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GLOBAL M&A SET FOR A MORE SUSTAINABLE PATH

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GLOBAL M&A SET FOR A MORE SUSTAINABLE PATH

Angus Grierson, Managing Director, LGB Corporate Finance

It has been a busy start to 2018 for global M&A following very few big-ticket takeovers in 2017. The $1.2 trillion of deals completed in the first quarter marked the most active start to a year since the turn of the century, according to data from Dealogic. The market is characterised by increasing use of debt in private equity-driven M&A, corporate borrowing fueling takeovers and surging valuations. All this is causing some to call the top of the market.

Angus Grierson

Angus Grierson

Corporates loading up on debt to undertake acquisitions are led by semiconductor giant Broadcom, which lined up $106 billion of debt financing in February to acquire Qualcomm, before the transaction was unexpectedly cancelled by President Trump. Among the mega deals which have also been confirmed in recent months are AXA’s $15.3 billion offer for Bermuda-based XL Group – its largest ever acquisition, as well as the largest purchase of a US insurer by a European buyer; and a $15.8bn bid by Unibail-Rodamco, the world’s largest landlord, for Australia’s Westfield Corp –the biggest property acquisition since 2013. Unibail-Rodamco took out a Euro 6 billion bridging loan to part fund the bid.

Among PE deals, Blackstone struck its biggest since the financial crisis when it announced in January that it was purchasing a $20 billion stake in Thomson Reuters’ financial and risk unit – financed by a $14 billion package of leveraged loans and high-yield bonds.

Easy and low cost financing has been partly attributable to the increasing valuations in private company deals.  In his latest annual letter to Berkshire Hathaway shareholders, Warren Buffet said that cheap debt was fueling a “purchasing frenzy” of M&A activity. Buffet observed that prices seem “almost irrelevant to an army of optimistic purchasers.”

With interest rates and bond yields rising as central banks retreat from a decade of monetary easing, there are concerns that the rising cost of debt may cause the global M&A market to overheat. At first glance, this might appear plausible.

However, compared to previous credit cycles, increases in valuations have been more gradual, with mega deals still only making up a minority of global M&A deal flow and regulations such as the forthcoming Basel IIl measures are being put in place to restrain the rise of leverage loan multiples.

What is more likely is that the rising rate and yield environment will help to take the froth out of the market, moderate leverage on deals, inject a dose of reality into valuations and ultimately lead to a more sustainable flow of M&A.

Regulators are also setting their sights on reigning in excessively leveraged transactions. The Basel III rules, which are set to come into force in March 2019, raise the cost of capital for banks and reduce the profitability of leveraged lending. The ECB also released its final Guidance on Leveraged Transactions late last year, which aims primarily to monitor “credit quality and exposure to leveraged transactions”.

Part of the strategic imperatives of M&A remaining strong are moves into new markets and adoption of new tech, which drive expansion in what has been a benign, low growth environment. A further, promising fundamental sign underpinning M&A activity is the strengthening global economy. The IMF recently revised global growth forecasts for 2018 and 2019 upwards by 0.2 percentage points to 3.9 per cent.Other forecasts suggest that three quarters of major economies are expected to generate more than 2 per cent GDP growth this year – compared to less than 60 per cent in 2011. The M&A party is likely to continue, perhaps in a more subdued form, for the rest of this year.

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Australia says no further Facebook, Google amendments as final vote nears

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Australia says no further Facebook, Google amendments as final vote nears 1

By Colin Packham

CANBERRA (Reuters) – Australia will not alter legislation that would make Facebook and Alphabet Inc’s Google pay news outlets for content, a senior lawmaker said on Monday, as Canberra neared a final vote on whether to pass the bill into law.

Australia and the tech giants have been in a stand-off over the legislation widely seen as setting a global precedent.

Other countries including Canada and Britain have already expressed interest in taking some sort of similar action.

Facebook has protested the laws. Last week it blocked all news content and several state government and emergency department accounts, in a jolt to the global news industry, which has already seen its business model upended by the titans of the technological revolution.

Talks between Australia and Facebook over the weekend yielded no breakthrough.

As Australia’s senate began debating the legislation, the country’s most senior lawmaker in the upper house said there would be no further amendments.

“The bill as it stands … meets the right balance,” Simon Birmingham, Australia’s Minister for Finance, told Australian Broadcasting Corp Radio.

The bill in its present form ensures “Australian-generated news content by Australian-generated news organisations can and should be paid for and done so in a fair and legitimate way”.

The laws would give the government the right to appoint an arbitrator to set content licencing fees if private negotiations fail.

While both Google and Facebook have campaigned against the laws, Google last week inked deals with top Australian outlets, including a global deal with Rupert Murdoch’s News Corp.

“There’s no reason Facebook can’t do and achieve what Google already has,” Birmingham added.

