Novartis to Sell Diagnostics Unit to Grifols for $1.7 Billion

Novartis, the Swiss pharmaceuticals group, is selling its diagnostics business to Spanish health care company Grifols S.A. for $1.7 billion in an all-cash deal.

The disposal comes shortly after  Novartis’s chief executive, Joseph Jimenez, said the company was considering selling some units as it worked to focus on its larger businesses, which include pharmaceuticals, eye care and generic drugs.

Analysts had called for the sale of Novartis’ diagnostics unit, along with its over-the-counter business. But the deal, announced Monday morning in Europe, is the first such move Novartis has made to execute on Mr. Jimenez’s strategy.

Grifols’s main business is gathering blood and making medicine from blood plasma. But it has a smaller testing unit that already partners with the Novartis diagnostics business it is now buying.

Details of the financial performance of the Novartis division, which tests blood for diseases including H.I.V., were not clear. Yet Grifols believed the deal, which was being financed by Nomura, would allow it to scale its own diagnostics business.

In addition to its partnership with Grifols, the Novartis diagnostics division also works with Johnson & Johnson and with Hologic. Both Johnson & Johnson and Hologic approved the sale to Grifols. The deal was in the works for more than nine months and was negotiated on an exclusive basis.

The last big deal for Grifols came in 2010, when it bought Talecris Biotherapeutics Holdings for $4 billion including debt. Talecris was part owned by Cerberus Capital Management, and represented one of the first wins for the private equity firm after the financial crisis.

Grifols was founded more than 70 years ago by a family of Spanish doctors.
Today the Grifols family still controls the company, and Victor Grifols Roura is chairman and chief executive. The company has a market capitalization of $3.9 billion. Its shares are traded on the Nasdaq and closed on Friday at $29.96.

Announcing third quarter earnings last week, Grifols noted that the United States is a growing market for the company, with sales up 14 percent in the quarter, part of 432 million euros in sales in North America during that time.

BlackBerry’s Woes Draw Canada’s Contrarian Mogul Into Spotlight

Throughout the first weekend of November, V. Prem Watsa, the Canadian immigrant success story and chairman of Fairfax Financial Holdings, was huddled in the offices of his Toronto law firm, Torys, trying to salvage the biggest bet of his career.

In late September, Fairfax had made a highly conditional offer to buy BlackBerry, the struggling smartphone maker based in nearby Waterloo, Ontario. Few on Wall Street took the offer seriously, instead viewing it as a way for Fairfax, BlackBerry’s largest shareholder, to bring other buyers into the picture.

But as Fairfax’s takeover deadline loomed, no other buyers had surfaced and Fairfax had failed to find co-investors for its bid. Mr. Watsa and his team needed an alternative.

Finally, a solution of sorts emerged last Monday from the exhausted team backed by Mr. Watsa. Rather than buying out BlackBerry’s shareholders at $9 a share, Fairfax and BlackBerry announced a new deal that would raise $1 billion in cash through convertible debt sold to a combination of Canadian, American and Qatari investors. Thorsten Heins, BlackBerry’s short-lived chief executive, was succeeded by a new executive chairman and interim chief: John S. Chen, another successful immigrant to North America who had turned around Sybase years earlier through a prescient move into mobile computing.

Many viewed it as just another stalling tactic in a situation where few good outcomes are likely. BlackBerry’s battered shares dropped even lower. Yet Mr. Watsa’s determination to be personally involved in a messy corporate implosion speaks to his own pride, his affection for Canada and his reluctance to walk away from what could be one of the worst moves he ever made.

Arguably Canada’s leading contrarian investor, Mr. Watsa enjoys a disproportionately large reputation as a canny player within the country’s relatively small financial community. But unlike, say, Conrad M. Black, he is far from a public figure. Both Mr. Watsa and his executives gave no interviews to media outlets for years and now do so only sporadically. And Fairfax, which was founded in its current form in 1985, only began quarterly conference calls with analysts in 2003. No one from the company would be interviewed for this story.

