B4| Wednesday, January 11, 2017 THE WALL STREET JOURNAL.
BUSINESS NEWS
BUSINESS
WATC H
AREVA
Nuclear Group
Approved for Aid
The European Union approved
a restructuring plan for French nu-
clear group Areva SA on Tuesday,
saying a planned €4.5 billion ($4.
billion) capital injection was in line
with the bloc’s state-aid rules.
The European Commission
said the planned state aid is sub-
ject to conditions, including a
positive conclusion to tests being
conducted by the French Nuclear
Safety Agency, and approval of
the divestment of Areva’s reactor
business under EU merger rules.
—Viktoria Dendrinou
TOYOTA
Car Maker Says it Will
Spend Billions in U.S.
Toyota Motor Corp. pressed to
highlight its contribution to the
U.S. economy in the wake of crit-
icism from President-elect Donald
Trump, saying it will plow billions
of dollars into the country during
the next few years.
At the Detroit auto show on
Monday, Akio Toyoda, president of
the world’s largest car maker, high-
lighted a long-planned investment
of $10 billion in the U.S. during the
next five years. The amount is
similar to Toyota’s investment over
the previous five years.
Most of the money will go to-
ward outfitting Toyota factories
to handle production of vehicles
built on the company’s new mod-
ular platform, a company spokes-
woman said on Tuesday.
—Sean McLain
HANJIN
Terminal Sale Faces
Creditor Opposition
Hanjin Shipping Co.’s U.S. cred-
itors are fighting the company’s
plans to sell its stake in one of
the South Korean carrier’s key re-
maining assets: the port operator
that runs the biggest container
terminal in Long Beach, Calif.
In court papers filed Friday
with the U.S. Bankruptcy Court in
Newark, N.J., where Hanjin’s U.S.
bankruptcy proceeding is unfold-
ing, creditors who say their rights
are being affected by the sale
urged a judge to throw out, delay
or modify the proposed sale.
Geneva-based Mediterranean
Shipping Co. has offered $78 mil-
lion for the terminal. Hanjin has
asked a to approve thebid. Han-
jin owns a 54% stake in Total
Terminals International LLC, the
port operator that runs the Long
Beach terminal. Mediterranean
Shipping owns the other 46%.
—Tom Corrigan
quantitative easing in August
also contributed to the rise.
The gap results from some
long-term factors, too. Many
pension plans have moved out
of stocks into gilts, or U.K.
government bonds, and corpo-
rate bonds in recent years,
meaning they haven’t bene-
fited from the most recent
stock-market gains, said David
Ellis, head of the bulk pen-
sions insurance advisory prac-
tice at Mercer Ltd., part of
Mercer Investment Consulting.
Going forward, there is no
assurance businesses can close
the gap.
Firms with defined-benefit
plans have guaranteed a fixed
payout to members. This
makes companies, not employ-
ees, bear the brunt of fluctuat-
ing interest rates, bond andgilt yields and inflation.
Expected future returns
play a large role when calcu-
lating pension deficits, said
Raj Mody, global head of pen-
sions at PwC. The PwC report
covers all of the U.K.’s nearly
6,000 defined-benefit pension
plans, including those of local
subsidiaries of international
companies. The figure is about
one-third of the nation’s gross
domestic product.
For CFOs, such plan deficits
are a burden on their balance
sheets. “Finance chiefs want
stable finances. A big defined-
benefit pension [plan] is not
helping in that regard,” said
John Towner, head of origina-
tion at Legal & General Group
PLC, an insurance firm.
The problem is unlikely to
go away soon, as U.K. compa-nies strive to balance short-
term shareholder interests and
their long-term pension obli-
gations. Such obligations total
£2.04 trillion, of which only
£1.48 trillion are currently
funded, PwC stated.
Research by Lane Clark &
Peacock LLP, a pension consul-
tancy, last year showed that
FTSE 100 companies pay five
times more in dividends than
they do in pension contribu-
tions. One-third of companies
listed in the index could have
wiped out their pension deficits
by cutting back on payouts.
