Bristol-Myers to Buy Diabetes Maker Amylin for $5.3 Billion

Bristol-Myers (BMY) Squibb Co., which failed to get U.S. approval for a new diabetes treatment in January, will pay $5.3 billion for Amylin Pharmaceuticals Inc. (AMLN), the maker of two drugs on the market for the disease.

The purchase comes a month after Bristol’s top seller, the blood-thinner Plavix with $7.1 billion in sales last year, began facing generic competition. In 2013, the New York-based company loses patent protection on its $1.6 billion HIV drug, Sustiva.

Under the agreement announced yesterday, Bristol-Myers will pay $31 a share in cash, a 10 percent premium to the June 29 closing price for San Diego-based Amylin. At the same time, AstraZeneca Plc (AZN), based in London, will pay Bristol $3.4 billion to help develop Amylin’s drug portfolio, the companies said.

It “looks a bit rich in terms of the price paid and it’s a trend in the sector, where biotech companies are commanding significant premiums, higher than they would have commanded in previous years because the pharmaceutical sector is being forced down this road,” said Navid Malik, an analyst with Cenkos Securities Plc (CNKS) in London.

The pharmaceutical industry lost patent protection on products valued at $34 billion in annual sales last year, and revenue at risk from generics will rise to $147 billion by 2015, according to data compiled by Bloomberg.

The diabetes market has become a key target for drugmakers as a result of rising obesity rates and the aging of the Baby Boom generation. About 346 million people globally have diabetes, and the number of deaths from the chronic disease may double from 2005 to 2030, according to the World Health Organization.
Other Offers

AstraZeneca, Paris-based Sanofi (SAN) and Merck & Co. (MRK), of Whitehouse Station, New Jersey, also made offers during a bidding process, people with knowledge of the process had said.

Amylin ended a marketing deal with Indianapolis-based Eli Lilly & Co. in November, and has been seeking a partner to sell Bydureon, a version of its diabetes drug Byetta, outside the U.S. The San Diego-based company began to seek acquisition suitors after rejecting a $22-a-share offer from Bristol in February, people familiar with the matter said earlier this year.

Revenue at Amylin surpassed $650 million last year and may rise about 5 percent in 2012, according to analysts’ estimates compiled by Bloomberg. The company may generate as much as $1.5 billion in annual sales from Byetta and Bydureon, Phil Nadeau, a Cowen & Co. analyst in New York, wrote earlier this year.

For Bristol, the purchase is the largest of 19 since 2007, when it began so-called string of pearls acquisition strategy designed to revitalize the company in the face of patent losses and produce a more diverse stable of products.
Forxiga

Bristol-Myers’s own experimental diabetes product, dapagliflozin, also called Forxiga, failed to win U.S. marketing approval in January, when the Food and Drug Administration asked for more data to assess risks and benefits for the treatment, being developed with AstraZeneca. It’s awaiting approval in Europe, and may be cleared later in the U.S.

The boards of Bristol-Myers and Amylin endorsed the deal, according to yesterday’s statement. Including Amylin’s debt and a payment owed to Eli Lilly & Co. (LLY) of about $1.7 billion, the deal is valued at about $7 billion.

“We are pleased to be able to strengthen the portfolio we have built to help patients with diabetes by building on the success Amylin has had with its GLP-1 franchise,” Bristol-Myers Chief Executive Officer Lamberto Andreotti said in the statement.

Bristol-Myers and AstraZeneca will equally share profits and losses in the venture to develop Amylin’s drug portfolio.
Diabetes Alliance

“There will be an expansion of a diabetes alliance we have had with AstraZeneca,” Jennifer Fron Mauer, a spokeswoman for Bristol, said in a telephone interview. “We’ve had that since 2007 to co-develop and co-commercialize two Type II diabetes medicines in our pipeline.”

AstraZeneca, whose CEO David Brennan retired June 1, was thought to make most sense as a potential acquirer of Amylin, according to Michael King, an analyst at Rodman & Renshaw in New York. The company’s Seroquel medicine lost patent protection in March, and analysts expect the antipsychotic drug’s sales to drop to $3.27 billion this year from $5.82 billion last year, according to data compiled by Bloomberg.

Carl Icahn, the billionaire investor who is Amylin’s third- largest shareholder with a stake of almost 9 percent as of April 4, threatened a proxy fight in April and urged a sale, calling the company’s board “dysfunctional” and “not operating in a manner that enhances shareholder value.”

Amylin rose less than 1 percent to $28.20 in New York trading on June 29. The San Diego-based company’s shares were at $15.88 on March 26, the day before it was reported Bristol-Myers had made an unsolicited offer of $22 a share. Bristol-Myers gained 2.5 percent on June 29 to close at $35.95.

Amylin was advised by Goldman Sachs & Co. and Credit Suisse Securities LLC. Citigroup Inc. and Evercore Partners Inc. (EVR) are serving as financial advisers to Bristol Myers. Bank of America Merrill Lynch advised AstraZeneca.

From Bloomberg

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Hiring Probably Cooled in Second Quarter: U.S. Economy Preview

The jobs tally in June probably crowned the weakest quarter for employment in more than two years, evidence the U.S. recovery has lost momentum, economists said before reports this week.

