>>> Swisscom could fetch a price of EUR 5bn for Fastweb

Swisscom could fetch a price of EUR 5bn for Fastweb 

Swisscom, the listed Swiss telco, could fetch a price of EUR 5bn for its Italian unit Fastweb, Finanz und Wirtschaft reported, citing market speculation. Vodafone has been touted as a possible buyer, the Swiss bi-weekly report noted.



Source Finanz und Wirtschaft

>>> Barron's summary: Cover positive on Samsung; Positive feature on VFC; cautious on MBLY

Barron's summary: Cover positive on Samsung; Positive feature on VFC; cautious on MBLY

Cover story: Positive on Samsung: Korean electronics giant "could be the world's cheapest mega-cap stock," but it isn't likely to remain so; Company has been out of favor with investors because of plunging profit in mobile phones, its largest business, leading to worry it could join BBRY and Nokia as another casualty in a competitive market, but to some observers shares look like AAPL's a year ago, before its rally, and investors buying now could see a 50% rally.

Feature: Positive on VFC: Company has gotten Timberland brand back on track and shares are cheaper than those of rivals NKE, LULU, and UA; strong free cash flow could allow it to make an acquisition such as Puma or ZQK, boosting shares 25%; Positive on PTC, SPLK, Thin Film Electronics, INTC: Companies stand to be potential winners in growing "Internet of Things" trend, with the number of network-connected devices expected to soar from three billion to 25 billion in the next seven years; Positive on BWA, DLPH, GNTX: Three companies' shares have taken a hit recently, but with earnings estimates rising they may be a bargain now for investors.

Tech Trader: Tiernan Ray says the recent spate of split-ups at tech companies such as HPQ, SYMC, EBAY, and JDSU shows many of them shouldn't have been in their current position in the first place, and that a "mess of M&A on the front end of the pipe" created problems.

Trader: Just one in five active fund managers is outperforming year-to-date, according to an October 9 report from Bank of America Merrill Lynch; Cautious on GE: Industrial giant is the worst performer in the DJIA this year, but though it isn't likely to top the market for some time, it offers bond-like stability with the earnings and dividend growth not possible in fixed-income securities; Cautious on MBLY: Company headquartered in Israel and domiciled in the Netherlands "is in the sweet spot of what's called the autonomous driving revolution," but faces issues that could affect growth rates, and its net income is also inflated by the policy of excluding stock compensation.

Follow-Up: With job market improving, oil prices down, and consumer confidence rising, the International Council of Shopping Centers predicts an increase in holiday spending (Positive on WMT, BLMN, PLKI; Cautious on SHLD, JCP); Positive on MU: Shares still look attractive despite recent drop, and demand for company's mobile DRAM should rise this year, especially if AAPL gives its new iPad a memory boost; Cautious on SCTY: Lower prices should attract more customers, but company will still have to prove its case to investors in coming quarters.

Mutual Funds: Interview with David Green, Portfolio Manager, Hotchkis & Wiley Value Opportunities (top ten holdings: AIG, DOOR, C, BAC, JPM, Direct Line Insurance, Danieli & C. Officine Meccaniche, ORCL, Nippon Electric Gas, Royal Mail); Interview with Bob Browne, Chief Investment Officer, Northern Trust, who says equities are more attractive in general than high-yield investment-grade bonds, Treasury inflation-protected securities, and cash.

European Trader: Positive on RIO: Even if tie-up with Glencore doesn't take place, mining giant's stock can climb 20% in the next 12 months, and M&A interest is just one reason to own shares.

Asian Trader: Investors should give Indonesia's new president, Joko Widodo, time to prove himself; Asian brokerage CLSA believes recent market declines present some opportunities (Positive on PT Indocement Tunggal Prakarsa Tbk, PT Tambang Batubara Bukit Asam, PT Bank Rakyat Indonesia, PT Bank Negara Indonesia).

Emerging Markets: In Brazilian presidential incumbent Dilma Rousseff wins the October 26 election, investors should expect pressure on Brazil's currency. Commodities Corner: The rally in zinc is just getting under way, and while futures have pulled back from three-year highs, price action has yet to run its course.

Streetwise: Cautious on KSS, CAG, WU, DGX: Companies in the Russell 1000 index look cheap but each has at least four potential red flags, such as poor accounting or slow growth, making them potential value traps

(BN) Rio Won’t Say ‘Yes’ to Glencore Without 30% Premium: Ex-BHP Exec


Rio Won’t Say ‘Yes’ to Glencore Without 30% Premium: Ex-BHP Exec
2014-10-12 03:07:41.782 GMT


By Michael Heath
Oct. 12 (Bloomberg) -- Rio Tinto Group shareholders would
demand a premium of as much as 30 percent in any deal with
Glencore Plc, making a tie-up unlikely due to a lack of
synergies, said Alberto Calderon, a former BHP Billiton Ltd.
executive.
“The issue is mergers of mining companies generally don’t
have synergies,” Calderon, a board member of Orica Ltd., told
channel 9’s Financial Review Sunday. “The only way you have
synergies is when you have overlapping operations like BHP and
Rio had at the Pilbara. This is not the case here. I don’t think
Glencore could afford to pay that premium.”
The Glencore deal with Rio Tinto would have been the
industry’s largest. It would create the biggest mining company,
worth more than $160 billion, and usurp BHP Billiton, with
significant production of coal, iron ore and copper. Glencore
abandoned the bid on Oct. 7 after it was rebuffed by Rio Tinto.
“In terms of a merger of equals, is it good for Glencore?
It’s pretty fantastic,” Calderon said. “Is it good for Rio
Tinto shareholders? It’s unlikely. They have the better assets.
So they’re going to demand a premium of about 25 or 30 percent.
And that’s synergies of about $25 billion, and so the short
answer is that’s very unlikely. This merger would not even come
close to creating that value.”
With about $6 billion of his personal wealth tied up in
Glencore stock, Chief Executive Officer Ivan Glasenberg tends to
be cautious about overpaying for targets. His company paid a
premium of 10 percent or less in about two-thirds of the deals
it carried out over the past decade, according to data compiled
by Bloomberg.

