Valeant effort

Jun 18, 2014 22:42 UTC

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Things are getting uglier between Valeant Pharmaceuticals and Allergan, the maker of Botox. The former, with a little help from hedge-fund manager Bill Ackman, is attempting a hostile takeover of the latter (previous coverage here). Over the last few weeks, Valeant has been slowing upping its bid for the company (to $53 billion from the original $45 billion). That’s pretty normal in mergers and acquisitions, says Daniel Hoffman of Pharmaceutical Business Research Associates. What’s interesting about Valeant’s bid is that “within this same span of a few weeks, attitudes in both pharma and the investment community made a radical turn from mild approval to complete revulsion.”

The latest development in this saga, writes David Gelles, is that Valeant plans to take an exchange offer to shareholders, offering them a mix of cash and stock for their shares. Matt Levine says this is “mostly a cosmetic development” since “the shareholders can’t accept the exchange offer until Allergan rescinds its poison pill, and that’s not gonna happen unless the board agrees or is voted out at the special meeting Valeant is trying to call.” Allergan’s poison pill aims at preventing Ackman significantly expanding his 9.7% stake in the company by offering discounted shares to other stakeholders if any unapproved investor acquires 10% or more of Allergan’s stock.

Perhaps the more interesting development came on Monday, when it came out that at an earlier stage in the deal, Morgan Stanley sent Allergan some emails denigrating Valeant. Allergan released the emails as part of a larger package to show why shareholders should reject Valeant’s offer. This is awkward since Morgan Stanley is now working on Valeant’s side. Levine, in a separate post, notes that the job of an investment bank is to get hired in a big M&A deal, so it’s pretty normal to pitch both sides. “What Morgan Stanley didn’t count on was the incredibly intense hostility that this deal has engendered,” he writes. Valeant’s CEO stood by Morgan Stanley, using the opportunity to suggest that, “it’s clear that Allergan’s release [of the emails] is a sign of desperation.”

John Hempton at Bronte Capital has started a series of posts about Valeant, which he’s not too impressed with — there are seven so far, including one on corporate jets. Basically, Hempton takes issue with Valeant’s accounting, and thinks it might be close to going bust. Valeant had a “fact-based presentation” yesterday, addressing some of Hempton’s concerns on a conference call. Hempton responds hereDan McCrum has also been on the Valeant financials, and writes that it’s “a company that only makes a profit after a lot of accounting adjustments.” Doesn’t look like this fight’s going to get prettier anytime soon. — Shane Ferro

On to today’s links:

Primary Sources
Get your white hot FOMC statement action here - Federal Reserve
Tracked changes from the last FOMC statement - WSJ

Bold Ideas
What if London had its own interest rate? - Izabella Kaminska

Fine Distinctions
DOJ “fines on average are seven times larger for foreign companies than for domestic ones” - Jesse Eisinger

Does culture matter for economic growth? - Dietz Vollrath

Long Reads
Krugman on Geithner’s new book - NYRB

Billionaire Whimsy
Chen Guangbiao put ads in the NYT and WSJ offering 1,000 poor people in New York a free lunch and cash for occupational training - Telegraph

Patent Power
Washington Redskins: Death by patent office - Neil Irwin

Niche Markets
“By weight and volume and size, it’s the most valuable item in the world” - NYT

The Financial Times is changing the way it charges for ads - Sam Petulla

Science Says
“Smart people prefer wine” - Alice Robb

Hot new app: “You usually understand what the Yo means based on who you get it from and when you get it” - Judd Legum

Inefficient Markets
It’s really hard to figure out if online ads work - Jordan Weissmann

“Can you acquire me now?”

Aug 30, 2013 20:08 UTC

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British telecom giant Vodafone is reportedly close to selling its 45% stake in Verizon Wireless to Verizon for as much as $130 billion, possibly as early as Monday. If the deal ends up happening, it would constitute one of the biggest takeovers on record, says Michael de la Merced.

First a little background: Verizon Wireless is a joint venture that began in 2000 between Verizon, which owns 55%, and the UK-based Vodafone, which put in $70 billion for its 45% stake. Rumors have been circulating since 2006 that Verizon is interested in buying Vodafone out of its share. In 2007, it looked like the opposite might happen: Paul Murphy reported that Vodafone was looking at a $160 billion takeover of Verizon (it was then referred to as Project Vulture). Even then, though, according to Murphy, some activist shareholders were pushing for Vodafone to sell its Verizon Wireless shares and give that cash back to investors.

Six years later, the deal “rebel shareholders” were looking for may finally be in the works. For Verizon, the deal would “reweight the company away from its heavily regulated, unionized wireline operations”, says the WSJ; it would also be able to “shift from receiving dividends to being able to fully incorporate all of its profit”, according to de la Merced.

