Citi men at the core of ANZ’s growth strategy

Secondary market activity quietened last week as a confluence of month, quarter and half-year end kept contacts focused on their book valuations. One trader said he expected a few BWICs to emerge to give funds the opportunity to mark their books with live prices but few emerged. Other contacts reported some CMBS and peripheral bonds hitting the market, but generally in small size. Italian CMBS Imser was shown, as were Portuguese RMBS from the Magellan and Lusitano programmes. New issues continue to be bid much tighter, eroding their new issue premiums, and the failure of a supply of bonds to re-stock the pipeline after the Global ABS conference keeps a tightening bias. The new Berica ABS 3 from Banca Popolare di Vicenza tightened about 8bp after printing at 105bp last week, and is in line with comparables. Other programmes are in the 100bp–120bp range, depending on the quality of the shelf. Some Portuguese paper has covered from BWICs inside 100bp too in recent sessions. The two new issues in the CMBS market will provide some fresh reference points given the lack of supply in this sector. Deutsche Bank printed its Italian deal, Deco 2014-Gondola, with a 4.2-year Class A tranche at 145bp, at a slight discount to par at 99.85 and Taurus CMBS UK 2014-1 came at 150bp. The Gallerie 2013 deal form Goldman Sachs, the only other Italian CMBS to be offered publicly since the crisis, is quoted around 170bp (priced at 225bp in November). However, a trader said accounts had been unwilling to chase this bond too much tighter in recent weeks because it is already well above par. It had dipped inside 170bp, but has now settled a few basis points wider.

The European Securities and Markets Authority’s final report on draft rules for transparency for structured finance instruments (SFI) under the Credit Rating Agencies (CRA3) regulation has met with a mixed reaction. ESMA asked market participants to comment on its proposals in February. The inclusion of private and bilateral trades in the scope of CRA3 disclosures, in particular, drew attention. The final draft, dated June 24, still envelopes private trades but at least offers the market hope that it could be open to further discussion. Steven Maijoor, ESMA Chair, said the enhanced requirements under Article 8b would “improve the information available to both investors and supervisors”, and “contribute to a reduction in conflicts of interest, improved investor protection and market stability, and greater competition between CRAs”. But market players are picking holes in the arguments. ESMA received 26 responses to the draft RTS on structured finance instruments, a majority of which said that private and bilateral transactions, and unrated deals, should not fall within the disclosure scope. They argued that private and bilateral trades were unsuited to reporting requirements with “potential for negative market impact”. Unclear benefits Respondents also said such deals were subject to confidentiality agreements and so the benefits of disclosing this information to the public were unclear. They stressed that private securitisation transactions represented an alternative source of funding where traditional bank lending facilities were not available and that public disclosure could hurt this practice. And given that there are no prospective investors besides the bank providing the financing, there is no added value in public disclosure for private and bilateral structured finance, they said. The disclosure scope of the RTS will initially only apply if a structured finance instrument is backed by assets in a specified list, and ESMA said it would look at developing reporting obligations for private and bilateral trades “as soon as possible”. Richard Hopkin, managing director and head of securitisation at AFME, said that while it was disappointing that private placements were still proposed to be within scope in the RTS, it was positive that the draft suggested further time be taken to discuss this with stakeholders. ESMA’s plan also incorporates reporting requirements from the Bank of England and the ECB to “avoid duplication and overlap”. But Hopkins is not convinced that it does, as a large part of structured finance disclosure rules were already in the Capital Requirements Regulation. “Disclosure and transparency is at the heart of a high quality securitisation market and we already have Article 409 and the good work carried out by the Bank of England and the ECB – not enough credit has been given for this work,” he said. These additional disclosure requirements unfairly single out the structured finance market. Yves Mersch of the ECB said at the Global ABS conference in mid-June that covered bonds had no common transparency or supervisory framework. Even so, they still benefit from preferential treatment under CRA. It is this bias that ABS market players want to weed out of regulators’ thoughts. “We are arguing for a level playing field. Article 8b piles on extra requirements that do not apply to other fixed income sectors and forms of investment. If you want to revive securitisation you need to strike a balance. It’s not just about transparency, just for securitisation. Regulation needs to be holistic. It should reflect the work already done, the existing regulation of this market and ultimately the strong performance of high quality securitisation in Europe,” said Hopkin. Ins and outs Some items removed from the previous draft are also causing concern, as ESMA has cut the transaction summary and cashflow modelling requirements. UK issuers will still have to produce them, as required by the Bank of England, bu

