation for USD 52.50 per share in cash. The pharma company on Friday rejected the offer, which it said “substantially undervalues” the company.

A industry investor agreed the offer is low. He pointed to Abbvie’s (NYSE:ABBV) acquisition of Pharmacyclics, which was a competitive auction, as a comparable transaction, although he agreed that valuations in the pharma sector have come down over the past few months. In that deal, Abbvie paid USD 21bn to acquire Pharmacyclics, which had a partnership in place with Johnson & Johnson (NYSE:JNJ) on lead cancer drug Imbruvica (ibrutinib).

Medivation has Phase III assets that could get approved in a number of late-stage cancer indications. Furthermore, Xtandi, which is being marketed for metastatic castration-resistant prostate cancer (CRPC), is being submitted for approval in earlier-stage prostate cancer indications, which would increase sales of the drug, one of the bankers said.

Medivation is a scarce asset, the investor said, with the other product being J&J’s Zytiga (abiraterone acetate). A fair valuation for Medivation should be in the low to mid-USD 60s against the current USD 52.50 offer from Sanofi, the investor claimed.

Aside from Medivation there are few companies that could compete in prostate cancer, among these being Celgene (NASDAQ:CELG) and Incyte (NASDAQ:INCY), the source familiar said.

Sanofi’s approach, however, bodes well for Medivation, as the French suitor does not have a history of doing completely hostile bids, one of the bankers and the investor pointed out. It made unfriendly approaches to Genzyme and Aventis and both of those turned into friendly acquisitions, the investor added. Furthermore, Sanofi has a history with oncology drugs marketing Taxotere (docetaxel) for breast cancer and Jevtana (cabazitaxel) for prostate cancer, a second banker said.

Sanofi appears to be acting opportunistically during a temporary low in biotech valuations, the source familiar and one of the bankers said. The question is whether Sanofi’s approach will kick off a competitive auction process before a standstill agreement that Medivation has in place with Japan’s Astellas (TYO:4503) on Xtandi terminates in September 2016, they added.

Under the terms of the standstill agreement, Astellas cannot acquire more than a 5% stake in Medivation before the expiry date.

Any Medivation bidder would therefore be marketing Xtandi alongside Astellas, the bankers said.

One of the bankers questioned why an auction process has not already kicked off given that Medivation has been reportedly on the block for some time, and interested bidders for its oncology pipeline would have approached the company during this time. It hired former Citigroup investment banker Jennifer Jarrett to serve as CFO at the end of March, this banker said.

Astellas does not have to acquire Medivation, two of the bankers said, given that the Japanese pharma company gets the benefits of the partnership irrespective of any M&A. If anything, having a bigger partner is better for Astellas, the investor noted.

AstraZeneca (NYSE:AZN) and Pfizer (NYSE:PFE) have also been reported as possible buyers for Medivation.

A fourth banker said it was his understanding that Medivation believed it gave too much away or it did not get paid adequately in the Xtandi deal it struck with Astellas. This is the right time to sell, the same banker said, and a time to figure out who will pay the most.

Medivation and Sanofi declined to comment.

Evercore and JPMorgan are advising Medivation along with Cooley.

>>> Weekly Update

Weekly Market Update: Spring Cleaning

The last groans of the dismal first quarter were heard this week, as economic data and corporate earnings showed just how weak things were in the first three months of the year. Meanwhile, both the Fed and Bank of Japan held policy meetings that delivered zero new measures and very little in the way of color on the institutions' views of the malaise. Stocks sank through the week's end, while the dollar softened notably and oil and precious metals soared. However, the prevailing view in some quarters is one of good riddance to bad rubbish, as the decks are cleared for a nice move higher as the cold spring heats up. A hint of things to come were seen in the much improved European first quarter GDP data. US Treasury prices stabilized helping yields back off of recent 5 week highs, largely on the currents coming from the equity selling pressure. For the week, the DJIA lost 1.3%, the S&P500 dropped 1.3%, and the tech laden Nasdaq slumped 2.7%.

Annualized US GDP growth in the first quarter skidded to a two-year low of +0.5%, surprising nobody as Q1 showed seasonal weakness for the third year in a row. Business investment fell sharply, which did surprise many observers. On the positive side, residential investment and personal consumption saw much stronger-than-expected gains. In any case, the weak overall number was widely expected.

