RTR- J&J seeks over $5 billion in damages from Boston Scientific at trial

(Reuters) - Nearly a decade after losing a bidding war for device maker Guidant to Boston Scientific Corp, Johnson & Johnson finally has a chance for payback at a multibillion-dollar trial set to begin on Thursday.

A federal court judge in New York will hear the case without a jury and decide whether Guidant, through its successor Boston Scientific, should be held liable for breaching a contract with J&J.

J&J seeks in excess of $5 billion in damages and interest from Boston Scientific, a potentially massive judgment against a company that as of Tuesday had a market capitalization of $17.8 billion.

The two-part trial before U.S. District Judge Richard Sullivan is expected to go into December as lawyers revisit the details, and the aftermath, of the nine-year-old Guidant battle.

Underscoring the stakes, Boston Scientific has brought in well-known litigator David Boies. Johnson & Johnson will answer with a high-profile lawyer of its own, Sean Coffey, perhaps best known for winning a $6 billion judgment against big banks in the wake of WorldCom's collapse.

The companies declined to comment ahead of the trial.

Jefferies Group analyst Raj Denhoy said in a note that the case "represents a major near-term risk" for Boston Scientific.

J&J and Guidant, which made cardiovascular devices, struck a deal to combine in 2004 and later agreed to a $21.5 billion price. To satisfy antitrust concerns, J&J said it would sell a portion of Guidant's business to Abbott Laboratories.

The deal included a "no-solicitation" clause that prohibited Guidant from seeking better offers, though it was permitted to consider unsolicited bids.

Before the merger closed, Boston Scientific made a $25 billion offer and also said it would sell assets to Abbott. J&J became convinced that Guidant had provided due diligence to Abbott as it worked on the Boston Scientific offer, in violation of its agreement.

Without that move, J&J says, Abbott would not have signed on, leaving Boston Scientific unable to win what became a bidding war. Boston Scientific eventually bought Guidant for $27 billion, while J&J received a $705 million termination fee.

J&J sued Guidant and Abbott in 2006, claiming breach of contract. Abbott has since been dismissed as a defendant.

Boston Scientific plans to argue that Guidant did not knowingly violate the agreement, according to court papers.

It has also questioned whether J&J can prove it lost money. J&J's stock has soared since, while Boston Scientific's has fallen, in part over problems with the Guidant deal. In pretrial filings, Boston Scientific cited a Fortune magazine article that called it the "biggest M&A blunder since AOL/Time Warner."

J&J will counter that its deal would have succeeded, given its superior resources. It will also point to documents that it says show Guidant knew at the time that its actions were in breach of the agreement.

>>> PetSmart suitors Clayton Dubilier & Rice and KKR join forces for USD 7.5bn j

PetSmart suitors Clayton Dubilier & Rice and KKR join forces for USD 7.5bn joint bid - Newswire Round-up

PetSmart (Nasdaq: PETM) bidders Clayton Dubilier & Rice and KKR have joined forces on a USD 7.5bn-plus offer for the Phoenix, Arizona-based retailer, a newswire report said. According to people close to the situation, the two private-equity firms are preparing to table their joint bid in December, Reuters reported.

The same sources said rival PE houses BC Partners and Apollo Global Management are also looking at making their own bids, the item reported.

PetSmart initiated a sale process following pressure from shareholders including Jana Partners and Longview Asset Management, the report noted. It added that the sources said activist Jana is thinking of putting together its own board slate for PetSmart in the event that the auction does not play out to its satisfaction.
Newswire Round-up

Special Situations Blog : ANN - Ain’t No Cure for the Specialty Retailin


Ain’t No Cure for the Specialty Retailing Blues
Louis Meyer
Tuesday, November 18, 2014 1:19:48 PM
On 11/6/14, ANN INC. (NYSE-ANN) updated its outlook for 3Q and the full fiscal year; in addition, the company provided its outlook for 4Q. The press release noted the company had negative same store comps due to a variety of factors including lower mall traffic and a promotional retail environment, both of which appear to be ongoing industry trends. ANN also noted that it had higher transportation costs from using air freight in the latter part of the quarter. The company also announced it has commenced a “comprehensive, end-to-end assessment of its supply chain.” ANN first appeared on the potential takeover radar screen in late August 2014 when two shareholder activists (owning more than 1% S/O) sent a letter urging it to explore strategic alternatives; the company guided 2Q guidance downward earlier that month. Last, in March 2014, Golden Gate Private Equity Inc. (“Golden Gate”) filed a 13-F disclosing a 4.375M share position (9.5% S/O) in the company.