Employers increased payrolls by 90,000 workers last month after a 69,000 gain in May, according to the median forecast of 59 economists surveyed by Bloomberg News ahead of Labor Department figures due July 6. Excluding government agencies, private hiring may have climbed by 100,000, concluding the smallest quarterly advance since the first three months of 2010.

The job slump has shaken confidence and stalled household spending, which accounts for about 70 percent of the economy, making the expansion more susceptible to any fallout from the European debt crisis. Slowing consumer and global demand is also leading to a cooling in manufacturing, a mainstay of the recovery, another report this week may show.

“We really need to see job creation pick up, which is the only thing that’s going to get households spending on a sustained basis,” said Paul Dales, a senior U.S. economist at Capital Economics Ltd. in London. “The economy isn’t going to get exceptionally weak from here, but neither is it going to get much stronger.”

The unemployment rate, derived from a separate Labor Department survey of households, probably held at 8.2 percent, the economists predicted. Joblessness has exceeded 8 percent since February 2009, the longest stretch in monthly records dating to 1948.
Slower Growth

The expansion has lost luster. Gross domestic product rose at a 1.9 percent annual rate in the first quarter following a 3 percent rate in the prior three months, Commerce Department data showed last week. While household spending underpinned last quarter’s gain, incomes stretched by weak job creation will probably limit growth prospects.

Stronger economic growth and diminished joblessness would bolster President Barack Obama’s re-election prospects as November draws nearer. Obama attributed the weakness in job growth in May primarily to European governments’ inadequate response to the continent’s debt crisis, saying “our biggest challenge is not here in the U.S. but the economy overseas.” Republican candidate Mitt Romney said Obama “is always quick to find someone to blame” for the struggling economy.

Stocks surged on June 29, capping the biggest June gain since 1999, after European leaders reached an agreement that alleviated concern banks will fail. The Standard & Poor’s 500 Index climbed 4 percent last month.
Manufacturing Cools

Manufacturing may also offer less support to the economy as domestic and global demand fades. The Institute for Supply Management Inc.’s factory index fell to 52 in June, the lowest level in eight months, from 53.5 the prior month, according to the Bloomberg survey median ahead of a report tomorrow. A reading greater than 50 signals expansion.

The purchasing managers group’s services index, which covers almost 90 percent of the economy, fell to 53 last month from 53.7 in May, a report on July 5 may show according to economists surveyed.

To spur a faster expansion and lower unemployment, Federal Reserve policy makers announced on June 20 they would buy securities to extend the maturities of assets on the bank’s balance sheet, thereby lowering longer-term interest rates.

They also lifted forecasts for joblessness, anticipating the unemployment rate will average 8 percent to 8.2 percent in the fourth quarter of this year versus an April estimate of 7.8 percent to 8 percent.

“There is a lot of uncertainty in almost all markets today caused by low growth rates and high unemployment in the U.S. and slower or no growth globally,” Joseph Pyne, chairman and chief executive officer of Kirby Corp. (KEX), said during a June 25 call with analysts. Shares have slumped 7.9 percent since the shipping company cuts its earnings forecast that week.

                     Bloomberg Survey
==============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
==============================================================
ISM Manu Index            7/2       June      53.5      52.0
Construct Spending MOM%   7/2       May       0.3%      0.2%
Vehicle Sales Mlns        7/3       June      13.7      13.9
Domestic Vehicles Mlns    7/3       June      10.8      10.9
Initial Claims ,000’s     7/5      30-Jun     386       385
ISM NonManu Index         7/5       June      53.7      53.0
Nonfarm Payrolls ,000’s   7/6       June       69        90
Private Payrolls ,000’s   7/6       June       82       100
Manu Payrolls ,000’s      7/6       June       12        8
Unemploy Rate %           7/6       June      8.2%      8.2%
Hourly Earnings MOM%      7/6       June      0.1%      0.2%
Hourly Earnings YOY%      7/6       June      1.7%      1.7%
Avg Weekly Hours          7/6       June      34.4      34.4
=============================================================

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U.S. Stocks Rally to Give Dow Best Month Since October

U.S. stocks rallied for the week, lifting the Dow Jones Industrial Average to the best monthly gain since October, amid optimism an agreement by European leaders on banks will help contain the region’s debt crisis.

All 10 industry groups in the Standard & Poor’s 500 Index rose. Energy companies jumped the most, climbing 4.8 percent, as oil rebounded. A gauge of homebuilders rallied 13 percent as housing data beat forecasts and Lennar Corp.’s profit surged. Hospital companies including Tenet (THC) Healthcare Corp. jumped after the Supreme Court upheld the core of President Barack Obama’s industry overhaul. Nike Inc. (NKE) sank 12 percent while Research In Motion Ltd. (RIM) plunged 25 percent amid disappointing earnings.


The S&P 500 advanced 2 percent to 1,362.16 during the week, extending its increase in June to 4 percent, the most since February. The Dow gained 239.31 points, or 1.9 percent, to 12,880.09 for the week, finishing the month up 3.9 percent.

“It looks like Europe is moving toward a resolution of keeping the euro together,” George Young, a partner at St. Denis J. Villere & Co. in New Orleans, said in a telephone interview. His firm oversees about $1.6 billion. “We are putting money into stocks. We believe that the U.S. is going to do well longer term.”