Even in a country with a large population of immigrants from South Asia, many of whom went on to great success, Mr. Watsa, 63, stands out. He was born near Hyderabad, India, and studied chemical engineering at the Indian Institute of Technology before joining his brother in London, Ontario, after his graduation in 1971. He sold air conditioners and furnaces door to door to pay for M.B.A. studies there at the University of Western Ontario.

In Mr. Watsa’s legend, a key moment is when one of his managers at Confederation Life, a now defunct insurer, gave him a copy of “The Intelligent Investor” by Benjamin Graham. The book’s advocacy of value investing resonated with Mr. Watsa, who also came to admire Warren E. Buffett, chairman of Berkshire Hathaway, for similar reasons.

Fairfax owns a variety of insurance companies whose premiums provide it with a steady stream of capital for investment in a structure similar to Berkshire’s. Like Mr. Buffett, Mr. Watsa appears to take pride in his annual letter to shareholders, although his writing style leans toward the liberal use of exclamation points.

Some argue that the comparisons end there.

“Psychologically speaking, he thinks he’s the Warren Buffett of the North,” said one person who has followed his business closely over the years. But that person, who spoke on the condition of anonymity because he still occasionally does business with Mr. Watsa and did not want to offend him, noted that Mr. Watsa favored investing in distressed firms with comparatively few shareholders, with BlackBerry being a notable exception.

“Typically, he does these things in not such public high-profile companies. The rules of the game that he applied over his career don’t work in a liquid stock like this,” the critic said.

A person who worked with Mr. Watsa in the past said, however, that BlackBerry is precisely the sort of challenge Mr. Watsa seeks and relishes.

“When it’s down and you can’t find a single person to help it, that’s where he wants to be,” said this person, who spoke on the condition of anonymity because he did not want to complicate relations with Mr. Watsa, whom he still knows socially.

But he acknowledged that Fairfax was blindsided by the amount of publicity generated by the failed buyout offer.

A decision in 2002 to add a listing on the New York Stock Exchange as well as Toronto forced Fairfax and Mr. Watsa out of their shells. It came in the middle of a seven-year period when problems with some insurance acquisitions in the United States hampered Fairfax’s financial performance.

Hedge funds in the United States shorted Fairfax’s stock, driving its share price down while attacking the strategies and methods of Mr. Watsa and his company.

In 2006, Fairfax sued a group of hedge funds including SAC Capital Advisors and Third Point, contending that they had tried for years to destroy the reputation of Mr. Watsa and Fairfax, and then profit by betting that Fairfax’s stock would fall.

Though many of the funds were dismissed from the case, Mr. Watsa continued to pursue them for years, spending tens of millions of dollars on legal fees.

“We didn’t really understand the extent to which the short side of the equation would dominate the story,” the person who once worked with Mr. Watsa said. The funds, he said, “just about destroyed the company.”

People close to the hedge funds said they had legitimate reason to believe that Fairfax had in fact incurred huge losses, but was masking them. Whether or not that was the case, Mr. Watsa then made back those losses and brought Fairfax to new heights by successfully betting against the American housing market well before the financial crisis. Fairfax voluntarily delisted from the New York exchange in 2009.

Mr. Watsa again uncomfortably finds himself under the microscope as he grapples with perhaps his greatest challenge ever in BlackBerry. In 2009, Mr. Watsa was recruited as the chancellor of the University of Waterloo by BlackBerry’s co-founder and former co-chairman Mike Lazaridis, and the two became friends. When BlackBerry’s plummeting market share and stock price led Mr. Lazaridis to step down as co-chief in January 2012, Mr. Watsa revealed that he owned 5.1 percent of the company and joined its board. He soon doubled that holding and became a public champion of the company.

In his last shareholders’ letter, Mr. Watsa said that Fairfax, which owns about 10 percent of the company, had paid an average price of $17 a share. On Friday, the stock closed at $6.56 share on Nasdaq. It is down nearly 45 percent this year.

