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How Will Syriza’s Greek Victory Hit the Markets – Live

Wall Street Journal MoneyBeat - 3 hours 8 min ago
Syriza leader Alexis Tsipras greets supporters following victory in the election in Athens on January 25, 2015. 
Agence France-Presse/Getty Images

Will Alexis Tsipras be the man who ultimately takes Greece out of the eurozone? After storming to victory in a general election with his radical leftist party Syriza, and sealing a necessary coalition deal with a small, right wing party, Mr. Tsipras’s priority now: renegotiate the terms of Greece’s debt with the Troika. You can catch up with all the details of that here, but the prospect of Greece being forced to leave the eurozone now looms.

The markets don’t like uncertainty one bit, of course (the euro fell below $1.11 this morning before recovering), and are set to be volatile Monday, although market participants have played down fears of contagion.

We’re here to walk you through the market open and beyond as financial markets react to Greece’s latest political drama.

3:02 am | J.P. Morgan weighs in | by Katie Martin

Here’s J.P. Morgan, which was pretty downbeat on the euro before Greece:

“The Greek election results do not alter our negative view on the euro much unless a Syriza-led government fails to reach an accord with the Troika,” says David Mackie at the bank. “We’ve had bearish forecasts on the currency since late 2013 and held short trade recommendations since mid-2014, but mainly due to the Fed-ECB policy divide. We’ll keep the Q1 EUR/USD target of 1.10 and remain short the currency versus JPY, CHF and USD.” (Photo: EPA)

3:01 am | Looking at Bunds | by Emese Bartha

The outcome of the Greek elections might initially hit riskier European assets and benefit Bunds, but, ultimately, Greece and the European Union are "condemned" to find a solution, says KBC Bank.

The bank's analysts believe that negative reaction will mainly be felt in the Greek bond and equity markets, while, for Bunds, initial strength may be questioned by a stronger Ifo business confidence indicator, due at 0900 GMT. March Bund futures hit new high at 159.05 in early trade, while now they trade at 158.95, up 0.22. The 10-year Bund is currently 0.309%, after opening at an euro era low of 0.298%. KBC notes that Bunds might be vulnerable from a technical point of view as its overbought character suggests that some profit-taking is enticing. 

2:43 am | Wait for it.... | by Phillipa Leighton-Jones

Early indications show Greek government bonds yields little changed, with the five-year at 8.95% and the 10-year at 8.44%. 

2:39 am | U.S. futures | by Phillipa Leighton-Jones

U.S. futures don’t like the news. 

Futures for the Dow Jones Industrial Average (DJH5) fell 97 points, or 0.6%, to 17,491, while those for the S&P 500 (SPH5) slipped 9.2 points, or 0.5%, to 2,034.70. Futures for the Nasdaq 100 index (NDH5) fell 13.5 points, or 0.3%, to 4,253.50.

But they could of course be waiting for a cue from European markets, yet to open, which could set the tone for the rest of the day. Don’t forget market participants have been relatively sanguine on the prospects of contagion from Greece. And the stimulative effects of QE are still very, very fresh. (Image: Reuters)

 

2:35 am | Germany reacts | by Phillipa Leighton-Jones

No minced words from Germany’s powerful central-bank chief, Jens Weidmann, who said in an interview on TV this morning: 

“It is clear that Greece will remain dependent on support and it’s also clear that this aid will be provided only when it is in an aid program.” 

 

2:33 am | How the results stack up | by Phillipa Leighton-Jones

Here's the rundown of election results with 99.82% of the count voted. 

Syriza's projected to win 150 seats, New Democracy 76, Golden Dawn 17, To Potami 16, Communist Party 15 and the Independent Greeks 13. 

2:25 am | Latest on the election | by Phillipa Leighton-Jones

Our team in Athens has the latest on the election here. 

A snapshot: 

With nearly all votes counted, opposition party Syriza was on track to win about half the seats in Parliament. In the wee hours of the morning, it clinched a coalition deal with a small right-wing party also opposed to Europe’s economic policy to give the two a clear majority.