Iron-Ore Slump

A slump in iron ore gave Glencore a chance to go after a
cheaper Rio and make it part of a diversified portfolio. With
the deal now likely on hold for six months, Glencore could turn
to other targets such as Fortescue Metals Group Ltd. Or Rio
could pursue a defensive deal with a company such as Anglo
American Plc, according to Sanford C. Bernstein & Co.
Asked about Glencore’s options, and where Glasenberg might
now train his sights, Calderon said: “The only thing that is
clear” is that Glasenberg is always ahead of the market.
“I think this is part of a broader strategy,” he said.
“We don’t know which one, nobody knows what he’s really
thinking. But he’s thinking ahead of the market. He’s thinking
about growth. He’s the only one of the large miners that doesn’t
talk only about cost-cutting and so it must be something beyond
this.”

For Related News and Information:
Top Economic Stories:TOP ECO<GO>
Global Statistics: STAT<GO>
Central Bank: NSE RESERVE BANK OF AUSTRALIA <GO>

To contact the reporter on this story:
Michael Heath in Sydney at +61-2-9777-1202 or
mheath1@bloomberg.net
To contact the editors responsible for this story:
Stanley James at +852-29776637 or
sjames8@bloomberg.net
Jim McDonald, Greg Ahlstrand

(BN) Fischer Says Global Economy May Affect Fed Rate Rise Pace (1)


BFW 10/11 22:04 MORE: Fischer Says Global Economy May Affect Fed Rate Rise Pace
Fischer Says Global Economy May Affect Fed Rate Rise Pace (1)
2014-10-11 21:53:10.99 GMT


(Updates with comment on emerging markets in 14th
paragraph. See GMEET <GO> for more on the IMF meetings.)

By Christopher Condon
Oct. 11 (Bloomberg) -- Federal Reserve Vice Chairman
Stanley Fischer said weaker-than-expected global growth could
prompt the U.S. central bank to slow the pace of eventual
interest-rate increases.
“If foreign growth is weaker than anticipated, the
consequences for the U.S. economy could lead the Fed to remove
accommodation more slowly than otherwise,” Fischer said in
speech today in Washington.
Fischer, 70, said the Fed won’t raise rates until the U.S.
expansion “has advanced far enough,” and most emerging markets
should be able to weather the increase.
Fischer’s remarks highlight growing concern among U.S.
central bank officials about the impact of a global slowdown and
a strengthening dollar. He spoke to central bankers and finance
ministers gathered in Washington for the annual meetings of the
World Bank and International Monetary Fund.
The Fed’s policy making body last month expressed concern
that weak demand, particularly in Europe, could add to the
dollar’s appreciation, hurting U.S. exporters and damping
inflation, according to minutes released Oct. 8.
The International Monetary Fund this week reduced its
forecasts for global growth in 2015 and warned about the risks
of rising geopolitical tensions and a financial-market
correction as stocks reach “frothy” levels.

Fed Forecasts

Most Fed officials expect to raise the benchmark interest
rate some time next year, according to projections released on
Sept. 17 following their last meeting. Traders see about a 33
percent chance the Fed will raise the benchmark rate by its July
2015 meeting, down from a 59 percent on Sept. 18, fed funds
futures data compiled by Bloomberg show.
“Tightening should occur only against the backdrop of a
strengthening U.S. economy and in an environment of improved
household and business confidence,” Fischer said.
Fischer, the former head of Israel’s central bank, said the
Fed is cognizant of the impact its monetary policy decisions on
the rest of the world. He cited last year’s “taper tantrum,”
when global stocks fell after then-Chairman Ben S. Bernanke said
the Fed would soon start slowing the pace of asset purchases.
Still, Fischer said the U.S. must first keep its “own
house in order.”
“Strong and stable U.S. growth in the context of inflation
close to our policy objective has substantial benefits for the
world,” he said.

Better Prepared

Fischer said emerging-market countries have improved their
preparedness for higher rates in the U.S. by reducing inflation,
improving debt levels, building foreign reserves and better
regulating their financial systems.
“The normalization of our policy should prove
manageable,” he said. “It does not seem that the overall
risks to global financial stability are unusually elevated at
this time.”
“Nevertheless, it could be that some more vulnerable
economies, including those that pursue overly rigid exchange-
rate policies, may find the road to normalization somewhat
bumpier.”
He said foreign economies should also benefit from improved
communication from the Fed.
“The Federal Reserve will promote a smooth transition by
communicating our assessment of the economy and our policy
intentions as clearly as possible,” he said.
The world economy will grow 3.8 percent next year, compared
with a July forecast for 4 percent, after a 3.3 percent
expansion this year, the IMF said. The euro area will grow 1.3
percent next year, slower than the 1.5 percent predicted in
July.

For Related News and Information:
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Top Stories:TOP<GO>
Top Fed stories: FEDU <GO>
Global Economic Watch: GEW <GO>
Cebntral Bank Rates: CBRT <GO>

To contact the reporter on this story:
Christopher Condon in Washington at +1-202-654-4333 or
ccondon4@bloomberg.net
To contact the editors responsible for this story:
Chris Wellisz at +1-202-624-1862 or
cwellisz@bloomberg.net
Alister Bull

Barrons : Stock Market Slides Down an Oily Slope

Stock Market Slides Down an Oily Slope
Energy stocks and Putin’s Russia get clobbered, but U.S. GDP might rise a bit. Techs take a beating, and investment pro Louise Yamada thinks the technical damage to the overall market will take some time to repair.

Praise John from whom oil blessings flow,” went a spoof of the Doxology, a traditional English hymn of praise sung by students at the University of Chicago more than a century ago to one of that institution’s main benefactors, John D. Rockefeller.

Oil, of course, has been the basis of the family’s considerable fortune, so it was more than a bit ironic that its $860 million philanthropic foundation, the Rockefeller Brothers Fund, last month announced that it would divest itself of investments in fossil fuels.

