march wufc newsletter

Volume V: Issue III March 2015

The consequences of globalwarming and heavy pollution havebeen hard to ignore in the past coupledecades. Rising water levels andtemperatures are largely the result ofgaseous emissions produced by powerplants, factories, and vehicles. While itis obvious that emissions must belimited, the key problem thateconomists and lawmakers have facedover the past couple decades is thatimposing environmental regulationsin effect slows down economicgrowth. The solution to this problemis the cap and trade system, whichboth free market conservatives andenvironmentalists regard favorably.

HowitWorks:Before the 1990s the only way

lawmakers thought emissions couldbe regulated was to mandate factoriesand chemical plants to useenvironment friendly equipment ortaxing businesses based on theamount of pollutants they release intothe environment. Enforcing theseregulations on business owners,however, was forecasted tosubstantially decrease profit marginsand even put smaller companies outof business. This system was deemedcommand and control, and while itwould have been effective in reducingemissions, it was contentious becauseofits economic cost.

With a cap and trade system,the government simply sets a cap onthe amount of emissions it will allowan industry to produce for a certaintype of gas. It grants a certain numberof emission credits, each one typicallyequal to one ton of a particular gas, toevery company based on its size, or itholds an auction with multiple

companies. The unique aspect oftheseemission credits is that they can betraded like any other security betweencompanies depending on demand andsupply. As a result, companies areincentivized to find and utilize creativeways to curb their emissions so theywill have more credits to sell to othercompanies, thus increasing profits.This leads to more research andmoney spent towards eco-friendlytechnologies and processes, whichover time further help cut emissions.At the same time, if companies areunable to cut down their emissions,they can buy more credits to allowthem to maintain their current levels.Whether individual companies buy orsell their allocated credits is irrelevantbecause the system ensures that thecumulative decrease in emissions isachieved across the industry. Bysecuritizing emissions, this systemreaps the benefits of the free market,while at the same time limitinggaseous pollutants. Over time, theEnvironmental Protection Agency willratchet down the cap of gaseousemissions allowed. Companies aregiven fair notification of new limits sothey can altar business plans andstrategy for the future.

Characteristics of EmissionCredits as a Financial Security:

Emission credits maintainsome characteristics of traditionalsecurities like stocks and bonds, butfor the most part are vastly different.Although companies are the onlyentities that can effectively use anemission credit, the average person orinterest group can buy them as well.This is often the case withenvironmentally conscious individualsand protection groups who buy creditsin order to retire them so they cant be

C U RB I N G POLLU TI ON WI THE C ON OM I C S E N S I B I LI TY

An Overview of Emission Credits

Colin Pinto

IN THIS ISSUE

CURBINGPOLLUTION

WITHECONOMIC

SENSIBILITY

BUILDINGA

PHARMA-EMPIRE

ROADTORECOVERY:

HEALINGEUROPE'S

ECONOMY

NOVARTISFUTURE

PERFORMANCEUNCLEAR

EVERYONEWINS:

BLACKSTONE'SSALEOF

M&ADIVISIONS

VICE PRESIDENT OF

FINANCIAL ANALYSIS

COMITTEE

VincentCriscuolo

MANAGING EDITOR

Erin-Marie Deytiquez

COPY EDITORS

Coling Pinto, Jeremy Rhome, Aaron

Smith,Daniel Weng

FINANCIAL ANALYSTS

KrishnaBharathala, Alexandros

Deligianndis, Colin Pinto, Jeremy

Rhome

Wh a r t o n Und e r g r a d u a t e

FINANCE CLUB

CONTINUE on Page 4. . .

Volume V: Issue III March 2015 Page 2

On November 17th, Actavis acquired Allergan Inc. for $66billion dollars, beating out Valeant Pharmaceuticals $51 billiondollar bid. The newly formed company is anticipated to reach$23 billiondollars in revenuebytheendof2015, pushing it intothe top 10 global pharmaceutical companies by sales revenue.Actavis's bid was somewhat of a surprise due not only to thesheer amount, but also due to Valeant's year long pursuit ofAllergan. This article will discuss a few of the strategic reasonsbehindtheacquisition.

