Comcast Seeks to Divest Subscribers to Win Approval for Time Warner Cable Deal

Comcast is laying the groundwork to divest nearly four million subscribers as part of its efforts to appease antitrust regulators scrutinizing the proposed acquisition of Time Warner Cable.

In one likely situation, Charter Communications, which had been trying to acquire Time Warner Cable, would become both a buyer and partner to Comcast.

In the first part of a proposed deal, Charter would buy about 1.4 million subscribers from Comcast, according to people briefed on the matter.

At the same time, Charter would swap some subscribers with Comcast, including those in the Los Angeles area. Comcast is buying Time Warner Cable’s roughly 1.8 million subscribers in the Los Angeles area, and gaining Charter’s subscribers in the area would complete its footprint there.

Comcast would also spin off a new public company with about 2.5 million subscribers, these people said. Charter would have a minority stake in this new company, and the rights to acquire more control over time.

But Charter would not have any operational control over the new company, these people said. Nor would Charter contribute any subscribers to the new company, which would have its own management team.

Together, the sale of subscribers and a spinoff is expected to deliver $18 billion to $20 billion to Comcast, cash that  it could use to buy back shares and pay down the debt it will take on to complete the deal for Time Warner Cable.

The deals have not been finalized and could still fall apart. Comcast and Charter were in discussions about a joint bid for Time Warner Cable in January, but negotiations between the two companies fell apart. And since Comcast and Time Warner Cable agreed on the sale, Charter has come out against the deal.

Comcast is also in talks with other interested buyers, including Cox Communications and private equity firms, these people said. The deals involving Charter, however, are the most likely to succeed at this point, they said.

The Financial Times reported on Friday that Comcast and Time Warner Cable were having negotiations with Charter. Earlier on Tuesday, Bloomberg News reported details on a possible swap and spinoff.

Testing the Limits of Inside Information Cases

Much like the game of telephone, the final recipient of inside information may know little about who started the process or how many steps it took before arriving. When prosecutors want to pursue charges against the recipients of confidential information â€" the tippees â€" the issue is often how far down the chain they can go before they can no longer prove a violation.

How much knowledge a defendant must have is often crucial in white-collar crime cases because the issue is rarely about what the person did, but what was intended. Figuring out what a tippee has to know has become a central issue in the appeal of Anthony Chiasson and Todd Newman, two former hedge fund managers who were way down on the chain of inside information about two technology companies, Dell and Nvidia. But they were still convicted. Their appeal was heard on Tuesday.

Mr. Chiasson and Mr. Newman got information about upcoming company earnings that was traceable to insiders. But they never dealt directly with the sources of the information. Instead, the information was passed through a phalanx of analysts before finally reaching them. In the parlance of insider trading, they were remote tippees, well removed from the original tippers.

A tippee can still be held responsible for insider trading so long as the government shows that person knew the tipper breached a duty of trust and confidence to the source of the information by passing it along to someone who would profit by trading on it. To prove that breach, the Supreme Court stated in Dirks v. S.E.C., “The test is whether the insider personally will benefit, directly or indirectly, from his disclosure. Absent some personal gain, there has been no breach of duty to stockholders.”

Referred to as the quid pro quo requirement, the benefit received by the tipper can be monetary or just the warm feeling generated by making a gift to family or friends. It can even be a more ephemeral benefit like enhancing one’s reputation in the eyes of the tippee.

If this all sounds rather opaque, that’s because the law of insider trading has been developed piecemeal by the courts over the past 40 years. There is no specific statute outlining the elements of the violation. Instead, it is considered a species of securities fraud. So judges have been left to define its contours.

The Dirks opinion is the cornerstone for holding a tippee liable, but that decision is hardly a model of clarity. That case even involved a rare â€" and perhaps unique â€" situation before the Supreme Court because the federal government argued against itself, with the Securities and Exchange Commission coming out in favor of finding a violation while the Justice Department opposed it.

The case arose from the collapse of the insurance and mutual fund firm Equity Funding Corporation of America in 1973, the largest Wall Street fraud until Bernard L. Madoff’s Ponzi scheme came to light in 2008. A corporate officer told Raymond L. Dirks, a brokerage firm analyst, about accounting fraud at the company. Mr. Dirks spoke to various company employees who corroborated the charges, and as a result of his inquiries, regulators eventually began their own investigations.

Rather than being celebrated by the S.E.C. as a whistle blower, however, the agency filed civil insider trading charges because Mr. Dirks shared information about the fraud with investors, who then sold their shares before it became public. The issue before the Supreme Court was whether Mr. Dirks could be held liable as a tippee for passing along information from a company insider.

The court rejected the S.E.C.’s argument that anyone who received confidential information violates the law just by trading while in possession of it. Instead, the justices found that tipping is a violation “only when the insider has breached his fiduciary duty to the shareholders by disclosing the information to the tippee and the tippee knows or should know that there has been a breach.”

The United States Court of Appeals for the Second Circuit in Manhattan is considering the issue of tippee liability. It heard oral arguments in Mr. Chiasson and Mr. Newman’s case on Tuesday

The crucial issue is how much knowledge the government must prove for someone who is not a first-level tippee dealing directly with the source but is instead at least one step removed from the original disclosure. The Supreme Court did not have to address that issue because Mr. Dirks dealt directly with the insider. So the question in that case was whether there was any breach of a duty in the disclosure.

Mr. Chiasson and Mr. Newman argue that the government must show that the two men knew the tipper received a personal benefit from dispensing the information, not just that the information was confidential. Not surprisingly, the government disagrees, arguing in its brief that it only needs to prove “knowledge of enough facts to distinguish conduct that is likely culpable from conduct that is entirely innocent.”

The panel of judges hearing the appeal appeared to be skeptical of the government’s argument that only a minimal degree of knowledge needs to be proven to hold a tippee liable.

Proving knowledge is always difficult in a criminal case because a jury cannot read a defendant’s mind. So it is usually a matter of evaluating circumstantial evidence to come up with a plausible understanding of what the person knew at the time. Prosecutors can also try to prove knowledge by arguing that a defendant was willfully blind to what was going on, asking a court to give the “ostrich instruction” that allows a jury to infer knowledge from conduct intended to avoid learning the truth.

The Second Circuit has been friendly to the government’s arguments in the most recent wave of insider trading cases, upholding all the convictions that have come before it. But the court did allow Mr.. Chiasson and Mr. Newman to remain free on bail while their case is on appeal, and the questioning during the oral arguments showed that the defendants have a good chance at a new trial and an outside chance at an acquittal.

