Jumaat, 2 Mei 2014

The Star Online: Business

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The Star Online: Business

Rush to list stocks stirs memories of tech bubble

Posted: 02 May 2014 04:23 PM PDT

LONDON: Firms are queuing up to list on equity indexes, sucking cash from existing listed stocks and fuelling worries that these high flotation volumes could be signalling an impending market fall.

So far this year, the value of initial public offerings (IPOs) worldwide has soared close to levels last seen in the dying days of the tech bubble of 2000, supported by central bank policies that have pumped out cheap money and underpinned market gains over the past five years.

While high levels of IPOs can be healthy, feeding firms capital to expand their businesses, valuation ratios on a number of stocks entering the market have risen to levels that can signal the market is due for a sharp correction.

Investors have been dumping shares in recently-floated firms especially in the tech sector as concerns mount about valuations, reviving memories of the dotcom crash.

These IPOs are also soaking up cash. Despite huge inflows into equities since the start of the year, the MSCI All-Country World index, which tracks shares in 45 countries, is trading only slightly higher over the period.

"The new paper which is coming to market is diluting the technical support from fund flows... It does leave us vulnerable," Ian Richards, global head of equities at Exane BNP Paribas, said.

"We know that there's still a big IPO pipeline ... Some of those deals will try to be squeezed through, then potentially that's a suppressant for markets."

Global-listed IPO volume, at $65.8 billion via 331 deals so far in 2014, represent the highest year-to-date value since 2010 and are just shy of a 2000 peak, data from Dealogic shows.

Meanwhile, equity funds globally have taken in more than $84 billion this year, according to EPFR Global data.

"Many times, what fund managers will do is that they will make sales in the secondary market to subscribe to those (initial public) offerings," Ashish Misra, head of investment policy at Lloyds Bank Private Banking, said.


While the IPO stream remains robust, many of the companies listing have poor quality earnings. The proportion of U.S. companies coming to the market that are unprofitable is now at 74 percent, its highest since 1999, analysts at Redburn said.

Concerns about overstretched valuations have meant scant demand for new firms that might once have drawn huge interest. Chinese pork producer WH Group, for example, pulled its Hong Kong IPO after failing to get the valuation it wanted while some recently floated web-based firms are trading below their issue prices.

These include King Digital Entertainment, parent company of mobile game "Candy Crush Saga", white goods retailer AO World, and online takeaway service Just Eat - which achieved a heady valuation of 1.5 billion pounds ($2.5 billion), over 100 times its earnings of 14.1 million pounds.

"It's become very dangerous," George Godber, manager of the CF Miton UK Value Opportunities Fund, said.

"Once you start creating losses in the system, then you force people to sell down other positions... (And) nobody in the teeth of a bear market will pay record multiples for something that 'sounds like a good idea'."

Markit data shows that short sellers - who sell borrowed shares, hoping to buy them back more cheaply and pocket the difference - have been targeting stocks which floated in 2013.

In the three months after listing, the nine most borrowed stocks fell by more than 30 percent, it said.

"As IPOs do well, you then get into a frenzy," Miton's Godber said. "The banks are there to make money from transactions, not from the success of them ... and the quality (of companies floating) hugely deteriorates."

($1 = 0.5922 British Pounds)- Reuters

AstraZeneca rejects Pfizer's raised bid of 63bil pounds

Posted: 02 May 2014 04:20 PM PDT

LONDON: U.S. drugmaker Pfizer Inc PFE.N increased its offer for AstraZeneca Plc AZN.L to 63 billion pounds on Friday, but the British company promptly rejected the proposal, which would create the world's biggest pharmaceuticals company.

AstraZeneca's board said the offer undervalued the company "substantially" and was not an adequate basis on which to engage with its suitor.

Industry analysts and investors said that raised the possibility that Pfizer would now take the takeover plan, which would boost its pipeline of cancer drugs and create significant tax and cost savings, direct to AstraZeneca shareholders.

The U.S. group would much prefer an agreed deal, since hostile takeovers typically take longer, require a higher final price and carry more risks because the bidder cannot access the target's books to assess its business.