First: an overview of the companies. Allergan is apharmaceutical company based in Irvine, CA. Its top sellingdrug is Botox, an anti-wrinkle therapeutic, but it also hasmanyotherdrugs in theophthalmicandneuroscience fields. Allerganspends asignificantlylargerpercentageoftheirrevenue inR&Dwhen compared to most other pharmaceutical companies,becauseoftheirstrongbeliefthat innovation leads tomaximumprofits. Actavis, based in Dublin, Ireland, is the third largestgenerics manufacturer in the world. In recent years, they havebeen trying to create a stronger international influence throughacquisitions of smaller companies with blockbuster drugs. Inthe past year, Actavis has acquired Forest Laboratories, DurataTherapeutics, RhythmHealth, andAllergan. BecauseActavis isonly a generic drug manufacturer, they rely on the R&Ddepartments of the companies they acquire to come up withnovel drugs to sell. This strategy lies in starkcontrast to ValeantPharmaceuticals. Valeant is the largest pharmaceuticalcompany in Canada and in the top ten largest pharmaceuticalcompanies in the world. Like Actavis, Valeant has acquiredmany companies over the last few years, including SalixPharmaceuticals later this week, but its businessmodel ismorecenteredoncuttingcoststhaninnovation.

In an attempt to continuewith its acquisition strategy,Valeantproposeda$46billionbuyoutofAllerganinAprilofthisyear. After repeated rejections fromAllerganCEO, DavidPyott,Valeant began increasing its bid to attempt a hostile takeover,but David Pyott's last goal as CEO was to do everything in hispower to prevent the company from being sold to Valeant.Valeant is well known to slash R&D budgets of acquiredcompanies, and Pyott did not want Allergan to encounter thesame fate. Actavis, seeing an opening, bid $20 per sharemorethanValeanttoclosethedealandacquireAllergan.

There were many reasons why Actavis was set onacquiring Allergan. Predominantly, they want to expand intonew markets with Allergan's Botox drug. Internationally, theacquisition will broaden the accessibility ofBotox into growingmarkets includingChina, India, andLatinAmerica. Similarly, inthe United States, due to the complementary franchises andincreased number of drugs, there will be a broader group ofphysicians andcustomers tomarketandsell to. Anotherreasonfor acquisition was so that Actavis could cut costs through tax-inversion. Tax-inversion is the process by which a companyrelocates their headquarters to a lower-tax nation, whileretaining operations in the higher-tax country of origin. Thepractice has become especially common in the pharmaceutical

industryinrecentyearsbecauseofhighindustrycosts, andtherehas been a concerted government effort to stop this. Actavisitself has a recent history of tax-inversion. In October 2013,Actavis made a deal withWarner Chilcott in order to move itstax home to Ireland. At the start of this year, they acquiredForest Laboratories andwere able to cut taxes again. With theAllergan acquisition, it is estimated that Actavis can save over$250billiondollars throughtaxinversion. Thus, taxinversion isthe most likely the reason that Valeant wanted to acquireAllergan.

Post-Acquisition, the stock price of both Actavis andAllergan have been doing very well. On the day following theacquisitionActavis stockpricewentup10%from$245 to$270and Allergans went up 5% from $199 to $209. In addition,Actavis is up60%ontheyearandAllerganhasalmostdoubled.Clearly this is an indication that investors are happy with theacquisition. One interesting thing to note is that although bothcompanies have enjoyed significant increases in revenue thisyear, they have gone about it in different ways. Allergan hasfocused on marketing its Botox drug more heavily, andexpandingitsreachoutsidetheUnitedStates.

Despite failing to acquire Allergan, Valeant has alsoexperienced significant recent growth. Their stock price hasrisen 20% percent over the last two months, and even moresurprisingly, roseover5% thedaythat theylost thebiddingwarto Actavis. This seems to indicate a lack of shareholderenthusiasmaboutadditionalacquisitionsconsideringtherecentacquisitionsofbothSoltaandPreCisionDermatology.

In the end, it looks like the acquisition worked out forall parties involved. The stock prices ofall three companies inquestionhavegoneup since theacquisition, andAllerganshareholders seem to be happywith the events that have transpired.A couple interesting things to watch for in the upcomingmonths arewhetherActaviswill continue increasing theirR&Ddevelopment and follow through with the promises and ifValeant will continue with acquisitions of small companiesdespitenegativeshareholdersentiment.