The challenge for Mr. Chiasson and Mr. Newman is persuading the appeals court to recognize a higher threshold of knowledge that could lead to a reversal of their convictions and a new trial.
Requiring proof of specific knowledge about the benefit the tipper received would make it harder for the government to make its case, giving remote tippees another avenue to fight charges. The problem is that courts are often loath to give defendants too many ways to claim ignorance because that can encourage gaming the system by creating plausible deniability.

One defendant who could benefit from a decision imposing a heightened knowledge requirement is Michael S. Steinberg, a former portfolio manager at SAC Capital Advisors who was convicted of insider trading in December. He was also a remote tippee.

The case could even present the Supreme Court with an opportunity to clarify the parameters of tippee liability, an issue it has not taken up since the Dirks decision in 1983. As insider trading cases have involved increasingly sophisticated groups who pass around information, there is a need for some additional guidance on what the government must prove to hold traders liable.

How Valeant Can Raise Its Bid for Botox Maker

Valeant Pharmaceuticals has plenty of room to raise its bid for Allergan. The acquisition machine, working with hedge fund manager William A. Ackman, thinks it can cut at least $2.7 billion of costs from the Botox maker. At Valeant’s single-digit tax rate, that’s worth nearly $25 billion. And the potential benefits go on from there. The $45.6 billion deal would still add up with a much bigger premium.

Valeant’s strategy of buying smaller pharmaceutical companies and cast-off assets has paid off for investors, with its stock up about 10-fold since the M.&A. binge began in 2008. The thinking is that many drug makers spend too much on overhead and research and development. Valeant slashes costs after buying assets and, with its low tax rate, can achieve higher net margins than most of its peers.

The tax rate or research and development expenses could eventually rise, of course, and the company isn’t immune to the occasional clunker of a deal. So far, however, it’s making a hefty profit, with analysts expecting net income to equal about one-third of revenue over the next year. That’s a margin almost 10 percentage points bigger than the number-crunchers are projecting for Allergan.

The cost cuts proposed for Allergan after the acquisition are enormous, about three-quarters of what the company projected to spend this year on R.&D. and sales and administrative costs. They are not, however, out of line with past Valeant deals. The $2.7 billion in estimated annual savings, combined with a single-digit tax rate, are worth perhaps $25 billion today.

Valeant, not surprisingly, says the estimated savings are on the low side and it doesn’t account for the benefits of applying its favorable tax rate to Allergan earnings or the additional sales the combined companies will produce.

Allergan’s market capitalization was about $38 billion on Feb. 24, the day before Ackman began buying stock, arguably a reasonable undisturbed price to choose. That means the buyers are offering a 23 percent premium, or about $10 billion, to Allergan owners.

That’s giving away less than half the present value of the potential savings from the deal. Indeed, Allergan’s shares are trading well above the value of the bid. Mr. Ackman’s Pershing Square Capital Management, with some funds from Valeant, has amassed a 9.7 percent effective stake in Allergan, which may discourage rival bids. Even so, no one should be surprised if Allergan holds out for a bigger price.

Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Appeals Court Raises Doubts About Government’s Insider Trading Case

Preet Bharara’s perfect record, 80 insider trading convictions without a single defeat, is on thin ice.

The federal appeals court in Manhattan on Tuesday picked apart the government’s case against two former hedge fund traders, Todd Newman and Anthony Chiasson, questioning whether the judge who presided over the trial erred in his instructions to jurors. Over an hourlong hearing, a three-judge panel signaled it might overturn the convictions, which would represent the first crack in Mr. Bharara’s sweeping campaign as United States attorney to root out insider trading in the hedge fund industry.

Just seconds after the prosecutor arguing the appeal introduced herself, the judges grilled her about the case and implied that Mr. Bharara’s office steered insider trading trials to Judge Richard J. Sullivan, who oversaw Mr. Chiasson’s and Mr. Newman’s trial and a subsequent case against another trader. The questioning appeared to send a cautionary message to Judge Sullivan, who is known for often siding with the government, and took a swipe at prosecutors for cherry picking judges.

Judge Barrington Parker â€" interrupting the prosecutor, Antonia M. Apps â€" referred to Judge Sullivan as the government’s apparent “preferred venue” for insider trading cases. While Ms. Apps argued that consolidating the cases created “judicial efficiencies,” another member of the appellate panel noted the “sheer coincidence that the judge who bought into the government’s theory was the one” assigned to the recent trials.

The appeal by Mr. Chiasson and Mr. Newman, which could take months to decide, has captivated the white collar bar. An overflow crowd, including top prosecutors and defense lawyers, attended the hearing in Lower Manhattan.

A victory for Mr. Chiasson and Mr. Newman would offer a blueprint for traders to defend future cases and imperil at least one other milestone conviction: Michael Steinberg, of SAC Capital Advisors, the once-giant hedge fund that Mr. Bharara indicted last year. When Judge Sullivan presided over Mr. Steinberg’s trial late last year, he provided a similar jury instruction as the one for the trial involving Mr. Chiasson and Mr. Newman.

Unlike other judges in insider trading trials, Judge Sullivan did not require jurors to conclude that Mr. Newman and Mr. Chiasson knew how insiders at two technology companies were leaking information in exchange for some personal benefit. Judge Sullivan’s instructions, the defense lawyers contended, ran afoul of a 30-year-old United States Supreme Court ruling that helped define insider trading. At a minimum, the lawyers have argued in court papers, the flawed instruction warrants a new trial, if not having the convictions thrown out altogether.

“Judge Sullivan left a piece out of the equation,” Mark Pomerantz, a lawyer at Paul Weiss who represents Mr. Chiasson, told the panel. Mr. Pomerantz likened it to the government claiming there was an egg salad sandwich without proving that there were any eggs.

The argument appeared to strike a chord with the judges, whose nonstop questioning of Ms. Apps contrasted with their scant interruptions of Mr. Chiasson’s and Mr. Newman’s defense lawyers. When the hearing ended, lawyers filed out of the courtroom buzzing about the prospect of the panel overturning the convictions.

But the appeal before the panel, which also included Ralph Winter and Peter Hall, is hardly a slam dunk. It is unclear whether the Second Circuit Court of Appeals, a court known for siding with the government and has rejected every other insider trading appeal filed during Mr. Bharara’s tenure, will take the rare step of narrowing what constitutes insider trading. A panel’s questioning in oral arguments does not always foreshadow the ruling.

To sow some doubt about the appeal, Ms. Apps pointed in the oral arguments to other cases that support Judge Sullivan’s jury instruction. And even if the appellate court takes issue with the instruction, prosecutors say that the error was “harmless.” The “harmless error” claim, which often resonates with appellate courts, amounts to legal parlance for a minor mistake given the overwhelming weight of evidence presented at trial.