A Facebook representative declined to comment on Monday on the legislation, which passed the lower house last week and has majority support in the Senate.

A final vote after the so-called third reading of the bill is expected on Tuesday.

Lobby group DIGI, which represents Facebook, Google and other online platforms like Twitter Inc, meanwhile said on Monday that its members had agreed to adopt an industry-wide code of practice to reduce the spread of misinformation online.

Under the voluntary code, they commit to identifying and stopping unidentified accounts, or “bots”, disseminating content; informing users of the origins of content; and publishing an annual transparency report, among other measures.

(Reporting by Byron Kaye and Colin Packham; Editing by Sam Holmes and Hugh Lawson)

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GSK and Sanofi start with new COVID-19 vaccine study after setback

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GSK and Sanofi start with new COVID-19 vaccine study after setback 2

By Pushkala Aripaka and Matthias Blamont

(Reuters) – GlaxoSmithKline and Sanofi on Monday said they had started a new clinical trial of their protein-based COVID-19 vaccine candidate, reviving their efforts against the pandemic after a setback in December delayed the shot’s launch.

The British and French drugmakers aim to reach final testing in the second quarter, and if the results are conclusive, hope to see the vaccine approved by the fourth quarter after having initially targeted the first half of this year.

In December, the two groups stunned investors when they said their vaccine would be delayed towards the end of 2021 after clinical trials showed an insufficient immune response in older people.

Disappointing results were probably caused by an inadequate concentration of the antigen used in the vaccine, Sanofi and GSK said, adding that Sanofi has also started work against new coronavirus variants to help plan their next steps.

Global coronavirus infections have exceeded 110 million as highly transmissible variants of the virus are prompting vaccine developers and governments to tweak their testing and immunisation strategies.

GSK and Sanofi’s vaccine candidate uses the same recombinant protein-based technology as one of Sanofi’s seasonal influenza vaccines. It will be coupled with an adjuvant, a substance that acts as a booster to the shot, made by GSK.

“Over the past few weeks, our teams have worked to refine the antigen formulation of our recombinant-protein vaccine,” Thomas Triomphe, executive vice president and head of Sanofi Pasteur, said in a statement.

The new mid-stage trial will evaluate the safety, tolerability and immune response of the vaccine in 720 healthy adults across the United States, Honduras and Panama and test two injections given 21 days apart.

Sanofi and GSK have secured deals to supply their vaccine to the European Union, Britain, Canada and the United States. It also plans to provide shots to the World Health Organization’s COVAX programme.

To appease critics after the delay, Sanofi said earlier this year it had agreed to fill and pack millions of doses of the Pfizer/BioNTech vaccine from July.

Sanofi is also working with Translate Bio on another COVID-19 vaccine candidate based on mRNA technology.

(Reporting by Pushkala Aripaka in Bengaluru and Matthias Blamont in Paris; editing by Jason Neely and Barbara Lewis)

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Don’t ignore “lockdown fatigue”, UK watchdog tells finance bosses

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Don't ignore "lockdown fatigue", UK watchdog tells finance bosses 3

By Huw Jones

LONDON (Reuters) – Staff at financial firms in Britain are suffering from “lockdown fatigue” and their bosses are not always making sure all employees can speak up freely about their problems, the Financial Conduct Authority said on Monday.

Many staff at financial companies have been working from home since Britain went into its first lockdown in March last year to fight the COVID-19 pandemic.

One year on, the challenges have evolved from adapting to working remotely to dealing with mental health issues, said David Blunt, the FCA’s head of conduct specialists.

“During this third lockdown, there has been a greater impact on mental well-being, with many people struggling with job security, caring responsibilities, home schooling, bereavements and lockdown fatigue.”

Bosses should continually revisit how they lead remote teams, he said.

“The impact of COVID-19 is creating a huge workload for those considered to be high performers, while the remote environment potentially makes it much more challenging for those who were previously considered low performers to change that perception,” Blunt told a City & Financial online event.

Companies should consider “psychological safety” or ensuring that all employees feel confident about speaking out and challenging opinions.

“We’ve heard varying reports of how successful this has been,” Blunt said.

Pressures in the financial sector were highlighted this month when accountants KPMG said its UK chairman Bill Michael had stepped aside during a probe into comments he made to staff.

The Financial Times said Michael, who later apologised for his comments, had told staff to “stop moaning” about the impact of the pandemic on their work lives.

Blunt was speaking as the FCA next month completes the full rollout of rules that force senior managers at financial firms to be personally accountable for their decisions to improve conduct standards.

There have only been a “modest” number of breaches reported to regulators so far as firms worry about being “tainted” but more cases will become public as sanctions are revealed, Blunt said.

“Regulators won’t be impressed by lowballing the figures.”

(Reporting by Huw Jones; Editing by Mark Heinrich)

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