The restructured Eurosail Prime-UK 2007-A Lehman Brothers RMBS has received a massive rating boost at the senior tranche level following the completion of the second stage of its restructuring. Fitch upgraded Class A1 to AAA from BB+, and S&P also went to AAA from a lower base of B. The second phase involved restating the senior tranche balance to £117.5m from £135.3m, the previous Class M, B, C and D notes being cancelled in favour of new bonds. The first phase included redenominating the notes to sterling from euro, as well as swap proceeds under the Lehman counterparty agreements to sterling from US dollars. The redenomination of the swap claims and bonds to sterling removed the foreign exchange risk the deal had been exposed to since the collapse of Lehman, which was counterparty for the transaction. The bulk of the mortgages (88%) were originated at the height of the market in 2007, and interest-only mortgages account for 85% of the pool. Performance statistics have shown that could be a dangerous cocktail, but, in this trade, arrears exceeding three months as of March 2014 were just 0.7%. In addition, losses remain low at 16bp because few properties have been repossessed.

The Loan Syndications and Trading Association (LSTA) highlighted securitisations supported by European monetary authorities to build momentum for its own CLO proposal in a letter sent last Wednesday to six federal regulatory agencies. “The European securitisation markets have been chilled by EU regulation, prompting a discussion response from the ECB and Bank of England to fix this situation,” said Eliot Ganz, General Counsel at the LSTA. “US regulators risk going down the same path, and our members would like to highlight European parallels and potential solutions.” In Wednesday’s letter, the LSTA emphasised the harm to public interest identified by the Bank of England and European Central Bank as a result of a “moribund” European securitisation market. An impaired CLO market, which risk retention rules threaten, would similarly harm the public interest in the United States, the industry group said. To revive European securitisation markets, the Bank of England and European Central Bank raised the concept of encouraging “qualifying securitisations” which would be transparent and structurally robust, enabling investors to “model risk with confidence,” according to the central banks. The LSTA’s letter points out that its January qualified CLO proposal, which included requirements aimed at ensuring high-quality underwriting, employs many of the same criteria that the European central banks outlined in May. The LSTA’s January proposal responded to potential risk retention rules, which are part of broader Dodd-Frank banking legislation, that called for CLO managers to hold capital equal to 5% of each CLO issued. Due to the potentially large capital requirements needed, this could squeeze out all but the largest managers from the market. Several other trade organisations including the US Chamber of Commerce have already argued that the drafted risk retention rules could hamper the future formation of CLOs and consequently raise financing costs for businesses. The LSTA’s CLO proposal set forth strict guidelines governing the composition of CLO asset portfolios. It also seeks to apply the 5% capital charge to a CLO’s equity tranche instead of the entire size of the CLO issued, reducing the capital burden potentially borne by managers. The six federal agencies, which include the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Securities and Exchange Commission, Department of Housing and Urban Development, and Federal Housing Finance Agency, have not yet finalised risk retention rules.

