TheChek News Flow

Sky hires advisers amid battle for dominance of UK telecoms

File photo dated 02/03/11 of a worker erecting a Sky TV poster in Birmingham as satellite broadcaster BSkyB insisted its sports offering had "never been in better shape" as it laid down the gauntlet to rival BT with a leap in earnings and subscriber numbers. PRESS ASSOCIATION Photo. Issue date: Thursday May 2, 2013. The group said operating profits increased 9% to £994 million in the nine months to March 31 and subscriber numbers passed 30 million for the first time. BSkyB is facing a rising threat from BT in the television market, ahead of this summer's launch of the rival company's sports channel, which has won the right to screen 38 Premier League games a season. See PA story CITY BSkyB. Photo credit should read: David Jones/PA Wire©PA

The battle for dominance of the British telecoms and media market has accelerated after Sky hired advisers to explore possible deals in the wake of the opening of talks between its arch-rival BT and mobile operators EE and O2.

Lazard, the investment bank, has been lined up to advise the British-based broadcasting group to evaluate options for taking part in the wider UK tele­coms consolidation that is sweeping the sector.

The decision comes as global telecoms companies challenge traditional broadcasters by pursuing an ambitious new drive to bring together internet, mobile phone and television content.

Sky is working with Lazard to assess what recent events mean for the media sector, according to people familiar with the situation who say it has no current plans to buy EE or O2.

Possible deals include an acquisition, a commercial tie-up with a UK operator, or a bid to win more TV football rights at next year’s Premier League auction – taking advantage of BT’s new focus on mobile – one person said.

Sky and Lazard declined to comment. Other investment banks are also expected to take a role in the process, according to a person with knowledge of the talks.

Sky’s review will add further fuel to takeover speculation in the UK telecoms and media sectors, after BT disclosed its talks with O2 and EE last week that could make the UK telecoms group a dominant force in its home market.

Vodafone, the British mobile telecoms group, is also considering its response. People close to the company said options discussed in internal meetings have included a merger with US cable group Liberty Global – which has long been top of the UK company’s wish list – alongside the acquisition of other British rivals. No deal is being prepared or discussed with Liberty or any other group, according to those close to Vodafone.

Similarly, Hutchison Whampoa is looking at the position of its Three network in the UK, which has also been linked with a potential bid for one of its mobile rivals. It is also expected to hold talks with Telefónica and EE’s owners, Deutsche Telekom and Orange.

Sky is at risk of becoming the odd one out among British internet providers, as TalkTalk, Virgin Media and BT are all set to offer mobile phone contracts by early next year.

BT is already planning to attract customers from Sky with offers of bundled offers of TV, broadband and mobile, but would see its business considerably strengthened with the additional of more than 20m customers from either O2 or EE.

Jeremy Darroch, Sky’s chief executive, said last month it would be “logical” for the company to offer mobile, but questioned whether customer demand existed for so-called “quadplay” packages of telecoms and TV.

Sky was talking “to everyone”, he said, adding there were no “immediate plans”. It could strike a commercial deal with a UK mobile operator, from a marketing arrangement to a mobile virtual network operator agreement.

Its recent focus has been on international growth, closing the £6.9bn acquisition of its European sister companies, Sky Italia and Sky Deutschland, from its own largest shareholder, Rupert Murdoch’s Twenty-First Century Fox, and other smaller shareholders.

In March 2013 Sky agreed to buy O2’s broadband business, paying up to £200m for about 500,000 customers in the UK.

EE and O2 have each been valued at more than £9bn.

Foundation Expected to Pay Between $100 Million and $200 Million for Deutsche’s Stake, Plus More Equity

Deutsche Bank AG is in advanced talks to sell its minority stake in London-based hedge-fund firm Arrowgrass Capital Partners LLP to Foundation Capital Partners, according to people familiar with the matter.

Foundation, a private-equity firm, is expected to pay between $100 million and $200 million for a more than 20% stake in Arrowgrass, which would include Deutsche Bank’s 17.5% share, plus additional equity, one of the people said. The deal could wrap up as soon as this month and would value Arrowgrass, which manages about $5 billion as a multistrategy fund, at more than $500 million.

In return, Foundation would share in the stream of management and performance fees brought in by Arrowgrass, which spun out of Deutsche during the financial crisis.

The deal comes amid a rise in deal-making for minority stakes in hedge funds as several firms, including Blackstone Group LP and Neuberger Berman’s Dyal Capital Partners, have raised billions in private-equity funds to buy such stakes. Foundation, based in Greenwich, Conn., is headed by former Citigroup and Deutsche executive Dean Barr.