Had the foundation dumped the stocks at the time of the announcement, it would have been a canny bit of market timing. The Energy Select Sector SPDR exchange-traded fund (ticker: XLE)—whose largest component just happens to be ExxonMobil (XOM), the descendant of Rockefeller’s Standard Oil—is down about 9% since then and off more than 15% from its recent peak in late June.

That coincided with the stunning slide in crude-oil prices, which last week met the common definition of a bear market with declines of 20% or more. West Texas Intermediate dipped to $83.59 a barrel, the lowest since mid-2012, while Brent crude broke through $90, to as little as $88.11, the lowest since December 2010.

The slump obviously is a bane to the big oil companies, oil-service companies, and especially the exploration-and-production outfits. But it isn’t seen as big a boon as in the past for the rest of the economy, despite the hoary notion that a price drop at the gas pump equals a tax cut for consumers.

According to an estimate by a major institutional investor (expressly not for attribution), the drop in energy prices might boost U.S. gross domestic product about 0.3%. But that’s only about half of the fillip that was seen prior to the vast expansion of North American oil production, which has been a positive for U.S. growth in recent years. Thus, there are also minuses from lower prices, especially for high-cost oil producers funded by hefty debt.

Meanwhile, the dollar’s surge is diluting the drop in oil prices for consumers in other countries, who pay for petroleum in their depreciating currencies. For instance, the 20% bear market in Brent translates to only about a 15% decline in euro terms. (To be sure, when the euro was strong, it mitigated the rise in oil costs.)

And the vise is especially tight for oil-producing countries that have seen the value of their currencies tumble in tandem with their petrol profits. It couldn’t have happened to a nicer guy than Vladimir Putin, with the Russian budget dependent on oil staying over $100 and the ruble already under pressure from sanctions over Ukraine.

For investors, the corresponding big break in oil stocks is reminiscent of the action of financial stocks in 2006, says Louise Yamada, who heads the eponymous Louise Yamada Technical Research Advisors. That is, the financials peaked and faltered months ahead of the broad market averages, which topped in October 2007 as the first distant rumbles of the financial crisis were being felt.

Indeed, she writes in her monthly missive to clients, “energy appears to us technically in a structural decline.” Expanding on that in a phone chat, she says that the sector suffered a breakdown in relative strength after six years of waning strength, relative to the rest of the market. And after a spate of basically sideways movements, a number of energy stocks have suffered spectacular spills, including Anadarko Petroleum (APC), which she notes has tumbled from about $110 to under $90.

The waning relative strength of the energy sector was but one of the discordant notes sounded as the major averages were setting records, as did the Dow Jones Industrial Average and the Standard & Poor’s 500, or new cyclical highs, as did the Nasdaq Composite, not so long ago. Most prominent has been the laggard performance of small-capitalization stocks, a mostly All-American cohort thought to be a redoubt from the upheavals abroad. The iShares Russell 2000 exchange-traded fund (IWM) last week nevertheless entered official correction territory and is 13% below its 52-week high.

Louise also points to the rising numbers on the 52-week lows list, which exceed the tallies seen during pullbacks in 2013 or 2012, but are approaching totals from the 2011 selloff. Finally, the most attractive sector—technology—also is getting caught in the downdraft. (Ever the lady, Louise recalls the ribald description of this process by my illustrious predecessor in this space, but asks that it not be repeated.)

Techs got blasted on Friday after a revenue warning by Microchip Technology (MCHP) sent its shares plunging 12.3%, which clobbered the Market Vectors Semiconductor ETF (SMH) by 6.6%. Even old tech such as Intel (INTC) was smacked 5% and Microsoft (MSFT), 4%, on Friday. Google (GOOGL) took a 3% hit and entered correction mode, although Apple (AAPL) held the $100 a share level as Carl Icahn presses for more share buybacks.

Louise thinks that, in the stock market’s current oversold condition, there could be intermittent rallies. After all, Wednesday was the Dow’s strongest day of 2014, and Thursday was the worst. But she would be suspicious of any pops. The technical damage inflicted on the market, she adds, will take some time to repair.

By themselves, the bungee-jumping moves, with harrowing drops interspersed with big, one-day upward bounces, don’t say much, she says. More importantly, the false breakouts in the major averages contrasted with the breakdowns in various groups. Even sectors that would be expected to rally—transportation stocks amid declining fuel costs, defense stocks amid rising geopolitical tensions—have failed to participate.

At a minimum, it’s not time to buy the dips blindly. With investors having given back some $1.5 trillion in wealth in U.S. stocks in the past month or so, according to Wilshire Associates, their ability or willingness to do so may also be rather diminished.

The clear message running through all of the global markets, from equities to commodities to currencies and bonds, has been slowing growth and disinflationary pressures. In addition to the selloff in stocks on Wall Street and well beyond, and the slump in oil, this is being evidenced in the strength in the dollar and the further descent in bond yields.

Treasury yields dropped to their lows of 2014 last week, with the benchmark 10-year note falling to 2.30% and the 30-year long bond hovering just above the 3% level. The declines came in tandem with those in European bond markets after German economic indicators showed a much sharper slowdown than expected, indicating that the Continent’s strongest economy is possibly teetering on the brink of recession.

The slide in bond yields also got a push from the minutes of the Federal Open Market Committee’s September meeting, which showed a sensitivity to the restraint exerted by the dollar’s rise. Markets inferred that to mean eventual hikes in the federal-funds target would be pushed farther back into 2015, which spurred Wednesday’s one-day-wonder rally.

The interest-rate futures and options markets—where the real bets on Fed policy are laid, as opposed to paper forecasts—already had been moving in that direction before the FOMC minutes were released on Wednesday. And while the consensus of economists calls for the first increase in the fed-funds rate—from the current 0% to 0.25% target set back in December 2008 at the depths of the financial crisis—to take place in the first half of next year, the market continues to think differently.

Based on the futures market, there’s only a 36% probability of a rate hike at the July 28, 2015, FOMC meeting. Only by the Sept. 17, 2015, gathering is a rate hike deemed better than even money—a 57% probability, according to the CME’s calculation.