The borrower behind the European Union’s first “Europe 2020 Project Bond Initiative” infrastructure transaction is seeking to pull the plug on the deal, leaving investors with a nervous wait to see how badly their investment will be affected. The €1.4bn deal, called Watercraft Capital, was launched in July 2013 to refinance the debt incurred by construction firm ACS (through its Escal entity) and Dundee Energy, as majority investors, to build the Castor underwater gas storage facility off the coast of Spain. The plan was to sell the facility to Enagas once operational, allowing it to generate regulated returns by being part of the Spanish regulatory system. The operators had hoped for the project to be operational by the November 30 2014 “start-up” deadline, but the project has been left in limbo after seismic activity was detected in October 2013 and no further progress has been made. On June 24 the Watercraft borrower said it wanted to relinquish the project. The next course of action will determine how bondholders will be hit. As it stands, there is €200m of EIB money in the deal in the form of a liquidity facility, while ACS has around €130m involved. This can cover the next coupon payment, due on June 30, but the deal documents state that if the project is not operational by November the deal will have to be repaid. The current sum of money, therefore, is woefully short. The uncertainty about the project’s future has already resulted in downgrades, as Fitch cut the bond to BB+ from BBB+ on June 20. The EIB’s facility had boosted the underlying project rating by two notches to BBB/BBB+ (S&P/Fitch), but the benefit has now been lost. It warned that the relinquishment would be a test for the compensation regime. And it said that while the bond credit enhancement (PBCE) facility to support compensation payments was favourable, it was “not a guarantee that the bondholders would be kept whole”. This depends on the amount and timing of the compensation payment and the availability of support from ACS. Michael Ridley, credit strategist at Mizuho, wrote a prescient note on June 6 predicting that Fitch would cut its credit rating on Watercraft to junk by the end of June, which it did. He also argued that if this project passed its “project start-up deadline” in November without commencing operation, this bond can default. He said this “could be avoided if the project sponsors came to bondholders beforehand for permission to change the terms and conditions of the bonds. However, we think bondholders would only accept this if the project sponsors had a clear plan about how they think they can make the project operational, and when this might be achieved.” You have three choices In the meantime, the EIB, as PBCE provider, has to determine how to direct the issuer security trustee. There are three options, according to the investor notice. One is to refuse the request for permission to relinquish and waive any related event of default. Another is to consent to the request, and a third option is to consent to the request subject to a condition that a relinquishment refusal request is put to bondholders as a resolution to vote on, but that resolution is not passed. The EIB said it “is currently examining the implications of this request and will take a decision that reflects its rights and obligations under applicable finance contracts and the regulatory framework relating to the relinquishment process”. It has €500m at stake in this deal, as it also invested €300m in the bonds on top of providing the liquidity facility. The bonds had peaked around 106 cash price after pricing at par last July, but dropped to the mid 90s on the October testing suspension. There has been a steady decline since, to around 90, according to Tradeweb. And there could be much more downside to come. Ridley in his note undertook a scenario analysis for Watercraft, outlining three possible outcomes. One alternative, to which Ridley assigned a 3

Pramerica’s €416.7m Dryden 32 Euro CLO priced on Thursday afternoon via Barclays. The deal includes two Triple A notes, a €199.25m floating rate bond and a €31m fixed rate note with coupons of six-month Euribor plus 140bp and 2.25% respectively. The €18.42m and €31.58m Class B notes priced at 200bp and 3.0375%, while €32m Class C bonds came at 250bp. A €22m Class D priced at coupon of 360bp, the €26m Class F at 480bp and the €17m Class E at 555bp. According to Moody’s, the portfolio restrictions include a minimum 85% investment in senior secured loans. The deal is expected to be 60% ramped up at closing, with the remainder of the assets to be bought over a six-month period. The pool has a par amount of €401.8m, with a weighted average coupon of 6.2% and weighted average life of eight years.

Agriculture giant Monsanto amassed a whopping US$22.5bn in orders on Thursday for a new US$4.5bn seven-part investment-grade bond, as the largest ever June issuance continued to roll along. The week’s print stood at US$17bn and took what was already a record June higher still, with US$93.24bn tallied so far. Monsanto, rated A3/BBB+/A–, priced its trade – comprising tenors from three to 50 years – about 15bp–20bp tighter than initial price thoughts, thanks in part to the size of the book. “This is a good-sized deal in a sector that doesn’t see a lot of new issuance,” said Rajeev Sharma, portfolio manager at First Investors Management Co. The deal priced at launch levels: a US$500m three-year at Treasuries plus 30bp; a US$500m five-year (+50bp); a US$500m seven-year (+65bp); a US$750m 10-year (+85bp); a US$500m 20-year (+90bp); a US$1bn 30-year (+110bp); and a US$750m 50-year at 140bp. The 10- and 30-year tranches carried no new-issue concession compared with Monsanto’s outstanding 2.2% July 2022 at a G-spread of 85bp and 4.65% November 2043s at T+110bp. Assuming a 30s/50s curve of about 30bp, the 50-year bonds also appeared to price at fair value, bankers said. It was Monsanto’s first foray into the market since November 2013. The company is expected to use proceeds to fund a US$10bn share repurchase programme over the next two years, including an accelerated buyback target of US$6bn within the next year, according to Morningstar. Also in the market was Toronto Dominion Bank, which raised US$1.75bn in five-year fixed and floating-rate notes after garnering an order book that totalled US$2.75bn. Issuance conditions still looked good overall with two decent-sized trades getting done last Wednesday. Kansas Gas & Electric raised US$250m in 30-year FMBs that priced about 17.5bp tighter than IPTs of the 112.5bp area on books of US$1bn, while Yamana Gold took out US$500m pricing 10-year bonds about 35bp inside IPTs. Yamana attracted books of US$2.9bn. Off to the races again “The market is looking a little less frothy than it did earlier in the year, and our advice to issuers continues to be to go now rather than wait,” said one banker. “Coming to the quarter-end, the market is looking a bit tired after the supply rush so far. But once we roll into early July, we will be off to the races again.” Williams Partners was another highlight of Tuesday’s action, as the company easily raised US$750m of 10.5-year and US$500m of 30.5-year notes at negative new-issue concessions. Analysts thought the majority of proceeds would go towards paying for the company’s recently announced acquisition of a controlling stake in Access Midstream Partners. Martin Marietta Materials, a provider of construction industry aggregates such as asphalt and gravel, raised US$700m, offering three-year floating-rate notes and 10-year fixed-rate securities. The deal received a strong US$3bn book and active bookrunners were able to pull in pricing by 20bp from initial price thoughts. Scarcity value partly drove demand. The company has not been in the market for six years, and the funding comes as it gears up to close its acquisition of Texas Industries on July 1. Legg Mason was the other highlight, raising US$650m of five-, 10- and 30-year notes. The Triple B rated asset manager started out with initial price thoughts that appeared to offer as much as 20bp of concession over comparables. Investors poured in US$2.9bn of orders for the five-year tranche, US$2.4bn for the 10-year notes and US$1.3bn for the 30-year piece, which gave the issuer the pricing leverage. It ultimately priced flat to perceived fair value.