“If companies don’t deal
with their long-term pension
liabilities, these will over time
impact the share price,” said
Mr. Mody.
More companies have closed
their defined-benefit plans tonew members, or closed them
altogether. Some also hand
them over to third-party insur-
ance firms, moving a big cost
factor off their balance sheets.
“This, however, does not solve
the legacy issue from the past,”
said Jon Hatchett, head of cor-
porate consulting at Hymans
Robertson LLP, an advisory firm
in London.
As for Royal Mail, it pub-
licly paints a dour outlook for
its pension plan.
“We are very sorry we had
to write to plan members...to
say that we believe the cur-
rent plan will soon not be af-
fordable,” the company said.
Despite the fact that the
90,000-member plan currently
has a surplus, Royal Mail fore-
casts it will be gone in 2018.
“The surplus will vanish, turn-
ing either into zero or a defi-
cit,” a spokeswoman said.
The level of company con-
tributions required from April
2018 isn't “affordable,” Royal
Mail said. At the moment,
Royal Mail makes continuing
pension contributions of about
£400 million a year.
The company suggests
switching all current employ-
ees and its retirees to a de-
fined-contribution plan start-
ing in April 2018.
Royal Mail isn't alone. Tesco
PLC, the country’s biggest food
retailer by market share, saw
its pension deficit increase to
£5.9 billion after the EU refer-
endum in June. The company
declined to comment.
Some companies have suc-
cessfully navigated their way
out of pension troubles. Asso-
ciated British Foods PLC re-
ported in September its mod-
est pension surplus had turned
into a £200 million deficit.
Since then, the financial situa-
tion of the plan has improved.Royal Mail PLC is trying to
figure out how to keep paying
for its employees’ pension
plan.
The U.K. letter and parcel-de-
livery company estimates that it
needs to contrib-
ute more than £
billion, or over
$1.2 billion, to the
plan each year
starting April 2018, far more
than the £292 million it gener-
ated in free cash flow during its
2016 fiscal year.
The company is one of
many U.K. firms struggling to
fund their defined-benefit
pension plans.
Lower-than-expected bond
yields following the Brexit
vote last June have added to
U.K. pension deficits, which
swelled to £560 billion, £
billion higher than the previ-
ous year, according to a report
released Monday by Pricewa-
terhouseCoopers LLP.
The funding gap is at its
highest level since PwC began
its tracking in 2012. In the U.S.,
the estimated 2016 pension
deficit for S&P 1500 firms with
defined benefit plans is $
billion, up from $404 billion at
the end of 2015, according to
consulting firm Mercer Invest-
ment Consulting LLC.
Brexit had the biggest
short-term impact on pension
deficits in 2016, resulting in a
one-day increase of £80 bil-
lion. The Bank of England’s de-
cision to lower interest rates
to 0.25% and to relaunch
BYNINATRENTMANN
Companies Struggle to Fund Pensions
Royal Mail, other U.K.
businesses face
problems in paying for
defined-benefit plans
Royal Mail is one of many companies that are having trouble funding their employees’ pension plans.ANDREW MILLIGAN/ZUMA PRESSCFO
JOURNAL
BUENOS AIRES—Oil and
gas companies on Tuesday
pledged to invest at least $
billion in Argentina this year
and more than double that an-
nually in coming years after
unions agreed to lower labor
costs, President Mauricio
Macri said.
Industry executives hailed
the agreement, saying it will
cut drilling costs and make Ar-
gentina’s oil and gas sector
more competitive globally. The
three-party deal also calls for
the government to maintain a
minimum floor price for newly
produced natural gas through
2021, industry officials said.
“We would likely invest
20% to 30% less this year
without the agreement,” Mi-
guel Gutierrez, chairman of
Argentine oil company YPF ,
said after attending the an-
nouncement by Mr. Macri.
State-run YPF plans to in-
vest almost $2.3 billion in
2017, Mr. Gutierrez said. The
company accounts for about
half of all the oil and gas in-
vestment in Argentina and
about 90% of its new wells.
