The WHO's news on the HPV vaccine caused the stock prices of Zhifei Bio and Wantai Bio to plunge

The WHO’s news on the HPV vaccine caused the stock prices of Zhifei Bio and Wantai Bio to plunge

Pai LI

In this article, Pai LI (ESSEC Business School, Global BBA, 2021-2023) shares her insights on the event “The WHO’s news on the HPV vaccine caused the stock prices to plunge”.

The Brief Introduction of the event

On 2022 April 11, the World Health Organization (WHO) announced on its official website that the WHO convened a meeting of the Strategic Expert Group on Immunization (SAGE) from April 4 to 7 to vaccinate one dose of human papillomavirus (HPV) vaccine. The expert group considered that only 1 dose of HPV vaccine can produce the same immune effect as 2-3 doses, and can effectively prevent cervical cancer caused by HPV infection.

As soon as the news came out, the stock prices of HPV vaccine concept stocks Zhifei Bio and Wantai Bio plunged. As of the close, Zhifei Bio fell 14.19%, and Wantai Bio once fell by the limit, and as of the close, it fell 9.46% and approached the limit.

Stock chart of Zhifei Bio and Wantai Bio
 Stock chart of Zhifei Bio and Wantai Bio
Source: Bloomberg.

Explanation of the Market reaction to the Event

The World Health Organization (WHO) website released information saying that from April 4 to April 7, the WHO Strategic Advisory Group of Experts on Immunization (SAGE) held a meeting, referring to the single dose of the HPV vaccine provides reliable protection, comparable to a 2- or 3-dose regimen.

Regarding the impact of the reduction in the number of HPV vaccination doses, at noon on April 14, After the stock market opened on the afternoon of April 14, the decline in the share price of related companies narrowed. As of the close, Zhifei Biological fell 14.19% to 116 yuan per share, with a market value of 185.6 billion yuan; Watson Bio fell 3.08% to 49.11 yuan / stock market value of 78.65 billion yuan; Wantai Bio fell 9.46% to 257.59 yuan / share , with a market value of 156.37 billion yuan.

The stocks of biology may be affected by the decline of three HPV vaccine companies. On April 14, many stocks in the A-share biological vaccine sector fell. For example, CanSino closed down 3.99%, and Kangtai Bio closed down 1.2%.

WHO press release
WHO press release
Source: WHO.

It is important to note that SAGE stated in the minutes of the meeting that it reviewed new evidence on the efficacy of single doses of HPV, and recommended that women aged 9-14 receive 1 or 2 doses, with a single dose providing comparable and high levels of protection. From a public health perspective, is more effective, less resource intensive and easier to implement. Likewise, 1 or 2 doses are also suitable for women between the ages of 15 and 20.

The current HPV vaccine policy in the world is 2 doses for girls aged 9-14 years, 3 doses for girls aged 15 years and above, and 3 doses for immunocompromised people of any age, including people with HIV.

Notably, SAGE emphasizes that more evidence is needed on whether reduced doses provide protection in immunocompromised groups.

The minutes also mentioned that WHO will conduct stakeholder consultations on these important policy changes before revising the position paper on HPV vaccination.

Predictions for the future

Regarding the recommendations of this WHO meeting on HPV vaccine, I believe that this meeting is only providing a recommendation and not implementing it, and that the current vaccination schedule is still dominated by 2-3 doses. In addition, WHO’s recommendations are mainly based on concerns about the slow introduction of HPV vaccine into immunization programs and low overall population coverage, especially in poorer countries, and the core is to address the huge gap between HPV vaccine supply and demand.

Even if the vaccination procedure is changed from three injections to two injections in the future, the improvement of industry penetration rate and accessibility is believed to effectively fill the market, which is expected to bring strong demand for HPV vaccination in relevant third world countries, and the export of Chinese domestic HPV vaccines is expected to accelerate. At the same time, for Merck’s nine-valent HPV vaccine, it is still in a stage of insufficient production capacity. Whether it is a two-shot or three-shot vaccination program, it is still in a stage of short supply. In conclusion, there is no need to worry too much about the impact on the performance of HPV-related companies.