Ziraat Bank has become the latest of a string of Turkish lenders to tap international bond markets in the past month, pricing a debut US$750m 4.25% five-year note at levels tighter than all its peers, according to leads. Ziraat, rated Baa3/BBB–/NR, is Turkey’s largest bank by assets and as a fully state-owned institution is eligible for the main JP Morgan EMBI Global Diversified index rather than the less liquid corporate version. These two factors helped the leads push pricing to levels tighter than peers that are more familiar to bond investors, such as Garanti and Akbank. “Investors understood that Ziraat has the benefit of index eligibility [on the JP Morgan EMBI index] as well as the credit quality of the top-tier Turkish banks,” said Tommaso Ponsele, a DCM official with Citigroup. During roadshows, some investors compared Ziraat to Vakifbank, so the job for the leads was to convince them to look at levels on better-rated names such as Garanti, Isbank and Akbank. Still, initial levels of 287.5bp–300bp over mid-swaps did offer a pick-up to those three lenders. Around the time of announcement on Thursday’s open, Garanti’s October 2019s were at a Z-spread of 280bp, Isbank’s April 2019s at 292bp and Akbank’s March 2018s at 272bp, according to Tradeweb. However, with order books hitting US$4.5bn, Ziraat was able to move to final guidance of 262.5bp–275bp over mid-swaps before pricing at the tight end. Reoffer of 99.595 set the yield at 4.341%. The note was trading around reoffer on Friday, according to a trader. Fund managers dominated the trade, taking 77%, followed by banks and private banks with 19% and insurance and pension funds with 4%. US accounts took 46%, followed by Europe with 25%, the UK with 17%, Asia with 6%, MENA with 5% and others took 1%. The order book was around US$3.75bn from over 260 accounts.

New York’s Attorney General has dealt a blow to Barclays’ reputation, slapping the bank with a civil lawsuit and accusing it of rigging its private trading platform to allow high frequency traders to prey on other institutional traders. Clients already appear to be leaving the firm’s Barclays Liquidity Cross – or LX – platform, with traders at rival firms pointing to a 60% decline in trading volume following the suit. The bank’s shares also slid more than 4.5% to their lowest level since November 2012 and the bank pulled a scheduled US$1.5bn bond offering rather than face skittish investors. The complaint alleges a concerted effort by Barclays to build its electronic trading operation at any cost, with the firm allegedly ignoring rules for seeking best execution for its clients and also allegedly outright lying about its efforts to protect institutional order flow from predatory traders. According to the complaint, key bank employees actively participated in the investigation, with one banker telling the attorney general he was coerced into inserting false numbers in reports. In a statement Barclays said it took the allegations very seriously and had been co-operating with the New York Attorney General and the Securities and Exchange Commission. In an internal memo to employees, Barclays chief executive Antony Jenkins said he would not tolerate any circumstances in which clients were lied to or misled. High frequency traders provide crucial liquidity to the dozens of alternative trading systems or “dark pools” created to fill institutional equity orders away from public exchanges. Still, the industry has found it difficult to shake a reputation for being predatory, using top-of-the-range technology and algorithms to take advantage of unsuspecting smaller clients. To counter that industry reputation, Barclays embarked on an all out market campaign to convince institutional and other clients that LX actively tracked and excluded predatory high frequency traders from its pool and eliminated them. According to the complaint, Barclays aimed to convince institutional clients that its pools limited aggressive traders to less than 10% – while secretly courting HFT business, confidentially giving them information and other advantages over other clients, including information about the identity and trading activity of traders in the pool. The suit stopped short of saying what that information was or if it allowed the high frequency traders to front run institutional clients in the pool. “Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit,” said New York Attorney General Eric Schneiderman in a statement. Barclays grew LX by telling investors trading in Barclays pools that they were diving into safe waters that were actually full of predators, the attorney general said – there at Barclays’ invitation. Marketing material In 2013 marketing material, Barclays claimed that trading in its dark pool was only 9% inhabited by HFT traders, according to the complaint. By 2014 the bank claimed that number had fallen to just 6%, it said, further alleging that in conversations with high frequency traders Barclays admitted that its pool was 25% aggressive and in other documents it admitted that as much as 50% was aggressive. “These traders are in most of these pools and it’s not a bad thing,” said a banker at a rival firm. “But if Barclays crossed a line by giving them information they should not have they should be penalised.” While vowing to continuously police trading activity and to maintain quality flow in the dark pool, the bank is alleged to have failed to remove known predators and to have overridden its own protocols for screening such clients, essentially mislabelling sharks as dolphins. The suit accuses Barclays of misrepresenting how it routed orders for securities to trading venues. Barclays routed a disproportionate amount of client orders to its own pool – as high as 88%