BU I LDI N G A PH ARA-EM PI REAllergan's latest acquistion of Actavis

Krishna Bharathala

ACQUISTIONS BY ACTAVIS


ROAD TO RECOVERY: HEALING EUROPE'S ECONOMYEuropean Central Bank's plan to raise inflation through Quantative Easing

Overview:With extremely low inflation threatening to

derail the Eurozones fragile economy, EuropeanCentral Bank (ECB) President Mario Draghiannounced a huge government bond-buyingscheme. The plan, termed quantitative easing,involves purchasing sixty billion euros worth ofgovernment bonds per month over a nineteenmonth period, set to end in September 2016. The 1.1trillion euro program is intended to increaseinflation from minus 0.2 to approximately twopercent, reviving the distressed economies of theEurozone.

According to most pundits, the measuresthat the ECB is set to undertake are extremelyimportant to reviving the Eurozone economy.Teunis Brosens, an economist at ING Groep NV inAmsterdam, attested that there is, strongjustification for the ECBs recent decision toembrace QE. Among other reasons, he citedslumping prices throughout the Eurozone, whichcould spell deflation. Still, other critics haveexpressed discontent with the new measures. Forexample, Bill Gross, founder of PIMCO, has calledthe new measures too little, too late. Problemscited by Gross include the late implementation ofquantitative easing; he also expressed doubts aboutwhether or not banks will use the money infusion tomake the loans that will bolster the economy. Manyeconomists take a similar position. In fact, in a pollconducted by Reuters, a majority of economistsagreed that quantitative easing would not achieve itsprimary goal: raising the inflation rate.

The measures being implemented by theECB are not particularly novel. In fact, most aspectsof the plan are modeled after similar quantitativeeasing schemes previously undertaken in the UnitedStates, Britain, and Japan. Under this monetarypolicy, a central bank purchases governmentsecurities in order to lower interest rates andincrease the money supply. The increased liquiditystimulates the economy.

Still, others question the very effectiveness ofQE. Detractors point to concerns about possibleeconomic bubbles and a lack of lasting benefits tohouseholds. Many report on the inequalitygenerated by quantitative easing. In fact, it is widelyreported that gains from the U.S. economicrecovery, aided in large part by quantitative easing,were limited primarily to the top 1% of earners.Moreover, much opposition to the ECBs newmeasures has come from Germany, where themagazine Bild proclaims the dangers inherent in

taking on the billion-euro debts of weak EU states.German citizens believe that, after the program hasconcluded, their country will be expected to pay formost of it. Michael Kemmer, chief executive of theGerman bankers association, has stated thatquantitative easing poses the risk of asset pricebubbles. Other German economic experts, likeAlexander Erdland, believe that the ECBs newprograms will end up hurting savers.

However, despite questions regarding theefficacy of the program, the ECB will implement itsprogram. In an address, Mario Draghi, the Presidentof the European Central Bank, insisted that the onlyway to truly improve European economic conditionsis through changes implemented by the politicalestablishments in each respective European country.Draghi stated: for growth to pick up you needinvestment; for investment, you need confidence;and for confidence, you need structural reform.

Other members of the ECB echoed PresidentDraghis sentiments. ECB executive board memberBenoit Coeur remarked We can't do everything forEurope, we did our part others have to do theirpart. There is nothing we can do as the ECB to liftgrowth in a lasting way. He did state, however,

Alexandros Deligianndis


Reuters Poll: QE Program would not

succeed in raising inflation to the ECB's

target of just below 2 %

used to cover emissions. Like a stock or bond, the majority ofemission credits are bought through a broker who connectscompanies with surplus credits to those that lack them for acertain commission fee. There is also an annual auction inwhichnewemission credits are issuedbythegovernmenteachyear. Like any other security, the price of emission creditsvaries basedonmarket supplyanddemand. During economicprosperity, the price ofthese credits will tend toincrease becausechemical plants andfactories will producemore, and thus have theneed to emitmore gas. Ina recession, however,there will naturally be asurplus of credits asproduction goes down.These price fluctuationsallow for these credits tobe treatedas investments.Companies will oftenbank their surplus creditsto use in times ofexpansion or to sell lateroncepricesrise.