“Today the Greek people have written history,” Syriza’s young leader and likely new prime minister, Alexis Tsipras, said in his victory speech late Sunday. “The Greek people have given a clear, indisputable mandate for Greece to leave behind austerity.”

2:23 am | Welcome | by Phillipa Leighton-Jones

Thanks for joining us as we walk you through the market open this morning as the markets wake up to Syriza's bigger-than-expected victory in Greece overnight. 

Stock markets in Europe are being called sharply lower, the euro has had a tough night in Asia, touching ten-year lows against the dollar and yen, and Asian stocks have tumbled while  E-Mini S&P 500 futures are now down almost 9 points on the CME. 

 

Categories: Transactions

Morning MoneyBeat Europe: Syriza Win Puts Markets On Defense

Wall Street Journal MoneyBeat - 3 hours 42 min ago

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Good Morning Europe

European stocks are called sharply lower after a much more emphatic win for Greece’s anti-austerity Syriza party than markets had expected.

Previous speculation had it that a coalition may have toned down Syriza’s ability to roll back austerity, but this result seems to have put Greece on a collision course with Brussels and Berlin.

Already pressured by the European Central Bank’s quantitative easing, the euro has slipped to 11-year lows against the dollar on news of the Greek vote, and perceived haven assets, notably Germany’s Bund, have caught a heavy bid.

There’s little enough on the economic data to lure investors’ gaze from Athens,  although the eurogroup will meet to discuss Greece later.

Market Snapshot: U.S. markets  (Friday close) DJIA down 0.8%, Nasdaq up 0.2%, S&P 500 down 0.6%. Nikkei (Monday close) down 0.3%. Brent crude down 69 cents at $48.10, Nymex crude down 51 cents at $45.08. Gold down $1.40 at $1293.30. EUR/USD at $1.1195, USD/JPY at ¥117.78. 10 year Treasury yield 1.76%, Bund 0.32%, Gilt 1.48%.

Watch For: Germany’s Ifo survey.

 

OVERNIGHT ACTION

Greek Vote Sets Up New Europe ClashGreek voters handed power to a radical leftist party in national elections, a popular rebellion against the bitter economic medicine Greece has swallowed for five years and a rebuke of the fellow European countries that prescribed it.

Can the ECB Mollify Syriza?: Maybe the ECB has made the disaster everyone feared from Greece much less likely.

Syriza’s Post-Election Challenge: An Empty Greek Treasury: The clock is ticking for Syriza—the victorious antiausterity party in Greece’s elections—to strike a deal with creditors to keep Greece solvent and in the euro.

Investors in the U.S. See Uncertainty After Greek ElectionsU.S. markets could be in store for a rough ride, with the projected victory of the leftist, anti-austerity Syriza party in Greek elections Sunday ushering in some uncertainty over the country’s next moves, investors said. But some strategists say any short-term volatility from the election result could be a buying opportunity.

Analysis: Eurozone Cohesion Put to the Test: Direct risk to currency bloc after Greek vote.

As QE Works Its Magic on Markets, the Street Considers Long-Term Gains : A day after the European Central Bank and Mario Draghi delivered on expectations,  the market appears to be experiencing a particularly enjoyable kind of hangover.

Euro Falls After Greek Election: The euro touched the lowest levels in more than a decade against the U.S. dollar and Japanese yen, and Asian stocks and U.S. futures tumbled after a vote in Greece fueled fears about the future of the eurozone.

ECB Gives Dollar Further ImpetusThe European Central Bank’s big stimulus plan has thrust the dollar’s advance into overdrive, for better or worse.

 

Categories: Transactions

Tom Freston Is Hired as Adviser at Raine Group

New York Times DealBook - Sun, 01/25/2015 - 21:00
With the appointment of Mr. Freston, the Raine Group adds to an already deep bench of media advisers.
Categories: Transactions

PartnerRe and Axis Capital, 2 Reinsurers, to Merge

New York Times DealBook - Sun, 01/25/2015 - 20:36
Such companies, which essentially buy the risks of catastrophe policies sold by traditional insurers, have been looking to consolidate to help compete against new entrants into the industry.
Categories: Transactions

Stock Futures Slip as Anti-Austerity Party Set to Win Big Fat Greek Election

Wall Street Journal MoneyBeat - Sun, 01/25/2015 - 19:13
Reuters

Opa!