Semiconductor companies used to dominate the equity-linked market as they exploited elevated volatility levels that distracted hedge fund investors from the fundamentals of their business. Yet they have faded away to be replaced by real estate firms as volatility has receded as both motivator and pricing determinant. Geneva-headquartered and Paris and Milan-listed STMicroelectronics was once a repeat issuer of zero-coupon bonds and even secured a negative yield in 2003. Last week it returned to raise US$1bn in its first convertible bond issue since 2006, but the company has lost none of its touch for combining aggressive pricing and negative aftermarket performance. The 2006 deal was super aggressive after banks were invited to bid terms in an auction and the bonds ended up being reoffered at 99. The 2003 deal was completed at the same time as an issue of exchangeable bonds from Finmeccanica into STM and both traded down in the aftermarket. Last Thursday’s US$1bn issue also ended up with the bonds trading below par, but they were at least placed at 100. STM is investment-grade, has liquid CDS (credit spreads of 75bp for five years and 100bp for seven years were used), plenty of borrow (40bp) and liquid options. Modelling the bonds could not be easier, so it is then a question of ascertaining the premium for an IG benchmark trade. There were some obvious flaws in the approach – both the zero-coupon fives and 0.5%–1.0% seven-years carried premium ranges 10 percentage points wide and the bonds were rich even at their low end. But as one banker involved said: “It is aggressive, but this is STM. With an issuer like this you should and could be aggressive.” “It is aggressive, but this is STM. With an issuer like this you should and could be aggressive” Too late Part of the problem was the timing. Bankers have been banging the drum for the extraordinary terms available in equity-linked markets since January. Unfortunately, many of the biggest clients took until June to believe them and by coming at the same time have changed the market dynamics. “Three weeks ago this would have priced at mid-terms easy,” said another banker at a bookrunner. “There is always a time lapse to convince issuers and that can be painful. In some ways they left it too late.” In the first five months of the year there was only one equity-linked issue, of €500m from Fresenius. As a result, every deal was able to exploit a shortage of paper while never being big enough to upset things for the next deal. Yet June so far has accounted for more than 40% of total annual volume with US$7.6bn raised, including deals of at least €500m for Alcatel-Lucent, RAG, DP World, Unibail-Rodamco and STM. “There is always a time lapse to convince issuers and that can be painful. In some ways they left it too late” Too rich Making life more difficult was an issuer keen to stick to the terms bankers said they could have achieved earlier. The premium guidance on bonds was 30%–40% on the five-year and 31%–41% on the seven-year, and even at the bottom this represented an implied vol of around 32, versus 30 historic vol. Yet one banker said the client was still asking if it could get 40% prior to launch. The seven-year was increased in size from US$300m to US$400m as many accounts gravitated to the paper paying a yield, though UK buyers were much more keen on the five-year, taking 20% of that US$600m tranche. France, one home of STM, was the biggest pool of demand, taking 30% of the five-year and 37% of the seven-year. Swiss accounts were significant in both lines. A third banker on the deal said there was significant emphasis on the IG rating, benchmark size and index inclusion to bring some investors in. A quirk of the bonds is that they have dividend adjustment up or down for anything other than a 40 cent payout, which was not welcomed by all accounts. Premiums were set at the bottom of guidance of 30% (five) and 31% (seven) and the top for the seven-year coupon of 1

