|MONDAY, DECEMBER 12, 2022
• Too good to be bad, too risky to be good, Fed managing ‘unloved’ economy
After playing catch-up with inflation through the past year in a policy shift made urgent by relentlessly rising prices, the U.S. Federal Reserve now faces a more subtle judgment about whether the economy is strong enough to motor through even higher interest rates or is on the cusp of a crack-up.
• Morgan Stanley to slash 2022 banker bonuses in Asia by up to half – sources
Morgan Stanley plans to slash investment bankers’ annual bonuses by as much as 50% in Asia, said two people with direct knowledge of the matter, as the Wall Street firm reins in costs to tackle tough market conditions that have hit its revenue.
• Microsoft to buy 4% stake in London Stock Exchange
Microsoft is to take a 4% equity stake in London Stock Exchange Group as part of a 10-year commercial deal to migrate the exchange operator’s data platform into the cloud, the British company said.
• ANALYSIS-Investors on alert for policy error after cheering slower rate hikes
Central banks are starting to slow aggressive rate rises but are far from done even as recession looms, leaving investors alert to risks that prolonged tightening could hurt the economy more than necessary.
• Amgen to buy Horizon Therapeutics for $26.40 billion
Amgen will buy rare disease drugmaker Horizon Therapeutics for $26.40 billion, it said, in its biggest deal ever that gives the biotech company access to blockbuster thyroid eye disease treatment Tepezza.
BEFORE THE BELL
U.S. stock index futures edged higher with focus turning to monthly consumer inflation data and the Federal Reserve meeting later this week. Global stocks fell as investors braced for interest rate decisions from the U.S. and European central banks later this week, while rising COVID-19 infections in China after restrictions were eased also weighed on sentiment. The dollar edged lower and gold prices slipped. Oil prices were down, deepening a multi-week decline, as a weakening global economy offset supply woes stemming from the closure of a key pipeline supplying the United States and Russian threats of a production cut.
STOCKS TO WATCH
• Credit Suisse group AG: Carsten Stoehr, Credit Suisse’s chief executive for its Greater China business, is leaving the bank, according to an internal memo seen by Reuters, as it undergoes a global overhaul with big layoffs. Stoehr will step down on Thursday and pursue other opportunities, according to the memo sent to regional staff from the bank’s Asia Pacific CEO Edwin Low. A Credit Suisse spokesperson confirmed the content of the memo. The bank is restructuring globally as it seeks to raise capital from investors following losses from mishaps, promising a business overhaul and the cutting of 9,000 jobs out of 52,000 it had in October.
Deals Of The Day
• Amgen Inc & Horizon Therapeutics Plc: Amgen said it would buy rare disease drugmaker Horizon Therapeutics for $26.40 billion in its biggest deal yet, giving the biotech company access to blockbuster thyroid eye disease treatment Tepezza. Amgen will pay $116.50 in cash for each Horizon share held, or a premium of nearly 20% to the stock’s last close. The offer values Horizon at $28.3 billion, including debt. A deal will add several approved drugs to the company’s portfolio including Krystexxa used for the treatment of gout that is not controlled by other medicines. The acquisition could help Amgen counter the impact from rising competition for its top-selling arthritis drug, Enbrel, from newer branded treatments and expected expiry of patents for the therapy in 2029.
• Boston Scientific Corp: The U.S. medical device maker will make a partial offer for a majority stake of up to 65% in Chinese medical technology company Acotec Scientific, the companies said. The acquisition, which is expected to close in the first half of 2023, according to a joint statement on Sunday, comes amid a slowdown in merger and acquisitions activity in the U.S. life sciences sector. Boston Scientific said it would pay HK$20 a share, for a total cash payment of about $523 million, for a 65% stake. The accounting and consultancy firm said it expected activity in 2023 to “more closely resemble prior years”. The offer of HK$20 per share for Acotec is a premium of about 31.6% over its last close, and about 135.5% over the average close for the last 150 consecutive trading days, the Chinese firm told the Hong Kong stock exchange.
In Other News
• Alphabet Inc: Google has refused to change its search results to display China’s national anthem, rather than a protest song, when users search for Hong Kong’s national anthem, the city’s security chief said, expressing “great regret” at the decision. “Glory to Hong Kong” song was banned in 2020 after China imposed a sweeping national security law on the financial hub to punish what Beijing defines as secession, subversion, terrorism and collusion with foreign forces with up to life in prison. The Asia Rugby Association blamed “a simple human error” of playing a song downloaded from the internet instead of the correct anthem. The top search term on Google for Hong Kong’s anthem is “Glory to Hong Kong”. Hong Kong’s security secretary Chris Tang said a request for Google to replace the protest anthem with China’s national anthem as the top search term was denied, as Google said such results were generated by an algorithm with no human input.