Global stocks rallied on the last day of the week, with the S&P 500 surging 2.5 percent for its biggest advance of the year, as euro-area leaders agreed to relax conditions on emergency loans for Spanish banks and possible help for Italy. In the U.S., economic reports during the week showed home sales and orders for durable goods rebounded while consumer spending stalled and confidence among Americans declined to the lowest level this year.
Worst Quarter

Concern that Spanish banks may fail and Greece would leave the 17-nation euro zone drove the S&P 500 down as much as 9.9 percent from this year’s high in April. Even after this month’s rebound, the benchmark gauge lost 3.3 percent since the end of March, the worst quarter since the three months ended September. The Dow slumped 2.5 percent for the quarter.

The S&P 500 Energy Index jumped 4.8 percent, the biggest weekly increase since December, as oil soared the most in more than three years on June 29. The gain in crude may accelerate after the European Union’s ban on the purchase, transport, financing and insurance of Iranian crude starts on July 1, a Bloomberg survey showed. Chevron Corp., the second-largest U.S. energy producer, advanced 5 percent to $105.50. Bigger rival Exxon Mobil Corp. rose 4.2 percent to $85.57.
Homebuilders Rally

An S&P gauge of homebuilders rallied 13 percent to the highest level since 2008 as reports showed sales of new homes increased to a two-year high and housing prices dropped at the slowest pace in more than a year. Lennar (LEN) climbed 17 percent to $30.91 after a tax benefit and improving demand fueled a surge in its fiscal second-quarter profit. KB Home (KBH) soared 20 percent to $9.80 after reporting a narrower quarterly loss.

Tenet, the third-biggest U.S. hospital chain, climbed 7.2 percent to $5.24. The Supreme Court, voting 5-4, largely left intact the Affordable Care Act’s transformation of the health system, saying Congress has the power to make Americans get insurance or pay a penalty. They also let stand a plan to expand Medicaid by about 16 million people, though the justices limited the power to punish states that don’t comply. The new regulations may arrest a rising tide of uninsured patients unable to pay their medical bills.

Commercial carriers fell in the face of the law’s new regulations. WellPoint Inc. (WLP), the second-largest U.S. health insurer, dropped 8.6 percent to $63.79.
Financial Shares

Optimism over Europe’s efforts to tame the debt crisis helped buoy financial shares, pushing the S&P 500 index (SPX) of banks, brokerages and insurers up 2.2 percent. Bank of America Corp. (BAC) increased 3 percent to $8.18 while Morgan Stanley rose 3.2 percent to $14.59.

Genworth Financial Inc. (GNW), the life insurer and mortgage guarantor, surged 9.5 percent to $5.66 as hedge fund Highfields Capital Management LP said it is in talks with management about increasing the value of its stake.

JPMorgan Chase & Co. (JPM) fell 0.7 percent to $35.73. The lender’s losses from credit derivatives may eventually total as much as $9 billion, exceeding the firm’s initial estimate, the New York Times reported.

Constellation Brands Inc. (STZ) had the biggest gain in the S&P 500, soaring 40 percent to $27.06. The company agreed to buy the other half of its Crown Imports joint venture with Grupo Modelo SAB for about $1.85 billion, becoming the sole U.S. importer of top-selling Corona beer.

News Corp. (NWSA)

News Corp. climbed 9.5 percent to $22.29. The company announced plans to split into two publicly traded entities focused on publishing and entertainment after shareholder pressure prompted the biggest reorganization since Rupert Murdoch built the media empire.

Europe’s debt crisis and a slowdown in global growth may have taken a toll on corporate earnings. Profits at S&P 500 companies are forecast to show a drop of 1.8 percent in the second quarter, according to analyst estimates compiled by Bloomberg.

Earnings pessimism reached levels last seen during the financial crisis. Ninety-four corporations issued profit projections that trailed analyst estimates during the 30 days through June 29, or 3.4 times the number of those that exceeded them. The ratio was the highest since March 2009, data compiled by Bloomberg show.

Research In Motion plunged 25 percent, the most since 2008, to $7.39 after posting a loss and delaying the next BlackBerry operating system. The smartphone maker also said it would cut 5,000 jobs.
Nike, Facebook

Nike, the world’s largest sporting-goods company, tumbled 12 percent to $87.78 after fourth-quarter profit unexpectedly declined for the first time since 2009, hurt by an increase in marketing and labor costs.

O’Reilly Automotive Inc. (ORLY) fell the most in the S&P 500, sinking 14 percent to $83.77. The retailer of auto parts, tools and accessories said sales growth was slower than expected and second-quarter profit will be on the lower end of the company’s forecast range.

Facebook Inc. (FB) slid 5.9 percent to $31.10 as analysts said the stock is worth no more than its debut price of $38. Analysts including those at lead underwriter Morgan Stanley (MS) have an average 12-month price estimate of $37.52 on the social-network operator, according to data compiled by Bloomberg. Facebook has lost 18 percent since its May initial public offering on concern the stock is overvalued and the company will struggle to attract users.

From Bloomberg

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EU Banking Debate Shifts to Euro Area After Accord on Spain

The European Union’s push to unify bank oversight moved to the euro area after two days of talks in Brussels, putting the European Central Bank at the center of Spain’s efforts to extract its government from its banking- industry rescue.