About the author

The article was written in May 2022 by Pai LI (ESSEC Business School, Global BBA, 2021-2023).

Wirecard: At the heart of the biggest German financial scandal of the 21st century

Wirecard: At the heart of the biggest German financial scandal of the 21st century

Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what happened with Wirecard, the German company that caused a major scandal in the German financial place.

Quick review of the Wirecard company

The Wirecard case takes its name from a German start-up specializing in online payment solutions. Listed on the Frankfurt stock exchange in 2018, this company has experienced a meteoric growth with more than 300,000 corporate customers at its peak in June 2020.

Wirecard-Logo.wine
Wirecard’s logo

However, as early as 2015, doubts were raised about the effectiveness of the Wirecard model and suspicions of irregularities arose. It was not until June 2020 that the management admitted that €1.9 billion of its consolidated balance sheet did not exist.

Several actors bore the brunt of the scandal

The consequences of this announcement were terrible for several actors:

Firstly, for the company, whose share price lost 90% of its value in a few days (see chart below). Rating agencies such as Moody’s are removing Wirecard’s rating due to the falsification of the information on which the rating was based. At management level, the former CEO of Wirecard, Markus Braun, resigned and was arrested by the German justice system. He ended up in prison along with two other executives of the German company. Jan Marsalek, another Wirecard executive, has been wanted since June 2020 by Interpol to be brought before the Munich court.

Evolution of Wirecard’s stock’s value.

Cours_5_ans_de_la_société_WIRECARD_AG

For EY, Wirecard’s auditor, this case is reverberating through the financial ecosystem. Indeed, the auditor EY is also in great difficulty since the teams of the big firm of the Big 4 have been certifying the accounts of the company for several years and missed important frauds. The Financial Times, for example, accused the firm of failing to check for accounting irregularities in the balance sheet, which should have been done. There are numerous legal actions against the auditor for malpractice, such as the complaint by the German law firm Schirp & Partner. The German authorities have also launched a preliminary investigation against EY, whose head of the German branch has announced his resignation following the scandal.

Finally, the Federal Financial Supervisory Authority, the regulatory and supervisory body for the financial sector in Germany, is also affected by the affair. The German Minister of Finance therefore announced a plan to reform the BaFin, which also saw its director step down.

Conclusion

In conclusion, the Wirecard affair is considered to be one of the most important scandals of the 21st century as it has called into question the structures and statutes of a company, a Big 4 firm as well as German regulatory bodies.

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Useful resources

La Tribune (21/04/2021) Scandale Wirecard : Merkel et son ministre des Finances contraints de se justifier (in French).

About the author

The article was written in March 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Peloton’s uphill battle with the world’s return to order

Peloton’s uphill battle with the world’s return to order

Photo William ANTHONY

In this article, William ANTHONY (ESSEC Business School, Global Bachelor of Business Administration, Exchange Student from the University of Bath, 2021-2022) discusses the market reaction to Peloton’s quarterly results.

Description of the firm

Peloton is an American company which produces exercise equipment and media streaming. Its best-seller ‘Gen 3 Peloton bike’ is available in the US, UK, Germany, Australia, and parts of Canada. With significant increases in sales during the COVID pandemic, Peloton became a public company via IPO on September 26th, 2019. At the time of writing, the company is currently valued at $16.85Bn (Market Capitalization as of 07/11/2021).

Peloton logo

Source: Peloton.

Description of the event

Peloton reported weakening sales on the 4th of November 2021 and a larger loss than expected for its first fiscal quarter. As consumers begin to return to gyms, a step closer to a pre-pandemic environment, John Foley, Peloton CEO, admits to ongoing “supply chain constraints” and “demand uncertainty amidst re-opening economies”. The fall in demand growth for Peloton’s exercise equipment has subsequently lowered the demand for its subscription-based products which has also contributed to lower profit margins.