• Albertsons Companies Inc: The U.S. grocery chain said that Washington State Court had denied a request of preliminary injunction by the state’s Attorney General to prevent the company from paying $4 billion to shareholders in a special dividend. The court has extended the existing temporary restraining order until Dec. 19 to give the Attorney General an opportunity to appeal, the company said late on Friday. It awaits a ruling on the request for another preliminary injunction filed on Dec. 1 by the California, Illinois and District of Columbia Attorneys General against the previously announced $6.85 per share dividend, according to a statement. Albertsons said it continues to believe that the claims are “meritless and provides no legal basis for preventing the payment of a dividend.”
• Blackstone Inc: The company has warned of possible delays to the launch of a new private equity fund designed for wealthy individuals, as it copes with heavy investor withdrawals at two other funds in real estate and credit aimed at a similar clientele, the Financial Times reported on Saturday. The New York-based investment manager has been preparing to open a fund called the Blackstone Private Equity Strategies Fund (BXPE), the report said, adding that would become its flagship strategy for rich individuals to participate in its private equity business. The asset manager in recent days informed wealthy investors and their financial advisers that it may wait for fundraising conditions and financial markets to improve before launching BXPE, the newspaper said, citing people familiar with the matter.
• Clovis Oncology Inc: The U.S. drugmaker on Sunday filed for bankruptcy protection in Delaware, hit by a fall in sales of its cancer drug and challenges in raising additional capital. Clovis has been struggling to sell its cancer drug Rubraca, the company’s only approved drug, as sales were hit in recent years by intensifying competition from rival ovarian cancer treatments, and partly due to declining diagnoses during the pandemic lockdowns. The company has also lined up a debtor-in-possession (DIP) financing facility of up to $75 million to provide it with necessary liquidity, subject to court approval, Clovis said in a press release. In a filing at the U.S. Bankruptcy Court for the District of Delaware, Clovis estimated its assets to be in the range of $100 million to $500 million, with liabilities between $500 million and $1 billion.
• Coinbase Global Inc: The U.S. Supreme Court on Friday agreed to hear cryptocurrency exchange Coinbase’s bid to halt lawsuits the company contends belong in private arbitration, including one by a user suing after a scammer stole from his account. The justices agreed to consider whether two proposed class actions by customers suing Coinbase could move forward while the company appeals judges’ rulings declining to force its users to arbitrate their claims. “We are gratified the Supreme Court agreed to hear our appeal, and we look forward to its resolution of this matter,” Neal Katyal, a lawyer for Coinbase, said in a statement. Business groups call arbitration a quicker and more efficient alternative to suing in court. Plaintiffs’ lawyers say arbitration favors companies and that consumers can have more power and obtain broader relief by filing class-action lawsuits in court on behalf of larger groups of people.
• Exxon Mobil Corp: The company on Friday closed a $407 million sale of its operations in Central Africa’s Chad and Cameroon to London-listed firm Savannah Energy. Exxon has been exiting African operations with declining crude oil production to focus on its massive liquefied natural gas (LNG) project in Mozambique and on more lucrative operations in the Americas. Savannah acquired Exxon’s 40% stake in the Doba oil project, which comprises seven producing oilfields with a combined output of 28,000 barrels per day (bpd), it said in a corporate filing. The fields were producing 33,700 bpd when negotiations were disclosed last year. Savannah has operated in Nigeria and Niger. The British firm also will take over Exxon’s 40% indirect interest in the Chad-Cameroon export transportation system – a 1,081-km (672-mile) pipeline and floating storage and offloading facility offshore in Cameroon.
• General Motors Co: The U.S. Energy Department said it had finalized a $2.5 billion low-cost loan to a joint venture of General Motors and LG Energy Solution to help pay for three new lithium-ion battery cell manufacturing facilities. The loan will help finance construction of new lithium-ion manufacturing facilities in Ohio, Tennessee and Michigan, supporting 6,000 construction jobs and 5,100 operations jobs at the three plants. U.S. Energy Secretary Jennifer Granholm plans to tout the closing of the Ultium loan on a visit to Michigan on Monday with Labor Department Deputy Secretary Julie Su, Michigan Governor Gretchen Whitmer, United Auto Workers (UAW) President Ray Curry and other officials, automakers and EV battery companies.