That’s the sentiment Alexis Tsipras’ leftist party Syriza must be feeling early Monday morning in Greece. However, U.S. stock market futures aren’t taking the same celebratory approach. To little surprise, futures are lower as investors question the future of the debt-ridden country under a Syriza-led parliament.

E-mini S&P 500 futures are down about a dozen points shortly after opening on the CME Sunday at 6 p.m. ET. WTI Crude oil is trading at $45 a barrel, off roughly 1% from Friday’s settle price. And the euro is extending its slide against the U.S. dollar, falling to an 11-year low.

With 95% of the votes counted from Greece’s national election, Syriza is projected to win 150 of the 300 parliament seats, putting it within striking distance of capturing a majority. The New Democracy party, headed by Antonis Samaras, is in second, securing an estimated 76 seats.

In the days and weeks to come, analysts widely expect any negativity surrounding Syriza’s victory to be cushioned by the European Central Bank’s massive stimulus program announced last week and the fact that Greece is fairly isolated from the overall eurozone financial system.

Convergex Chief Market Strategist Nick Colas says the outcome shouldn’t mean much for U.S. stocks in Monday trade as it was largely priced in. “The European banks have had ample time and warning to pull away from the Greek economy,” he added. Mr. Colas says Greece will be a headline topic Monday, but corporate earnings and Wednesday’s Federal Reserve meeting will play a bigger role during the first half of next week.

A Syriza victory brings concerns about the future of Greece in the eurozone. The party has vowed to tear up the austerity program that Athens pledged in exchange for a €240 billion ($269 billion) bailout from international creditors. Few analysts right now are expecting an outright ejection of Greece from the eurozone under Mr. Tsipras’s direction. But there are plenty of questions about how Greece’s debt will be restructured under a Syriza-led parliament and whether it will restore sustainability to the country that has been stuck in a period of no growth since 2008.

“We expect market doubts to rise in H1 2015 and think that is currently underpriced,” said Elsa Lignos, senior currency strategist at RBC Capital Markets. “As we get closer to the day of reckoning (the first ECB bond repayment on July 20), we think EUR’s political risk premium is likely to build, which could carry EUR/USD another 5-10% lower from here.”

Mr. Lignos forecasts an eventual rebound in the Euro against the U.S. dollar in the second half of 2015 as Greece stays in the eurozone and Europe recovers from its economic malaise.

Categories: Transactions

Morning MoneyBeat Asia: Markets Eye Greece After Elections

Wall Street Journal MoneyBeat - Sun, 01/25/2015 - 18:23
Agence France-Presse/Getty Images

Market Snap: At the New York close on Friday, for the week: S&P 500 up 1.6% at 2051.82. DJIA up 0.9% to 17672.60. Nasdaq Comp up 2.7% at 4757.88. Treasury yields mixed; 10-year declined to 1.814%. Nymex crude oil down 7.2% at $45.59. Gold up 1.2% at $1,292.60.

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How We Got Here: Hope has made history, Greece’s Alexis Tsipras said after his Sryiza party won a momentous national election in Greece. It remains to be seen what hope will do to the markets.

S&P 500 futures are down about a dozen points ahead of trading in Asia as the final votes are being tallied in Greece. The euro was falling, but that’s largely to be expected. But overall the markets may be focused more on the ECB’s coming QE program than the outcome of the Greek election, blunting any panic trading so far. Also, Sunday’s vote is just the opening of what appears likely to be a months’ long debate.

Even though the election is over, the jockeying and negotiating and political scuffling is just starting. Sryiza wants to ditch the austerity-laden bailout programs that were a part of its 2010 rescue. The rest of the eurozone, particularly the Germans, will have none of that. The first thing will be to see if Sryiza wins an outright majority. The votes were still being counted as of this writing. That will determine whether or not Mr. Tsipras’s first test will be to form a coalition, or to go into direct talks with the so-called troika.

At the heart of this debate is the question of the pertinacity of the euro. How strong is a currency union in which members come and go? The outcome may well determine the future of the eurozone.