Even with the receding likelihood of an early Fed hike, the Dow Jones Industrial Average ended the week in the red for 2014. And that’s before earnings reports for the third quarter mostly have started rolling in.

While companies have engaged in the usual tack of lowering profit targets to make them easier to beat, Barclays analysts think that estimates haven’t been adjusted enough to reflect the head winds, including the dollar’s rise and economic weakness overseas. More importantly, they don’t think that guidance for 2015 will be positive.

Capital spending, one of the hopes to spur growth, might also disappoint. Energy accounts for 27% of capital expenditures, and with the slump in oil prices, the Barclays analysts say they will be “listening closely” to commentary about future capex. So will investors, for this and other clues about the future, which suddenly seems far less certain.

Barrons : Samsung: Why the Stock Could Soar

Samsung: Why the Stock Could Soar
It’s hard to think of another huge company with a stock as cheap as South Korea’s Samsung Electronics. Its shares could rally 50%.

Samsung Electronics could be the world’s cheapest mega-cap stock. Just don’t expect it to stay that way.

The South Korean maker of cellphones, tablets, memory chips, and big-screen TVs trades for eight times estimated 2014 earnings, and just five times projected profit excluding its massive stash of net cash and investments, which totaled $60 billion at the end of the second quarter.

Then again, Samsung itself is a colossus, with $200 billion in expected annual revenue—more than enough to qualify as the largest technology company in the world. It boasts a market value of $150 billion, and accounts for 15% of Korea’s Kospi index. It’s also the biggest company in key developing-country equity indexes.

Lately, Samsung (ticker: 005930.Korea) is very much out of favor with investors, due to plunging profit in its largest business, mobile phones. That has led to fears the company could become the next major casualty in a brutal market that already has claimed former heavyweights Nokia and Motorola, and dashed the fortunes of Canada’s BlackBerry (BBRY).

Viewed differently, however, Samsung looks more like the Apple (AAPL) of a year ago. Apple’s shares briefly fell below $60 last year, and traded for about 10 times future earnings, or 6.5 times, excluding cash. Carl Icahn and other shrewd buyers loaded up on the stock, which has rallied 70% since, to $101. Samsung’s upside might not be quite as large, but some bulls think the shares could gain 50%.

“The semiconductor division and the cash are worth more than the current market cap,” says Mark Newman, an analyst with Bernstein Research. “That means investors are getting for free the world’s largest maker of handsets, the leading display business, and the biggest and most profitable TV producer.”

Newman carries a price target of 1.65 million Korean won, 50% above the current share price of KRW1.1 million. Each Samsung share is worth about $1,030 based on the current exchange rate of KRW1,070 to the dollar. Samsung shares are down 19% this year and hit a new 52-week low this past Friday after the company released disappointing third-quarter profit news. We wrote a favorable story about Samsung in February when the shares were KRW1,275,000 (“Samsung: Ready to Rebound,” Feb. 10).

SAMSUNG ALSO HAS preferred shares, which are less liquid than but economically equivalent to the common, and pay a slightly higher dividend. Lacking voting rights, they trade for around KRW824,000, a 25% discount to the common. The Samsung preferred offers an even cheaper way to play an already inexpensive stock. Many Korean companies have preferred shares that trade at a steep discount to their common.

Rob Taylor, co-manager of the Oakmark International Fund, a Samsung holder, is bullish on the company’s long-term prospects. Samsung, he notes, has “a strong No. 1 or No. 2 position in all its major markets. Management has been good at looking out over the long term to maintain or improve market position.”

Downside in the shares seems limited, as the memory-chip business could generate operating profit of $10 billion next year, up from $8 billion this year, adding even more money to the company’s growing pile of cash. Put a multiple of 10 on next year’s projected semiconductor operating profit, and add the cash and investments, and you’ve exceeded Samsung’s current market value. Net cash and investments now equal 40% of Samsung’s market value.

Samsung trades for just a 5% premium to book value, a level that historically has been a floor for the stock. Book value mostly reflects cash and factories, not intangible items. The company is valued at 50% of annual sales, based on its enterprise value (equity-market value less net cash and investments). Apple is valued at 2.5 times sales.

It is possible that an activist investor could surface who would press the company to boost its dividend, which now equates to a 1.3% yield, or repurchase shares, which it hasn’t done since 2007. In this way, too, Samsung resembles the Apple of the past, which was returning none of its cash to shareholders in the form of dividends or buybacks. It isn’t easy, however, to pressure family-controlled Korean companies like Samsung. The insular Leefamily, which controls the stock, is unlikely to engage an activist the way Apple did Icahn.

SAMSUNG’S SHARPLY lower cellphone profit is weighing on overall earnings and scaring away investors. In its preliminary financial report for the third quarter, released last week, the company reported operating earnings of about $3.8 billion, below already reduced expectations, and down 60% from the year-earlier period. Estimated cellphone profit plunged by nearly two-thirds, to $1.5 billion.

Samsung is being squeezed from above by Apple, and from below by Chinese manufacturers. Apple’s introduction of the larger- screen iPhone 6 could put further pressure on Samsung’s high-end Galaxy S5 and Note 4, which had benefited from a bigger screen than the iPhone 5. Samsung’s smartphones and tablets use Google ’s (GOOGL) Android operating system, which gives phone makers less flexibility than Apple’s iOS.

Apple’s biggest bull, Icahn, who owns more than $5 billion of its shares, essentially wrote off Samsung in a letter last week to Apple CEO Tim Cook. He called the iPhone 6 a “superior product” and wrote that a comparison between top-of-the-line Samsung and Apple phones is “analogous to the choice of a Volkswagen over a Mercedes at the same price.”

That sounds far too harsh an assessment to Galaxy and Note fans, not to mention some Samsung analysts and investors. “It is ludicrous to compare Samsung to Nokia, BlackBerry, or Motorola,” says Shaun Cochran, the head of Korean research for CLSA in Seoul. “Samsung has a history of reinventing itself time and time again. There is an institutional paranoia, a constant sense of crisis that has helped make Samsung so great.” Cochran says Samsung’s cellphone lineup is far more diversified than Nokia or BlackBerry.