• Microsoft Corp: The company is to take a 4% equity stake in London Stock Exchange Group as part of a 10-year commercial deal to migrate the exchange operator’s data platform into the cloud, the British company said. Microsoft has longstanding links with LSEG, but the exchange group’s Chief Executive David Schwimmer said that about a year ago they began talks on closer ties. Regulators have expressed concern about the over-reliance of financial firms on too few cloud providers, given the disruption this could cause across the sector if a provider went down. LSEG said the link with Microsoft was a partnership to reap the benefits of “consumption-based pricing”, and not a traditional cloud deal. As part of the deal, LSEG has made a contractual commitment for minimum cloud-related spend with Microsoft of $2.8 billion over the term of the partnership.
• Morgan Stanley: The company plans to slash investment bankers’ annual bonuses by as much as 50% in Asia, said two people with direct knowledge of the matter, as the Wall Street firm reins in costs to tackle tough market conditions that have hit its revenue. Bonus payout discussions are currently underway at Morgan Stanley globally, they said. A third person with knowledge of the matter said the bonus cuts in Asia for the bank are expected to be around 30% on average for all its investment banking teams and markets. The reduced payouts could lead to its bankers’ overall compensation in Asia dropping by an average of 30%, said the first two sources.
• Rivian Automotive Inc: The company said it is pausing its joint venture with Mercedes-Benz Vans, just three months after the companies entered a partnership to make electric vans in Europe. The electric vehicle maker said it will focus on its consumer and existing commercial business as it tries to become cash flow positive in its U.S. operations. “The pausing of this partnership reflects our process of continually evaluating our major capital projects, while taking into consideration our current and anticipated economic conditions,” Rivian Chief Financial Officer Claire McDonough said in a statement. The plan for Mercedes-Benz Vans’ new electric vehicle manufacturing site in Jawor, Poland is not affected and the pace of its electrification strategy remains unchanged, Mathias Geisen, head of Mercedes-Benz Vans, said.
• Spirit Airlines Inc: The company has offered as much as a 43% cumulative weighted average pay raise to its pilots over two years, according to a union memo seen by Reuters. In a memo sent out to its members on Friday, Spirit’s pilot union said the deal will result in a 43% cumulative weighted average pay raise for first officer and a 25% wage increase for captain over two years. Overall, it would lead to a 34% cumulative weighted average increase in pay rates for Spirit pilots, the memo said. The Air Line Pilots Association (ALPA), which represents pilots at the ultra-low-cost carrier, said the new contract agreement represents an economic gain of $463 million or 27% over the next two years for the pilots. If ratified by the pilots, the two-year agreement will become effective on Jan. 1. The pilot union has planned roadshows between Dec. 14-20 to generate support for the deal.
• Toyota Motor Corp: The leading Japanese automaker is expected to outline adjustments to its electric vehicle (EV) strategy to key suppliers early next year, as it races to narrow the gap on price and performance with industry leaders Tesla and BYD, two people with knowledge of the work said. Toyota is expected to detail the EV plan changes through early 2026, communicating the adjustments to major suppliers, the people said on condition of anonymity as the information is confidential. The changes, however, might include delays to some of the EV development programmes originally planned for the three-year period, one of the people said. The changes would be for the successors to Toyota’s first two EVs for major markets, the bZ4X and the Lexus RZ, and intended to close the gap with Tesla on cost and performance, the people said.
U.S. opioid crackdown hits some patients’ access to psychiatric drugs
A crackdown by U.S. drug wholesalers in response to the opioid crisis is preventing some pharmacists from dispensing a combination of stimulants and sedatives routinely prescribed by psychiatrists to help patients manage conditions like anxiety and ADHD.
• Accenture PLC: Piper Sandler cuts rating to underweight from neutral, believing tech spending is likely to be pressured in 2023 given macro headwinds.
• Acrivon Therapeutics Inc: Piper Sandler initiates coverage with overweight rating, viewing the AP3/OncoSignature platform as a novel and differentiated approach to patient selection in the targeted oncology space.
• Costco Wholesale Corp: Evercore ISI cuts target price to $540 from $580, after the company’s results show they are not immune to moderation in the broader U.S. retail landscape and remains its own toughest competitor by driving sharper prices to show members shocking value.
• Darden Restaurants Inc: RBC raises target price to $155 from $144, ahead of the company’s second-quarter results later this week.
• Vail Resorts Inc: JPMorgan raises target price to $262 from $246, after the company reported first-quarter results with the key takeaway being better than forecasted pass sales for the 2022-2023 season.