After a five-week trial in late 2012, a jury convicted Mr. Newman and Mr. Chiasson for participating in what prosecutors called a “circle of greed” that generated more than $60 million in illicit gains. Judge Sullivan sentenced Mr. Newman, 49, to four and a half years in prison, while Mr. Chiasson, 40, received a six-and-a-half-year sentence. The appellate court allowed both defendants to remain free on bail while awaiting the outcome of their appeal.

Mr. Chiasson and Mr. Newman were far removed from the leaks at the two companies, the computer maker Dell and the chip maker Nvidia. Prosecutors placed them at the end of a four- or five-person chain of information that started with insiders at Dell and Nvidia and wound its way through a network of traders. While the prosecutors conceded that neither Mr. Chiasson nor Mr. Newman had any direct dealings with the Dell and Nvidia employees who leaked earnings information about the two companies in 2008, they accused the men of knowing that the information was too confidential to be shared legitimately.

Mr. Chaisson and Mr. Newman counter that they had assumed the information stemmed from legitimate, yet select, disclosures from Dell and Nvidia. Big companies, they said, routinely leak information to major investors.

At Dell, the leaks came from Rob Ray, an employee in the computer maker’s investor relations department. Mr. Ray shared information with a former colleague, Sandeep Goyal, who in turn passed the tips on to two analysts who worked with Mr. Chiasson and Mr. Newman at their respective hedge funds. Mr. Goyal and the former analysts â€" Jesse Tortora, who worked with Mr. Newman at Diamondback Capital Management, and Spyridon Andondakis, who worked for Mr. Chaisson at Level Global Investors â€" socialized together in Manhattan and the Hamptons. They went on to plead guilty and testify against their former bosses.

Lawyers for Mr. Newman and Mr. Chiasson note that prosecutors never charged Mr. Ray, even though the prosecution of insider trading requires proof that someone like Mr. Ray wrongfully disclosed secret information in a breach of a duty to his employer. In other words, if the source did not break the law, the traders should not be held liable.

Stephen Fishbein a partner at Shearman & Sterling representing Mr. Newman, argued that Mr. Ray was not charged “because there is not sufficient evidence of a breach or a benefit.”

Their appeal also hinges on what the Supreme Court intended in a 1983 ruling, Dirks v. the Securities and Exchange Commission, that said a trader can only be guilty of insider trading if he knew or should have known the corporate insider leaking the information was breaching a duty to the company. When defining a breach, the court explained that “the test is whether the insider personally will benefit,” adding that “absent some personal gain, there has been no breach of duty.”

The gain can be as overt as cash â€" or, in the case of Mr. Ray, as subtle as career advice from Mr. Goyal. Either way, the court ruled, there had to be a quid pro quo when releasing the inside information.

At the hearing on Tuesday, defense lawyers argued that Judge Sullivan’s instructions tainted the verdict because he allowed the jurors to convict Mr. Chiasson and Mr. Newman without finding that the men knew of any quid pro quo. A proper instruction, the lawyers say, could have led to an acquittal since Mr. Newman and Mr. Chiasson were unaware that Mr. Ray received career advice from Mr. Goyal.

The argument gained traction in the defense bar. Before the hearing on Tuesday, the National Association of Criminal Defense Lawyers filed a supporting legal brief calling Mr. Chiasson and Mr. Newman “remote” participants who largely were unaware of the original source of the information or even the intent of the leaker. The association contends that if the conviction of Mr. Chiasson and Mr. Newman was upheld, it would have a chilling effect on Wall Street analysts and their ability to gather information about a company.

The judges seized on the vague nature of what constitutes a personal benefit â€" and the impact it might have on Wall Street. Judge Parker questioned the “amorphous theory” underpinning some of the government’s case, noting an air of uncertainty hangs over Wall Street about just what constitutes illegal trading.

To illustrate his point about career advice being an unlikely benefit, Judge Parker questioned whether Ms. Apps would consider a suggestion that she stand closer to the courtroom microphone a beneficial piece of advice.

“I’m not sure that’s good career advice,” Ms. Apps quipped in reply, prompting an uproar of laughter in the courtroom. And Judge Parker noted that the advice was hypothetical; she was doing well.

Despite the apparent skepticism of the panel, some legal experts said that the prosecution still has a good case. Alafair S. Burke, a professor of criminal law at Hofstra University School of Law and a noted writer of crime novels, said the ruling in Dirks v. S.E.C. only requires prosecutors to establish that a trader knew or had a reason to know a person might get a benefit for passing on insider information. She said the jury instruction preferred by the defense lawyers would put “too high a burden on the government.”

Underscoring the importance of the appeal, Mr. Bharara’s top lieutenants attended the hearing: Richard B. Zabel, Lorin Resiner and Joon Kim grabbed seats in an overflow room adjacent to the courtroom. Nearby was David Chaves, an F.B.I. agent who supervised some of the insider trading investigations.

With their freedom hanging in the balance, Mr. Newman and Mr. Chiasson both attended the hearing on Tuesday. Mr. Chiasson sat next to his wife.

Mr. Steinberg, the SAC trader who is scheduled to be sentenced by Judge Sullivan next month, did not attend. But his lawyer, Barry Berke, was seated inside the courtroom.

When Ms. Apps exited the courtroom, she flashed a smile. Despite the interrogation, two of the judges applauded her performance, saying she had done just “fine.”

Allergan Bid Charts New Territory in Takeovers

The $45.6 billion unsolicited offer for Allergan by Valeant Pharmaceuticals and William A. Ackman’s hedge fund is many things, including bold, novel and mega in all ways. It is a new twist in the war between companies and shareholder activists, most likely changing everything and igniting a furious battle not just for Allergan but over the laws governing takeovers and activism.

The pairing of an activist and a corporation in a hostile takeover is no doubt novel. As Michael de la Merced, David Gelles and Alexandra Stevenson wrote in The New York Times on Tuesday, the offer is a sharp turn in how inimical activists and corporations interact.

Valeant has now disclosed to the world that hedge fund activist funds are a ready arsenal of capital that can be used to aid hostile takeovers by corporations. It’s not just capital, either. Activist hedge funds are experts at pushing corporations into adopting entirely new strategies and pushing out old directors. Their expertise will be invaluable to companies on the hunt for takeovers, perhaps supplanting the investment banks who now advise on such situations.