One of theunique characteristics ofemission credits is that they are highly illiquid. The primaryreason for this is the inherent fact thatmanycompanies simplycannot operate without having emission credits in theirpossession. This is because the majority of their productionrequires the emission of pollutants. This causes manycompanies to be reluctant about selling surplus credits becausetheyfear a potentialmarket squeeze inwhich theywouldneedthese credits to operate. The second reason is that there simplyarent very many players in the market. Although there aresome individual investors, the majority ofholders ofemissioncredits are chemical and utility companies, ofwhich there areonly so many. This lack of potential traders creates naturalilliquidity in themarket. The illiquid nature ofemission creditsis oneofits keyflaws as it compromises theefficiencyofthecapandtradesystem.

HistoryofCapandTradearoundtheWorld:Within America, the cap and trade system was first

implemented through the Clean Air Act of 1990. The onlychemicals thatweremonitored through the systemwere thosethat caused acid rain (primarilySO2 andNOX), a big problemin the 80s and 90s. Although chemical companies werereluctant to get involved at first, the system exceededexpectations in cutting sulfur dioxide and nitrous oxide. Intermsofeconomiccosts, itcost industryabout$3Billiondollarsayear to accommodate thegas caps, yet saved the economyanincredible estimated $100 Billion dollars a year in societal costfromillnessanddamagecausedbyacidrain.

Whereas sulfur dioxide and nitrous oxide are theprimary factors that cause acid rain, carbon dioxide is theprincipal cause forglobalwarming. This is the newfrontier in

cap and trade emission regulations. Carbon dioxide is moreprevalent anddangerous than gases that cause acid rain and ismuch harder to regulate as well. The European Union startedthe first carbon cap and trade system in theworld in 2005 (inconjunctionwiththeKyotoprotocol) anditis thelargesttodate.It has been quite successful in the past with carbon emissionsdecreasing by 3% in 2013 alone. Unfortunately, there is nofederally mandated cap and trade system for carbon dioxide

within the United Statesdue to political issues.Instead companies aroundtheUnitedStates engage involuntary carbon tradingthrough the ChicagoClimate Exchange. Thisprivate exchange operatessimilarlyas federal cap andtrade programs, except ona smaller scale. Theexchange sets a cap forenvironmentally consciouscompanies, which tradecarbon financialinstruments dependingon their need to emitcarbon.

Cap and TradeSystemsToday:The majority of new cap

and trade systems around the world revolve around carbondioxide limitations. In the beginning of 2015 South Koreaopened up the second largest carbon emission market thatinvolved 525 companies and a total of 1.59 billion KoreanAllowance Units (respective emission credits). The countrysgoal for the system is to reducecarbonemissions by30% in sixyears. This is quite a substantial goal that signifies howeffectiveand howmuch confidence people have in the cap and tradesystem.

Domestically, a number of states such as Californiahave implemented their own carbon credit trading systems,and other states are following suit. These American carbonmarketshaveprosperedinthepastcouplemonthsas theyhavepiqued the interest of an increasing number of investors andcompanies. There has been nearly $500 million dollars worthofcredits sold through auctions, which is a solid signal that thecarbon cap and trade system is gaining significant traction inthe United States. Although there is no federally mandatedcarbon emissions trading scheme yet, it is possible, given thesystemssuccess, thattherewillbeoneinthenearfuture.

Conclusion:The cap and trade systemofregulating emissions has

proved itself to be a very effective method ofcurbing gaseouspollution. It utilizes the power of the free market to find themost efficient way to cut back, while at the same timeincentivizing research and development in environmentfriendly technologies. The system is gaining momentum incountries around the world, and could verywell be one ofthekeys in stopping the rampant pollution that has deterioratedtheworldforso long.


POLLUTION from Page 1. . .


The Swiss based international pharmaceuticalgiant, Novartis Pharmaceuticals, has recentlyannounced plans to pursue independent ventureswith both GlaxoKleinSmith and Qualcomm Venturesin the hopes that these deals will bolster its alreadyworld leading 57.9 billion in annual revenue.Novartis, already responsible for the popular drugssuch as Clozaril, Voltaren, Tegretol, Diovan, Glivec,Neoral, Femara, Ritalin, and Lamisil hopes to expandits product line past just pharmaceuticals with itsnew partnerships. These deals do look promising forNovartis, but come amidst the Swiss National Banks(SNB) decision to uncap the currency, which resultedin the hyper appreciation of the Swiss Franc. Theaffect of the currency on its future expansionpartnerships is currently not clear; however, Novartisstill stands confidently by their its plans.