One AstraZeneca investor said Pfizer management had made clear in meetings this week that it wanted a friendly deal but it was determined to the see the transaction completed and a hostile bid was a potential "tool".

While Pfizer has given assurances to the British government on retaining drug research in Britain, a spokesman for Prime Minister David Cameron said AstraZeneca's fate would be determined by shareholders, not the state.

Friday's 50 pounds ($84.47) a share indicative offer followed AstraZeneca's decision to rebuff an earlier proposal that valued it at 58.8 billion pounds, or 46.61 pounds per share.

Some investors and analysts had expected that the sweetened offer would be enough to bring AstraZeneca's board to the negotiating table, even if it was not accepted, and the swift rejection suggests Pfizer may now go over the board's head.

"I think it's making it increasingly likely that Pfizer is going to come back with a hostile bid," said Mick Cooper, analyst at Edison Investment Research.

Leading investors have met with Pfizer Chief Executive Ian Read this week in London and some feel that an offer of 50 pounds or above is certainly worth discussing.

"Given where the shares have come from, this doesn't look unreasonable," one of AstraZeneca's 10 largest shareholders said of the latest Pfizer offer.

AstraZeneca shares were trading at around 30 pounds a year ago, but confidence in the company's cancer drug pipeline has built up strongly since then.

"We expect Pfizer ultimately to have to sweeten its offer based on discussions we have had with investors, many citing a price within the 52-55 pounds range and some above this, and our analysis of the EPS accretion for Pfizer," said Mark Clark, an analyst at Deutsche Bank.

Investors had previously said they were looking for at least 50 pounds a share and also wanted more cash in the mix. The new offer would have given them 32 percent cash and 68 percent shares, little different from the 30-70 split offered originally.

Many analysts are convinced Pfizer will raise its offer again, not least because it wants to get the deal done before any possible change in U.S. tax rules that might prevent it moving its tax base to Britain.

Pfizer's latest proposal would have seen shareholders receiving, for each AstraZeneca share, 1.845 shares in the combined company and 15.98 pounds in cash.

Commenting on the offer, AstraZeneca Chairman Leif Johansson said: "Pfizer's proposal would dramatically dilute AstraZeneca shareholders' exposure to our unique pipeline and would create risks around its delivery."

He also highlighted the fact that the small cash component would leave investors exposed to the risks faced by Pfizer in executing an ambitious mega-merger.


Shares in the British group slipped back 0.2 percent to 48.07 pounds by 1435 BST. The stock had already gained ground in late trading on Thursday on speculation that Pfizer would come back with an improved offer, including a larger cash element, and there was some disappointment that the cash component had not increased more.

Pfizer shares fell 0.5 percent in early New York trading.

The takeover plan, which would be the largest acquisition of a British company by a foreign business, has stirred political controversy in Britain.

In an attempt to smooth relations with the government, Pfizer CEO Read wrote to Cameron, promising to complete a substantial new research centre planned by AstraZeneca in Cambridge and retain a manufacturing plant in Macclesfield.

The Cambridge site, in particular, is viewed as important to the development of the so-called "golden triangle" of Britain's life sciences industry, spanning Oxford, Cambridge and London.

Read also said that 20 percent of the enlarged group's research and development workforce would be in Britain, which a Pfizer spokesman said would represent a "very substantial" increase in its research efforts in the country.

"We make these commitments for a minimum of five years, recognising our ability, consistent with our fiduciary duties, to adjust these obligations should circumstances significantly change," Read added in a letter to Cameron.

Science minister David Willetts said Pfizer had moved a long way in its commitments to British science and research, but the opposition Labour party was scathing about the potential deal.

"Pfizer has a very poor record on previous acquisitions. Do we really want a jewel in the crown of British industry, our second biggest pharmaceutical firm, to basically be seen as an instrument of tax planning?" said business spokesman Chuka Umunna.

Pfizer's reputation is under a cloud in Britain following a decision three years ago to shut most of its research work at a large R&D centre in Sandwich, southern England, where Viagra was invented, with the loss of nearly 2,000 jobs.