Only a few hostile takeovers have taken place over the last few years while activism has become the norm. But this deal may give a real boost to hostile takeovers. By establishing an early 9.7 percent stake, Mr. Ackman’s hedge fund, Pershing Square Capital Management, and Valeant are buying insurance for a failed hostile takeover. If the bid fails or Allergan is sold to another party, the two can instead reap the profits of their significant stake to cover their costs and perhaps make much more money. Previously, hostile bidders had been reluctant to purchase these stakes â€" called toeholds â€" but now have a clear route to do so and to limit their downside if the bid fails. This may spur more hostile deals.

This may mark not only the fusing of the two corporate tactics but also a Faustian bargain between hedge funds and corporations. I say Faustian because Valeant may have unleashed a monster. Activists and corporations may team up on hostile takeovers, but the companies who join with activists may soon discover they are targets themselves.

The teaming of Pershing Square and Valeant will also increase pressure on private equity firms to become more like the hedge fund activists. The bid for Allergan is larger by multiples than any private equity deal since the financial crisis. It shows the potential for these private equity firms and their hundreds of billions of dollars in unspent capital. If private equity is to stay in the game, it will have to find a way to compete.

Whether this comes to pass, the Allergan bid is yet another sign that activism is more mainstream than ever and here to stay. These funds have too much money to go away and will continue to innovate.

The Allergan offer not only has the potential to upend how the takeover market works, unleashing a powerful new force in the pairing of hedge funds and corporations, it will also most likely spur a subset of corporations to push even harder for a reform of the takeover rules. These companies will cite the way that Valeant and Pershing Square accumulated their stake in Allergan to highlight the need to change the laws.

The reason is that Valeant and Pershing Square bought their 9.7 percent stake in a way designed to keep it secret until that number was reached.

A new entity formed by Pershing Square and Valeant bought 4.99 percent of Allergan in the market from February through April 10. Of that stake, 96 percent was composed not of actual shares but of options to buy Allergan stock. Most of the capital appears to have been put up by Pershing Square, with Valeant contributing only about $75 million.

Then on April 11, Valeant and Pershing Square increased their stake above 5 percent. Under the so-called 13D rules, named after the provision in the federal security rules that require a filing, once their holding exceeded 5 percent, Valeant and Pershing Square were required to publicly disclose their ownership in a filing with the Securities and Exchange Commission. But a so-called 13D filing is only required to be made within 10 calendar days.

This creates a window of time for a bidder or activist to buy even more shares, something Pershing Square did with a vengeance. In this 10-day period, Valeant and Pershing Square bought an additional 4.7 percent stake in Allergan, all in call options. At the end of the period, the two bidders filed their 13D and disclosed an offer to buy Allergan for $48.30 in cash and 0.83 share of Valeant common stock.

Previously, the law firm Wachtell Lipton, among others, had called for a reduction in the 10-day period. The S.E.C. has responded by saying it would review the rules, and it appeared that some reform was coming to shorten then period.

Pershing Square’s move will no doubt increase these calls. It will also fuel the debate more generally about reforming the takeover laws to limit activism, combining old arguments that activist hedge funds are focused solely on short-term goals with fresh arguments that hostile takeovers shortchange shareholders.

This will be a long fight that will become more heated and break new ground, but the more immediate battle for Allergan will most likely turn into a typical hostile takeover.

Allergan does not have a poison pill in effect, but expect it to fix that problem in the coming days by adopting one to cap Valeant and Pershing Square’s stake at its current size.

After that, Allergan will assess the offer and decide whether to negotiate or reject it. Interestingly, Allergan has a provision in its governing documents called a constituency provision, which allows its board to take into account interests other than shareholders â€" like workers â€" when considering an offer. Allergan will most likely rely on this provision to give it latitude to reject Valeant and Pershing Square’s bid, perhaps even raising the fact that Valeant is Canadian. Even without this defense, though, the law is pretty clear that Allergan’s board can turn down this offer if it wants on the grounds that it undervalues the company.

Allergan will most likely resist for a while to buy time to find another deal or force Valeant and Pershing Square to pay a higher price, but the defense may be ultimately futile if Valeant and Pershing Square continue their pursuit.

The reason is that Allergan has a clear hole in its takeover defenses.

If Allergan does adopt a poison pill, then the only route to push Allergan to remove it is for Valeant and Pershing Square to go fully hostile, which includes a proxy contest to unseat Allergan’s directors, who can be removed without cause at a shareholder meeting. Allergan’s annual meeting is scheduled for May 6, and the date for nominating directors has passed, so Valeant and Pershing Square have missed that window.

There is still that hole, however. Allergan’s organizational documents allow for 25 percent of shareholders to call for a meeting. The provision will allow for Valeant and Allergan to call for a shareholder meeting to remove and replace Allergan’s directors. They can easily convert their options into stock, making their 9.7 percent stake real and making the 25 percent hurdle relatively easy to reach.

Allergan knows all this, of course, and it will now set off a dance as Allergan looks for other suitors and Pershing Square and Valeant begin to tighten the screws. Over the next few weeks, the two sides will circle and test each other to determine how far Allergan is willing to go in its defense. In the wings will be the threat of a proxy contest.

It is a historic moment to be sure.

Chernin Teams With AT&T in Online Video Investment Venture

Peter Chernin was stymied in his effort last year to buy Hulu, the online video streaming service. But now, Mr. Chernin, the former News Corporation president, is teaming up with his partner in that bid to form a new investment venture.

Mr. Chernin’s investment firm has joined with AT&T to commit more than $500 million to a new investment vehicle that plans to buy and develop companies in online video, the parties announced on Tuesday.

The alliance speaks to the scale of Mr. Chernin’s ambitions. A veteran of the media business, he brings operating experience and industry expertise to the partnership. In AT&T, he has found the potential for broad distribution through its customer base and wireless networks.

The group plans to focus on “over the top” video services, which use broadband connections rather than cable or satellite systems, and which are seen as a potential threat to the status quo in television. The investors plan to look at video on demand and streaming services that earn revenue from subscriptions and advertising.

“This is not a venture just to try and do Hulu, or just to try and duplicate Hulu,” Mr. Chernin said in an interview on Tuesday. “Our primary focus is to build operating companies.”

The Hulu bid, while not successful, provided the genesis for the new project. In working with AT&T on the bid, Mr. Chernin said, he realized the partners were “fundamentally aligned.”

“They were very, very focused on growing video as a category for their customers, and I think they see increasing proportions of their network spectrum being consumed by video,” Mr. Chernin said.

After running a sale process last year, Hulu’s owners ultimately reversed course and chose instead to invest more in the business. That was a bitter disappointment for Mr. Chernin. “We didn’t lick our wounds because something went wrong. We licked our wounds because we didn’t feel the process went well,” he said.