One of these deals involves the companyQualcomm Incorporated. This San Diego basedwireless technology giant, commonly known forproducing the Snapdragon processor found in mobiledevices and tablets. They plan to join with Novartis

via their venture investment group, QualcommVentures, to create a joint investment company.Qualcomms senior vice president said the jointinvestment company with Novartis will allow us tocombine their expertise in healthcare solutions withour knowledge of mobile technologies to accelerateinnovation in the field of digital medicine. The jointinvestment company, drawing on resources of theindustry leading mobile platform producer andpharmaceutical developer, will invest funds in excessof 100 million dollars in pioneering companies whooffer innovative healthcare technologies.

Qualcomm plans to get their mobilecomputing platforms into new markets with theirpartnership while Novartis hopes to expand itsinvolvement past its current stronghold onpharmaceuticals, vaccines, and over the countermedicine and into the realm of the fast growinghealthcare IT segments. In their press release onJanuary 11th, Qualcomm announced that their jointinvestment company will invest in companies thatoffer technologies, products or services, that gobeyond the pill to benefit physicians and patients.While both parties initially seemed optimistic at the

time, these announcements came justdays before the Swiss National Bank(SNB) decided to uncap the value ofits currency against the Euro. Sincethen, Novartis and Qualcomm havenot made official statements in regardto the deal that may be affected by apowerful and potentially unstableSwiss Franc.

Meanwhile, Novartis also hadplans to go through a complicated setof deals with the London basedmultinational pharmaceuticalcompany, GlaxoSmithKlein (GSK).GlaxoSmithKlein is the sixth largestpharmaceutical company in the worldby annual revenue. Last year, it made25.602 billion British pounds,equivalent to about 40 billion USDdollars (adjusted for 2015 purchasingpower). Naturally a partnership ofthis scale drew the scrutiny of theEuropean Unions top antitrustagency, the European Commission.The European Commission probedinto the complicated legal frameworkof the deal. The deal would consist

N OVARTI S FU TU RE PERFORM AN CE U N CLEARA Growing Real Economy and Attractive Capital Market Yields Lead to Dollar's Appreciaiton

Jeremy Rhome


This proposed 3-

part transaction

accelerates our

strategy to generate

sustainable, broadly sourced sales

growth and improve long-term earnings."

- SirAndrewWitty, CEO ofGSK


that the ECBs measures could be extended in theevent that initial measures do not produce anysignificant results. Coeur claimed that it[quantitative easing] will end only once we get astrong sense that inflation is converging toward 2percent.

However, the efficacy of the ECBs programis likely to be hindered by the fact that it overseesmultiple countries. These countries have separateinterpretations of EU law, so the asset-purchaseprogram will have differing effects on each country.Many, for instance, worry that purchase ofgovernment assets and bonds from countries likeGreece and Italy will simply fuel those governmentsexcessive spending. This is a key point cited byGerman experts in their argument againstquantitative easing. Moreover, 20 percent of theasset purchases are being shared with nationalcentral banks. This fuels concern that, should theprogram fail, potential losses will be leveled atalready indebted countries.

Outlook:While it is difficult to predict the final

outcome of the program, it is likely that the increasein money supply will at least provide a short-termboost to the economies of Europe. However, thereexists many confounding variables which preventthat from being certain.

The election of the political party SYRIZA topower in Greece is sure to at least marginally changeeconomic circumstances, as current finance ministerYanis Varoufakis seeks to negotiate new terms forGreeces bailout. He has previously stated that hewill work to ensure that Greeces debts are reduced,much to the dismay of the Bundesbank, which hasinsisted it will not budge on its current bailoutterms. Additionally, Greeces former financeminister, Gikas Hardouvelis, has insisted that thebond-buying program will not be enough to solveGreeces liquidity issues.