Euro-area leaders asked for proposals this year to unify banking supervision and soup up the ECB’s powers. They referred to a clause in the EU treaty that allows them to give the ECB prudential oversight of banks and other non-insurance financial companies.

The move paves the way for the European Commission, the EU’s regulatory arm, to augment its proposals on deposit insurance, capital requirements and how to handle failing banks. It also acknowledges concerns from the U.K. and Sweden that countries outside the currency area be free from mandates to join the ECB umbrella.

Once Europe establishes a single banking supervisor, leaders said they may allow cash-strapped lenders to be recapitalized directly instead of through their home governments. This could break the link between banks and sovereigns that has plagued the euro area throughout the crisis and become a particular flash point for Spain’s bank rescue.

‘Held Hostage’

“The Spanish sovereign is effectively being held hostage to what is likely to be a tortuous political process in putting the ECB in charge of euro-zone banks,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. He said direct recapitalization of Spanish banks is the summit’s most important achievement and hinges on creation of an independent supervisory authority.

French President Francois Hollande predicted that ECB supervision over euro-area banks wouldn’t be in place before year end. British Prime Minister David Cameron said “the euro- zone countries are well on the way to making the euro-zone bank, the ECB, the regulators of their banks. That will be a good outcome.”

ECB President Mario Draghi welcomed the summit’s overall conclusions and acknowledged the Brussels-based commission’s mandate to assess the ECB’s role as allowed in the treaty. Speaking to reporters today, he did not elaborate on how the commission’s proposals should take shape other than to say “all these things should be, to be credible, accompanied by strict conditionality.”
National Supervisors

The Frankfurt-based ECB might end up serving as an umbrella over national supervisors, rather than building a separate organization, EU officials said in the run-up to this week’s summit. EU members would need to decide how many banks to include and how the ECB would work with the European Banking Authority, which was created to help supervisors coordinate across the 27-nation bloc.

EU Financial Services Commissioner Michel Barnier called on all the bloc’s nations to broker deals on draft financial regulations in the coming weeks as a “cornerstone” of the banking union that EU leaders seek to secure the long-term future of the euro, in an interview in Brussels yesterday. He said decisions on whether the ECB or the London-based EBA gain enhanced powers depends on how all 27 nations agree to further pool their bank-oversight powers.

The EBA, which began work last year, was set up as part of the EU’s response to the crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc. It coordinates the work of national regulators and has some power to resolve disputes between them.
Banking Union

Where to place enhanced supervisory power becomes a trickier decision if individual countries opt out of a banking union, Barnier said, in part because the ECB decides monetary policy for the 17 countries of the euro area, and in part because of other aspects of the EBA’s mandate. Should all 27 EU countries sign up for the banking union plans, then the enhanced power for the EU to supervise lenders should “probably” be handed to the EBA, Barnier said.

“If you are fewer than 27 then there is an issue to resolve with the EBA, if you are more than 17 then there is an issue to resolve with the ECB,” he said. “This is why there are a range of possible models, and why we need some weeks or months to work on this.”

The adoption of proposals that the commissioner has made on bank capital requirements, coordination of deposit guarantee programs and the winding-down of failing banks is a “precondition” for the creation of a banking union, Barnier said yesterday in an interview with Bloomberg News in Brussels. The draft laws should be settled “in the weeks to come, or in the case of crisis resolution before the end of the year.”

Depending on the outcome of the summit, the commission will present plans for extra EU supervision of banks, as well as for “the mutualization of deposit guarantee funds and resolution funds” by year end, Barnier said.

From Bloomberg

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BOE Seen Adding to Stimulus as Europe Crisis Undermines Recovery

The Bank of England will probably expand its so-called quantitative easing program next week as the debt crisis in Europe impedes the U.K.’s return to growth.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, will raise its target for bond purchases by 50 billion pounds ($78 billion) to 375 billion pounds, according to 30 of 41 economists in a Bloomberg news survey. Eight predict an increase to 400 billion pounds, and the rest see a smaller increase or no change.

King told reporters yesterday that Europe’s debt turmoil has stoked uncertainty and tightened credit availability, creating headwinds to Britain’s recovery from recession. Policy makers may find it easier to act next month than they did at their June 7 decision after inflation slowed to 2.8 percent, the closest to their 2 percent target since November 2009.

“Growth is weak and inflation has come down, so that adds to the case for doing more quantitative easing,” said George Buckley, an economist at Deutsche Bank AG in London. “This could be the end of it, provided things pick up as we expect, though that’s still an open question.”

Officials voted 5-4 to keep their bond-purchase target at 325 billion pounds at this month’s policy decision. That defeated a push by King, Adam Posen and David Miles for a 50 billion-pound expansion, and Markets Director Paul Fisher’s bid for 25 billion pounds.
Awaiting News

The majority preferred to wait to assess the outcome of June 17 elections in Greece, the European Council summit that concluded yesterday and the results of the bank’s June 22 Financial Policy Committee meeting.

With no one party able to claim victory in Greece, the leading New Democracy party has been able to form a coalition on pledges to keep the country in the common currency while fighting for looser aid conditions from the euro area and the International Monetary Fund.

Euro-area leaders agreed early yesterday to ease terms on loans to Spanish banks and paved the way to a direct recapitalization of banks. The agreement sparked the biggest gain in the euro this year.