Now, Mr. Chernin and his partners have turned their focus to other companies. Along with capital, the Chernin Group is contributing its majority stake in Crunchyroll, an anime streaming company, into the investment vehicle.

The group plans to focus initially on investments in the United States. John Stankey, the chief strategy officer of AT&T, said the group had found some initial targets, but he declined to identify them.

From AT&T’s perspective, the investment venture could one day add significantly to the telecom company’s revenue, Mr. Stankey said. It also is intended to help AT&T stay ahead of broad trends in how customers consume media content.

“AT&T is not going to get involved in something that doesn’t ultimately have a goal of being meaningful in scale,” Mr. Stankey said. “We don’t look for hobbies.”

Allergan Bid Adds to Flurry of Pharmaceutical Deals

The early pairing of the hedge fund manager William Ackman with Valeant Pharmaceuticals International to bid for the Botox maker Allergan allows Mr. Ackman to leapfrog over a traditional step for activist investors.

It is also the latest sign of investors’ growing appetite for pharmaceutical deals.

Mr. Ackman had teamed up with Valeant as his hedge fund, Pershing Square Capital Management, began acquiring Allergan stock two months ago just below the threshold where he would have to report the stake to the Securities and Exchange Commission.

The pairing of Mr. Ackman, a standout among activists for his particularly aggressive tactics, with a potential acquirer is unusual for activist investors, who typically buy large chunks of a company before agitating for change. But Valeant had already been trying to acquire Allergan to no avail, according to its announcement of the proposed bid.

“We would have preferred to negotiate this transaction in a confidential manner, but given that Allergan has not been receptive to our overtures for over 18 months and has made it clear both privately and publicly that it is not interested in a deal with us, we chose to present this proposal to Allergan shareholders directly,” the company said in a statement on its website on Tuesday.

Allergan’s favorable tax rate â€" it is based in Canada â€" and focus on dermatology and opthamology could present significant benefits to Valeant, according to Liav Abraham, an analyst who covers the specialty pharmaceutical industry for Citigroup.

“Any company can extract a lot of synergies out of the deal,” Ms. Abraham said. She said that Allergan’s opthamology and dermatology units, two of its core operations, have “sustainable,” double-digit growth potential.

Excluding the potential bid for Allergan, mergers and acquisitions in the pharmaceutical industry totaled $47.1 billion so far this year, the highest year-to-date total since 2009, according to data from Thomson Reuters. Those include the agreement by Actavis in February to buy Forest Laboratories for $25 billion.

Those transactions also account for 4.6 percent of all mergers and acquisitions by value so far in 2014, up from 2 percent at the same time last year.

Pharmaceutical companies may be looking to grow through acquisitions, and many drug makers are sitting on cash after paying down debts from the boom that preceded the credit crisis.

On Tuesday, Novartis and GlaxoSmithKline announced more than $20 billion in transactions, including an agreement for Novartis to buy the cancer drug business of its rival for up to $16 billion.

While Craig Sterling, the head of global research for EVA Dimensions, pointed out that the $45.6 billion offer for Allergan represents a 31 percent premium over the company’s current unaffected stock price of $116.63, he said that those figures do not represent an enormous premium when compared with the larger industry.

“Valuations are up for the whole group over the last few years,” Mr. Sterling said. “Allergan isn’t getting any premium above and beyond what the others are trading at. You’d think in a takeover they’d get more.”

Mr. Ackman and Valeant may still face hurdles to close a deal, including scrutiny by the Federal Trade Commission, according to Ms. Abraham.

Allergan, for example, has one of its fiercest rivals in Valeant. Valeant bought Medicis, an pharmaceutical company based in Arizona that manufacturers Dysport, a competitor to Botox, for about $2.6 billion in 2012.

That price represented a 39 percent premium over Medicis’s stock.

Additionally, the bid for Allergan, which includes a mixture of cash and stock, may face objections from the company’s board. While the company issued a statement on Tuesday saying that it intends to “carefully review and consider the proposal,” some analysts said they expected the company to resist any takeover efforts.

“To agree to this deal, you have to agree to take Valeant’s stock,” Ms. Abraham said. “The question is, do you want to take Valeant’s stock? And then the question there is, do you want Valeant managing these wonderful assets I’ve been talking about?”

Ackman’s Botox Ambitions

William A. Ackman, one of the brashest men on Wall Street, has come up with perhaps the boldest move yet for an activist: He has teamed up with the health care company Valeant to bid roughly $50 billion for Allergan, the maker of Botox, David Gelles, Michael J. de la Merced and Alexandra Stevenson write in DealBook. The offer by Valeant is expected to be announced Tuesday morning.

“If successful, the joint bid by a hedge fund and a corporate acquirer could provide a new template for how deals are done in an era of increased activity by activist investors,” they write. “But the proposed acquisition, the first of its kind, also raises pressing questions about how activists and corporations work together and how companies defend themselves against hostile bidders. It also opens up potential new conflicts of interest.”

Regulatory filings show that over the last two months, PS Fund 1, a part of Mr. Ackman’s Pershing Square Capital Management, has been acquiring shares of Allergan, amassing a 9.7 percent stake in the company, worth more than $4 billion. At the same time, Valeant, a health care company based in Quebec that is worth $42 billion, had agreed to pursue a joint bid for Allergan alongside Pershing Square. According to filings, Valeant contributed $76 million to PS Fund 1 and committed to work with Pershing Square on a joint bid for all of Allergan.

Valeant is no stranger to deal-making. The company’s $2.6 billion purchase of Medicis in 2012 bolstered its presence in dermatology and cosmetic treatments, and its $8.7 billion acquisition last year of Bausch & Lomb gave it a big presence in eye care. A deal for Allergan would be its largest yet.

NOVARTIS UNVEILS RESTRUCTURING  |  The Swiss pharmaceutical giant Novartis announced a major overhaul of its operations on Tuesday, marked by an agreement to buy the cancer drug business of its British rival GlaxoSmithKline for up to $16 billion, Chad Bray and Neil Gough write in DealBook.

As part of its restructuring, Novartis said it would sell its vaccine business to GlaxoSmithKline for $7.1 billion and combine its over-the-counter pharmaceutical business with GlaxoSmithKline’s consumer drug business. Novartis also said it had agreed to sell its animal health division to Eli Lilly and Company for $5.4 billion and that it would put its flu vaccine business up for sale. The deals would allow Novartis to focus on higher-margin businesses, while staying active in the over-the-counter market.

