Morning Agenda: Crackdown on Inversions

U.S. CRACKS DOWN ON INVERSIONS | Treasury Secretary Jacob J. Lew announced rules on Monday that are intended to deter United States companies from relocating overseas through mergers to lower their tax bills in a maneuver known as an inversion, Julie Hirschfeld Davis reports in The New York Times. The rules are intended to make inversions more difficult and less profitable.

What deals are covered by the rules? “If they are closed and done as of today, then they are not subject to this. If they are closed tomorrow or after, they are subject to this,” a Treasury official told reporters on Monday, according to Reuters.

A number of pending inversion deals could be affected, including AbbVie’s proposed acquisition of its smaller British rival, Shire, and Medtronic’s acquisition of Covidien in Ireland. Last month, Burger King announced that it would acquire the Canadian coffee-and-doughnut chain Tim Hortons. “For some companies considering deals, today’s actions will mean that inversions no longer make economic sense,” Mr. Lew said. “These transactions may be legal, but they’re wrong.”

Still, others are skeptical that deal-making will change drastically as a result. “My gut tells me this isn’t going to stop any deals,” Stephen Myrow, a former Treasury official, told The Financial Times. “Companies will be able to restructure the deals around it.”

RUSSIA FADING ON WALL ST. | “Russia was supposed to be a growth market for Wall Street. It is quickly turning out to be a potential financial nightmare and a political hot potato,” Andrew Ross Sorkin writes in the DealBook Column. “With the deteriorating relationship between the United States and Russia over Ukraine, and a series of punitive sanctions clearly slowing Russia’s economy, Wall Street banks are facing a conundrum: Should they stay or go?”

“While Russia’s economy holds enormous promise if the political tensions ease and the sanctions are lifted, it could take years to capitalize on it and banks will most likely have to spend tens of millions of dollars, if not more, to keep their operations open,” Mr. Sorkin writes. A number of investment firms appear to have given up on Russia altogether. The private equity firm Blackstone Group, for example, is said to be planning to end its ambition to make investments in Russia this year. And the Carlyle Group tried to establish an office in Russia twice and ultimately withdrew.

ALLERGAN PURSUING SALIX | The Allergan takeover web is getting increasingly tangled. Even as it tries to fend off a hostile bid by Valeant Pharmaceuticals and Pershing Square Capital Management, the Botox maker is said to have had deal talks of its own with Salix Pharmaceuticals, another drug maker, DealBook’s David Gelles writes. Making matters more complicated, Actavis, another big drug company, is said to have recently made an offer to acquire Allergan. Terms of the deal could not be learned, but Allergan did not pursue the talks.

Should Allergan succeed in acquiring Salix, the deal would probably derail Valeant and Pershing Square’s $53 billion takeover attempt. It would also mean the end of Salix’s own deal to acquire Cosmo Technologies, the Irish unit of Cosmo Pharmaceuticals of Italy, in a tax inversion deal announced this summer.

ON THE AGENDA | The second-annual “Community Banking in the 21st Century” conference kicks off at the Federal Reserve Bank of St. Louis. The Federal Housing Finance Agency house price index for July is out at 9 a.m. The Markit purchasing managers’ manufacturing index is released at 9:45 a.m.

AGING TECH GIANTS EXPLORE DEALS | As computer hardware becomes increasingly irrelevant, technology stalwarts like EMC and Hewlett-Packard are looking to prove themselves capable of adapting to a new reality, Michael J. de la Merced writes in DealBook. Still, when the hedge fund Elliott Management surfaced in July as EMC’s big new shareholder, investors expected a noisy fight over breaking up the computer storage company. Instead, EMC was already exploring strategic options, including potential sales to some of its larger rivals, highlighting the problem with aging technology companies looking to bolster growth.

“Across the technology industry, companies that make a significant amount of their revenue from sales of hardware devices are facing tough going,” Mr. de la Merced writes. “That has raised the possibility of acquisitions to shore up promising operations.” One such transaction could have been the union of EMC and HP, in what would have been billed a merger of equals that would create a nearly $130 billion technology titan. EMC is said to have also considered other deals, like a potential sale to Cisco.

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Cash-Stuffed German Companies on a Global Buying Spree | A rare bright spot in the European economy in recent years, many of the biggest German companies have begun capitalizing on their strength, striking big deals for overseas competitors.
DEALBOOK

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Philips to Split Into Two Companies as Part of Overhaul | The Dutch electronics giant will split into two entities: one focused on health care and technology, and one on lighting.
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AT&T-Chernin Venture Takes Majority Stake in Fullscreen | Otter Media, a joint venture between AT&T and the Chernin Group, announced on Monday that it had taken a majority stake in Fullscreen, a digital media company that connects popular online personalities and brands. The deal values Fullscreen at about $200 million to $300 million, according to people with knowledge of the deal.
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MGM Buys Stake in Mark Burnett’s Reality TV Production Company | MGM, a 90-year-old movie studio, said that it had acquired a majority stake in Mark Burnett’s production company, One Three Media, which holds rights to reality hits like “The Voice,” “Survivor,” “The Apprentice” and “Shark Tank.”
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Auxilium’s Board Rejects Takeover Approach From Endo | The Pennsylvania biopharmaceutical company agreed in June to acquire QLT and reincorporate in Canada, but received an unsolicited bid from Endo International earlier this month.
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BlackRock Urges Overhaul of Corporate Bond Trading | In a paper released Monday afternoon, the giant asset manager said that the market for trading corporate bonds was “broken” in a way that hurts ordinary investors and companies borrowing through the market.
DealBook »