Any eventual deal will be studied by antitrust regulators around the world, including those in China, where scrutiny could be especially intense since Pfizer and AstraZeneca rank No. 1 and No. 2 among multinational suppliers in the country's prescription drug market.- Reuters

US job growth jumps, but shrinking labor force a blemish

Posted: 02 May 2014 04:17 PM PDT

WASHINGTON: U.S. employers hired workers at the fastest clip in more than two years in April, pointing to a rebound in economic growth after a dreadful winter and keeping the Federal Reserve on track to end bond purchases this year.

The brightening outlook was, however, tempered somewhat by a sharp increase in the number of people dropping out of the labor force, which pushed the unemployment rate to a 5-1/2-year low of 6.3 percent. Wage growth also was stagnant.

Nonfarm payrolls surged 288,000 last month, the Labor Department said on Friday. That was largest gain since January 2012 and beat economists' expectations for only a 210,000 rise.

"It lends significant legitimacy to the positive tone in the wide array of post-February economic reports, which have all been consistently pointing to a significant pick-up in economic growth momentum this quarter," said Millan Mulraine, deputy chief economist at TD Securities in New York.

March and February's data was revised to show 36,000 more jobs than previously reported.

U.S. stocks briefly rallied on the report, which was later eclipsed by rising tensions in Ukraine. Stocks ended lower, while safe-haven bids pushed the yield in the 30-year U.S. government bond to its lowest level in more than 10 months.

The dollar was flat against a basket of currencies.

About 806,000 people dropped out of the labor force in April, unwinding the previous months' gains. That helped to push down the unemployment rate 0.4 percentage point to its lowest level since in September 2008.

The labor force participation rate, or the share of working-age Americans who are employed or unemployed but looking for a job, also fell four-tenths of a percentage point to 62.8 percent last month, slipping back to a 36-year low touched in December.

Overall, however, the data suggested the economy was gathering strength and led investors to pull forward their bets on when the Fed will start to raise interest rates.

The strong payrolls growth added to upbeat data such as consumer spending and industrial production in suggesting that sputtering growth in the first quarter was an aberration, weighed down by an unusually cold and disruptive winter.

The Fed on Wednesday shrugged off the dismal first-quarter performance. The U.S. central bank, which announced further reductions to the amount of money it is pumping into the economy through monthly bond purchases, said indications were that "growth in economic activity has picked up recently."

"It also matches well with the Fed's expectations for the labor market, excluding the sharp unemployment rate drop, and likely means more $10 billion dollar reductions in monthly asset purchases at future meetings," said Scott Anderson, chief economist at Bank of the West in San Francisco.


Economists expect second-quarter gross domestic product to top a 3 percent pace. Last month's drop in the labor force could have been driven by some of the 1.35 million people who lost their longer-term unemployment benefits at the end of last year.

Since they are no longer receiving unemployment benefits they have little incentive to continue looking for work as required by law. Part of the decline in participation in the labor market also reflects changing demographics, as well as people going on disability while waiting to reach retirement.

"Baby boomers are retiring and the various government benefits including disability are contributing to the drop in the participation rate," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

Still there is little doubt the labor market is strengthening. A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, fell to a 20-year low of 12.3 percent in April. It was at 12.7 percent in March.

In addition, the number of people who have been unemployed for more than six months saw its biggest decline since October 2011 and the average duration of unemployment fell to 35.1 weeks from 35.6 weeks in March.

The short-term jobless rate hit a new cycle-low of 4.1 percent. Employment gains in April were broad-based, with the private sector adding 273,000 jobs and government payrolls rising 15,000. Manufacturing employment increased 12,000 after rising 7,000 in March.

Construction payrolls gained 32,000 after increasing 17,000 in March. The hiring trend could slow in the months ahead as residential construction loses some steam.

Despite the strong gains, average hourly earnings were flat in April, pointing to lack of wage pressure and still ample slack in the economy.

"There is just no sign of any broad-based wage pressure," said Josh Feinman, chief global economist at Deutsche Asset & Wealth Management in New York. "There is still slack in the labor market and with labor costs still dead in the water, the Fed is probably not going to have to rush (to raise rates)."

The length of the workweek held steady at 34.5 hours last month after bouncing back in March from its winter-depressed levels.- Reuters

Kredit: www.thestar.com.my

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