Basel III regulations that impose tougher rules on how big banks manage risks and stockpile capital are a factor encouraging Deutsche to sell its stake, one of the people said.

In one case, the group focused on employees privy to changes in closely watched government-reimbursement rates at a publicly traded health-sector firm. In another, hackers posed as an adviser to one of two companies in a potential acquisition.

Since the middle of last year, these hackers penetrated more than 100 companies that are either publicly traded or advising publicly traded firms, FireEye said. Most of the targets are healthcare or pharmaceutical companies, FireEye said; it declined to name specific firms.

FireEye said it alerted the FBI of its findings during the past week. The FBI declined to comment Sunday.

“There’s nothing else that this could have been going after other than to game the market,” said Jen Weedon, a manager at FireEye’s Mandiant unit, best known for researching foreign hackers.

FireEye researchers said they aren’t aware of any irregular trading linked to their findings.

Cyberattacks have long targeted information that could be handy for investors trying to gain a leg up. But former U.S. officials and experts at other security firms say they’ve not seen evidence suggesting hacked information was behind a suspicious trade.

This summer, the cybersecurity unit of BAE Systems created a scramble among U.S. law enforcement officials when it said hackers had penetrated a hedge-fund client in 2013 and cost the fund millions of dollars. BAE later said the scenario was a marketing example that a company executive erroneously cited on CNBC.

FireEye’s Mandiant team said the newly disclosed hacking activity appears different than hacking that has been linked to foreign governments. Cyberattacks linked to China, for example, also involve stealing nonpublic information from listed companies. But in those instances the intruders try to steal every bit of information they can, sort of like a vacuum cleaner, hoping to figure out what data has value later.

In these more recent cases, hackers appear to target specific employees – particularly those with access to potentially market-moving information — and seek specific sets of data, FireEye said. Moreover, it said the hackers appear to speak English.

One common technique, FireEye said, is a simple trick where the hackers embed prompts for Microsoft MSFT +1.32% Outlook usernames and passwords inside corporate documents they send to executives. Once a recipient enters a username and password, hackers can take over an email account, then send trick emails to other employees who may be working on a deal.

In some cases, they then strike up conversations with other executives, apparently hoping to gain more information, FireEye said.

That’s risky, because imitating another person’s tone on email is difficult. So the hackers used Microsoft Outlook’s filter settings to hide emails to victims that contain the words “hacked,” “phish” or “malware,” FireEye said. The filter would block a message such as, “This email doesn’t sound like you, Bob. You get hacked?”

Unlike many Chinese hackers searching for corporate secrets, these hackers appeared especially interested in information that would make a stock move up or down, FireEye said.

In one email meant to trick an executive to hand over email account information, the hackers warned that another employee “may have unwittingly divulged confidential company information regarding pending transactions” in a rant posted on an investment message board.

“This smells very different” than Chinese hacking investigated by Mandiant, Weedon said. She added the hackers could be “home grown” or based in Western Europe.

FireEye’s disclosure Monday comes as the financial services sector has dramatically upped its spending on cybersecurity, which could prove to a boon for companies like FireEye and large consulting firms like Deloitte. Financial services companies plan to boost cybersecurity budgets by a combined $2 billion during the next two years, according to a November report by the consulting firm PricewaterhouseCoopers, which also provides anti-hacking services.

However, for most investors and traders the key questions they want answered is whether the Chinese government is going to downgrade its growth target for 2015, and if so, to what?

Well, that’s the first question tackled by JPMorgan. The broker reckons Beijing will cut its 2015 growth target to 7% from 7.5% in 2014, although they think there is a 30% probability the government may target a range between 7% and 7.5%. While acknowledging there may be a willingness by the government to lower the growth target, the bank sees it as unlikely that Beijing will follow the advice of the International Monetary Fund and drop the 2015 target to between 6.5% and 7%.

JPMorgan’s own forecast is for 7.2% growth in 2015 based on relatively stable growth in the service sector and an upbeat outlook on China’s current account surplus. However, they do see an ongoing drag from weakness in the real estate sector and overcapacity in manufacturing.

To save our readers the time of reading the 26 page report, here are the highlights from the other nine questions.

While we expect adjustment in the property sector and overcapacity in several industries will continue to weigh on the manufacturing sector into 2015, the service sector will likely

continue to expand in a relatively stable manner. Thus, we expect continued, steady economic restructuring.