The person who once worked with Mr. Watsa said he most likely miscalculated how public scrutiny would impair his turnaround efforts with BlackBerry, a company that has been a symbol of national pride in Canada. “He didn’t understand the extent the brand recognition mattered here,” this person said.

Fairfax consulted former mobile executives from Motorola and Ericsson about a successor for Mr. Heins. Mr. Chen, who was born in Hong Kong, was among the top three names on their list. Mr. Chen will commute from California to Canada, and will not be the permanent chief executive. Fairfax nonetheless is apparently counting heavily on him to find a way out for BlackBerry.

Mr. Chen is somewhat similar to Mr. Watsa, his former associate said. “He came across instantly as a guy who was up for the challenge,” the person said. “He’s a guy who wants to be there for a long time. He didn’t flip Sybase.”

Aside from the lack of an obvious strategy for BlackBerry, turning the company around while it remains publicly traded will be an enormous challenge, said Douglas Cumming, a professor of finance at York University in Toronto.

“If they think they can get this all sorted out in the public eye, that’s going to be a pretty rare event,” Professor Cumming said, adding that the glare on BlackBerry’s problems will further erode confidence in the brand.

A person who has squabbled with Mr. Watsa over the years is skeptical that Fairfax will be able to save BlackBerry.

“There have been a lot of smarter people looking at this, and they can’t seem to make it work,” he said. “Warren Buffett isn’t buying broken-down tech companies.”

Nitro Circus, Extreme Athletics Brand, to Merge With Touring Company

One of the highlights of any Nitro Circus show comes when Aaron Fotheringham, an extreme wheelchair athlete, careers down the megaramp and does a double back flip in midair, landing 50 feet away.

Mr. Fotheringham, known as Wheelz, performs his act shortly before a dirt bike rider performs a similarly acrobatic feat as explosions rock the racetrack, all while thousands of raucous fans cheer from the stands.

Though Nitro Circus is more of a carnival sideshow than an athletic showcase like the Olympics, the brand has won the hearts and dollars of the coveted young male demographic.

And while fans of this brash entertainment franchise tend to be younger, the business itself is finally growing up.

On Monday, Nitro Circus will announce that the two businesses that worked together to produce the brand’s live shows, television programs and films will become one company.

The merger of the touring operation and the performance business, previously separate entities, is being helped by an investment of about $25 million from the Raine Group, a New York merchant bank with deep roots in the entertainment industry.

With a unified team and a new infusion of capital, Nitro Circus hopes to extend its reach around the globe.

It is planning a permanent live show in a still unknown site in Las Vegas, and another permanent live show in Macau, this one in an unused Cirque du Soleil theater at the Venetian Macau hotel.

The spectacles, featuring motorcyclists, skateboarders, scooter riders and other wheeled daredevils performing death-defying feats, play well with resort city crowds with idle time and cash to spare.

The group will also set up a training academy where it will field new talent for its shows and teach a new generation of enthusiasts how to emulate their favorite action sports stars.

“We had to find a way to bring the two companies together and supercharge the business,” Michael Porra, the chief executive of Nitro Circus, said in an interview.

Raine will become a large minority shareholder in the combined company, but the total valuation of the business could not be determined.

“This industry had been on our radar, but this is unique,” Brent Richard, a vice president at the Raine Group, said in an interview. “It crosses a lot of themes in participatory sports. You have active participants, and it crosses language and geographic borders quite easily.”

Raine was also attracted to the fact that the average age of Nitro Circus fans, who are mostly men, is just 23. This demographic is increasingly difficult for advertisers to reach, and Raine has already invested in Vice, a youth media outlet.

Travis Pastrana, an extreme athlete, and his friends Jeremy Rawle and Gregg Godfrey created the Nitro Circus brand. Operating under the Godfrey Entertainment name, the three started by making a DVD of their exploits in 2003, and they built the brand over the next decade. Mr. Porra is from Australia and founded Nitro Circus Live to help the group tour internationally.

