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Our briefing for Monday December 14, 2020:
Dec 14, 2020 3:59:47 PM
- In the United States, the bipartisan group of US lawmakers will unveil their $908 billion coronavirus pandemic relief plan with the hopes Congress will pass it this week. The latest bid, which shows how much the two sides are divided, has two separate bills. The one proposal is for $748 billion in spending will include all provisions other than state and local aid and liability protections for employers. The second bill has two provisions – $160 billion in state and local aid allocated through a needs-based system, and liability protections. According to Bloomberg, a source close to the negotiations said it is unlikely all members who worked on the plan would sign off on both measures.
- Similar to the United Kingdom last week, Canada celebrated their version of “V-Day” on Monday with the first person inoculated with the Pfizer vaccine. Anita Quidangen, a personal support worker at a long-term care centre in Toronto was the first person to receive the shot in Canada. Quebec – the hardest hit province in the country is expected to launch their vaccination efforts on Monday as well. Quebec’s first doses will be given in long-term care homes while Ontario are set to offer their shots in designated hospitals in Toronto and the nation’s capital – Ottawa.
- According to the United Kingdom’s Health Minister, a new variant of COVID-19 has been identified in southeast England. Health Secretary Matt Hancock made the revelation on Monday while announcing London would return to the UK’s strictest version of a lockdown this week. Hancock said more than 1,000 cases with this new variant have been identified and the World Health Organization has been notified because similar variants had been identified in other countries in recent months. “I must stress at this point there is currently nothing to suggest that this variant is more likely to cause serious disease, and the latest clinical advice is that it’s highly unlikely that this mutation would fail to respond to a vaccine,” said Hancock.
- Germany announced another hard lockdown over the weekend, causing economists to fear a likely double-dip recession to Europe’s largest economy. Chancellor Angela Merkel said the hard lockdown will begin on Wednesday as officials have conceded they have lost control over containing virus spread. As of Wednesday, non-essential stores will close, employers urged to close workplaces, and school children encouraged to remain at home. Stricter curbs such as a ban on gatherings over the New Year and drinking alcohol in public will remain in place until January 10th. Germany was receiving rave reviews for the handling of the first wave of the pandemic but have struggled with this second wave. The outbreak has been less severe than France, UK and Spain, but the government’s plans to help bend the curve haven’t worked.
- “The Most Beautiful Winter in the World” is the United Arab Emirates (UAE) tagline as it looks to encourage local travellers and promote desert winters in its attempt to recover from the coronavirus pandemic. The program which comes with an $11 billion USD price tag was launched via a tweet over the weekend from Vice President and Prime Minister Sheikh Mohammed Bin Rashid Al Maktoum. The UAE relies on energy and tourism to fuel its economy and both took a severe hit in 2020. The region is hoping the potential full public use of a China-backed COVID-19 vaccine could allow for a re-opening of the economy.
- A quarantine free travel bubble for Australia and New Zealand could begin as early as 2021. New Zealand Prime Minister Jacinda Ardern addressed the possibility with reporters after a Cabinet meeting and said it would be dependent on levels of COVID-19 in both countries not getting worse. Australia and New Zealand already have a limited travel corridor, but anyone returning from a trip to Australia, must quarantine for 14 days upon their return. Prime Minister Ardern said the travel bubble could begin in the first quarter of 2021 once final details have been worked out.