My explanation of the market reaction to the event

The weaker than expected sales growth report led to a decrease in Peloton’s share price by nearly 40% from $86 to $60 as illustrated in Figure 1 below. In their fiscal first quarter, Peloton’s loss per share was expected at $1.07 but was instead $1.25; revenue was expected at $810.7 million but was instead $805.2 million. Despite a surge of 148% in sales and marketing expenses to $284.3 million, which represents around 35% of Peloton’s revenue, the firm was still unable to show strong growth figures coming out of the Covid-19 pandemic. This is extremely worrying and underlines Peloton’s “challenged visibility” (John Foley, 2021).

CNBC’s Jim Cramer advised his audience to sell Peloton on the next bounce after what he called a “disastrous” quarterly result. When looking at gyms like Planet Fitness Inc which have increased by nearly 20% in the last 5 days in share price, I believe there is reason for worry for Peloton shareholders. The lack of direction from Peloton management regarding a post-pandemic market and ongoing supply chain challenges leaves Peloton with a ‘sell’ market consensus and for me justifies its cliff-diving share price.

Figure 1. Peloton stock chart.

Peloton stock chart

Source: Google Finance.

Justification of my choice of the event and the firm

I chose this event because it is very recent, it is also a great example of how news regarding stagnant growth can negatively affect a company’s share price. In this example, one of the top fitness companies in the world that gained massive momentum over the global COVID pandemic, saw all its shareholders lose up to 40% of their investment in one single after-hours trading session. Here we have witnessed how ruthless the market can be in just a couple of hours.

My thoughts on the market efficiency

Eugene Fama distinguishes three levels of informational market efficiency:

  • Weak efficiency: all information contained in past stock market data (prices and transaction volumes) is already reflected in today’s price.
  • Semi-strong efficiency: in addition to the information contained in historical stock market data, all public information (company accounts, analyst reports, etc.) is already reflected in today’s price.
  • Strong efficiency: all information, public as well as private, is already reflected in today’s price.

I believe in Peloton’s case that the market has shown itself to have semi-strong efficiency. Within hours of private information being made public, the company share price reflected an adjusted rate relating to the newly released quarterly report information. As a result of the market incorporating the news into the price with such rapidity, the market was hard to ‘beat’ due to shareholders willingness to sell their shares.

Useful resources

Academic references

Fama E. (1970) « Efficient Capital Markets: A Review of Theory and Empirical Work » Journal of Finance, 25, pp. 383-417.

Fama E. (1991) « Efficient Capital Markets: II » Journal of Finance, 46, pp. 1575-617.

Business

Peloton’s website

Peloton’s financial results

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About the author

The article was written in November 2021 by William ANTHONY (ESSEC Business School, Global Bachelor of Business Administration, Exchange Student from the University of Bath, 2021-2022).

Veolia and Suez: the epitome of a hostile takeover bid

Veolia and Suez: the epitome of a hostile takeover bid

 Raphaël ROERO DE CORTANZE

In this article, Raphaël ROERO DE CORTANZE (ESSEC Business School, Master in Management, 2019-2022) details the Veolia-Suez saga.

Since August 30, 2020, when Engie put its 29,9% stake in Suez for sale, the Veolia-Suez saga continues to make headlines.

Veolia is a French company with activities in three main service and utility areas traditionally managed by public authorities: water management, waste management and energy services. Suez (formerly Suez Environnement) is a French-based utility company which operates largely in the water and waste management sectors. Suez is the largest private water provider worldwide, by number of people served.

Let’s go through the key stages of this saga with a view to understanding what is a hostile takeover, and why Veolia’s takeover bid on Suez can be considered as such.