King yesterday presented FPC recommendations that financial institutions should dip into liquid buffers, a week after the central bank completed the first round of a new auction to give banks access to more cash. The move addresses concerns expressed by some officials this month that lenders were bolstering reserves with funds from their bond sales to the Bank of England.

Forty-nine of 50 economists in a separate Bloomberg survey see no change next week in the benchmark rate from the record low of 0.5 percent. One economist, Tom Vosa at National Australia Bank, forecast a cut to 0.25 percent.

From bloomberg

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Germany denies Schaeuble talk of Greece euro exit

(Reuters) - A deputy German Finance Minister dismissed a magazine report saying Finance Minister Wolfgang Schaeuble had told conservative members of parliament on Friday to prepare for a looming Greek bankruptcy and euro zone exit.

"This report is nonsense," Deputy Finance Minister Steffen Kampeter told Reuters on Saturday on the sidelines of a regional meeting of Christian Democrats in the western town of Krefeld.

Kampeter said that Schaeuble had spoken to the conservative MPs on Friday about the need for the austerity and reform measures in Greece to be implemented.

German newsweekly Focus reported that Schaeuble had told MPs in Chancellor Angela Merkel's Christian Democrats (CDU) and the sister party, Christian Social Union (CSU), to get ready for Greece leaving the euro zone and a Greek state bankruptcy.

The magazine said in an advance of a report in its Monday edition that Schaeuble was talking to the MPs about the further development of the European Stability Mechanism (ESM), the euro zone's permanent bailout fund. He said that an aspect that would be necessary was to have a set-up for state bankruptcies.

Focus said that participants of the meeting heard Schaeuble say that in the view of many experts Greece would not make it "without an external devaluation."


From Reuters.

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European Stocks Climb for a Fourth Week on EU Agreement

European stocks rose for a fourth week as the region’s leaders agreed to address flaws in their bailout programs to ease the sovereign-debt crisis.

CRH Plc rallied 12 percent, leading a gauge of construction companies to the biggest gain in six months. Colruyt NV (COLR) jumped 16 percent as Belgium’s biggest discount food retailer reported a surprise increase in profit. Barclays Plc (BARC) slumped 19 percent after paying a record fine to settle claims it sought to rig the London and euro interbank offered rates.

The Stoxx Europe 600 Index (SXXP) climbed 1.9 percent to 251.17 this past week, extending the longest stretch of gains since January, after policy makers eased repayment rules for Spanish banks, relaxed conditions for possible aid to Italy and unveiled a $149 billion economic growth plan. The advance pushed the measure to the highest level since May 11 and trimmed the second-quarter decline to 4.6 percent.

“The results were as good as we could have expected from the summit,” said Derry Pickford, who helps oversee $1.7 billion at Ashburton Ltd. in Jersey, the Channel Islands. “There are two important caveats: expectations were very low and the measures are short-term analgesics rather than fundamental cures.”

National benchmark indexes climbed in all 18 western European markets this week. The U.K.’s FTSE 100 increased 1 percent, France’s CAC 40 rose 3.4 percent and Germany’s DAX added 2.4 percent. Norway’s OBX (OBX) surged 5.9 percent for the biggest gain this year.
Monthly Rally

The Stoxx 600 rallied 4.8 percent this month, the most since October. The increase brought the index’s advance in the first half of 2012 to 2.7 percent.

After 13 1/2 hours of talks ending at 4:30 a.m. in Brussels yesterday, leaders of the 17 euro nations dropped the requirement that governments get preferred-creditor status on crisis loans to Spain’s banks and opened the door to recapitalizing lenders directly with bailout funds once Europe sets up a single banking supervisor. They also discussed reducing the market pressure on Italy and Spain by allowing them to access rescue loans without relinquishing control of their economies.

Attention will now turn to the European Central Bank, which holds its next policy meeting on July 5. The bank has acted following political progress before, buying bonds after the establishment of bailout programs in 2010 and giving banks unlimited three-year loans following last year’s pledge to deliver fiscal discipline.
Rate Cut

Officials will lower their benchmark interest rate by 25 basis points to a record low 0.75 percent, according to the median forecast in a Bloomberg survey of 57 economists. Five predict a cut of 50 basis points and 12 foresee no change.

“Equities have put on a good showing at the end of the first half of the year,” said Jeremy Batstone-Carr, head of research at Charles Stanley & Co. in London. “Investors are pinning their hopes on additional monetary easing. But we are still fading rallies and not yet looking to buy the dips.”

In the U.S., data released on June 27 showed durable-goods orders and pending home sales beat economists’ forecasts. The Institute for Supply Management-Chicago Inc. said yesterday its business activity barometer increased to 52.9 this month from 52.7 in May. A reading of 50 is the dividing line between growth and contraction. Economists in a Bloomberg survey had projected a decline.

Construction companies led gains in the Stoxx 600 this week, climbing 4.5 percent as a group. CRH, the world’s second- biggest maker of building materials, advanced 12 percent in London trading, the most since December. Lafarge SA, the largest cement maker, rose 6.1 percent.
Colruyt Climbs

Colruyt jumped 16 percent as the Belgian retailer reported a surprise increase in profit amid heightened price awareness among consumers. Earnings in the fiscal year that ended March 31 rose to 2.18 euros a share from 2.14 euros. Analysts had projected a decline to 2.09 euros, according to the average of 21 estimates compiled by Bloomberg.