Covid-19 – Due Diligence And Asset Management
EQT Offers to Buy Recipharm of Sweden in $2.1 Billion Deal
Brief: Private equity firm EQT AB has offered to take over Swedish pharmaceuticals company Recipharm AB for $2.1 billion, marking the latest in a string of deals underpinning demand for health-care targets. EQT is offering shareholders 220 kronor in cash per share, compared to Friday’s closing price of 179 kronor. It’s also proposing to give holders of Recipharm’s senior unsecured convertible bonds 1.43 billion kronor ($170 million) in cash per 1 million kronor in aggregate principal of the convertible bonds, according to a statement on Monday. The bid comes just two days after AstraZeneca Plc agreed to buy Alexion Pharmaceuticals Inc. for $39 billion in cash and shares. Other deals announced recently include Gilead Sciences Inc.’s $1.4 billion purchase of German hepatitis drug maker MYR GmbH and Boehringer Ingelheim’s 1.2 billion-euro acquisition of NBE-Therapeutics. EQT’s bid also follows news from Recipharm that a molecule it’s developing, Erdosteine, appeared to help Covid patients recover after they were discharged from hospital. The company, whose biggest shareholder is the Swedish state with a roughly 16% stake, has seen its share price gain about 36% this year. Stockholm-based EQT has already secured ownership of about 25.7% of the shares and 74.3% of the votes in Recipharm through its chairman, Lars Backsell, and Thomas Eldered, its chief executive. The deal is worth 17.9 billion kronor, or about $2.1 billion.
Gammon Capital Up 449% is Betting on New Wave of Market Turmoil
Brief :A New York hedge fund that’s gained 449% in this year’s pandemic roller-coaster is betting on a new wave of volatility in the event Congress fails to extend a key bank provision in any new stimulus bill. As time runs short on breaking the legislative impasse, Gammon Capital LLC has been loading up on bearish stock options to wager on the prospective market fallout. One big risk: An accounting provision in the Cares Act that lets U.S. banks suspend the recognition of some coronavirus-related loan changes is due to expire by the end of the year. Without an extension, banks’ financial results would look worse, according to Michael Mescher, founder of the $22 million fund, with the potential to hit the economic recovery and stock rally. “In the absence of stimulus getting extended, all of this treatment ends,” Mescher said. “We’re adding more left-hand tail risk because it’s clear the market doesn’t realize this.” The 39-year-old former Barclays Plc trader is referring to measures that allow banks to defer labeling Covid-related loan modifications as troubled debt restructuring, as well as the temporary easing of capital requirements for community banks. The rising number of U.S. coronavirus cases combined with the risk of tougher lockdowns under an incoming Biden administration also make it more likely bearish wagers will pay off, he added.
Investment Companies Hit All-Time Record For Assets Despite Dip in Fundraising
Brief: Investment companies recovered from pandemic lows to hit a fresh all-time high in assets, totalling GBP221.4 billion at the end of November, according to data from the Association of Investment Companies (AIC). Nevertheless, fundraising for existing investment companies fell to GBP5.7 billion over the year, which was 22 per cent lower than the previous year’s total of GBP7.3 billion. “Despite the disruption and uncertainty caused by Covid-19, 2020 has seen the continuation of long-running themes in the investment company industry: healthy asset growth, strong fundraising from existing companies and falling fees,” says Ian Sayers, the AIC’s chief executive. Out of the year-to-date total, GBP1.3 billion was raised in the Renewable Energy Infrastructure sector, the highest-raising sector of the year. “Investment companies in the Renewable Energy Infrastructure sector continue to be in high demand for their attractive yields and their ability to contribute to a greener future.” The largest fundraising by individual company was by Hipgnosis Songs Fund, which raised GBP426 million for its royalties fund which includes songs by Mariah Carey, Fleetwood Mac, and Blondie. Greencoat UK Wind followed with a raise of GBP400 million in the Renewable Energy Infrastructure sector, and then Smithson raised GBP349 million in Global Smaller Companies sector. There were also six IPOs of new investment companies, raising a total of GBP855 million. Investment companies returned an average of 10.2 per cent in the year to date, with many also making their fee structures more attractive for shareholders such as lowering management fees, introducing tiered fees and removing performance fees.