Coming Up:  China’s economic growth will continue to slow and come in at about 7.2% this year, a government think tank researcher says. Growth in investments, industrial production and retail sales will be slower in 2015, Chen Xikang of the Chinese Academy of Sciences told a forum. “The central bank should give policy priority to stabilizing economic growth and ensuring employment, and not focus on preventing inflation and financial risk.” The People’s Bank of China should cut banks’ reserve requirement ratio three to four times this year to help release liquidity and lower financing costs for the nation’s companies, he says. Fixed-asset investment will likely rise about 14.9% this year, down from an increase of 15.7% in 2014, he adds. China’s economy expanded by 7.4% in 2014, its slowest pace in over two decades.

What You Missed Overnight

Greek Leftist Party Syriza Wins Election Greek leftist party Syriza is set to win Sunday’s election but may not have enough support to form a government on its own, according to an official projection from the interior ministry.

Greece: Austerity, Relief or Exit? Will Syriza start a game of chicken with Germany and other creditors that could lead to havoc and a Greek exit from the euro? Or can a compromise be found?

 Sryiza Leader Vows to End Austerity The head of Greece’s leftist Syriza party, set to win Sunday’s elections, promised Greeks to end the austerity that sent the country into an economic tailspin without causing any “catastrophic break” with Europe.

Greek Election Likely to Have Muted Effect on Market As Greece went to the polls Sunday, investors were bracing for a volatile reaction in markets. But some analysts say the wider impact is likely to be contained.

U.S. Bitcoin Exchange Set to Open The virtual currency bitcoin is getting a very real boost on Monday, with the opening of the first licensed U.S. exchange.

From The Wall Street Journal

Japan Works to Free Second Hostage Japan on Sunday stood by its policy to refuse terrorist demands after a video showed one of two Japanese captives held by Islamic State had been beheaded.

Obama, Modi Make Progress on Talks U.S. President Barack Obama and Indian Prime Minister Narendra Modi said they made progress on a range of issues, including moving toward an agreement on civil nuclear trade, cooperating on defense and addressing climate change.

Australia Debates Whether Minimum Wage Is Too High Higher minimum-wage supporters in the U.S. often point to Australia as a low-unemployment country with one of the world’s highest pay floors. Now, joblessness in Australia is rising, and some are calling for a decadelong slowdown in increases to the minimum wage.

From MoneyBeat

Markets Get Bumpier as Fed Withdraws Safety Net Markets are slowly weaning themselves from their over-reliance on the Federal Reserve.

ECB Gives Dollar Further Impetus The European Central Bank’s big stimulus plan has thrust the dollar’s advance into overdrive, for better or worse.

Can the ECB Mollify Syriza? The troika has scope to relax some of its fiscal pressure, especially if ECB bond buying drives down Greek yields towards more normal levels elsewhere in the single currency region.

Categories: Transactions

British Start-Up TransferWise Raises $58 Million

New York Times DealBook - Sun, 01/25/2015 - 18:00
TransferWise, which uses peer-to-peer technology to allow people to swap currencies without incurring bank transfer fees, raised $58 million in a new round of fund-raising led by Andreessen Horowitz.
Categories: Transactions

Investors in the U.S. See Uncertainty After Greek Elections

Wall Street Journal MoneyBeat - Sun, 01/25/2015 - 17:13
Syriza leader Alexis Tsipras greets supporters following victory in the election in Athens.
Agence France-Presse/Getty Images

U.S. markets could be in store for a rough ride, with the projected victory of the leftist, anti-austerity Syriza party in Greek elections Sunday ushering in some uncertainty over the country’s next moves, investors said. But some strategists say any short-term volatility from the election result could be a buying opportunity.

The Syriza party was projected to win 150 seats in Greece’s 300-seat parliament, but it was still unclear whether the party would win enough to form a government outright or would have to seek out a coalition partner. The party’s victory has fueled worries that Greece could exit the eurozone, potentially setting precedent for other countries to leave and shaking up financial markets.