He argues that Samsung shares are “close to a bottom,” given support from book value. CLSA has a Buy rating on the stock and a price target of KRW1.5 million.

Samsung was the world’s largest maker of cellphones last year, with a 30% share. It is the largest and most profitable maker of memory chips. With a 40% market share in DRAMs, it is the leader of a lucrative oligopoly that includes Micron Technology (MU) and Korea’s SK Hynix (000660.Korea). Samsung also is a top producer of NAND, or solid-state memory, which is replacing disk drives in many technology applications.

Samsung is the leading maker globally of displays, which has helped it become No. 1 in TVs, including curved-screen TVs and ultrasize sets with screens of 60 inches or more. Samsung’s next major innovation in cellphones is expected to be foldable screens using its best-in-class OLED display technology, which relies on plastic rather than glass.

The OLED screens provide their own light, a big advantage over most existing technology. This could allow the creation of screens that bend or roll, as well as handsets that open into tablets. Expect these Samsung products in 2016. Some of this display technology should be available soon in the new Samsung Galaxy Note Edge “phablet,” a large-size phone whose screen curves around one edge. A demonstration of Samsung’s foldable technology, called YOUM, wowed an audience at last year’s CES (Consumer Electronics Show). A video of the Samsung presentation is available on YouTube.

AS SOUTH KOREA’S most prestigious company, Samsung attracts the best and brightest engineers from the country’s top universities. They work tirelessly in what’s described as a flexible hierarchy, in which each operating business must succeed on its own without help from other parts of the company. This strategy has helped Samsung trump its Japanese rivals, including a now-struggling Sony (SNE). Samsung’s ailing chairman, Lee Kun-hee, 72, once inspired employees with a speech that included a line to “change everything except the wife and kids.”

The Lee family, which controls a sprawling Samsung empire, including construction and insurance, might have little interest in seeing a higher stock price, in order to minimize estate taxes when the patriarch’s 3% stake gets passed on to his children. That also could account for the puny dividend and lack of a stock-buyback program. Samsung has returned less than 10% of its net income to shareholders in recent years in the form of dividends.

Succession speculation has heated up this year because Lee has been hospitalized in Seoul since a heart attack in May and reportedly has lost cognitive functions. The company said last week that he is “making a steady recovery.” When Lee dies, the family will probably want to get greater income from its Samsung Electronics holdings in order to pay estate taxes, and that might prompt a sharply higher dividend.

Korean estate taxes are punitive at around 50%, and Lee’s heirs could face a bill of $4 billion, payable over five years. A higher dividend would enable the family to settle estate taxes without having to liquidate sizable chunks of the Samsung empire, including its 4% stake in the crown jewel, Samsung Electronics. Some investors tell Barron’s that investors could pile into the stock after Lee’s death, in the expectation the family will have an incentive to take shareholder-friendly steps that would boost the stock price.

THE FAMILY APPEARS to be moving toward a restructuring of the complex web of Samsung entities, with two initial public offerings expected in the next few months. It plans to sell shares in the family-controlled holding company, Cheil Industries, which owns 19% of Samsung Life Insurance (032830.Korea). The insurer in turn holds a 7.6% interest in Samsung Electronics, the single largest stake. Samsung is the biggest and most powerful of South Korea’s “chaebols,” or family-controlled conglomerates that have dominated its economy for decades. The top chaebol families are treated like royalty in South Korea, and like British aristocrats, often marry among themselves.

In June, CLSA’s Cochran, a longtime student of the chaebols, wrote a nearly 200-page report, “Chaebolaction: How Samsung will put the pieces together,” outlining the series of steps the Lee family might take to restructure the Samsung group. His view: The family will move to simplify the web of Samsung companies to solidify its control of Samsung Electronics. It will be simpler to achieve that goal by having publicly traded securities in Cheil and Samsung SDS, a technology-services company due to go public next month.

Cochran also has written that the family needs a high dividend yield of 6% on its Samsung holding to finance likely estate taxes. A substantial increase in the dividend also could influence other Korean companies, which generally have puny payouts.

Samsung heir apparent Lee Jae-yong, 46, is Lee Kun-hee’s son. He serves as co-vice chairman and the company’s emissary to the global technology world. He was invited to Steve Jobs’ memorial service in 2011. The Korean media refer to him as the “crown prince of Samsung.” The younger Lee, whose education included several years of post-graduate study at Harvard, is fluent in Japanese and English, and keeps a low profile. Like most Korean companies, Samsung usually doesn’t make executives available to talk to investors. None of the top leadership, for instance, is involved in quarterly earnings calls, and none spoke with Barron’s.

The dangers of investing in insular Korean companies were apparent recently when Hyundai Motor (005380.Korea), the auto company, agreed to pay a stunning $10 billion for a 20-acre property in Seoul’s desirable Gangnam neighborhood to build a new headquarters. That price was about three times what many thought the property was worth, and the dubious deal sent Hyundai shares down by nearly 10%. Samsung reportedly was the second-highest bidder.

SAMSUNG SHARES aren’t listed in the U.S., which also might account for the stock’s depressed valuation. While institutional investors can buy shares in Korea with some ease, it is difficult for U.S. retail investors to access the Korean market, since buyers often need a registration certificate from Korean regulatory authorities.

Many U.S. brokerage firms don’t allow retail clients to buy Korean stocks. Merrill Lynch and Fidelity are exceptions—and even there it can take some work. Morgan Stanley and UBS wealth-management clients, on the other hand, can’t purchase Korean shares.

Samsung has dollar-denominated shares that trade in London, currently around $515 apiece. (Each share is equal to half a Korean share.) These global depository receipts (GDRs) also are tough for U.S. retail investors to purchase, since they are geared toward American institutional buyers. Non-U.S. buyers, however, face few restrictions on buying the London-listed shares.

Samsung has no plans to list American depositary receipts, and analysts don’t see a U.S. listing until after the Lee family restructures its Samsung holdings.