The mildly more hawkish notes in the FOMC statement seemed to leave the door open for a rate hike at the June meeting, although the preponderance of its very cautious language largely remained in place. The committee removed from the statement a warning about risks from "global economic and financial developments," saying that it was now monitoring such developments. For the third time in a row, Fed officials refrained from providing guidance on the balance of risks. The statement provided a mixed picture of the economy. It emphasized the improving labor market and noting that "strong job gains" likely herald a further pickup but acknowledged that economic growth "appears to have slowed." Fed Funds futures saw the odds of a June hike fall to 12% following the GDP report from around 21% after the end of the Fed policy meeting the day earlier.

The yen's big move higher in the last week of March and the first week of April saw USD/JPY break below the key level of 110, inspiring talk that either the government or the Bank of Japan would have to do something to bolster the economy and cool off the currency. Neither side has budged this month, with the BoJ resorting to verbal intervention and the government merely hinting that the sales tax might be hiked slightly less than planned (and only then because of the Kumamoto earthquake). The yen had come off its 18-month highs in the middle of April, thanks mostly to rumors that more BoJ easing could not be avoided, with talk of the bank authorizing more asset purchases or even lending to banks at negative rates. The BoJ authorized neither at Thursday's policy meeting and kept its policy stance unchanged. Markets reacted swiftly: the yen jumped and the Nikkei index slumped. By Friday, USD/JPY was at fresh 18-month lows around 107. There was ominous economic data out this week: March Core CPI fell by 0.3% y/y, the biggest drop since the BoJ launched its easing campaign three years ago.

Inaction from both the Fed and the BoJ has reinforced the weaker dollar trend and sent the Dollar Index lower every day this week. By Friday, the index was around 93, the lowest level since last June. Also on Friday, China's PBoC set the yuan at its strongest level since the beginning of April, and the daily fixing moved up by the biggest margin since July 2005. The weaker dollar helped propel commodity prices higher, with crude pressing on to fresh six-month highs. Brent rose to $48 and WTI was above $46. Gold prices rose 4% on the week to fresh 15-month highs, while silver hit 12-month highs. Note that certain industrial metals were hammered by new regulations implemented by the Chinese to curb speculation. Iron ore prices in China fell more than 10% after China's Dalian Commodity Exchange raised trading charges, vowing a clampdown on what it termed "excessive speculation."

Europe saw contrasting, perplexing data reports on Friday. The Eurozone slipped back into deflation in April, with prices dropping 0.2% y/y (core CPI was +0.8% y/y). Germany's EU harmonized CPI figure was -0.1% y/y. Meanwhile, the first reading of Eurozone Q1 GDP was +1.6%, a bit ahead of expectations. Advance GDP readings for Q1 were also very robust in France and Spain. The euro remained strong this week, but did not manage to top the 1.1450 level seen in mid-April.

Nearly 60% of the S&P500 component companies have reported first quarter results as of Friday, and the focus has been on lower profits and slower global growth. Overall earnings for the S&P500 are expected to decline more than 6% y/y in the quarter, and are still expected to decline even when energy companies are excluded from calculations. Notable exemption from this trend with earnings out this week included tech giants Facebook and Amazon, both of which crushed expectations on excellent rates of growth. In addition, consumer goods names Ford and Whirlpool both did strikingly well, even given the broader weakness in the manufacturing space. Apple was a story all its own: Cupertino saw its first q/q decline in revenue since 2003, thanks to lagging iPhone sales in China.

Troubled pharmaceuticals firm Valeant named a new CEO, tapping former Perrigo chief Joseph Papa to replace the embattled J. Michael Pearson. The choice is somewhat odd, given that Papa and Perrigo have recently faced their own challenges since Papa helped fend off a hostile takeover by Mylan last year. At his Senate committee hearing, outgoing CEO Pearson admitted that Valeant had been too aggressive in raising prices on certain drugs. In addition, Valeant filed its long-delayed 10K and replaced most of its board. Shares of PRGO closed out the week down 20% on the week on its CEO departure and on poor preliminary Q1 guidance.

Abbott Laboratories surprised markets by announcing a totally unexpected megadeal to acquire St. Jude Medical for a total of $25 billion, or $85/share in cash and stock. Analysts say the acquisition is very positive, as the deal fills an obvious lack of cardiovascular products like pacemakers and defibrillators in Abbot's lineup. The deal came as Abbott's merger pact with Alere got closer to falling apart. Last month Alere had deferred its annual 10K filing, citing some revenue recognition troubles. There was talk Alere could be facing defaults, and this week it disclosed that Abbott pressed the company to withdraw from its merger deal. For its part, Abbott said it would be perfectly capable of handling both the St. Jude acquisition and the Alere issue without problems. Shares of both ALR and ABT were down about 10% on the week.