Sam Stovall, U.S. equity strategist at S&P Capital IQ, said investors signaled some concern on Friday, when U.S. stocks sold off after four sessions of gains. “Investors just decided to take gains from Thursday, pocket them because who knows what’s going to happen on Sunday,” Mr. Stovall said.

He also said much depended on whether Syriza party leader Alexis Tsipras strikes a more conciliatory tone in the days after the vote. “It’s like the beginning days of union negotiations, where people take a hardline upfront and then work things out afterward,” Mr. Stovall said.

Douglas Coté, chief market strategist for Voya Investment Management, downplayed the impact of the vote, pointing out that Greece is just a tiny slice of the world economy and that fourth-quarter corporate earnings would have a bigger impact on stocks moving forward.

“I’m watching it, but there’s no panic,” Mr. Coté said. “If there is a selloff, it’s an opportunity for investors to get in.”

George Rusnak, co-head of fixed income at Wells Fargo Investment Institute, said it would set a better tone for markets if Syriza was forced to find a coalition partner. If a partner is needed, “it sets that tone that they have to start negotiating,” and could prompt the party’s leaders to move away from their most extreme positions, Mr. Rusnak said.

Mr. Rusnak said he has been recommending that investors hold an underweight position in international sovereign bonds from developed countries, noting that Syriza’s electoral victory could lead to uncertainty in the short-term. Yields on some short-term European bonds are already negative, meaning bond prices are high, making it difficult to see a major rally on the horizon.

“The key thing is, will they have the majority or not?” Mr. Rusnak said.

Categories: Transactions

Dog Days of Davos

Wall Street Journal MoneyBeat - Sun, 01/25/2015 - 16:08

Judging by all the private planes used to fly to Davos for the World Economic Forum, few attendees are overly concerned with how they will finance the trip. Still, it is notable the airfare could theoretically be financed exclusively by selling hot dogs.

This is made possible by the fact that many things in Davos, Switzerland are incredibly expensive, especially when priced in dollars. On Friday, CNBC reported on a hot dog selling for the equivalent of $43.50.

In New York City, a ten-pack of Oscar Meyer Classic Wieners will set you back $2.78. An eight pack of buns runs $2 and change. A jar of good mustard costs under $5. A disposable, instant barbeque to cook your wieners can be had for $8. The flight from New York to an airport near Davos was recently listed at $929. That means you’ll need to sell 22 Davos dogs to break-even after supplies and airfare.

What about import duties? According to the Swiss Customs Administration, visitors may bring in up to 1 kg of meat products duty-free. By coincidence, that is just about the weight of 22 hot dogs.

Categories: Transactions

Markets Get Bumpier as Fed Withdraws Safety Net

Wall Street Journal MoneyBeat - Sun, 01/25/2015 - 15:44
Markets are slowly weaning themselves from their over-reliance on the Federal Reserve.
Categories: Transactions

ECB Gives Dollar Further Impetus

Wall Street Journal MoneyBeat - Sun, 01/25/2015 - 15:32
The European Central Bank’s big stimulus plan has thrust the dollar’s advance into overdrive, for better or worse.
Categories: Transactions

Pam Flaherty, a Trailblazer at Citi, to Retire

Wall Street Journal MoneyBeat - Sun, 01/25/2015 - 14:24
Getty Images

Pam Flaherty joined the bank that would become Citigroup Inc. in 1968, when the firm often didn’t hire women for certain roles.

Ms. Flaherty nevertheless went on to a number of high-ranking jobs, including head of human resources, and was the first woman to report directly to the CEO. Ms. Flaherty, who now runs Citigroup’s foundation and is also the bank’s director of corporate citizenship, will retire Friday. The bank is expected to announce her departure this week and name Brandee McHale, the Citi Foundation’s chief operating officer, as her replacement, according to bank officials.

Ms. Flaherty was 24 years old when she entered the business, armed with degrees from Smith College and Johns Hopkins. The bank then was called First National City Bank, and Walter Wriston was CEO. The international division didn’t hire women for its training program – the incubator for promising employees who would go on to run the bank’s operations in countries around the world – so Ms. Flaherty got in the door doing economic research, and crossed paths with another young banker.