British Regulators Fine Barclays $61.6 Million Over Account Issues | It is the highest fine ever imposed by the Financial Conduct Authority, or its predecessor agency, for failing to properly segregate client accounts, potentially putting them at risk if the company were to become insolvent.
DealBook »

Wells Fargo Brokerage Arm Fined $5 Million | Wells Fargo Advisors, the bank’s brokerage arm, will admit to wrongdoing and pay a $5 million penalty to settle charges that it failed to have adequate controls in place to prevent an employee from illegal insider trading before the 2010 acquisition of Burger King, Reuters writes.
REUTERS

Barclays Hires Former Citigroup Banker to Head Wealth Management | Akshaya Bhargava will join the bank on Oct. 13 as chief executive of wealth and investment management. He founded InfraHedge, a platform for institutional investors in hedge funds.
DealBook »

Clinton Contends With Liberal Critics | But Peter Buttenwieser, a Hillary Clinton supporter whose mother’s family founded Lehman Brothers, said fears of a liberal backlash against Ms. Clinton were overblown, Reuters writes.
REUTERS

Silver Lake Said to Be in Lead to Buy Shutterfly | The private equity firm Silver Lake is said to be in advanced talks to acquire the online photo-sharing service Shutterfly for at least $2 billion, ReCode writes, citing unidentified people familiar with the situation.
RECODE

McGraw Hill Financial to Sell McGraw Hill Construction | McGraw Hill Financial said on Monday that it had agreed to sell McGraw Hill Construction, a provider of construction industry data and analytics, to the private equity firm Symphony Technology Group for $320 million.
REUTERS

P2 Capital Partners Raises Pressure on Epiq | After Epiq Systems, a software company that provides legal documents for bankruptcy and class-action cases, rejected a $1.1 billion take-private offer from P2 Capital Partners, the hedge fund increased its stake in the company to 17 percent.
DealBook »

Herbalife Shares Fall | Shares of Herbalife fell sharply on Monday to levels not seen since the hedge fund manager William A. Ackman began his nearly two-year battle over the company, which he has called a pyramid scheme, Forbes writes.
FORBES

Luxury Shoe Brand Jimmy Choo to List Shares in London | The British shoe company, which shot to fame on the feet of the stars of “Sex in the City,” is planning an offering next month that could value the new holding company at more than $1 billion.
DealBook »

Questioning Alibaba’s Market Value | “As far as I am aware, Alibaba hasn’t developed any breakthrough technology, or created any fabulous new products. Instead, the company has cleverly exploited the underlying technology of the Internet, and the favorable network effects that it bestows on early entrants and market leaders,” John Cassidy writes for the New Yorker.
NEW YORKER

Valuing SoftBank in Alibaba’s Aftermath | A decline in SoftBank’s shares after the I.P.O. is a reminder that the investment is both blessing and burden, Una Galani of Reuters Breakingviews writes.
DealBook »

Jack Ma on Alibaba, Entrepreneurs and the Role of Handstands | Bill George spoke with Jack Ma, the Alibaba Group’s founder, at a private luncheon on Friday after his company had gone public. “Mr. Ma is unlike any Chinese leader I have ever met,” Mr. George writes in an Another View column.
Another View »

Alibaba Could Buy Yahoo for Free | Matt Levine of Bloomberg View writes: “Yahoo and Alibaba should do this trade. Why won’t they do this trade? One reason is that it is a little too obvious that Alibaba would be getting Yahoo (and Yahoo Japan for that matter) for free, and if you are a management team and board of directors and someone comes to you and says, ‘I want to buy your company for nothing,’ then your inclination will be to say no.”
BLOOMBERG VIEW

Snapchat Brings On Top Google Executive | Snapchat has hired Jill Hazelbaker, a top Google communications and government relations executive, to lead its public relations and policy efforts, ReCode reports.
RECODE

Lyft Buys Ridesharing Platform Hitch | Lyft has acquired the carpooling start-up Hitch, which connects passengers traveling on similar routes in move to bolster its Lyft Line offering, according to a post on Lyft’s blog.
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S.E.C. Makes Largest Ever Whistle-Blower Award | The individual’s identity is a mystery, but that person is now $30 million richer thanks to a program established under Dodd-Frank.
DealBook »

Jury Finds Arab Bank Liable for Supporting Terrorist Efforts | A federal jury on Monday found Arab Bank liable for knowingly supporting terrorism efforts connected to two dozen attacks in the Middle East, the first time a bank has ever been held liable in a civil suit under a broad antiterrorism statute, The New York Times reports.
NEW YORK TIMES

Two Known as Dissenters Plan to Retire From Fed | Charles I. Plosser, president of the Philadelphia Fed, said that he would retire in March. Richard W. Fisher, president of the Dallas Fed, is required to step down in April, The New York Times writes.
NEW YORK TIMES

Pursuit of Individuals in Corporate Misconduct Still Arduous | The government is pledging to hold individuals accountable for corporate wrongdoing, but bringing charges could prove elusive, Peter J. Henning writes in the White Collar Watch column.
DealBook »