Fertilizer makers rallied as corn prices surged after inventories tumbled the most in 16 years and hot, dry weather eroded prospects for crops in the U.S.

Yara International ASA, the world’s biggest publicly traded nitrogen-fertilizer maker, and K+S AG, Europe’s largest potash producer, each surged 12 percent. Syngenta AG, the biggest maker of crop chemicals, rose 5.2 percent.

Marine Harvest ASA (MHG), the world’s biggest salmon farmer, advanced 12 percent. Norway’s salmon-export prices increased 6.4 percent in a week, according to Statistics Norway in Oslo.
Banks Decline

Even after the measures announced at the European Union summit, bank shares posted the second-worst performance among the 19 industry groups in the Stoxx 600.

Barclays Plc, Britain’s second-largest bank by assets, slumped 19 percent for the biggest decline since August. The company will pay a record 290 million-pound ($455 million) fine after investigators found traders and senior managers “systematically” tried to manipulate Libor, the benchmark rate for $360 trillion of securities. Royal Bank of Scotland Group Plc declined 11 percent.

Infineon Technologies AG slid 14 percent after Europe’s second-largest semiconductor maker said sales in the current quarter would miss its prediction. The company will probably reduce its profit forecast again, according to JPMorgan Chase & Co., which downgraded the stock to neutral.


From Bloomberg

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Spanish, Italian Bonds Surge as EU Leaders Move to Stem Crisis

Spanish and Italian bonds jumped after euro-area leaders expanded steps to stem the debt crisis by easing repayment rules for emergency loans to Spain’s banks and relaxing conditions on potential help for Italy.

Spain’s 10-year yield fell the most since August after leaders of the euro nations also scrapped the requirement that governments get preferred-creditor status on crisis loans to the country’s banks. German 10-year yields rose the most since November as optimism the financial turmoil will be contained sapped demand for the region’s safest assets. Spanish and Italian bonds still made quarterly losses.

“The key positive thing here is that we see some traction despite Germany digging its heels in on using bailout funds to support the market,” said Richard McGuire, a senior fixed- income strategist at Rabobank International in London. “The solution will be fiscal unity and that’s a step in that direction. There is an implementation risk, but for now risk-on is the order of the day and that will underpin demand for peripheral bonds.”

Spain’s 10-year yield fell 61 basis points, or 0.61 percentage point, to 6.33 percent at 4:41 p.m. London time. The 5.85 percent bond due in January 2022 gained 4.09, or 40.90 euros per 1,000-euro ($1,258) face amount, to 96.59. The yield dropped as much as 62 basis points, the most since Aug. 8, when the European Central Bank started buying the securities to cap borrowing costs.

Spanish two-year yields tumbled as much as 116 basis points to 4.26 percent, the lowest since June 11. Italy’s 10-year yield fell 39 basis points to 5.81 percent, and two-year rates slid 81 basis points to 3.50 percent.
‘All Options’

After almost 14 hours of talks ending in Brussels early today, chiefs of the euro countries also agreed that banks can also be recapitalized directly with European bailout funds rather than being channeled through governments.

“We agreed on short-term measures that should apply to Spain and Italy,” said Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro finance ministers. “We will keep all options open to do the interventions that need to be done to calm the situation. There is a whole array of possible interventions and measures.”

German Chancellor Angela Merkel said after the summit that she maintained her rejection of issuing joint bonds.

The euro strengthened 1.9 percent to $1.2681, and the Stoxx Europe 600 Index (SXXP) of shares climbed 2.8 percent.
Bunds Decline

Germany’s 10-year bund yield jumped seven basis points to 1.58 percent after climbing by 18 basis points, the most since Nov. 23. Europe’s benchmark yield has still declined 141 basis points over the past year and remained below its average of 3.53 percent for the past decade.

German bonds fell even after a government report showed retail sales in Europe’s biggest economy unexpectedly dropped for a second month in May.

Sales, adjusted for inflation and seasonal swings, slid 0.3 percent from April, when they declined 0.2 percent, the Federal Statistics Office said. Economists forecast a gain of 0.2 percent, a Bloomberg News survey showed.

Irish bonds rallied as Prime Minister Enda Kenny said the EU accord marked a seismic shift in policy that may ease the burden on the nation’s taxpayers. The yield on the country’s bond due in October 2020 fell 64 basis points to 6.47 percent.

Volatility on Irish government debt was the highest in developed markets today followed by Spain and Italy, according to measures of 10-year bonds, the spread between two-and 10-year securities, and credit-default swaps.
Quarterly Move

Spanish 10-year yields, which climbed to a euro-era record 7.29 percent on June 18, have still risen 98 basis points this quarter. They remain about two percentage points above the 4.30 percent average of the past decade. Similar-maturity Italian yields have increased 60 basis points since March 31.

“In the short term, risk assets especially those related to the financial sector will bounce,” David Roberts, joint head of fixed income at Kames Capital in Edinburgh, wrote in a note to clients. “Longer term, it remains to be seen if these baby steps are the first on the path to European politicians addressing the fundamental problems of a single currency and diverse fiscal policies.”

A Spanish Treasury report showed banks and foreign investors cut their holdings of Spanish debt in May. Banks’ holdings of government bonds fell to 28.7 percent of the total outstanding amount from 29.6 percent in April. The proportion of foreign ownership declined to 37.5 percent from 38.1 percent.