ASTRAZENECA REBUFFS PFIZER  |  In other pharmaceutical company news, AstraZeneca said no to a deal with Pfizer, turning down the possibility of one of the biggest drug mergers in the last few years, Michael J. de la Merced and Andrew Pollack write in DealBook. “Whether such a deal would have made sense is another matter, because the British drug maker is trying to improve its fortunes on its own and Pfizer in the past has found that big acquisitions can sometimes prove more distracting than helpful,” they write.

In recent months, Pfizer is said to have made a number of informal takeover approaches to AstraZeneca. One valued the smaller pharmaceutical company at about £60 billion, or nearly $100 billion, which would be one of the biggest ever in the pharmaceutical industry. Pfizer, which may view AstraZeneca as attractive because of its portfolio of cancer drugs, would probably have used some of the cash and short-term investments on its balance sheet as part of the deal. A takeover of AstraZeneca would also have made use of cash that Pfizer holds overseas.

But rather than seek out a merger partner, AstraZeneca has been trying to improve its fortunes on its own over the last few years. In 2012, the company named Pascal Soriot, formerly the head of pharmaceuticals at Roche, as its new chief executive. Mr. Soriot has been trying to cut costs, speed up decision-making and focus drug development on selected diseases. The company has also made a number of small acquisitions to bolster its pipeline.

ON THE AGENDA  |  The Federal Housing Finance Agency house price index for February is out at 9 a.m. Existing home sales for March are released at 10 a.m. The Richmond Fed manufacturing index is out at 10 a.m. The Supreme Court will hear arguments in the Aereo case. Comcast reports first-quarter earnings before the bell. Today is Earth Day. Don’t forget to admire the trees.

BOSTON STRONG  |  One year after two bombs exploded near the finish line of the Boston Marathon, the city triumphantly reclaimed its finish line. Meb Keflezighi became the first American in three decades to win the men’s race. “I did it for Boston,” he said.

BARCLAYS LATEST TO LEAVE COMMODITIES  |  The British bank Barclays is set to announce that it plans to exit large parts of its commodities business, Jenny Anderson writes in DealBook. The move comes as large investment banks â€" including JPMorgan Chase, Deutsche Bank and Morgan Stanley â€" are leaving the business in the face of increasing regulatory scrutiny and falling profits.

Barclays, among the top five banks in the commodities business that control much of the global market, plans to eliminate a number of jobs, adding to the tally of layoffs from a broad restructuring. The bank will either shut down or sell much of its metals, energy and agricultural commodities business, according to an unidentified person with knowledge of the plan. Precious metals trading will be folded into foreign exchange trading.

 

Mergers & Acquisitions »

For Square, Making Money Remains a Challenge  |  Companies already collect payments when a customer swipes a credit card. The question, analysts say, is how a start-up like Square can make itself into more than just another middleman. DealBook »

Netflix Says It Opposes Comcast’s Merger Bid  |  Netflix voiced strong opposition on Monday to Comcast’s planned $45 billion takeover of Time Warner Cable, even while confirming that it was raising subscription prices for its services in the United States by $1 to $2 a month, Michael J. de la Merced writes in The New York Times. NEW YORK TIMES

Be Wary of a Big Mining Merger  |  Barrick Gold is said to be interested in a deal with a rival, Newmont Mining. Barrick’s chairman will need to persuade shareholders that such a merger would not be another value-destroyer, Kevin Allison of Reuters Breakingviews writes. DealBook »

INVESTMENT BANKING »

Felix Salmon to Leave Reuters  |  Felix Salmon, a prominent writer on finance and the news media, declined to release details of his new job, The New York Times reports. NEW YORK TIMES

Goldman Sachs Trying to Restore Its Shine  |  “Over the past few quarters something strange has happened: Goldman is starting to look unexceptional,” Tom Braithwaite writes in The Financial Times. FINANCIAL TIMES

Former Barclays Executive Sees ‘Golden Decade’ for Banking  |  Hans-Joerg Rudloff, a former chairman of investment banking at Barclays, said in an interview that the world’s securities firms were set for 10 years of growth, Bloomberg News reports. BLOOMBERG NEWS

PRIVATE EQUITY »

Group Led by TPG to Buy Health Care Company for $461 Million  |  The offer for Chindex International, an American company that does business in China, is for $24 a share in cash from a group of investors that outbid a rival. DealBook »

K.K.R.’s Acquisition of an Affiliate Encounters Opposition  |  The plan by Kohlberg Kravis Roberts to acquire KKR Financial Holdings is opposed by an organization that advises union pension funds, but others are supporting it. DealBook »

2 Italian Banks to Set Up Bad Loan Vehicle With K.K.R.  |  UniCredit and Intesa Sanpaolo are teaming up with the private equity firm Kohlberg Kravis Roberts and Alvarez & Marsal, a restructuring adviser, to pool some of their bad loans into a vehicle that would provide fresh capital for the banks, The Financial Times writes. FINANCIAL TIMES

HEDGE FUNDS »

Supreme Court Weighs Aid to Holders of Argentine Debt  |  Holders of defaulted Argentine bonds are seeking subpoenas to document its assets and collect on court judgments, The New York Times writes. The justices will soon decide whether to hear a second and more significant case arising from Argentina’s 2001 default on billions of dollars of debt. That case is an appeal by Argentina of a lower court’s decision in favor of hedge funds that held about $1.3 billion in Argentine bonds. NEW YORK TIMES

Good News for Oil Bulls?  |  The price of gasoline is rising, with the nation’s stockpiles at the lowest point at this time of year since 2011, The Wall Street Journal writes. But the potentially bad news for consumers could be good news for oil bulls, including hedge funds and other managers, who have been struggling against the rising tide of United States oil output since the start of 2011. WALL STREET JOURNAL

Don’t Pity the Hedge Fund Manager  |  Hedge fund assets under management hit a record in the first quarter, according to the industry tracker HFR, The Wall Street Journal writes. Hedge funds now manage $2.7 trillion, nearly double their total from 2008. WALL STREET JOURNAL

I.P.O./OFFERINGS »

Card Factory Joins British I.P.O. Rush  |  Card Factory, a budget greeting card specialist, revealed plans to raise 90 million pounds in an initial public offering in London, The Financial Times writes. FINANCIAL TIMES

Weibo’s Second Day Surge  |  Weibo, the Chinese microblogging site often compared with Twitter, surged nearly 12 percent on its second day of trading, Forbes writes. FORBES

Worst Week for I.P.O.s in a Decade?  |  Eight of the 10 companies that went public in the United States last week priced below their expected range, the most in a single week since July 2004, according to Dealogic, The Wall Street Journal writes. WALL STREET JOURNAL