But the two businesses had remained separate until now, a source of complications as the group worked to grow.

“We are super pumped to be partnering with the Raine Group to take the brand to the next level,” Mr. Pastrana said in a statement.

Though Nitro Circus athletes risk life and limb at each show, there has never been a serious accident during a performance. But the face of the empire, Mr. Pastrana, has suffered his share of injuries over the years.

Speaking to the talk show host Jay Leno recently, he acknowledged that participating in extreme sports of the kind featured in Nitro Circus had left him with a dislocated spine, torn left knee ligaments and a broken fibula.

Powering Employees With More Than a Paycheck

More than two-thirds of employees around the world, a recent Gallup poll found, feel disengaged, dispirited and fatigued at work. Why is that?

A value proposition is no more than the promise of a fair deal: I provide you with something you want and, in exchange, you give me something I consider worth the trade. That trade between employers and employees, since the dawn of capitalism, has been time for money.

The problem is that buying people’s time is no guarantee you’ll get their best efforts. No amount of money will ever be sufficient to meet all employees’ needs at work.

Rather than trying to demand more and more from employees, employers need to invest more generously in meeting their people’s core needs: physical, emotional, mental and spiritual. When employees feel better taken care of, they’re freed, fueled and inspired to take better care of their customers and clients. It’s a win for everyone.

Care at the physical level translates into giving employees the opportunity to take better care of themselves. Human beings aren’t designed to run the way computers do: at high speeds, continuously, for long periods of time. But they’re increasingly expected to do just that, and it’s counterproductive.

The more people try to keep pace with their digital lives, the more fatigued they become, the lower the quality of their work and the less value they create over time.

Consider medical interns. One study, in The New England Journal of Medicine, found that interns who worked 24-hour shifts made 36 percent more medical errors than those working 16-hour shifts and five times the number of diagnostic errors, and were 61 percent more likely to accidentally cut themselves during procedures.

The study found that the rates of serious medical errors in two intensive care units “were lowered by eliminating extended work shifts and reducing the number of hours interns worked each week.” By asking interns to work less, the hospitals improved their performance.

Caring for employees at the physical level begins with creating a culture that values renewal and rest as a fuel for sustainable high performance. Google has done this since its founding by providing napping pods, low-cost massages, fitness areas and high-quality, nutritious food at no cost to employees.

Encouraging renewal serves both employers and employees at the mental level, too. Overloading the brain with information leads to distraction, reducing how much it retains over time. Mental downtime not only provides an opportunity to relax and refuel, but also to reflect and to digest new information. People also tend to get their best ideas during downtime, when they’re not working toward a specific goal.

But the most powerful aspect of caring for employees occurs at the emotional level. How people feel profoundly influences how they perform. Nothing so influences employees’ engagement as the feeling that they’re genuinely cared for and valued by their leaders and managers.

When employees believe they are cared for, they experience a variety of feelings, including safety, trust and well-being. If they don’t feel cared for, they’re more likely to feel a sense of fear and threat. That can impair the ability to think clearly or creatively. As Daniel Goleman, author of “Emotional Intelligence,” put it, “Threats to our standing in the eyes of others are remarkably potent biologically, almost as powerful as those to our very survival.”

Doug Conant, the former chief executive of the Campbell Soup Company, felt so strongly about the value of acknowledging people that in his 11 years at the company, he handwrote 30,000 notes to employees, acknowledging their contributions. Engagement levels rose.

At my company, the Energy Project, we’ve made it a practice to publicly acknowledge each other’s successes. We also hold a weekly community meeting that begins with a simple but powerful question: “How are you (really) feeling today?” The freedom to answer this question honestly helps us know what others are bringing to work emotionally, and to be more attuned to them.

Another core need is for meaning and significance. When a company stands for something beyond maximizing profit, employees have the potential for a purpose beyond a paycheck. It’s both energizing and inspiring to work for a company that is committed to something beyond its immediate self-interest.