Investors can get exposure to Samsung through exchange-traded funds, notably the iShares MSCI South Korea Capped fund (EWY), which has a 20% weighting in Samsung. The closed-end Korea Fund (KF) has a similar Samsung weighting and trades at an 8% discount to its net asset value. It has a higher fee than the iShares ETF.

The broader Korean market looks appealing. Korean stocks have lagged behind the Standard & Poor’s 500 index in recent years, with the Kospi unchanged since late 2010. The market trades for about 12 times forward earnings, a historically low multiple.

Fixing the cellphone business is a top priority at Samsung. In recent years, Samsung and Apple have accounted for all the profits in the global handset business, but the profit pool is shifting toward Apple. Samsung is moving to introduce low- and midprice handsets in order to blunt the impact of Chinese and other low-cost manufacturers. Samsung’s strong position in cellphone components and global distribution give it an advantage, and most analysts see the handset business remaining profitable.

“Samsung has to get better in software,” said tech maven Walt Mossberg last week on CNBC. He said the company has “too many models. Samsung makes things for carriers in different markets while Apple makes things for users, and carriers have to take them.”

Making major improvements to the software in its Android phones might be tough, but Samsung could score in 2016 with foldable displays.

SAMSUNG’S LEADING position in memory chips looks unassailable. The company’s announcement recently of plans to construct a $14 billion semiconductor factory in South Korea, to be completed by 2018, underscored its financial strength and the moat around that business.

Samsung profit estimates continue to fall. The current consensus for 2015 earnings is about KRW133,000 per share, down from KRW200,000 at the start of this year. The forward multiple is eight. Barring a complete evaporation of handset profits, earnings should hold above KRW100,000. Investors note that Apple shares bottomed last year when earnings estimates stopped coming down, and the same could happen soon to Samsung.

The Samsung story may require some investor patience. Yet the shares look promising, given the company’s leading brand, fortress-like balance sheet, still-ample earnings, and a controlling family that sooner or later will align itself with outside shareholders.

>>> Luxottica CEO could resign

Luxottica CEO could resign

Enrico Cavatorta, the recently appointed Chief Executive of the listed Italian eyewear company Luxottica, could resign, reported Il Sole 24 Ore, quoting unnamed sources. Cavatorta took over in September after his predecessor Andrea Guerra resigned.

The Italian language report quoted sources as saying that Cavatorta could resign on Monday, when Luxottica will have its board meeting, although this could take place already this weekend. The report also said some other board members could resign too.

Cavatorta has sold 550,000 shares at a price of EUR 40.69 per share for a value of EUR 22.379m to Delfin, the holding company of founder Leonardo del Vecchio, which controls 61% of Luxottica. The stock option sold was from 2009 when the share price was EUR 13.4 per share.

The report quoted representatives from Luxottica as saying that Cavatorta has not resigned and that the only board meeting being called is for 29 October. Cavatorta does not agree to the willingness of Nicoletta Zampillo, Leonardo’s wife, to introduce Francesco Milleri into Luxottica’s board. Under Nicoletta’s plan, Milleri would have been a co-CEO of Luxottica, which has a market cap of EUR 19bn.

Il Sole 24 Ore

Barrons : Rio Tinto Looks Attractive, Deal or No Deal


Rio Tinto Looks Attractive, Deal or No Deal

Dow Jones Global Indexes|Global Stock Markets
Mining giant Rio Tinto is a rough diamond due for a bit of a polish. The Anglo-Australian firm said last week that it had rejected a tentative takeover approach from commodities-trading powerhouse Glencore, but Rio’s shares can benefit from its focus on becoming a leaner, more efficient and cash-producing business.
Even if a combination with Glencore (ticker: GLEN.UK) doesn’t ultimately emerge, Rio’s stock (RIO.UK) can climb 20% in the next 12 months. Mergers and acquisitions interest, however tenuous, is just another reason to own it.
The London-based company—whose activities span iron ore, copper, aluminum, gold, and diamonds—has had a tough time lately as the industry has encountered a cyclical trough of weak prices and compressed margins. At Friday’s closing price of 29.65British pounds ($47.57), its shares are down more than 13% in 2014 and about 20% off their 52-week high. They trade at 9.2 times forecast 2015 earnings. The company is dual-listed, with shares also trading in Australia (RIO.Australia). It also has American depositary receipts that trade in New York under the ticker RIO.
Rivals command higher valuations. BHP Billiton (BLT) is at 11.4 times next year’s earnings, and Anglo American (AAL.UK) is at 10.3. Rio Tinto’s London-listed shares have traded at a multiple as high as 15 times in the past five years.
THERE’S NO DENYING that Rio Tinto is cheap. Glencore’s chief executive, Ivan Glasenberg, spied an opportunity to pick up a bargain and plug a hole in his company’s portfolio. Glencore has no experience in iron ore, which will account for as much as 70% of Rio Tinto’s projected earnings next year.
But a deal would be far from straightforward. For starters, Rio Tinto is bigger than Glencore by market value—£56 billion versus £42 billion. Glencore would be looking to use stock in a combined entity as currency in any transaction, but Rio Tinto shareholders could demand some value be produced in the form of cash. Glencore’s ratio of net debt to Ebitda (earnings before interest, taxes, depreciation, and amortization) of 2.74 times at the end of 2013 doesn’t allow much wiggle room, although Rio Tinto’s ratio of about one time would put a merged company on a stronger footing.
Synergies of about $3.5 billion would come from trading operations as well as physical copper and coal, according to Société Générale analyst Alain William. He reckons Glencore could win shareholder support with an offer of £40 to £45 a share, a premium of 33% to 50%.
Regulators would certainly pore over a deal, and divestitures could be required, but it’s a moot point for the moment. Rio Tinto said it rebuffed the approach in August, adding that no discussions with Glencore are taking place.
But Glasenberg is renowned for his persistence, so it would be no surprise to see him take another crack at Rio Tinto. Before making his approach, he reportedly sounded out the Chinese state-owned company that owns about 12% of Rio Tinto’s stock. That suggests he is serious.
Glencore’s interest could put additional pressure on Rio Tinto to increase shareholder returns, which will mean increased scrutiny on expenses. Under Sam Walsh, who was appointed CEO in January 2013, Rio Tinto has changed strategy to adjust to the challenging global economic environment. It now is focused on capital discipline and cash flow. It’s a big shift from a decade ago, when metals and minerals could be sold as quickly as they could be dug from the ground, and costs attracted less attention.
From 2012 levels, Rio cut $2.3 billion from operating costs last year and expects a reduction of $3 billion in 2014. As highlighted in Barron’s earlier this year (“Betting On BHP, Rio Tinto,” Feb. 24), Rio Tinto also is bringing capital expenditure under control. Capex is estimated at about $9 billion this year and $8 billion in 2015, less than half the $17.6 billion spent in 2012.
Those estimates could prove conservative. Deutsche Bank expects Rio Tinto to surprise positively on capex, as well as free cash flow and net debt. It rates Rio Tinto at Buy with a £46.40 price target.
This year, Rio Tinto is projected to earn £3.18 per share, or net income of $9.14 billion on sales of $48.57 billion. In 2015, EPS is forecast at £3.23. The stock offers a generous dividend yield of 4.1%.
Analysts are generally bullish on Rio Tinto. A consensus price target of £37.44 suggests upside of about 20%. Whether or not Glencore takes another run at it, Rio Tinto still looks like a gem.
EUROPEAN EQUITIES TUMBLED sharply last week on fears about the health of the euro-zone recovery, amid signs that the German economy is faltering. Germany’s benchmark DAX index fell 4.4%, taking losses for the year to 8%, as weak export and manufacturing data in the euro zone’s single largest economy added to concerns about the global outlook. Germany’s resilience has been a crutch for the common currency area in the past few years. The Stoxx Europe 600 index gave up 4.1% in a broad selloff. It is down 2% since Jan. 1.

