These are stories Report on Business is following Tuesday, April 22, 2014.
Doctor, please, some more of these
Shares of many of the world’s big pharmaceutical companies are surging this morning amid a blockbuster deal, a Botox bid and plain old speculation.
This all began late yesterday as activist investor Bill Ackman joined forces with Canada’s Valeant Pharmaceuticals International Inc. for a $45.6-billion (U.S.) run at Botox maker Allergan Inc., sending its stock soaring in after-hours action.
In the premarket hours this morning, Allergan shares were up by 26.6 per cent, and Valeant stock up 7.7 per cent, within about an hour of the New York open.
The industry shakeup then picked up speed with a three-way deal between Novartis International AG, GlaxoSmithKline PLC and Eli Lilly & Co.
Novartis is buying GSK’s cancer drug operations, while selling GSK the bulk of its vaccines unit, though it’s keeping the flu portion of that. Together, the two drug giants are also forming a joint venture on the consumer side of the operation.
At the same time, Novartis is selling its animal drug business to Eli Lilly.
The deals will “focus the company on leading businesses with innovation power and global scale,” said Novartis chief executive officer Joseph Jimenez.
“They also improve our financial strength, and are expected to add to our growth rates and margins immediately,” he said in a statement.
GSK shares climbed on the news in London, Novartis stock less so. Eli Lilly shares were up slightly in premarket trading.
Other pharmaceutical stocks also gained amid speculation of more deals in an industry that already has seen several, primarily by Valeant, which has grown by leaps and bounds through acquisitions.
AxtraZeneca PLC, for example, shot up after a weekend newspaper report that suggested it’s being stalked by Pfizer Inc., though it then pulled back.
“Last week the S&P500 posted its best week since July last year, and yesterday in the absence of European markets went on to close higher for the fifth day in succession for the first time this year as investors continued to put to one side concerns about geopolitics and slowing earnings, focussing instead on the prospects of further M&A activity as reports filtered through that U.S. pharmaceuticals giant Pfizer had been, and is still, exploring a potential offer of $101-billion for U.K. pharmaceutical giant AstraZeneca,” said chief analyst Michael Hewson of CMC Markets in London.
The run at Allergan was the big shocker last night.
As The Globe and Mail’s Richard Blackwell and Jacquie McNish report, Mr. Ackman’s Pershing Square Capital has already grabbed almost 10 per cent of Allergan’s shares in advance of a cash-and-stock bid.
Valeant put some numbers to that today, proposing a takeover valued at $48.30 (U.S.) in cash and 0.83 of a share, adding it believes the deal would result in annual savings of at least $2.7-billion.
“This proposal represents an undeniable opportunity to create extraordinary value for both Allergan and Valeant shareholders by establishing an unrivaled platform with leading positions in ophthalmology, dermatology, aesthetics, dental and the emerging markets” said Valeant chief executive officer Michael Pearson.
For his part, Mr. Ackman said in a statement that a merger of the two would mark “the most strategic and value-creating transaction I have ever analyzed.”
A deal involving Valeant and Allergan would be an “excellent strategic fit, and a platform for growth,” analyst Neil Maruoka of Canaccord Genuity said today.
“We have anticipated that Valeant would complete a ‘merger of equals’ this year and expect that Valeant will aggressively pursue this transaction,” he said in a research note.
- Richard Blackwell and Jacquie McNish: Valeant, Ackman plan bid for Botox maker Allergan
- Novartis, GSK, Lilly sign multibillion-dollar deals to trade business units
- Robert Cyran in ROB Insight (for subscribers): Bulking up will only weigh Pfizer down
Teck cuts back
Teck Resources Ltd. is slashing 600 jobs and deferring the reopening of its Quintette coal mine in British Columbia, The Globe and Mail’s Bertrand Marotte reports.
Stung by commodity prices, the company said today it will cut about 5 per cent of its work force through attrition, a hiring freeze and job cuts.
Teck also posted a drop in first-quarter profit to $69-million, or 12 cents a share, from $319-million or 55 cents a year earlier.
On an adjusted basis, profit slumped to $105-million, or 18 cents, from $328-million or 56 cents. Analysts had forecast 29 cents.
“We are pleased with our operating performance in the first quarter, with higher production volumes for our major products,” said chief executive officer Don Lindsay.
“However, prices for these commodities were weak, particularly coal, compared to the first quarter of 2013 resulting in lower profits and cash flows than last year. As a result, we are increasing our efforts to reduce our costs and capital spending.”
That action in pharma shares is helping to drive some markets higher so far this morning.
While Tokyo’s Nikkei lost 0.9 per cent, and Hong Kong’s Hang Seng 0.1 per cent, European stocks are on the rise.
London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were up by between 0.9 per cent and 1.4 per cent by about 8:15 a.m. ET.
Dow Jones industrial average and S&P 500 futures were little changed.
“Yep, we're back to full attendance this morning, with Europe returning from the Easter holidays,” said senior economist Jennifer Lee of BMO Nesbitt Burns.
“The data calendar is still very light, however, leaving some deals in the pharmaceutical sector (including Novartis and Glaxo), along with the escalating tense situation in Russia and Ukraine, front and centre.”
CP profit jumps
Canadian Pacific Railway Ltd. today posted a 16-per-cent jump in first-quarter profit, a sign that the Calgary-based carrier overcame the harsh winter, The Globe and Mail's Eric Atkins reports.
The railway's profit increased to $254-million, or $1.44 a share, from $217-million or $1.24 a year earlier.
“In the face of such difficult operating conditions, I am particularly proud of the women and men of CP who remained on the job 24/7, to keep the railway operating,” said chief executive officer Hunter Harrison.
“Despite a slow start to the year and the reduced capacity which limited our ability to meet strong customer demand, we still have the utmost confidence in our ability to achieve our financial targets for 2014.”
Streetwise (for subscribers)
ROB Insight (for subscribers)
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- Allergan plc$227.72+10.24(+4.71%)
- Valeant Pharmaceuticals International Inc$26.10+1.60(+6.53%)
- Novartis AG$79.59+2.35(+3.04%)
- Eli Lilly and Co$75.15+0.26(+0.35%)
- GlaxoSmithKline PLC$41.33+1.19(+2.96%)
- AstraZeneca PLC$29.09+1.14(+4.08%)
- Pfizer Inc$34.44+0.64(+1.89%)
- Teck Resources Ltd$15.37+0.46(+3.09%)
- Canadian Pacific Railway Ltd$160.99+2.81(+1.78%)
- Updated June 28 4:00 PM EDT. Delayed by at least 15 minutes.