That’s relatively easy for nonprofits, whose goal is to add value to others. But it’s also possible for companies that sell more mundane products. Take Toms Shoes. By committing to donate a pair of shoes to someone needy for every pair sold, the company’s founder, Blake Mycoskie, has created a sense of mission among employees.

Stephen Friedman, president of MTV, recently collaborated with a start-up called Catchafire that matches companies with specific skills to nonprofit organizations that need help. Employees at MTV got an opportunity to use their skills in website design, branding and social media on behalf of the Center for Employee Opportunities, an organization that helps inmates just released from prison get jobs.

For all these examples, what’s the hard evidence that taking better care of employees generates more value for their employers? The 2012 Towers Watson Global Workforce Study surveyed 32,000 employees across 30 countries. The main factor in driving employee engagement and higher performance, it concluded, is “a work environment that fully energizes employees by promoting their physical, emotional and social well-being.”

In companies with the most engaged employees, 74 percent of them felt their leaders had a sincere interest in their well-being, while just 16 percent of employees felt that way in the companies with the least engaged workers.

There were stunning performance differences between the companies with the most engaged and least engaged employees. The companies with the least engaged employees had an average operating margin of 10 percent. The companies with the most engaged employees had an average operating margin of 27 percent â€" nearly three times as high.

The Towers Watson research is compelling, but the conclusion is entirely intuitive: Invest in and care for the physical, emotional, mental and spiritual well-being of employees, and they’ll perform far better for longer.

About the Author

Tony Schwartz is the chief executive of the Energy Project and the author, most recently, of “Be Excellent at Anything: The Four Keys to Transforming the Way We Work and Live.” Twitter: @tonyschwartz

Rules Force Banks to Innovate for Survival

Bankers complain that the government’s overhaul of the banking system has saddled the industry with a heap of new rules, stricter regulators and higher costs of doing business.

But there is something they might not be so quick to mention in their complaints: The overhaul may also be pushing banks to innovate in important ways.

The overhaul is reducing government subsidies for banks. The banks have for decades raised returns for shareholders with high levels of borrowing. The overhaul restricts that borrowing, so banks will now have to work much harder to post the sort of returns their shareholders expect.

Banks may decide to toss out old practices and adopt new ways of serving clients. Wall Street firms are devising new ways of making securities available to customers. Retail bank executives are rethinking how they can reduce branches while still serving customers. They also cannot ignore the start-up firms that are using technology to make loans far more quickly than banks do.

“Banks have a huge cost infrastructure,” said Samir Desai, the chief executive and a co-founder of Funding Circle, a British company that uses technology to connect small businesses that want to borrow with investors who may want to lend to them. “Banks are not based around getting businesses funding as quickly as possible.”

In some ways, the need for traditional banks to innovate may not seem obvious. The banking sector, after all, reported record earnings in the second quarter of this year. But such figures can be deceptive. The underlying profitability of banking is astonishingly weak compared with other industries.

In simple dollar terms, the banks’ latest profits may look large. But they were equivalent to only 1.1 percent of their assets in the 12 months through June, according to an analysis of data from the Federal Deposit Insurance Corporation. Wells Fargo, one of the nation’s top-performing banks, managed to achieve 1.53 percent in its latest quarter. Walmart’s return on assets, by contrast, has been close to 9 percent in recent years.

Banks have long relied on borrowing, or levering up, to amplify the profits for their shareholders. But the overhaul is restricting the use of leverage. Banks, therefore, have to think hard about how to squeeze more out of their assets â€" and have little choice but to innovate. A look at a simplified bank balance sheet shows just how the numbers are stacked against them.

A bank with $100 of assets and $1 of profits has only a 1 percent return on those assets. But this bank borrows $95, which it uses to make loans and buy securities worth $100. The remaining $5 comes in the form of equity capital, provided by the bank’s shareholders. Since profits theoretically go to shareholders, investors also measure earnings as a percentage of outstanding capital, to get a “return on equity.” In this case, that $1 of profits would translate into a 20 percent return on the $5 of equity, a solid return.