Will the real estate market adjustment continue? What are the implications? To cut a long story short, real estate is still going to be a problem child;

We expect the property market adjustment will continue in 2015, as oversupply remains in the near term. Housing prices may decline further but should stabilize in 2H15. From peak to bottom, we forecast the price decline will be in the 5%-10% range at the national level, with tier-2 and tier-3 cities generally facing greater price falls. It is worth noting that housing affordability, as measured by the price-to-income ratio, should improve significantly even with modest house price declines, as household income growth in China is strong and forecast to remain so amid the economic rebalancing.

Will financial risk in China remain at bay? While acknowledging that financial system risks are elevated, the broker does not expect a full scale crisis to emerge in the next couple of years;

Financial-system risks, while elevated, are unlikely to evolve into a full-scale crisis in the next couple of years. First, although corporate debt is very high by historical and international standards, household debt is very low at 25% of GDP, while government debt, at 59% of GDP including central and local government debt but not SOE debt, remains manageable. Second, despite the economic slowdown, our projections for above-7% growth in 2014 and 2015 are still the highest, by far, among the major economies. Third, China’s debt is mainly domestically held (external debt is only slightly above 10% of GDP), and the domestic saving rate is over 50%, the highest in the world. Fourth, despite the rapid growth in debt noted earlier, total assets also have risen quickly; hence, leverage ratios have remained stable outside a few sectors, notably real estate and mining. In the government sector, holdings of state assets and US$4 trillion in FX reserves are strong buffers to protect against a potential crisis. Finally, China is relatively closed to international capital flows; hence the risk of a capital flight-driven crisis is fairly low.

Will China Face a fiscal cliff? On this question, JPMorgan believes a series of fiscal reform measures, mainly focused on local government debt, should allay some of the more pressing concerns;

The new rules should help contain local government debt problems. In the near term, the shift from LGFV financing to municipal bond financing should mitigate the maturity mismatch between funding and local government projects and lower the interest rate burden, thus helping to reduce the default risk. In the long run, it could strengthen market discipline for local government borrowing, as municipal bonds tend to have stricter requirements (e.g., external rating requirements, disclosure of fiscal balance sheets, and monitoring of government spending) than financing by the shadow banking system.

Is the PBoC operational framework at a crossroads? Translation – has the People’s Bank of China changed the way it conducts monetary policy? Given the recent cut in interest rates, coupled with the adoption of various new liquidity tools, it seems like a fair question to ask.

The main reason for the change in the operational framework of monetary policy is concern about distortions in traditional monetary easing. When the central bank eases monetary policy via rate cuts or credit acceleration, there is generally unequal treatment in the credit market in that local governments and SOEs (due to their “implicit debt guarantee”) and borrowers who are not sensitive to interest rates (and are willing to accept higher interest rates) crowd out other sectors.The new operational framework is a compromised near-term solution to address the above concerns. The targeted approach aims to level the playing field in the credit market by providing liquidity to support certain sectors, including SMEs, affordable housing, and the rural sector. However, the new approach has its own shortcomings from the start. It could generate new distortion as the PBOC may lack the expertise to guide sector lending. Separately, the transparency of monetary policy operations under the new framework has been limited, causing unnecessary market uncertainty.

So what does this mean for monetary policy in 2015? Well, JPMorgan believes the recent rate cut announcement signals a shift towards more aggressive easing. At least one more rate cut is expected in 2015, coupled with other measures such as a lowering of the reserve requirement ratio.

How does the global oil price collapse affect China? Not surprisingly, the broker sees cheaper energy prices steering down inflation to around 1.5% in 2015. However, JPMorgan underscores the difference between ‘good’ deflation (as measured by the producer price index) caused by lower oil prices compared to ‘bad’ deflation caused by the overcapacity haunting many of China’s industries.

… given China’s role as a significant net oil importer, PPI deflation arising from an exogenous, supply-side induced decline in global oil prices would lift corporate profits and real household income, supporting economic growth.

Will China’s current account surplus widen again? What is the implication for the CNY? In a nutshell, cheap oil means the current account surplus widens, which in turn raises pressure on the Chinese yuan to appreciate. But JPMorgan doesn’t expect the yuan to continue rising in 2015;

We expect the USD/CNY to trade at 6.15 at the end of 2015, unchanged vs. our forecast of 6.15 at end-2014. But we expect also expect more exchange-rate volatility: In 1H15, the CNY is likely to move back above 6.20 amid weak domestic economic performance and a strong USD buoyed by expected Fed tightening.

