NEW SITUATION: Allergan Inc (AGN US) / Pfizer (PFE US): Wall Street Journal reported that Allergan has been approached by Pfizer for a merger. The two companies are mulling a combination, where the merger discussions are at a preliminary stage, and there is no certainty that an agreement will arise. With Pfizer having been on the look out to make a ‘move the needle’ transaction for a very long time (while all its competitors have already been doing large scale tax inversion and leverage up transactions in last 12-24 months, and Pfizer unsuccesfully having tried last year to acquire AstraZeneca and become a non-US company, thereby enhancing access to its balance sheet and maximizing its tax structure while already have decided to sell its generics business to TEVA (this deal is still expected to close in 1Q16)), it would make significant strategic and financial sense for Pfizer doing a move now on Allergen, considering Allergan’s market cap at $112bn is about half of Pfizer’s $216bn market cap. Specifically, Allergan’s favorable tax structure and long- duration assets could make the company a large scale and attractive target for Pfizer’s as it could provide meaningful tax savings (which CEO Ian Read has often cited as important for the company to remain competitive) and potentially unlock Pfizer’s overseas cash hoard. Would initiate Allergan position with below $304 (while being cautious that any recommended deal would trade at large 10-15% net spread due to long timetable tax inversion risk).
ALCATEL (ALU FP) / NOKIA (NOKIA FH): Alongside numbers for both Nokia and Alcatel, Nokia announces a €7bln buyback program in order to “optimise capital structure” and accelerate, by one year, the €900m synergy target Nokia has made as part of its €15.6bn purchase of Alcatel Lucent. “This program would consist of approximately €4bn in shareholder distributions and approximately €3bn of deleveraging. . . . Nokia now targets to achieve approximately €900m million of operating cost synergies in full year 2018, compared to its earlier target to achieve approximately €900m of operating cost synergies in full year 2019. Very positive commentary out of Nokia (standalone/ and on better synergies expectations on Alcatel merger). Although Alcatel remains a drag (Alcatel-Lucent’s Q3 EBIT was 15% below consensus on Core Networking), this merger is still very much on track for early 2016 closing – approach merger spread as trading spread and trade in and out.