But banks can become unstable when they skimp on equity capital and borrow too much. Equity is the part of a bank’s balance sheet that is supposed to absorb any losses from the bank’s assets. The crisis showed that banks’ equity was too thin for the losses they experienced. As a result, the postcrisis regulations forced banks to substantially build up their capital.

But that depresses returns for shareholders. If the bank with $5 of capital had to raise it to $10, the $1 in profits would translate into a 10 percent return on capital, half of what it was before. For this bank, the only way to get back to a 20 percent return would be to double profits from $1 to $2.

Bankers don’t expect to get back to the sort of high returns on equity that they achieved before the crisis. But they recognize that they need to improve their returns, or capital may gravitate to other sectors of the economy.

“If you take a look at the return on equity that most financial institutions are producing these days,” John Gerspach, chief financial officer of Citigroup, said in a public conference call in July, “there’s reason to think that the profitability is really not enough to sustain continued investor involvement.”

This is why banks have to look for new ways to bolster profits.

The overhaul has already forced Wall Street to change how it performs one of its core activities. As investment banks adapt to new rules on capital and trading, for instance, they are holding much smaller inventories of securities for clients. That leaves them less vulnerable to losses that result from shocks in the markets. They are also devising new electronic trading platforms to connect buyers and sellers.

Yet a leaner Wall Street was able to underwrite one of biggest booms ever in bond issuance over the last four years.

Nor has the streamlining in market making led to hard times on Wall Street. JPMorgan Chase’s revenue from trading bonds and other “fixed income” instruments, for example, was $45 billion from 2010 to 2012. By comparison, total revenue produced by all the divisions within JPMorgan’s investment bank from 2004 to 2006 was $46 billion.

Financial firms, in their efforts to be more efficient, are also doing business with fewer employees. The number of people employed in financial activities has fallen 6 percent since the end of 2006, according to the Bureau of Labor Statistics. The decline has occurred even as bank credit has risen considerably over that period, despite the crisis.

Still, banks’ costs make up a higher proportion of their revenue than before the crisis, according to a regular F.D.I.C. survey. To cut back further, banks will be forced to stop money-losing activities, like offering low-priced checking accounts and maintaining lavish branches. Banking specialists say restrictions on leverage will play a big role in persuading banks to cut back. “Leverage allowed banks not to care about the cost of their products, and they gave them away for free,” said Richard Ramsden, a banking analyst at Goldman Sachs. “That’s all gone.”

The biggest challenge for banks is finding innovative ways to increase revenue. On this front, banks have a patchy record. While banks have introduced products that have had a lasting and positive impact, like A.T.M.’s and most credit cards, they have also acted destructively. Before the crisis, innovation meant finding new ways of lending aggressively to people with shakier credit histories, which resulted in large losses when the loans went bad. Since then, banks have focused almost exclusively on individuals with strong credit.

To bolster returns, however, banks may have to start thinking hard once again about lending to borrowers with less certain prospects, but in a way that does not lead to lending abuses and high losses. That is not an easy goal to achieve. Traditional banks say that the new rules, as well as the legal risks, make it too expensive for banks to find new ways of lending to riskier borrowers. In addition, the government itself dominates the mortgage market. And in doing so, it has brought down interest rates on home loans to a level that makes them unattractive for banks to hold.

But banks may lose out to innovative new entrants if they don’t start becoming more adventurous in their lending. Executives from start-up firms say that fear is also one of the factors apparently holding banks back from lending to borrowers who do not have pristine creditworthiness.

“Banks will only play in the most certain spaces in underwriting, leaving a massive hole for other players to fill,” said David Klein, chief executive and a co-founder of Common Bond, a young company that matches student borrowers with investors, often alumni, who may want to lend to them.

“Banks are fearful,” he said, “New companies are fearless.”