Given the updated financial guidance, we believe any near-term takeover price would be in the $40-$44/share range, well below our low-$50s midpoint based on the estimated deal price ranges in our initial blog. ANN noted that it expects to “maintain its healthy balance sheet” for the remainder of the fiscal year; we decode that that as shareholders should not expect any other corporate action, such as a special cash dividend or a large one-time share buyback, until mid-1Q15 at the earliest. While the recent decline in gasoline prices may be a catalyst for increasing discretionary consumer spending, we feel the timing of the drop is probably too late in the year to have a material impact on 4Q sales estimates. We note the ANN holiday sales totals are similar to the other three reporting quarters (unlike many specialty retailers); the company may actually be at a disadvantage this shopping season as any increase consumer spending may be applied to more discretionary purchases rather than personal business and casual clothing.

The primary catalyst for maximizing the ANN value is a leveraged buyout, most likely by a PE firm; we believe Golden Gate remains the primary buyer given their large share ownership (and ~$36/share average price). We feel an updated blended probability analysis would be fruitless at this juncture as ANN appears to be moving in the direction of an operational turnaround. While the Ann Taylor and Loft brands continue to have good name recognition, operating expenses seem to have gotten bloated over the years (and ANN is not a plus size retailer). Slimming down excessive and/or productive expenditures is a start; ANN closed its Madison Avenue store location and is looking to pare working capital use by more closely managing inventory. Both actions should have probably been taken a while ago (along with relocating corporate employees out of their spacious Manhattan headquarters).

The ANN trading multiples are inline with Chico’s FAS, Inc. (NYSE-CHS), the company we view as the best comparable. The ANN and CHS FY16E valuation multiples based on $38.00 and $15.50 share prices are 17.8x and 18.5x P/E and 6.9x and 6.6x EV/EBITDA, respectively; the mid-cap companies have similar EBITDA margins (10%-12% range). In comparison, large-cap L Brands, Inc. (NYSE-LB) has about 10x the market capitalization as ANN and double the EBITDA margin; at $77.50/share, LB trades at FY16E valuation multiples of 20.7x P/E and 10.7x EV/EBITDA. A 20.7x multiple of ANN FY16E $2.13 EPS implies $44/share (the top end of our updated takeover value). The valuation multiples of Express, Inc. (NYSE-EXPR), a mid-cap specialty retailer, represents trading multiples the other end of our valuation spectrum. At $14.75/share, EXPR’s FY16E multiples are 13.3x P/E and 4.7x EV/EBITDA (11% margin) which imply an ANN share value in the mid-high $20s and reflect the potential downside share price absent the current catalysts.

With $306M debt, $156M net debt and FY15E $240M EBITDA, ANN has the debt capacity (at 2x Debt/EBITDA) to repurchase ~12% of S/O if the stock drops into the low-$30s. While a lower buyback price is more beneficial to ANN compared to $40-$42/share (i.e. the price range after shareholder activists’ letters were disclosed in August), we believe repurchases below $35/share are highly unlikely given the $35-$42/share trading range since March 2014. The updated current fiscal year guidance effectively took away $50M of potential EBITDA - this is real money for ANN and company management would be smart to find ways to regenerate that amount sooner than later. We believe the shipping issues on the West Coast are temporary and will eventually be resolved; poor inventory management, oversized stores and poor locations (relative to declining retail store traffic trends) are ongoing issues that the company controls. Overall, we view Golden Gate as an entity that will catch the company’s stock price if it is falling but would not expect to pay full value if the asset has minimal operational upside from being better managed.