Spanish bonds have handed investors a loss of 7.4 percent this quarter as of yesterday, while Italian debt dropped 4.6 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds returned 2.1 percent.

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Barclays Big-Boy Breaches Mean Libor Fixes Not Enough

The blueprint regulators gave Barclays Plc (BARC) and other banks for correcting Libor-rate abuses may not be enough to salvage a benchmark so discredited it needs to be overhauled.

The U.S. Commodity Futures Trading Commission ordered Barclays on June 27 to keep thorough records on how it determines its London interbank offered rate submissions and to erect so-called Chinese walls between traders and rate-setters. It also said lenders should expect random checks from regulators on whether their submissions reflect actual borrowing costs. Investors say the plans are little more than window-dressing.

“As long as banks are allowed in the henhouse, then the system is ripe for abuse,” said Tim Price, who helps oversee more than $1.5 billion at PFP Group LLP, an asset-management firm based in London. A better system would be to take random samplings from all the transactions, he said. “If there is any message of the last few years, it’s that banks and bankers simply cannot be trusted.”

Barclays, the U.K.’s second-largest lender, was fined a record $451 million and its top executives agreed to forgo bonuses after investigators found traders and senior managers “systematically” tried to rig the Libor and Euribor, its equivalent in euros. With other lenders facing similar sanctions, the British Bankers Association, which oversees Libor, is under pressure to prove the rate is fit for purpose.
‘Actual Transactions’

“The idea that one can base the future calculation of Libor on the idea that ‘my word is my Libor’ is now dead,” Bank of England Governor Mervyn King said at a press conference to present the central bank’s Financial Stability Report in London today. “It will have to be based in the future, in my judgment, on actual transactions in order to bring back credibility to the system.”

Libor is determined by banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies. Because banks’ submissions aren’t based on real trades, the potential exists for manipulation by traders. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate, the benchmark for more than $360 trillion of securities, including mortgages, student loans and swaps.

Barclays employees overseeing Libor and Euribor submissions routinely accommodated requests that benefited traders at their own and other banks, the CFTC said.
‘Big Boy’

On Sept 13, 2006, a senior Barclays trader in New York e- mailed the person who submitted the rate, “Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the lib or fixing at 5.39 for the next few days. It would really help,” according to a CFTC document.

In another exchange, from April 7, 2006, a submitter responded to a request for low U.S. dollar Libor submissions from a swaps trader with “Done ... for you big boy,” the commission said.

Barclays fell 1.7 percent in London trading today after tumbling 16 percent yesterday as U.K. lawmakers put pressure on Chief Executive Officer Robert Diamond. Prime Minister David Cameron said that the bank has questions to answer, while Ed Miliband, leader of the opposition Labour Party, has demanded a criminal investigation. Shares in Royal Bank of Scotland Group Plc (RBS), which is also being investigated for suspected Libor manipulation, dropped 11 percent.

Chancellor of the Exchequer George Osborne gave the first indication that there could be a criminal investigation in the U.K. when he addressed lawmakers yesterday and said British fraud prosecutors are now involved in the probe. The Serious Fraud Office is in contact with the Financial Services Authority and is considering whether to open a formal investigation, SFO spokesman David Jones said in an interview.
‘Improper Communications’

As part of its settlement, the CFTC ordered Barclays to amend how it sets Libor. Submissions should be based on actual trades if possible. Where no trades have taken place, the rate- setter can consider factors including how much competitors paid to borrow and market conditions, the CFTC said.

Rate-setters should be prohibited from “improper communications” and not work within earshot of derivatives traders, according to the commission. Barclays must keep extensive records on all its Libor submissions, including details on who the rate-setter was and how the figure was derived. The bank must also undergo annual audits and be willing to provide data to regulators on demand.
‘Serious Implications’

The CFTC requirements will provide a blueprint for what might be required of other banks once the BBA completes its review, said Owen Watkins, a former regulator at the FSA.

“You’ve got to have everybody playing the game by the same rules,” said Watkins, now a lawyer at Lewis Silkin LLP in London. “It’s like playing baseball with some guys throwing proper baseballs, while some guys throw golf balls.”

The Barclays settlement has “extremely serious implications, which need to be carefully considered,” the BBA said June 27 in an e-mailed statement. “The investigation findings will be fully included in the current review of Libor.”

Joseph Eyre, a spokesman for the U.K.’s Financial Services Authority, which levied the fine against Barclays along with the CFTC and the U.S. Justice Department, said “the BBA’s review is continuing and we will consider any recommendations arising from that exercise.”

The proposals may not go far enough, said Rosa Abrantes- Metz, an economist with Global Economics Group, a New York-based consulting firm, and an associate professor at New York University’s Stern School of Business.
‘Trust Me’

“You will have some unease going forward if they do not impose some drastic changes,” said Abrantes-Metz, the co-author of a 2008 paper on Libor manipulation. “We need to have Libor reflect true borrowing costs and I just don’t see any more efficient way to do so but to base it on actual borrowing costs.”

The market isn’t going to settle for “the trust-me approach,” said Ron D’Vari, CEO of New York-based advisory firm NewOak Capital LLC and a former BlackRock Inc. (BLK) managing director. “Changing wheels while driving is tough, but it has to be done.”