“They said there was a guy down the hall who was really going places,” Ms. Flaherty, 70, said in an interview. “He was an assistant vice president, and his name was John Reed.”

Mr. Reed was charged with stitching together the company’s disparate consumer-banking operations around the world, and Ms. Flaherty was assigned to help. Mr. Reed soon counseled her to move into a different part of the bank so she could get experience as a manager.

“She tended to be in jobs that they assigned women to, which required brains but didn’t have any direct managerial responsibility,” Mr. Reed said in an interview. “So I said, ‘Pam, why don’t you get a real job?’”

So Ms. Flaherty, who by that time had traveled around the world for the bank, started running the marquee branch at 55 Wall St., where the bathroom labeled “Officers” was only for men. She had that changed.

“She was probably the most overqualified branch manager in the system,” said Mr. Reed. He left the bank in 2000, after sharing the CEO job with Sanford Weill.

Ms. Flaherty rose through the retail bank until 1985, when Mr. Reed, who had become CEO and chairman the previous year, tapped her to run human resources. She was the first woman to report directly to the CEO, according to the bank.

“A lot of people develop a sort of business hardness to them that helps them be successful,” Mr. Reed said, “but Pam is just an awfully nice person who happens to be very capable.”

For the past eight years, Ms. Flaherty has run Citi Foundation. She has dramatically slashed the number of programs it invests in, choosing instead to work much more closely with a smaller number of them and implementing new measurements to make sure those programs are effective. She has also tuned the focus toward economic development, financial education and job training for low-income families. The Citi Foundation, with 25 employees, awarded $78 million in grants last year.

Ms. Flaherty said she wants to leave like her favorite baseball player, Derek Jeter: “Quit while you’re ahead, and while people still want you to stay.”

Categories: Transactions

New Decision Holds Some Post-Closing Purchase Price Adjustment Provisions Unenforceable

Editor's Note: The following post comes to us from Lisa R. Stark and Jessica C. Pearlman, partners in the Corporate/Mergers & Acquisitions practice at K&L Gates LLP, and is based on a K&L Gates publication by Ms. Stark and Ms. Pearlman. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In private company acquisitions, it is common for the buyer to require that a portion of the merger consideration be set aside in escrow as an accessible source of funds to cover the buyer’s post-closing indemnification claims relating to breaches of the target company’s representations and warranties and other specified contingencies. However, the buyer might demand additional protection if its losses under such claims exceed the escrow amount by insisting upon collection of the full loss from the target company’s stockholders. If the losses are significant and the indemnification obligations are uncapped or have a sufficiently high cap, this could require the target company’s stockholders to return their full pro rata share of the merger consideration to the buyer.

Although the Delaware courts have previously upheld post-closing purchase price adjustments, a recent decision found common provisions unenforceable in certain circumstances. Cigna Health and Life Insurance Co. v. Audax Health Solutions, Inc., C.A. No. 9405 (Del. Ch. Nov. 26, 2014) (V.C. Noble). In this case, the merger agreement and related Letter of Transmittal (the “LoT”) required the target company’s stockholders (1) to indemnify the buyer, up to their pro rata share of the merger consideration, for the target company’s breaches of its representations and warranties, and (2) to release the buyer and its affiliates from any and all claims relating to the merger. The Court found these common provisions unenforceable under the facts in Cigna; accordingly, this decision has significant implications for other private company acquisitions by merger.

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Categories: Governance

Delaware Supreme Court Holds That Revlon Does Not Require Active Market Check

Editor's Note: The following post comes to us from Jason M. Halper, partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP, and is based on an Orrick publication by Mr. Halper, Peter J. Rooney, Christin Joy Hill, and Christine M. Smith. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On December 19, 2014, the Supreme Court of Delaware reversed the Delaware Court of Chancery's November decision (discussed on the Forum here) to preliminarily enjoin for 30 days a vote by C&J Energy Services stockholders on a merger with Nabors Red Lion Limited, to allow time for C&J's board of directors to explore alternative transactions. The Supreme Court decision clarifies that in a sale-of-control situation, Revlon and its progeny require an effective, but not necessarily active, market check, and there is no "specific route that a board must follow" in fulfilling fiduciary duties.