VENTURE CAPITAL »

GitHub Founder Resigns After Investigation  |  Tom Preston-Werner, a co-founder and former chief executive of GitHub, a website for sharing and collaborating on software code, resigned on Monday after an investigation into gender-based harassment, the Bits blog reports. GitHub has raised $100 million from the venture firm Andreessen Horowitz. NEW YORK TIMES BITS

InBloom Student Data Repository to Close  |  The student data warehousing venture that became a lightning rod for some parents’ data privacy and security concerns announced it would close, the Bits blog writes. NEW YORK TIMES BITS

HBO Renews ‘Silicon Valley’ and ‘Veep’  |  HBO announced on Monday that it had renewed its two Sunday night half-hour comedies, “Silicon Valley” and “Veep,” The New York Times writes. NEW YORK TIMES

Beats Music Raising Another Funding Round  |  The music service Beats Music, started by Jimmy Iovine and Dr. Dre, is closing a new funding round valued at up to $100 million, Billboard writes. BILLBOARD

LEGAL/REGULATORY »

Companies Built on Sharing Balk When It Comes to Regulators  |  Regulators and elected officials are increasingly questioning the presumptions and tactics of rental and ride-sharing start-ups like Airbnb, Uber and Lyft, The New York Times writes. NEW YORK TIMES

Focus Turns to Samsung’s Patents at Trial  |  Samsung said on Monday that Apple had copied some technology, including a method for transmitting video over wireless devices. NEW YORK TIMES BITS

Is Aereo in Peril?  |  Fortune provides an explainer on why the Supreme Court may pull the plug on Aereo, a disruptive wireless technology that brings broadcast television to smartphones. FORTUNE

Skeptical Justice Scolds Coca-Cola on Juice Label  |  A lawyer for Coca-Cola remained poised under sometimes harsh questioning on its Pomegranate Blueberry juice blend, which contains only notes of either fruit, The New York Times reports. NEW YORK TIMES

Ackman and Valeant Drum Up Stealth Activism

Remember the dawn raid, when a would-be acquirer built up a stake before the target realized it was under attack? The activist investor William A. Ackman has come up with a kind of drone strike version. His Pershing Square Capital Management hedge fund and Valeant Pharmaceuticals have teamed up to grab a potential 9.7 percent stake in Allergan, with a hostile takeover by Valeant ready for deployment.

The acquisitive Valeant has reasons to be receptive to such an arrangement. For one thing, it’s essentially the creation of an activist hedge fund, ValueAct Capital, which set it on the path of serial deal-making. Cutting research and development costs and applying its low tax rate to acquired businesses has served investors well. Its stock is up more than tenfold since it started buying rivals in 2008. The prospect of another deal kicked its shares 10 percent higher after regular market hours on Monday, taking its market capitalization up to $46 billion.

Moreover, Valeant, which contributed $76 million to Pershing Square’s Allergan war chest, knew that nearly 10 percent of shareholder votes were in deal-friendly hands before it had to announce its intentions. Mr. Ackman has also committed to buy $400 million of Valeant stock at a discount and to hold considerably more for at least a year if the company does manage to buy Allergan.

For his part, Mr. Ackman gets to skip the step in which, after buying a stake in a company he thinks is ripe for a shake-up, he then tries to make something happen. Instead, he has a ready-made buyer. The result so far is a gain of at least $1 billion on paper â€" and he hasn’t even yet had to turn cost-effective call options, through which Pershing Square has acquired the bulk of its economic interest, into shares.

A successful outcome isn’t assured for a hostile Valeant offer for Allergan. The two companies compete in the plastic surgery area, so antitrust regulators may ask questions. And after Allergan’s shares popped 20 percent on Monday, it’s now larger than its suitor with a market value of more than $50 billion.

There are rules that would have forced a Valeant disclosure much sooner had it started accumulating stock in Allergan for itself. Of course, Mr. Ackman is putting up most of the capital, and there’s no suggestion anything should have been revealed sooner. Even so, another set of watchdogs may wonder whether this novel battlefield tactic is too stealthy for comfort.

Robert Cyran is a columnist and Richard Beales an assistant editor for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Permira to Acquire German Chemical Maker CABB International

LONDON - The European private equity firm Permira said on Tuesday that it had agreed to acquire the specialty chemical company CABB International of Germany.

Funds advised by Permira will acquire CABB from the private equity firm Bridgepoint Capital for an undisclosed amount. The transaction is expected to be completed in June and is subject to regulatory approval.

“CABB is perfectly positioned as a leading global supplier of fine chemicals, specialty chemicals and intermediates to a variety of growing global industries including the agrochemicals industry, which we know well,” Torsten Vogt, the co-head of Permira’s industrial team, said in a statement.

CABB, a former subsidiary of the chemical company Clariant, was part of a management buyout in 2005. It was sold to AXA Private Equity, now known as Ardian, in 2007 and Bridgepoint in 2011.

The company, based in Sulzbach, Germany, makes chemicals used in agriculture, pharmaceuticals, cosmetics and other products. It employs about 1,000 people in Germany, Switzerland, Finland, India and China.

CABB had nearly 440 million euros, or about $607.9 million, in sales last year.

Bain Goes Off Script for Its Latest Deal

Bain Capital recently raised a fresh $7.3 billion fund for buyouts, but the second deal in that fund departs from the buyout playbook.

Bain, the big private equity firm, is expected to announce on Tuesday that it has agreed to invest in Viewpoint Construction Software, a company that makes software for the construction industry. The deal, for a majority stake, is worth about $230 million, according to people briefed on the matter who were not authorized to publicly discuss the terms.

The investment shows Bain’s willingness to make investments that are smaller than the leveraged buyouts for which it is better known. Other big private equity firms are also increasingly taking smaller stakes in companies, as megadeals fall from favor.

Viewpoint, which is based in Portland, Ore., and is more than 35 years old, has previously taken institutional capital. Through the new deal, Bain is buying stakes from two investment firms, Updata Partners and TA Associates.

The chairman and chief executive of Viewpoint, Jay Haladay, along with his family, will remain shareholders, rolling equity into the deal.

“We think Viewpoint has emerged as the real leader and best-in-class company within software and technology solutions for contractors,” David Humphrey, a managing director at Bain Capital, said in an interview. “We think there is a lot of room to go for growth and ways in which Viewpoint can continue to support its customers and enhance its offerings.”

Last week, Bain finished raising its new private equity fund with $6.5 billion in outside commitments and $800 million from its employees. The fund’s first deal was the acquisition of a Brazilian health and dental insurance company, Grupo NotreDame Intermédica.