The deal, which for now is a
verbal agreement, will help
YPF reduce capital expendi-
ture costs by about 10% and
operating costs by 30%, Mr.
Gutierrez said.
Argentina is home to some
of the world’s largest uncon-
ventional oil and gas resources
in Vaca Muerta, a vast swath
of land in windswept Patago-
nia. There is enough to turn
Argentina into a top energy
exporter. For most of the past
decade, though, high labor
costs have combined with
price caps and government
regulations to make drilling in
the area more expensive than
in the U.S., where unconven-
tional oil and gas output has
surged.
Argentina’s unions have
also spooked investors—in
some cases requiring double
the number of workers to op-
erate a rig than at unconven-
tional fields in North America,
industry officials say.
Concern about layoffs led
labor leaders to agree to make
it easier for companies to
manage drilling sites. For ex-
ample, the agreement will al-
low companies to determine
when work at drilling sites
should be suspended because
of weather, union and industry
officials said Tuesday.
“This is a very important
first step,” said Daniel Gerold,
director at G&G Energy Con-
sultants.
Mr. Gerold said a recent
move by Mr. Macri to elimi-
nate taxes on oil exports will
also help boost investment.
Under the deal, the govern-
ment will continue subsidizing
the price of gas at $7.50 per
million British thermal units,
gradually reducing that to
$6.50 in 2021.
Aides to Mr. Macri said
they hope Tuesday’s agree-
ment will be the first of many
across multiple industries, all
aimed at lowering operating
costs for companies in Argen-
tina.
Foreign investors have
praised Mr. Macri’s policies
since he took office a year ago,
but some remain cautious
about investing in Argentina.
One reason is that investors
are waiting to see how durable
Mr. Macri’s policies are and
how much political sway he
will retain after midterm elec-
tions in October.BYTAOSTURNERArgentine
Oil Output
Is Poised
To Grow
HealthyShare
A growing portion of Takeda’s
sales comes from outside Japan.Note: Fiscal year begins in April.
¥1 trillion = $8.62 billion
Source: the company
THE WALL STREET JOURNAL.¥2.00.1.1.trillionFY2009’10 ’11 ’12 ’13 ’14 ’Takeda’s sales
Outside
Japan Totalsearch functions in the Bos-
ton area.
The Ariad deal makes
Takeda even more dependent
on the U.S., because sales of
Ariad’s leukemia drug Iclusig
aremademostlyintheU.S.
Takeda has the financial
flexibility for more deals,
Chief Financial Officer James
Kehoe said during a confer-
ence call with analysts. “Doing
this transaction doesn’t mean
we have to stay out of M&A
for an extended period of
time,” he said, referring to
mergers and acquisitions.
“We only make an acquisi-
tion if it is a strong fit with
our strategy” and if a deal canbe innovative, said Takeda’s
chief executive, Christophe
Weber, who joined the Japa-
nese company from U.K.-based
GlaxoSmithKline PLC.
It is the third large deal for
Takeda in the past decade. The
company bought Millennium
Pharmaceuticals Inc. of the
U.S. in 2008 and Nycomed A/S
of Switzerland in 2011 for a to-
tal of about $23 billion.
Mr. Weber, who is from
France, was chosen in 2014 as
the first non-Japanese execu-
tive to run Takeda. Despite
some criticism from domestic
shareholders, he has brought
in non-Japanese executives to
run important units.Takeda decided last year to
concentrate its research and
development in two places:
the Boston area, where Millen-
nium Pharmaceuticals is
based, and the Shonan re-
search center near Tokyo.
Positioning itself in Boston,
where researchers at universi-
ties, pharmaceutical makers
and startups are vying to de-
velop new drugs, is symbolic
of Takeda’s transformation,
said Citigroup analyst Hide-
maru Yamaguchi.
“Takeda is settling in a
global hub for innovative drug
development,” Mr. Yamaguchi
said, adding that no such eco-
system exists in Japan.TOKYO— Takeda Pharma-
ceutical Co., Japan’s largest
drugmaker by sales, has an
appetite for more acquisi-
tions to accelerate overseas
growth after saying it would
spend about $5 billion to
purchase U.S. cancer-drug
maker Ariad Pharmaceuti-
cals Inc.