Moreover, as Mario Draghi himself stated,any long-term growth is predicated on theassumption that European governments makeserious changes to accommodate economicexpansion. In fact, most economists agree that it willalmost certainly be necessary to extend thetimeframe of the bond-buying program to allow theeconomies of Europe to rebuild and recover.Without structural change, economic expansion, ifany, will be temporary.

Overall, the necessity of the program cannotbe argued. With European economies struggling, anyrisks that quantitative easing poses must be at leasttemporarily ignored. It may be the shot-in-the-armthat Europe needs to stay afloat.

ECB from Page 3. . .

HowDoes QuantativeEasing Work?

EVERYONE WINS: BLACKSTONE'S SALE OF M&A DIVISION

Alexandros Deligiannidis

Blackstone Group Mergers and Acquisitions Spin-Off

On October 10, Blackstone Group announced that itwill be spinning off its M&A and corporaterestructuring business. This move came as a surprise tomany, as one of Blackstones business pillars had beento serve as an advisor for its clients in matters regardingmergers and acquisitions and restructuring. However,due to conflicts of interest with other sectors of thebusiness, the M&A and restructuring businesses withinBlackstone will be sold off in the comingmonths.

Blackstone was not always the multifacetedcorporation that it is today. When originally founded byPeter Peterson and Stephen Schwarzman, the companywas simply a mergers and acquisitions boutique.However, over the years, the amount of assets that thecompany had under management increased greatly, upto $300 billion. It took on businesses such as real estateinvestment, hedge fund management, and privateequity. Today, Blackstone currently invests in manyasset types, including real estate, credit, mortgages, andmore.

As the investment business at BlackstoneGroup has increased, conflicts of interest have becomea manifest problem. For instance, the relationships thatthe mergers and acquisitions arm of the company has

with certain clients has hampered the ability ofinvestment funds at Blackstone to make certaininvestments. As a corollary, if Blackstone has anyfinancial interest in a particular company, an inherentconflict-of-interest hinders the ability of the mergersand acquisitions portion of the company to get accessto certain deals. Thus, the company loses out on muchpotential revenue. Furthermore, spinning off the M&Aarm of the company will not significantly decrease therevenues of The Blackstone Group. In fact, only about$382 million of Blackstones $7.7 billion in totalrevenue come from the M&Abusiness. It is the smallestrevenue producing aspect of Blackstones operations.Overall, the growth opportunities presented by sellingthe M&Abusiness outweigh the slight loss in revenue.

The plan of action that Blackstone intends toadhere to involves spinning of the M&A portion of thecompany and selling it to PJT Partners, a boutiquemergers and acquisitions firm whose clients currentlyinclude Verizon and Comcast. In the deal, existingshareholders of Blackstone would receiveapproximately two-thirds of the new companys stock,and employees of the new company would get the rest.The CEO of Blackstone, Stephen Schwarzman, willreceive the most stock, but will not be affiliated with thenew company. Should the deal occur, the combinedcompanywould be worth approximately $1 billion.




The European Commission probed into the complicated legalframework ofthe deal. ofthree phases totaling betweenmorethan20 billion ofassets in exchangebetweenboth companies.In summary, Novartis would sell their high margin oncologyunit to GSK for 16 billion while GSK would sell their lowermargin vaccines division for 5.25 billion dollars. It would alsoconsist ofa jointventurebetween the two companies, majorityowned by GSK, which will create an over the counter drugbusiness.

The European Commission cited concerns aboutpossible monopolization leading to increasing prices ofpharmaceutical products as well as lack of innovation due toless competition inthemarket. Toplacatetheseconcerns, bothNovartis and GlaxoSmithKlein agreed to divest some of theirpatents and product rights in order to ensure continuedcompetition in the market place. GlaxoSmithKlein gave uptheir rights to a number ofvaccines and drugs, including coldand flu medication as well as a smoking cessation product.Novartis allayed the concerns of the European Commissionforgoing the rights of one of their cancer drugs, MEK162, aswell as another non-cancer drug. Both companies haveconfidence that the newdeal will cover the losses offorfeitingproduct rights in order to get approval. In late January, theEuropean Commission announced that the plan between the

Swiss and British drug giants did conform the EUs antitrustlaws.