It’s less clear what the endgame is for Vodafone, currently a mobile-only company being squeezed by low growth in the European market. While the WSJ quotes analysts who say Vodafone may use the cash to buy a company with broadband infrastructure (so it can have a “quad-play” strategy offering customers a bundle of landline, cable TV, broadband internet, and mobile services), shareholders seem to be looking for cash.

Bryce Elder thinks the reason for the deal finally going forward is Vodafone wanting to cash out at the peak of the market, before US mobile competition heats up, and that it would use the money to do a combination of buying up infrastructure and returning cash to shareholders. Nils Pratley is less convinced that selling now is smart. “Everybody wants to sell at the top, but few manage it, and here Colao [Vodafone’s CEO] would be saying goodbye to Vodafone’s best asset by a mile – a large stake in the best mobile operator in the world’s biggest market”.

Reuters quotes an anonymous Vodafone shareholder saying that simply returning the cash to shareholders would be the worst thing that could happen. “Then you are left with a weird company that isn’t really doing anything”. The FT, meanwhile, suggests that Vodafone is setting itself up “as a potentially attractive target for takeover”.

It’s not a done deal yet. Verizon doesn’t have near enough cash to pay outright, and the BBC suggests that the final offer will be half in cash and half in stock. Verizon would likely need to line up $50 billion in financing, reports the WSJ — possibly including $20 million in bonds — which could lead to the largest corporate debt sale ever.

Meanwhile, the FT notes Vodafone has been worried about a $40 billion capital gains tax bill (which the WSJ estimates at $10-25 billion). Indeed, Vipal Monga says that Vodafone’s Luxembourg arm, which does not need to pay taxes in the US, could end up selling Vodafone Americas to Verizon, substantially lessening the tax bill. – Shane Ferro

On to today’s links:

EU Mess
Greece is running out of cash — again. Details on a possible third bailout – Matina Stevis

Welcome to Adulthood
“Dorms = your parents’ place, according to the government” – Derek Thompson

Big Brother Inc.
US spy agencies have a “black budget” of $52.6 billion per year – WaPo

New Normal
The competitive edge behind America’s factories is that they’re easy to close – Tim Fernholz

The Fed
Janet Yellen for Fed chair, but it’s a close call – The Economist
Nominating Summers would be “demonstrably bad” – Josh Barro
Larry Summers and the politicization of the Fed – Felix

Reasons to be optimistic about the recent emerging markets rout – Cardiff Garcia
The children are our future, and can be priced accordingly – Alex Mayyasi

Making $377,000 in one day trading Apple using “latency arbitrage” – Rob Curran

Why no one watches business TV anymore – Kevin Roose
10 reasons why “lists are a form of cultural hysteria” – Mark O’Connell

The CEO of a chain of dialysis centers, which relies entirely on federal funding, made $27 million last year – Eric Lipton

“Workers only got about a third of the economic growth generated so far this year” – Matthew Klein

How poverty hurts cognition – Bryce Covert

Turns out it’s tough to have a TED talk in Mogadishu – ABC

It’s not what you earn, it’s what you keep – David Merkel

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.


How to avoid CGT tax on share pay-out’s such as the forthcoming £84bn Vodafone Windfall?
There has been much press talk about the forthcoming Vodafone share bonanza following the £84bn sales of its stake in US Mobile Phone Giant – Verizon Wireless – especially given the whopping tax bill that this FREEBIE WINDFALL will present to some of the army of 500,000 or so UK private Vodafone Shareholders.
There is an obvious TAX FREE solution! Clearly any UK shareholder, including myself, that has already utilised their CGT allowances, would do well to “roll-over” their capital gain by investing into an Enterprise Investment Scheme (EIS) start-up, whereby, they will be eligible for not only a 30% tax refund (applicable to the previous or current tax year – you choose) but also a further CGT deferral of 28% (and IHT deferral if you have that tax position also) – the CGT deferral can be applied to any of the last 3 tax years – but for Vodafone shareholders it will be the 2013/2014 year that is hurting them most. One such EIS investment that, in my view, is gearing up to be a potential winner is (part of the Alumni Oil Group) who have created an oil & gas exploration through the EIS that is now at a point of showing hard evidence that they have discovered a multi-billion barrel new oil province – potentially worth many hundreds of billions of pounds and, as an unlisted share, they can be bought into at just 20p (currently) with vast upside potential (oil industry investments of this type frequently return many hundreds of times your original investment) and not only do you get the tax benefits upon investment – when ANE strike oil, having rolled over your other CGT gains, you could potentially realise a several hundred times uplift! BEST OF ALL, the exit is CGT free so long as you retain your shares for the minimum 3 year EIS period – is this not a perfect win-win for all of us reaping the benefits of the Vodafone / Verizon Bonanza? For more info, -0

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