WSJ : U.S.-Qatar Alliance Strains Coalition Against Islamic

U.S.-Qatar Alliance Strains Coalition Against Islamic

WASHINGTON--The Obama administration's alliance with Qatar is shaking the international coalition against extremist group Islamic State, according to U.S. and Arab officials who say the Gulf emirate's ties to powerful militant and Islamist groups in the Middle East are a problem.

Qatar's links with the main al Qaeda affiliate in Syria, Nusra Front, as well as with Hamas and the Taliban in Afghanistan, are heightening concerns in Washington and Arab capitals about the long-term intentions of the monarchy.

Diplomats from Washington's closest Arab allies, including Saudi Arabia, the United Arab Emirates and Jordan, have been warning the White House that Qatar is playing a double game in the region--publicly supporting U.S. policies while aiding its enemies. These countries have been pressing Washington to more forcefully reprimand Doha over those relationships.

Qatari officials declined to comment on the allegations.

Qatar is a critical cog in the latest U.S.-led Middle East war. It hosts the al-Udeid Air Base from where the Pentagon is launching many of its bombing strikes on Islamic State targets in Iraq and Syria.

Qatar is one of five Arab countries formally taking part in the American-led coalition. Its air force has provided surveillance and logistical support for the ongoing attacks on Islamic State, also known as ISIS or ISIL.

The U.S. Treasury also has increasingly voiced concerns about the alleged flow of Qatari money to Mideast militants, including Islamic State, Nusra Front and al Qaeda.

The concerns about support from within Qatar for the extremists comes on top of a deepening split among Washington's key Middle Eastern allies over the role of political Islam in the region, whether in Libya, Syria or the Palestinian territories.

The division largely pits Qatar and Turkey, vocal supporters of Islamist movements, against traditional Arab monarchies in Riyadh, Abu Dhabi and Amman.

The White House's Arab allies are warning the coalition fighting Islamic State risks fracturing unless all of its members commit equally to taking the necessary steps to combat the terrorist organization, primarily by ensuring that financial and diplomatic ties to extremist groups are cut.

"There must be a zero-tolerance policy" for the support of extremism, Jordan's King Abdullah told a United Nations Security Council meeting convened last month by the U.S. to coordinate the fight against Islamic State. Arab diplomats said the monarch's message was directed at Qatar and Turkey.

The Obama administration hasn't publicly charged Qatar's government of directly making these payments, but rather says it has been lax in regulating the finances of Qatari nationals, charities and Islamic organizations.

Treasury officials allege one wealthy Qatari businessman late last year transferred $2 million to a senior Islamic State commander in Syria who was in charge of recruiting foreign fighters.

Washington's allies also are concerned that, while Qatar has flown its planes as surveillance in bombing runs, it hasn't conducted airstrikes on extremist positions.

Qatari officials declined requests to discuss the Treasury Department's and Arab governments' allegations. But the country's ruler, Sheikh Tamim bin Hamad Al Thani, and its foreign minister have repeatedly denied any financial ties to Islamic State or other terrorist groups, while stressing Doha would continue to pursue an independent and activist foreign policy.

"Qatar can only follow a foreign policy that is independent of outside influence and this is something we are proud of," Qatari Foreign Minister Khalid bin Mohammad Al Attiya said in a speech at Princeton University late last month. "Often times, heavy criticism is the price that must be paid for taking a firm position on your beliefs."

The Obama administration has made Doha one of its closest diplomatic partners in navigating the turmoil that has spread across the Mideast since the Arab Spring revolutions erupted in late 2010.

During this time, the White House has used Qatar as a primary conduit to communicate with the very militant and extremist groups the U.S. has sought to weaken through its military, financial and diplomatic policies.

U.S. officials credit Doha with securing the release in May of the American army officer, Sgt. Bowe Bergdahl, whom the Taliban captured five years earlier. Qatar also brokered the August release of an American journalist, Peter Theo Curtis, kidnapped in Syria by Nusra Front.

Secretary of State John Kerry, meanwhile, repeatedly used Mr. Attiya this summer as a diplomatic channel through which to negotiate a cease-fire agreement with Hamas that was aimed at ending the Palestinian group's war with Israel.