The 236-year-old Osaka
company brings in more than
three-fifths of its revenue
from outside Japan, and it
has increasingly adopted the
practices of its global rivals
by hiring a multinational ex-
ecutive team and locating re-BYMEGUMIFUJIKAWADrugmaker Takeda Is Open to More Deals
nounced in March 2015, to $
billion. About $6 billion of that
total has been completed.
GM shares were ahead 3.8%
at $37.28 Tuesday afternoon
after the company issued its
2017 forecast.
Asked about uncertainty
caused by President-elect Don-
ald Trump’s recent threats of a
tariff or border tax on im-
ported vehicles, Ms. Barra said
it is too early to speculate on
an eventual effect but reiter-
ated the complexity of GM’s
manufacturing footprint and
the long lead times of produc-
tion decisions.
“We think there are many
things we can do working with
the administration that are go-
ing to make America great
again, that will strengthen
business, that will strengthengrowth,” she said.
While Mr. Trump’s policy
intentions remain unclear, GM
could be more of a target for
the president-elect than rival
Ford Motor Co. Ford made the
equivalent of 95% of the vehi-
cles it sold in the U.S. at do-
mestic plants, according to
WardsAuto data for the first 11
months of 2016. That figure
was 83% for GM and 69% for
Fiat Chrysler Automobiles NV.
Mr. Trump said in a Twitter
message last week that GM
should face a “big border tax”
for importing Chevrolet small
cars from Mexico. Ms. Barra
has said GM doesn’t plan to re-
jigger its production plans.
Auto executives are on edge
as Mr. Trump widens his criti-
cism of vehicle imports.
Tweets going after GM andToyota Motor Corp. followed
long-running criticism of
Ford’s plans to build a new
plant in Mexico. Ford scrapped
that plan last week, though it
described the move as a busi-
ness decision that it would
have made anyway.
The company said a fresher
vehicle lineup globally will
help its bottom line in coming
years, because newer cars typ-
ically command higher pur-
chase prices. The auto maker
said 38% of its global sales vol-
ume from 2017 to 2020 will be
new or redesigned, versus 26%
over the last six years. The
company said those vehicles
will be more heavily weighted
toward trucks, which carry
higher margins.
—Stephen Wilmot
contributed to this article.General Motors Co. said
pretax earnings this year
should beat the record profit
the auto maker expects to post
for 2016, and its board ap-
proved a $5 billion share re-
purchase based on the “strong
outlook.”
GM said Tuesday the bright
forecast is based on continued
strength in North America—
particularly strong sales of
pickup trucks, SUVs and cross-
over wagons—as well as resil-
ient demand in China and cost
cuts from better logistics and
other moves.
The company forecasts 2017
pretax operating earnings, ad-
justed for any special items, of
$6 to $6.50 a share; that com-
pares with the $5.50 to $6 it
expects to post in financial re-
sults due out Feb. 7. The 2016
result should come in at the
“high-end” of that range,”
Chief Executive Mary Barra
told reporters ahead of an in-
vestor conference in Detroit.
The nation’s largest auto
maker is benefiting from
strong U.S. demand for pickup
trucks and SUVs—its biggest
moneymakers—stoked by low
gasoline prices and interest
rates. It has also leveraged its
strength in China, where a tax
cut on some vehicles last year
helped increase GM’s sales in
its biggest market to a record
3.9 million vehicles.
GM also said its results in
South America—hard hit by
recession and political instabil-
ity—should improve in 2017.
But executives expressed a
cautious view in Europe due to
the unfolding impact of Brexit.
The company’s stock repur-
chase pushes the total of its
buyback program, first an-BYMIKECOLIASGM Says Earnings Are on a Roll
General Motors pinned its bright financial outlook on continued sales strength in North America.GARY CAMERON/REUTERSTo reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or http://www.djreprints.com