The CLO market has been on a tear in recent months, but it has required steep discounts and other sometimes murky subsidies to get many deals done, market sources told IFR. The equity – the riskiest piece in any CLO – has often been discounted, while some arrangers or collateral managers have split some of their fees with the equity. The negotiations for these deals are private and sensitive, and sources are unwilling to give specific details on particular trades – but multiple sources confirmed the general trend. “Banks and arrangers are giving away capital,” one CLO manager said. “It’s been going on since the new issue market took off again, but in the last few years it’s been more pronounced.” Fee-sharing is rarely discussed in the CLO industry, whose securities trade outside the scrutiny of the Trade Reporting and Compliance Engine (TRACE) that publicly records some bond pricing history. But sources said some bankers have carved out a subordinate note, known as a Y note, that cuts a separate income stream from the collateral and can boost an equity buyer’s return. Equity returns have been shrinking, which has forced bankers and CLO managers to adopt creative aproaches in order to get – and keep – investors interested. “In the past 10 years, the magic number has been 14%,” the CLO manager said. “If you get to 14% without too much huff and puff, that’s great. But right now it’s more like 8%–10%.” One attorney told IFR that the first thing to go, when it comes to padding out equity returns, is the arranger’s fee – typically between 1.5% and 1.75% of a deal’s face value. Next comes a portion of a manager’s fee, which can top out at 50bp of face value. And though less established managers may get only a 35bp fee, that’s still an attractive figure considering that their business will be severely curtailed if risk retention rules come into force as some in the market fear, one banker said. “For some managers, it’s sufficiently good just to get a deal done,” the attorney said.

Event-driven hedge funds are proving very popular with investors, with money pouring in over the past few months amid an uptick in mergers and acquisitions and as some seek to diversify away from overcrowded credit trades, according alternative investments researcher eVestment. In May alone, event-driven strategies had attracted US$6bn of inflows, according to eVestment, meaning a total of US$31bn has been taken in since the start of the year. Such inflows make it one of the most popular strategies that the research firm tracks. Increasingly activists are taking a small stake in a company and then lobbying for changes rather than merely buying in the hope the stock succumbs to a takeover offer. “More investors are choosing to adopt activist strategies rather than merger arbitrage,” said one M&A adviser. “With activism you can quietly lobby for change, which sees the shares rise and then get out before any transaction is done. It is riskier with arbs, who are betting on an offer being made.” Overall, eVestment said that in May the total amount hedge funds had under management had surpassed US$3trn for the first time ever. In April the total had risen above the previous peak seen in the second quarter of 2008. “Hedge fund assets crossed US$3trn in May for the first time on record driven by investor flows, which are at the highest level since the beginning of 2007,” said eVestment head of research Peter Laurelli. Event-driven strategies were the best of eVestment’s categories, showing an 18% return last year. So far this year they have delivered a 3.4% return with distressed funds leading the field with a 4.7% increase. Some hedge funds appear have been forced into changing their strategies regarding mega-mergers after some recent changes in UK rules. After the last major transatlantic approach for a FTSE 100 company in 2010 saw Kraft take over Cadbury for £11.5bn, new bid rules were introduced by the Takeover Panel that meant a potential acquirer would have only 28 days to either make a formal offer or walk away for six months. That has made it harder for large deals to be struck when an acquirer is identified at an early stage of its planned approach. Arbitrageurs apparently piled into AstraZeneca when Pfizer was first flushed out pushing the stock close to Pfizer’s indicative offer price. However, many of those investors were disappointed when Pfizer failed to lift its offer in order to secure a recommendation from AstraZeneca’s board. Pfizer’s withdrawal saw AstraZeneca’s shares plunge nearly 11% in one day. M&A advisers say that this unexpected outcome has meant that hedge funds with the same strategy have been slow to react to the tentative US$46bn proposal put by Abbvie to another pharmaceutical producer Shire on June 20. Shire’s shares have yet to touch Abbvie’s 4,626p indicative offer price over the past week since the US company first set out its plans. “It’s noticeable how the arbs don’t appear to be so involved in the Shire situation. Many of them got burnt over AstraZeneca when Pfizer did not bid in the end,” said one senior M&A adviser.