The decision also reaffirms the type of record that must be made to support a mandatory preliminary injunction, a type of injunction that requires parties to take affirmative actions as opposed to merely maintaining the status quo. The Court found that the Chancery Court "blue penciled" the merger agreement, and in the process stripped Nabors of its contractual rights, by effectively inserting a go-shop provision into the contract where the parties never agreed to one. Moreover, the Chancery Court improperly did so without finding that Nabors aided and abetted a fiduciary duty breach and based its holding only on disputed facts that were not adjudicated following a trial. While the decision does not break new ground, it is significant in better defining directors' duties when selling control and articulating the limits of a court's ability to issue mandatory preliminary injunctions.

Click here to read the complete post...

Categories: Governance

Can the ECB Mollify Syriza?

Wall Street Journal MoneyBeat - Sat, 01/24/2015 - 01:46
Greek enthusiasm for the eurozone flags.
Associated Press

Not even the prospect of a market-unfriendly result from this weekend’s Greek elections dented the euphoria ignited by the European Central Bank’s decision to launch all-out quantitative easing, announced Thursday.

Then again, maybe that’s because the ECB just made the disaster everyone feared from Greece that much less likely.

It looks as though the anti-austerity party Syriza will end up with the most seats in parliament and thus the one most likely to form a coalition government.

Syriza’s electoral appeal stems from six years of economic contraction, triggered by the financial crisis and then exacerbated by fiscal belt-tightening enforced by the country’s multinational rescuers–known as the troika. The pain has been enormous. Greek gross domestic product is now a quarter smaller than it was in 2008. A quarter of the working age population is out of work. Only half of the eligible young have jobs.

As northern Europe pressures Greece to double down on austerity, Syriza has tapped into a popular revulsion.

But here Syriza’s politicians have a problem. They don’t want Greece to be crushed by the burden of past debts. They don’t want the endless pain of having to pay it back, particularly on what they see as harsh terms. But they also don’t want to be forced out of the eurozone or the European Union, recognizing the economic chaos this would bring to Greece–money has already been flooding out of the country in anticipation of the elections. Not least because Greece would immediately lose agricultural, development and other payments made to it by the European Union which amount to 2.9% of  the country’s GDP.

On the other hand, Germany in particular doesn’t want Greece to be let entirely off the hook, not least because it sets a bad precedent for other highly indebted eurozone economies. The likes of Portugal would reasonably also demand easier terms on its own rescue package, while Italy would undoubtedly like to be forgiven some of its mass of government debt.

So there’s an impasse, right?

Maybe not, thanks to the ECB’s newly announced sovereign bond purchase program. Eurozone national central banks will buy domestic sovereign debt up to 25% of individual issues and 33% of the total. Given that a bigger proportion is already held within the eurozone central banking system, Greece would currently be ineligible for QE even if it struck an agreement with the troika over its current bailout program–another condition for participation.

Barclays estimates that the ECB currently holds 34% of tradable Greek government debt, though that’ll fall to 28% by August after a couple of bond redemptions.

But the presence of a safety net and the possibility of further purchases if existing ECB holdings are restructured ought to put downward pressure on Greek yields.

Greek interest costs on outstanding debt are a relatively high 4.3% of GDP. But once interest payments paid to the European central banking system and deferred interest payments under previous restructuring deals are factored out, that proportion drops to 2.6% of GDP, according to calculations by Zsolt Darvas, writing for Bruegel, a Brussels-based economic think tank. Further tweaking could bring those interest costs down even more.

Meanwhile, Greece is already running a substantial primary budget surplus, which is to say, excluding interest costs. As long as interest costs are held down or cut further still, Greece’s debt burden worth some 175% of GDP becomes less onerous.

All of this suggests there’s room for compromise on both sides. The troika has scope to relax some of its fiscal pressure, especially if ECB bond buying drives down Greek yields towards more normal levels elsewhere in the single currency region. Greek 10-year bonds are currently trading at 9.05% compared with 4.25% for Portuguese debt with the same maturity.