Diamond has agreed to appear at a meeting of U.K. lawmakers to highlight “what we have done and are doing to put things right,” he said in a letter yesterday to Andrew Tyrie, chairman of Parliament’s cross-party Treasury Committee.
‘Many Questions’

“I appreciate that the nature of the settlements disclosed yesterday raises many questions, and I welcome the opportunity to provide answers,” Diamond wrote.

The BBA, which has overseen Libor for 26 years, created a steering group of bankers and regulators in March to consider reforms in light of the probes. The BBA was aware that banks including Barclays were low-balling their Libor submissions during the financial crisis to avoid the perception they were struggling to borrow cash, according to CFTC documents.

In an April 2008 phone call, a senior Barclays manager told a BBA representative, “We’re clean, but we’re dirty-clean, rather than clean-clean,” according to the CFTC report. The BBA employee responded, “No one’s clean-clean.”
Incremental Changes

Barclays is on the BBA steering committee reviewing Libor. The bank’s chairman, Marcus Agius, is also chairman of the BBA. Other lenders on the steering committee include Credit Suisse Group AG (CSGN), HSBC Holdings Plc (HSBA), Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland, all of which are being investigated as part of Libor probes. Spokesmen for the banks declined to comment.

Three members of the steering committee interviewed by Bloomberg News this month said changes to Libor would be incremental because structural modifications in how the rate is calculated could invalidate trillions of dollars of contracts and result in litigation. They ruled out stripping the BBA’s oversight and scrapping the survey system in favor of a rate based entirely on actual trades.

“You wouldn’t ask for someone’s opinion on the closing price of a share when there is an actual price available,” said Daniel Sheard, chief investment officer of GAM U.K. Ltd., which manages about $60 billion in assets. “What better way to restore credibility than having a transaction-based index?”
‘Significant Resources’

The British government will emphasize to the BBA at the steering group’s next meeting that only drastic changes will suffice, according to a person with knowledge of the matter, who asked not to be identified because the talks are private. Chancellor of the Exchequer George Osborne, speaking to lawmakers in London yesterday, said the FSA is “committing significant resources” to investigate “systemic failures” over the manipulation of Libor.

PFP Group’s Price said he’s skeptical that the BBA review or increased oversight by regulators will improve Libor.

“Whenever you’ve got a regulator battling against well- paid bankers, we know who’s likely to win,” Price said. “I would feel better if some completely independent body was just compiling data from the banks and just spitting out a number.”

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Coty Seeks Up to $700 Million in IPO After Avon Bid Fails

Coty Inc. is seeking as much as $700 million in an initial public offering after the maker of perfumes by Beyonce Knowles and Heidi Klum pulled a takeover offer for Avon Products Inc. (AVP)

All the shares in the IPO will be offered by existing shareholders, the New York-based company said today in a filing. Coty withdrew its sweetened $10.7 billion bid for Avon on May 15, citing the cosmetics seller’s refusal to negotiate.


After failing to gain control of Avon’s global door-to-door sales network, Coty is working to spur revenue by entering new regions and expanding distribution of brands in emerging markets such as Rimmel and Adidas body-care products in China. The company said it also seeks to use additional distribution channels including direct television sales and e-commerce.

Coty projects net revenue of more than $4.5 billion in the fiscal year 2012 and anticipates to generate cash flow from operations of more than $550 million, an increase from $417.5 million in the previous year, according to the filing. In the 12 months ended March 31, the company had operating income of $304 million.

Coty, which holds perfume licenses for brands including Calvin Klein and Marc Jacobs, was founded in 1904 in Paris by Corsican-born Francois Coty. The company helped develop perfume into a mass product, with 36 million consumers two decades later. Coty’s previous purchases include $400 million for a majority stake in Chinese skin-care company TJoy Holdings Ltd. in December 2010.
Potential Acquisitions

The IPO is set to be the biggest in the U.S. so far this year in the consumer sector, according to data compiled by Bloomberg. Coty hired Bank of America Corp., JPMorgan Chase & Co. and Morgan Stanley (MS) to manage the offer.

Coty may also seek to make acquisitions, with potential targets including Natura Cosmeticos SA of Brazil, Oriflame Cosmetics SA, the beauty care unit of Japan’s Kao Corp. and France’s Yves Rocher Group, Vivienne Rudd, a personal-care industry analyst at Mintel International, said last month.

JAB Holdings II BV holds 80.5 percent of Coty, according to the filing. Entities affiliated with Berkshire Partners LLC, a private-equity firm based in Boston, owns 7.5 percent, as do entities affiliated with the Rhone Group LLC.

Coty Chairman Bart Becht had targeted Avon to add a door- to-door distribution channel for its cosmetics and more than double its annual sales from brands including Cerruti and Wolfgang Joop.
Global IPOs

After “continued delay and unwillingness” by Avon to engage in discussions, “it is time for Coty Inc. to move on and pursue other opportunities,” Becht said last month, as the company announced it was pulling its $24.75 a share offer for Avon.

IPOs globally raised $41.3 billion this quarter through yesterday, the worst April-June period since 2009, data compiled by Bloomberg show. At least 50 companies shelved sales as Europe’s debt crisis spread and growth prospects in China dimmed.

From Bloomberg

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