Viewpoint had been in discussions with Bain for more than six months, Mr. Haladay said. There was no auction process before the deal.

Bain, which is based in Boston, has shown a fondness for technology companies. Last May, the firm and other investors agreed to buy BMC Software for about $6.9 billion. And in November, Bain agreed to sell Applied Systems, a software company that focuses on the insurance industry, to another private equity firm.

Viewpoint has grown rapidly as construction has picked up after the recession. The company says more than 8,000 contractors use its software, which helps construction companies manage projects with the aim of improving efficiency and safety.

Its revenue since 2009 has grown an average of more than 40 percent a year, according to the company. This year, it expects to have revenue of about $140 million, Mr. Haladay said.

“Contractors are starting to realize how important good information is to the many components that make up a project,” Mr. Haladay said.

Viewpoint was advised in the transaction by Credit Suisse and Canaccord Genuity, along with the law firm Goodwin Procter. Bain Capital was advised by Wells Fargo and Kirkland & Ellis.

Ackman and Valeant Bid $45.6 Billion for Botox Maker

The hedge fund mogul William A. Ackman and Valeant Pharmaceuticals unveiled on Tuesday a $45.6 billion takeover offer for the maker of Botox, Allergan, in an unusual pairing of activist investor and corporate buyer that could reshape the deal landscape.

Under the terms of the bid, Valeant will pay $48.30 a share in cash and 0.83 of one of its shares for each Allergan share. At Monday’s closing price, the offer is worth about $152.89 a share, a 31 percent premium to what they called Allergan’s unaffected stock price of $116.63.

Mr. Ackman’s firm, Pershing Square Capital Management, has already disclosed owning a 9.7 percent stake in Allergan.

Valeant said that the proposed merger would create a powerhouse in the eye care, dermatology and cosmetic drug businesses. The company, a serial acquirer whose deals included the $8.7 billion takeover of Bausch & Lomb last year, would gain control of popular treatments like Botox, Latisse eyelash enhancer and a lap band device.

“This proposal represents an undeniable opportunity to create extraordinary value for both Allergan and Valeant shareholders by establishing an unrivaled platform with leading positions in ophthalmology, dermatology, aesthetics, dental and the emerging markets” J. Michael Pearson, Valeant’s chairman and chief executive, said in a statement.

Mr. Ackman added: “The combination of Valeant and Allergan represents the most strategic and value-creating transaction I have ever analyzed. I strongly urge the Allergan board of directors to carefully examine the proposed transaction and enter into negotiations with Valeant so that a merger can be consummated promptly.”

If successful, the joint bid could provide a new template for how deals are done at a time when activist investors are ascendant. By teaming up with Mr. Ackman, Valeant has gained a valuable ally who is experienced in battling recalcitrant corporate boards â€" and who also controls a sizable portion of the target company’s stock.

But the proposed acquisition, the first of its kind, also raises pressing questions about how activists and corporations work together and how companies defend themselves against hostile bidders.

Valeant and Mr. Ackman disclosed on Monday that the takeover bid would involve $15 billion in cash, supported by financing from Barclays and the Royal Bank of Canada.

In a statement on Monday night, Allergan said that it would evaluate any offer made by Valeant and Mr. Ackman.

Besides Barclays and R.B.C., Valeant is receiving advice from the law firms Sullivan & Cromwell; Skadden, Arps, Slate, Meagher & Flom; and Osler, Hoskin & Harcourt.

Mr. Ackman’s firm is being counseled by Kirkland & Ellis and Davies Ward Phillips & Vineberg.

2 Italian Banks May Work With K.K.R. and Restructuring Firm on Distressed Loans

Two of Italy’s largest banks are exploring joining forces with the private equity firm Kohlberg Kravis Roberts and the restructuring firm Alvarez & Marsal to potentially create a pool of “bad loans” and provide additional capital to help turn around those businesses.

The banks, UniCredit and Intesa Sanpaolo, have signed a memorandum of understanding with K.K.R. and Alvarez & Marsal “to optimize the performance and maximize the value” of a portfolio of corporate loans facing restructuring. The potential arrangement could involve having the outside firms provide management advice to the distressed borrowers as well as additional capital to those companies.

“Discussions related to the formation and operations of the partnership are ongoing,” the companies said in a statement on Tuesday. “Further details will be disclosed as progress is made.”

The companies did not say how large the potential loan pool could be or how much money could go to the distressed companies.

UniCredit, Italy’s largest bank, and Intesa, the second largest, have both announced plans to create internal “bad banks” to house and dispose of soured and nonperforming assets.

The banks posted large losses in the fourth quarter as they took billions of euros in charges for nonperforming loans as part of efforts to clean up their balance sheets ahead of a regulatory review of the euro zone’s largest banks later this year.

The European Central Bank is expected in October to release the results of its review of how European banks are valuing assets like real estate holdings and whether they are setting aside enough money to cover potential losses in the future.

Mario Draghi, the central bank’s president, has warned that some banks may be found to be insolvent and forced out of business after the review.

In March, UniCredit, based in Milan, disclosed a loss of 15 billion euros, or about $20.7 billion, for the fourth quarter. It said that its holdings in Eastern Europe and Italy had lost value, and that many of the loans it had issued would never be repaid.

Intesa reported a fourth-quarter loss of €5.19 billion, reflecting an accounting write-down on the good will of some of its businesses and billions of euros in charges to cover nonperforming loans.

Shares of UniCredit rose 1.8 percent, to €6.61, while shares of Intesa Sanpaolo were up 1.5 percent, at €2.46, in midday trading in Milan on Tuesday.

Novartis Announces Major Restructuring

Novartis, the Swiss pharmaceutical giant, announced on Tuesday a major restructuring that included an agreement to pay up to $16 billion for GlaxoSmithKline’s cancer drug business.

Novartis also said it would sell its own vaccine business to GlaxoSmithKline for $7.1 billion; that it had agreed to sell its animal health division to Eli Lilly and Company for $5.4 billion; and that it would put its flu business up for sale.

Capping off a whirlwind day of deal making, Novartis added that it would combine its over-the-counter pharmaceutical business with GlaxoSmithKline’s consumer drug business in a new joint venture that would be one of the world’s biggest companies in consumer health care.

“The transactions mark a transformational moment for Novartis,” Joseph Jimenez, the chief executive of the Basel, Switzerland-based drug maker, said Tuesday in a news release.

“They focus the company on leading businesses with innovation power and global scale,” he said. “They also improve our financial strength, and are expected to add to our growth rates and margins immediately.”