The timing of both of these plans in relation to theappreciation of the Swiss currency draws attention to howNovartis, which has 12 to 13 percent ofits costs in Switzerlandbutonly2 percentofits sales there, will reacton therecordandperform in the coming year. The Qualcomm deal was madejust days before the Swiss currencyuncap while the GSKdealwas made before the currency uncap but approved after it.Luckily forNovartis and their investors, Novartis is releasing ahighly anticipated heart failure drug, which is expected togeneratemulti-billion dollars in revenue. On the flip side, thecompanyexpectsgenerics tosteal2.5billionsales fromtheminthe coming year. Despite the potential for volatility, NovartisCEOJoeJimenezhasannouncedinan interviewwithReutersthat Our growth prospects for 2015 are strong and in 2015and with the portfolio moves we have really good growthprospects for the next 5 years. Although he did notmentionboth deals specifically, he did acknowledge the affect that theSwiss Franc could have on their sales. He reassured investorsthat they will continue their effort to increase margins.Nonetheless, investor confidence droppedas evidencedbythe1.58 percent decreasing in their stock. Novartis is definitely acompanyto beon the lookout for in thecomingweeks as theytrytosortthroughsimultaneousdealsandmacromovements.

The new company formed by Blackstonesadvisory group and PJT will undoubtedly be among thepremier boutique advisory firms. According to The WallStreet Journal, it will combine Blackstones strongbankruptcy and restructuring practice with PJTsexceptional M&A strengths. PJTs strengths, in particular,lie in the fact that they have advised on important dealssuch as the Verizon-Vodafone takeover. They also arecurrently advising on the planned Comcast-Time Warnerdeal. Much of Blackstones strength lays in therestructuring arm of its business. Recently, it was rankednumber one in both global announced and completedrestructuring transactions. In fact, Jeffrey Goldfarb of TheNew York Times believes that the merger of Blackstoneand PJT will create a company so valuable that a majorinvestment bank may decide to buy it out. Furthermore,Goldfarb believes that this particular deal is somewhatpioneering in that few other M&A firms have chosen tomerge, preferring inversion instead. Thus, it is possible thatother firms maybegin to follow the course charted byPJT-Blackstone advisory firm in the future. Mergers wouldallow the milieu of small, boutique advisory firms tocapture yetmoremarket share andcontinue growing.

Still, others disagree, seeing the potential formergers ofM&Aboutiques as unlikely at best. These criticscite a lack of infrastructure or shared assets and believethat the lack of complementary business lines will preventanymergers. Additionally, it is possible that the difficultiesinherent in incorporating new employees into a companyculture will prevent any large banks from buying the newPJT-Blackstone company.

It is important to note the increasing prevalence of

boutique advisory firms which the new PJT-Blackstonecompany is poised to become in the financialmarketplace. According to The Wall Street Journal, thesetypes ofsmall firms have captured 17% ofall M&Arevenuethis year. This is in starkcontrast to 2008, when totalM&Arevenue captured by boutique firms was 8%. The increasein M&A revenue among small firms has also beenaccompanied by an increase in M&A revenues in general.In fact, global M&Arevenue is up 52% from four years ago to $3.1 trillion. Part of the reason for the increasedinterest in mergers is attributed to low interest rates, whileothers cite todays slow-growth economic environment as afactor. Many companies will look to execute mergers ofhigher-growth companies to accelerate firmgrowth.

This recent uptick in the number ofmergers andacquisitions is reflective ofWall Streets general confidencein the continuation ofthe current bull market, according toGary Strauss of USA Today. If the market that has beenpredicted byWall Street continues, there is little doubt thatthe newPJT-Blackstone companywill be successful, alongwith othermergers and acquisitions companies. Moreover,the removal of conflict of interest concerns within theBlackstone Group should allow it to significantly increasethe revenue ofits otherbusinesses.

However, certain questions remain to beanswered. Although Paul Taubman, owner of PJT, is anexperienced, well-regarded banker, he may not be able tosmoothly integrate the new, much larger company.Additionally, many critics believe that it may be difficult tointegrate company cultures: Blackstones culture, beingthat ofa larger firm, maybe difficult to combinewith PJTs,which is that ofa small, boutique advisor.

BLACKSTONE from Page 7. . .

NOVARTIS from Page 5. . .

march wufc newsletter

Documents