Deutsche Bank Strategist Hasn’t Seen Investors Agree This Much in 25 Years
Brief: With the massive coronavirus vaccination campaign underway, the market is feeling bullish. The S&P 500 index (^GSPC) continues to climb near all-time highs and 2021 outlooks are sanguine. This has given some strategists — even bullish ones — a bit of pause. Deutsche Bank strategist Jim Reid wrote in a note to clients Monday that a key takeaway for the market in 2021 is that this risk-friendly, U.S. equities-heavy approach is “extremely consensus for the next 12 months.” The consensus felt so extreme that Reid wondered if this bullish case for 2021 S&P forecasts was the “biggest consensus in history.” “It’s fair to say that in the 25 years I’ve been doing this I can’t remember a time when so few (if any) disputed the central narrative,” Reid wrote. “Is this a warning sign or a reflection that the vaccine news has been uniformly positive and game-changing over the last 5 weeks?” In the last Deutsche Bank monthly survey of over 900 market professionals, 48% of respondents said they thought the stocks in both the U.S. and Europe would be higher in three months. This is as bullish as it was last month, Deutsche Bank strategists, led by Reid, wrote. The 12-month expectation was the second-most bullish of the year, also at 48%. The growth in the market has not converted many bulls to bears.
Coronavirus Woes Supersede Longevity Risks in Asia for Now
Brief: The coronavirus pandemic has made it even tougher this year for Asia-Pacific governments to grapple with unprecedented longevity risks to retirement savings, analysts say. Governments' focus on "cushioning the economic effects of the coronavirus" has pushed demographic challenges from the headlines even as the window of opportunity to address issues — such as how to finance retirements that will stretch over 20 to 30 years — is closing, said Michaela Grimm, a Munich-based senior economist with Allianz Group. Ms. Grimm helped author the Allianz Pension Report 2020 the company issued in May. The pandemic "has distracted us," shifting the focus of governments in the region from the threat longevity poses for retirement savings even as a number of countries here get old "at a pace never seen on earth before," agreed Ashley Palmer, Hong Kong-based regional managing partner, Asia retirement and investment, with Aon Hong Kong Ltd. The U.S., U.K. and Europe took 80 years to transition from "aging societies," with 7% of their populations at 65 years of age or over, to "super-aged societies" with 20% in that age bracket. But that's happening "in about 10 years in some Asian markets," Mr. Palmer noted. Asset owners called that shift in government focus this year understandable even if steps to provide immediate relief for workers have sometimes undercut programs designed to ensure they won't outlive their savings.
Boutique Firms Steal the Show on Year’s Top Health-Care Deal
Brief: Boutique advisory firms are taking most of the limelight on the year’s biggest health-care deal. AstraZeneca Plc tapped Evercore Inc. and Centerview Partners as lead financial advisers on its $39 billion takeover of Alexion Pharmaceuticals Inc. This deal helped Evercore jump three places higher in the mergers and acquisitions league tables, to No. 9 globally, while Centerview moved up five spots to No. 12, according to data compiled by Bloomberg. Morgan Stanley and JPMorgan Chase & Co. were listed as financial advisers as well as lead debt underwriters to Astra, while Goldman Sachs Group Inc. was also one of the main banks helping fund the deal. Astra’s boutique-heavy lineup was reminiscent of another big U.K. transaction this year, the $40 billion sale of British chip designer Arm Ltd. In that deal, smaller advisory firms Zaoui & Co. and Raine Group led the discussions for Arm’s owner, SoftBank Group Corp. Goldman Sachs also had a role with the Japanese company. In contrast to Astra, Alexion did have a Wall Street bulge-bracket firm in its corner, hiring Bank of America Corp. to advise on the transaction. They know Alexion well, having worked with the company last year on its takeover of Achillion Pharmaceuticals Inc. as well as the purchase of Swedish drugmaker Wilson Therapeutics AB in 2018. One notable name missing from this latest deal was Robey Warshaw LLP, the U.K. boutique that advised Astra when it was the target of Pfizer Inc.’s abortive takeover bid in 2014 -- a deal on which Centerview and Evercore were also present. London-based Ondra LLP, which works on a retainer basis, did show up as it provided advice to Astra as part of its ongoing work with the company.