August 2020: the beginning of hostilities

On August 30, 2020, Engie voiced its will to sell its 29,9% stake in Suez. This divesture aims at refocusing the group’s activities on renewable energies. Following this announcement, Veolia made a €2.9bn offer directly to Engie, for its stake in Suez. In the wake of this first offer, both boards of Engie and Suez rejected the bid: Suez feared that the acquisition would have serious consequences on the group’s employment, while Engie considered the offer price too low and put the increase of the offer price as a sine qua non condition to the completion of the deal.

This first offer is considered as a hostile bid as Veolia was willing to accomplish the acquisition with cash and by going directly to Engie, one of Suez’s shareholders, rather than by going to Suez’s board or executives. In other words, the transaction would have taken place without the approval of the purchased company.

September 2020: Engie accepts Veolia’s offer

Despite Suez’s counterattacks, Veolia continued and came back with a second offer at €3.4bn, higher than the first one, in order to convince Engie to give up its shares.

Engie’s board showed support for this second bid and later accepted the offer, highlighting the effort on the price, the strategic rationale and the social plan. Veolia, whose intention is to acquire the remaining 70% of Suez in the future, has also committed not to launch a full takeover bid without the agreement of Suez’s Board — thus proceeding with a friendly instead of hostile takeover.

Indeed, it is not uncommon for an acquirer willing to acquire 100% of the shares of a company to acquire a smaller block of shares in the first place and proceed later with the acquisition of the remaining block. Furthermore, in France, any shareholder who reaches or exceeds 30% of a listed French company will have to launch a takeover bid for the entire capital. In other words, Veolia, after having acquired 29,9% of Suez, would have had to propose a purchase offer to all shareholders, as a 30% stake triggers an automatic takeover bid.

February: Veolia launches a hostile takeover bid on 100% of Suez

Since Veolia’s second bid, Suez and Veolia haven’t been able to bridge divisions, and Suez continued to strongly reject the unfriendly acquisition. The counterproposition made by Suez to have an Ardian-GIP consortium taking over Suez’s French and international “Water and Technology” activities has been rejected by Veolia. On February 7, 2021, Veolia broke its commitment and filed a third public takeover bid but this time on 100% of Suez shares, at the same price as the second offer made exclusively to Engie. This acquisition would make Veolia the world leader in water and waste treatment. Once again, the offer was made without Suez’s approval, reinforcing the hostile dimension of the deal.

Have the negotiations reached a dead-end?

Bruno Le Maire, French Minister of Economy, denounced Veolia’s “unfriendly” bid and announced that he would refer the matter to the Autorité des Marchés Financiers (AMF) in order to verify the conformity of the group’s announcements with its previous commitments.

The situation seems to have reached a dead-end. On one side, Veolia has been ordered by the Tribunal de Commerce of Nanterre to suspend its takeover bid and to wait for validation of its offer by the Suez board of directors. On the other hand, Suez takeover defense strategy (which consists in the domiciliation of its Eau de France activity (targeted by Veolia) in a Dutch company for 4 years in order to make it inaccessible to a hostile bid) has just been rejected by the AMF on April 2, 2021.
Will Veolia and Suez be able to overcome their disagreements? Time will tell…

Key concepts

I present below key concepts to understand the Veolia-Suez saga.

Defense strategy

In response to hostile takeovers, targets can devise defense strategies in order to prevent the takeover from going across the finish line. Well-known defense strategies are:

  • Stock repurchase: purchase by the target of its own-issued shares from its shareholders
  • Poison pill: distribution to the target’s shareholders of the rights to purchase shares of the target or the merging acquirer at a substantially reduced price
  • White knight: the target seeks a friendlier acquirer
  • Crown jewels: the target divests one or several of its flagship activities or divisions (“jewel”) in order to reduce the interest of the hostile bidder
  • Fat man: the target issue new debt and or purchase assets or companies which are too large or known to be disliked by the hostile acquire, in order to “fatten up” and transform the target into a less attractive purchase

Public takeover bid

A public takeover bid can take two forms: the acquisition of the stake of the target company is made with cash (“Offre publique d’achat” or “OPA” in French) and the acquisition of the stake of a listed company is made by exchanging shares of the acquiring company with shares of the acquired company (“Offre publique d’échange” or “OPE” in French).