DISCLAIMER

This information represents neither an offer to buy or sell any security nor, because it does not take into account the differing needs of individual clients, investment advice. Those seeking investment advice specific to their financial profiles and goals should contact their Oscar Gruss & Son Incorporated sales representative. Oscar Gruss & Son Incorporated believes this information to be reliable, but no representation is made as to accuracy or completeness. This information does not analyze every material fact concerning a company, industry, or security. Oscar Gruss & Son Incorporated assumes that this information will be read in conjunction with other publicly available data. Matters discussed here are subject to change without notice. There can be no assurance that reliance on the information contained here will produce profitable results. A security denominated in a foreign currency is subject to fluctuations in currency exchange rates, which may have an adverse effect on the value of the security upon the conversion into local currency of dividends, interest, or sales proceeds. The value of securities and depositary receipts of foreign issuers that are denominated in United States dollars are also influenced by fluctuations in currency exchange rates.

© 2014 Oscar Gruss & Son Incorporated. All rights reserved.
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>>> Anima (ANIMA IM) Announces partnership agreement with Banca Popolare di Pugl

Announces partnership agreement with Banca Popolare di Puglia e Basilicata 

Anima Holding and Banca Popolare di Puglia e Basilicata signed a partnership in the asset management business lasting eight years, according to which ANIMA Group is granted preferential access to the banks distribution network. Such access consists, in particular, training activities, product engineering and development according to the specific BPPBs clients needs. 

The agreement is similar in its guidelines to those signed by ANIMA with the other three strategic partners (BMPS, BPM and CreVal), and aims at further developing the asset management activities of the bank, which currently has 137 branches mainly concentrated in Southern Italy. As of December 31st 2013 BPPB indirect deposits reached €2.5 billion (of which around €450 million in mutual funds). - Source TradeTheNews.com

FT : Daimler targets China for Maybach revival

Daimler has targeted Chinese drivers to spur the revival of its moth-balled Maybach luxury brand, which returned on Wednesday with a global debut in the southern city of Guangzhou.
Maybach limousines once competed with luxury rivals such as Rolls Royce and Bentley, until Daimler axed the struggling brand three years ago.

The German carmaker revealed last week that it would relaunch the Maybach as a top-end variant of its Mercedes Benz sedans, and selected Guangzhou and Los Angeles as the debut venues for the new Mercedes-Maybach S-Class.
Daimler’s decision to launch the Maybach at this week’s Guangzhou Motor Show highlights the strategic importance of the China market, where its Mercedes unit is attempting to catch up with VW’s Audi division and BMW.
China is the world’s largest automotive market, with 18m passenger cars sold last year, and is on track to surpass the US as the world’s largest market for premium cars by 2020.
“It’s a smart move,” said Clemens Wasner, a Tokyo-based partner with automotive consultancy EFS. “If there’s any customer base in the world that could revive Maybach, it would be China’s.”
In 2013, Daimler posted a board member, Hubertus Troska, to Beijing to oversee operations in the world’s second largest economy and close a long-standing gap there separating Mercedes from its two main rivals.
Daimler sold 138,000 Mercedes sedans in China in the first half of this year, compared to unit sales of 269,000 and 225,000 respectively for Audi and BMW.
Speaking earlier this month at the formal opening of Mercedes’ new research and development centre in Beijing, Mr Troska said China sales increased 30 per cent over the first three quarters compared to the same period in 2013, and reiterated his company’s 2015 target to sell “significantly higher than 300,000 units” in China.
“We believe six per cent average growth over the next 10 years is highly likely for [China’s] passenger vehicle market, and premium cars tend to grow higher [than the industry average],” Mr Troska said. “There is a lot of catching up we can do, so even if there were not such strong growth I see no reason why Mercedes should not grow above average.”
Daimler sold just 200 Maybachs in 2010, the brand’s final full year before it was discontinued, compared with more than 2,700 units the same year for Rolls Royce and 5,000 for Bentley.
It is uncertain whether the new Maybach’s positioning as an S-Class “sub brand” will have the same appeal for Chinese drivers as Rolls Royce and Bentley, which maintain entirely separate brand identities from their parent companies.
Last month, Mr Troska said the company wanted Mercedes cars to “command a slight premium above the respective vehicles from our competitors”.