Categories: Transactions

Bank M&A May Finally Be Making a Post-Crisis Comeback

Wall Street Journal MoneyBeat - Fri, 01/23/2015 - 18:37
Getty Images

Analysts at Keefe Bruyette & Woods aren’t quite ready to call the Royal Bank of Canada’s $5.4 billion takeover of California bank City National a comeback, but they are willing to admit that M&A momentum is building in the banking sector.

The deal “provides us with yet another data point that larger banks are slowly starting to reconsider M&A as a means of growth.” KBW analysts note that City National is the third bank with more than $18 billion in assets to sell in the last nine months.

Still KBW analysts are smart to be cagey in calling for a wave of deal making in the sector. Bankers have been calling for and waiting for banking M&A to surge for several years. So far, the pick up has been elusive.

What’s different now? KBW analysts said that investors are telling the market loud and clear that they want to see banks do deals in an environment where banks are posting weak results. Ahead of the RBC deal announcement, the KBW Index of Regional Banks had been down roughly 10% in 2015 compared to 1% for the S&P 500. On Wednesday, the index spiked after the deal was announced and outperformed the S&P 500.

“Increasing M&A activity has the power to support valuations and in some cases, provide unexpected and meaningful upside,” the bank wrote.

RBC predicts that Canadian banks will continue to look to buy in the U.S and said that RBC appears to be the most likely near-term buyer, particularly in the Midwest.

A host of U.S. banks could consider sales, including BankUnited Inc., First Horizon National Corp,, First Niagara Financial Group Inc., Synovus Financial Group, and TCF Financial Corp.

Categories: Transactions

Ocwen Reaches Settlement With California Regulator

New York Times DealBook - Fri, 01/23/2015 - 18:19
The embattled subprime mortgage servicer agreed to pay $2.5 million in penalties and pay for a third-party auditor to ensure that the firm complies with regulators’ requests for information.
Categories: Transactions

Blackstone Is Said to Raise $4.5 Billion for Energy Fund

New York Times DealBook - Fri, 01/23/2015 - 17:09
The Blackstone vehicle is among several efforts by big private equity firms to find investment bargains among oil and gas companies, many of which have been strained by the fall in oil prices.
Categories: Transactions

Investors Bet Big on Box

Wall Street Journal MoneyBeat - Fri, 01/23/2015 - 17:00
Associated Press

Pop goes the stock!

Shares of Box soared in their debut Friday, rallying 65% on heavy volume amid predictions the company will successfully think outside the box and deliver high growth. That is, by expanding from its online filing-type storage business into a space that provides a broader suite of tools for industries like health care and retail.

Box has had the biggest first-day gain of any IPO this year. Of course, only three other companies have debuted this year and none have had major jumps, according to Dealogic.

Going back to the start of 2014, Box’s first-day pop still ranks among the top 15 debuts. IPOs on average only rose 12% in their launches last year.

Still Box’s IPO is probably a bit bittersweet for the company. Box had planned to go public last spring but delayed doing so after a sudden weakening in demand for technology stocks.

It looks like that delay cost Box tens of millions.

Box raised $175 million in its offering after pricing 12.5 million shares at $14. That’s below the $20 per share the company collected in a private-funding round in July.

“Investors are not just rolling over and excepting every deal,” said Kathleen Smith, Principal at IPO exchange-traded fund manager Renaissance Capital. “This is not the internet bubble 2.0. This time is different.”

For the IPO pipeline, the first-day pop was a vote of confidence. Especially for technology companies. The stock closed at $23.23 Friday.

Box’s bounce came amid a mostly down stock market Friday. Equities abroad got a boost overnight after the European Central Bank announced a bigger-than-expected stimulus program Thursday. The U.S., however, lagged Friday – dragged down by transportation stocks – after UPS slashed its guidance due to operating costs that were higher than forecast.

Categories: Transactions

U.S. Attorney Preet Bharara to Challenge Insider Trading Ruling

New York Times DealBook - Fri, 01/23/2015 - 16:45
The United States attorney’s office in Manhattan is expected on Friday to challenge an appellate court ruling that overturned the convictions of two hedge fund managers and rewrote the government's insider trading playbook, according to a spokesman for the office.
Categories: Transactions

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