Israeli, Egyptian and Saudi officials opposed the State Department's reliance on Doha, arguing it would only embolden Qatar to bolster its ties to organizations designated as terrorist entities by the U.S. But State Department officials argued Qatar and Turkey were the only nations with the financial and diplomatic leverage to pressure Hamas into make concessions.

"This particular effort now has been significantly assisted by the input of Qatar, the input of Turkey, and the willingness of these foreign ministers to engage directly with some of the Palestinian factions," Mr. Kerry said in a July press appearance with Mr. Attiya and Turkey's then-foreign minister, Ahmet Davutoglu, in Paris.

Mr. Kerry's words hinted at divisions within the Obama administration about its approach to Qatar and Hamas.

The U.S. Treasury Department has repeatedly, and publicly, criticized Qatar for financing Hamas. Current and former U.S. officials said Washington's ability to eliminate this support is undercut by the Obama administration's diplomatic reliance on Doha.

"American diplomacy has seen utility in having an ally who brokers with the bad guys when necessary," said Juan Zarate, a senior White House and Treasury official in the George W. Bush administration. "This is one of the assets the Qataris play."

The Treasury Department in recent weeks has continued to publicly air allegations of financial ties between Qatari interests and many of the Mideast's major terrorist and extremist groups.

Last month, Treasury sanctioned a Tunisian Islamic State leader who allegedly was facilitating the flow of foreign fighters into Syria with the support of Qatari money. Treasury said in its designation of Tariq Tahri Falih al-Awni al-Harzi that he had allegedly channeled roughly $2 million to Islamic State in September 2013 from a Qatar-based financier.

"The Qatar-based ISIL financial facilitator also enlisted Al-Harzi's assistance with fundraising efforts in Qatar," Treasury said. It added that the money raised needed to be used "for military operations only."

Treasury also sanctioned two Jordanian nationals, who carried Qatari identification papers, for allegedly working with a former Qatari central bank official to raise funds for al Qaeda in Pakistan and Iraq in recent years.

The Qatari man, Khalifa Muhammad Turki al-Subaiy, was sanctioned by the U.S. and United Nations in 2008 for terrorist financing and allegedly being an associate of the mastermind of the Sept. 11, 2001, attacks, Khalid Sheikh Mohammed. Qatar's government detained the man for around six months before releasing him, according to U.S. officials.

Current and former U.S. officials said they believe Qatar has been seeking to improve its ability to track and crack down on any funding of extremist groups from the country. But they also said that significantly more needs to be done.

"The designations are an attempt by Treasury to deal with Qatari funding, " said Mr. Zarate. "They wanted to reveal what they knew about money transfers."

>>>US Close Dow-0,69% S&P-1,15% Nasdaq -2,32% Russell-1,37%

Closing Market Summary: Stocks Slump to End Cautious Week

The stock market finished a defensive week on a cautious note. The S&P 500 lost 1.2% while the Nasdaq Composite (-2.3%) lagged throughout the session. The two indices ended the week with respective losses of 3.1% and 4.5%.

The key indices were pressured from the start amid big losses in the semiconductor space after Microchip Technology (MCHP 39.96, -5.59) issued a revenue warning, which was coupled with the company's nettlesome view that an industry correction is at hand. Part of Microchip's view was formed from the understanding that its business in China, which is traditionally the strongest in the third quarter and accounted for 29% of net sales in fiscal 2014, saw a sequential decline in sales this time around. Shares of MCHP sank 12.3%.

The comments led to broad weakness among chipmakers with the PHLX Semiconductor Index plunging 6.9%. The index dove below its 200-day moving average (594.27) and was down as much as 7.7% before finishing the day near April lows. The top-weighted index component—Intel (INTC 31.91, -1.71)—lost 5.1% while Cree (CREE 30.77, -0.09) withstood the bulk of the selling. That being said, the stock entered today's session with an October loss 24.6%.

Meanwhile, the remainder of the tech sector showed few signs of strength. Apple (AAPL 100.73, -0.29) shed 0.3%, but other heavyweights like Facebook (FB 72.91, -3.00), Google (GOOGL 555.19, -15.62), and Microsoft (MSFT 44.03, -1.82) lost between 2.9% and 4.0%.

Outside of technology, the materials sector (-1.5%) also lagged throughout the day with steelmakers pacing the slide. The Market Vectors Steel ETF (SLX 40.97, -1.15) lost 2.7%. Similarly, industrials (-1.5%) were unable to catch up to the broader market amid weakness in transport stocks. The Dow Jones Transportation Average fell 2.0% to cap a rough week that saw the bellwether complex lose 6.9%.

The remaining cyclical sectors showed some intraday strength, allowing the S&P 500 to make a short-lived appearance in the green. However, the index slumped to new lows over the course of the afternoon.

Likewise, the Dow Jones Industrial Average (-0.7%) spent some time in the green, but the intraday strength among blue chips faded into the close. The index was able to finish ahead of the broader market thanks to gains in consumer names like Coca-Cola (KO 44.47, +0.60), Procter & Gamble (PG 84.69, +1.03), and Wal-Mart (WMT 78.29, +0.43). For its part, the consumer staples sector added 0.5% to match the gain in the utilities sector. Despite its outperformance, the Dow surrendered its 2014 advance.

Also of note, the Dollar Index (85.90, +0.38) rose 0.4%, posting its second consecutive advance. However, today's rally could not save the index from registering a 0.9% loss for the week.

Treasuries spent the bulk of the day near their flat lines before rallying into the close. The 10-yr yield slipped two basis points to 2.29%.

Once again, participation was above average with more than 920 million shares changing hands at the NYSE.

Investors received just one economic report this morning:

* Export prices, excluding agriculture, decreased 0.2% in September after decreasing 0.2% in the prior reading 

* Excluding oil, import prices ticked down 0.1%, which followed last month's unchanged reading 

There is no economic data of note on Monday's schedule.

* S&P 500 +3.1% YTD  * Nasdaq Composite +2.4% YTD  * Dow Jones Industrial Average -0.2% YTD  * Russell 2000 -9.3% YTD