OPA and OPE refers to acquisition methods, not to acquisition behavior: an OPA or OPE can be friendly or hostile depending on whether the acquirer decides to obtain the acquired company’s approval or goes directly to the shareholders of the acquired company.

Useful resources

Sources: La Tribune, Le Monde, Easy Bourse, La Finance Pour Tous, Wikipedia

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About the author

Article written in April 2021 by Raphaël ROERO DE CORTANZE (ESSEC Business School, Master in Management, 2019-2022).

Was there insider trading before September 11?

Was there insider trading before September 11?

Akshit GUPTA

This article written by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) presents the case whether there was insider trading before September 11?.

Introduction

The plane crash on the World Trade Center on 11 September 2001 is an infamous occurrence of a terrorist attack that is etched in the hearts of every individual in the world. The attack had a severe impact on the global stock markets. The markets across USA saw a sharp sell-off as seen by the sharp decline of 14% in S&P 500 index in the first week after markets opened on September 17,2001. The market chaos was caused by the panic amongst investors and the loss in value the crash brought to the economy. The airlines and the insurance industries were the ones that were most affected by this crash.

The abnormal pattern in financial markets

During the investigation of the attack, political, economic and financial impacts of the crash were considered. Concerning the financial impact, an unusual pattern of trading was found to have happened in the stocks of major airline companies including United Airlines, American Airlines, Delta Airlines and KLM Airlines. The question of whether an abnormal trading pattern was observed in the financial markets, gauged the interest of common people.

As per the analysis done by market analysts, a discrepancy in the put-call options on the stocks of the mentioned airlines were discovered. As per Bloomberg data as quoted by Snopes, “On September 6, 2001, the Thursday before that black Tuesday, put-option volume in UAL (the parent company for United Airlines) stock was nearly 100 times higher than normal: 2,000 options versus 27 on the previous day.”

(Options are a form of derivative instruments that have an underlying stock and gives the investor a right to buy or sell the stock (not an obligation) at a previously agreed upon price and time. The options can be classified into two categories: put options and call options. The Put options give the investor the right to sell a stock at a predetermined price and time and is generally used by an investor when he/she anticipates a fall in the prices of the underlying stock in the near future. Whereas, a Call option gives the investor the right to buy a stock at a predetermined price and time (not an obligation) and is used by an investor when he/she anticipates a rise in the prices of the underlying stock in the near future.)

The analysis raised questions about the possibility of an insider trading activity that took place before the infamous plane crash. The chances of traders being aware about the possible terrorist attack on the World Trade Center was a cause of worry.

Conclusion

After exhaustive investigation, the various federal agencies including Securities & Exchange Commission (SEC) and Federal Bureau of Investigation (FBI) found no conclusive evidence on the stated abnormalities and no person was found involved in connection to the prospective act of insider trading which might have resulted in illegally generated high profits for some individuals.

But as far as the high level of trades are concerned, some level of abnormalities can be seen in the high put call ratio ranging between 25-100 times of the ratio seen in normal trading days. However, the lack of conclusive evidence led to no sanctions or penalties to the people who could have been involved in these activities. I would be happy to receive your opinions on the same. What do you all think about the trading patterns and the abnormalities observed in the months preceding the day of the attack?

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Useful Resources

Academic research

Poteshman A. M. (2006) Unusual Option Market Activity and the Terrorist Attacks of September 11, 2001 The Journal of Business, 79(4): 1703-1726.

Other

Wikipedia September 11 attacks advance-knowledge conspiracy theories

Snopes (October 3, 2001) Were Stocks of Airlines Suspiciously Shorted Just Before 9/11?

Business Insider (April 18, 2017) An author and economist says a reader once approached him with a chilling story

About the author

Article written in January 2021 by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).