What is the potential impact of China’s rebalancing in the rest of the world? It’s China! Of course rebalancing in the world’s second largest economy is going to have a global impact. While declaring the global commodities super-cycle is “over”, JPMorgan doesn’t think China’s commodities demand will collapse;

Economic rebalancing does not mean China will give up investment. The investment/GDP ratio was 47.8% in 2013, which we consider unsustainable. The rebalancing aims to bring it down to a more reasonable level, e.g. 35%-40% by 2020. This means investment in China will decelerate and expand less rapidly than GDP, but should not collapse.

And finally, what are the next steps in China’s ongoing structural reforms? Basically, the Chinese government is expected to continue fiscal and administrative reforms , as well as reforms of state owned enterprises, land policy, and household registration.

At this stage, we believe the government will continue to push forward in small steps in all areas. Thus, we have seen some progress in nearly all areas, but find it difficult to identify break-through achievements. The gradual reform approach should help to address financial stability concerns during the process, which we consider a priority given the rapid accumulation of financial imbalances in recent years.

* CEO sees positive signals in Bulgaria, Croatia difficult

* Sticks to 5-cent dividend for 2014, 2015

* Pools resources with America Movil to widen business services (Adds quotes and background)

VIENNA, Dec 1 (Reuters) - Telekom Austria has little room to buy new assets after it raised 1 billion euros ($1.25 billion) in a rights issue last month which it will use for investment in Austria and reducing debt, Chief Executive Hannes Ametsreiter told Reuters.

"I certainly don't see a lot of room to move at the moment," Ametsreiter said in an interview on Monday when asked about possible acquisitions. "Growth means mainly organic growth."

Majority owner Carlos Slim's America Movil has said it wanted to use Telekom Austria for further expansion into central and eastern Europe and fully supported its capital hike.

Telekom Austria has earmarked 400 million euros for investment into its fibre optic network in its home market and aims to bring its debt back to levels before it spent 1 billion euros at a mobile frequency auction last year.

Any asset purchases would aim to improve its ability to offer packages including television, internet, phone and data services, mainly where Telekom Austria is already present, Ametsreiter said.

Telekom Austria operates in Austria, Macedonia, Belarus, Croatia, Bulgaria, Slovenia, Serbia and Liechtenstein.

Taxes made business difficult in Croatia, but Telekom Austria is not thinking about exiting the country, Ametsreiter said. Client numbers were rising in Bulgaria, where the company had to write down 400 million euros this year to reflect worsening business conditions.

One growth market for Telekom Austria will be its international business clients segment, where since last month it has offered a unified product range with America Movil, spanning a region from Turkey to Latin America.

"We are attracting new clients which we couldn't win before," Ametsreiter said. "We can offer the entire United States, all of Latin America as well as Europe - from Moscow to Istanbul."

Telekom Austria can take advantage to its access to America Movil's infrastructure to offer safer and faster data packages and communications solutions to big corporate clients in the media, banks and industry, Ametsreiter said.

Telekom Austria already has Russian telecoms firm Vimpelcom and car supplier Magna as clients. Its international sales business generates around 300 million euros in revenues a year.

Telekom Austria is sticking to its planned 5 euro cent dividend for 2014 and 2015 but would consider increasing it depending on how business develops, Ametsreiter said

- Long-term 2015-17 guidance: high-single digit organic revenue CAGR, ~18-20% EPS CAGR, ~12-14% EBIT, ~18-20% EBIT margin , ~22% adj EBITDA margin, ~10% annual dividend growth

Announced that its Board of Directors has authorized a new share repurchase program under which the Company may repurchase up to 5% of Golar's outstanding stock over the next two years. The authorization is effective immediately.

The authorization of this stock repurchase program underscores the Board's confidence in Golar's strategy to become a leading integrated midstream LNG player based on floating infrastructure. 

The Company intends to repurchase shares from time to time for cash in open market transactions or in privately-negotiated transactions in accordance with applicable federal securities laws. The timing and the amount of any repurchases will be determined by the Company's management based on its evaluation market conditions, capital allocation alternatives, and other factors. The new share repurchase program does not require the Company to acquire any specific number of shares and may be modified, suspended, extended or terminated by the Company at any time without prior notice. Golar will execute purchases only during periods where the executive team and the Board of Directors are not aware of material inside information that would likely affect a seller's decision to sell.