(BN) Telefonica Faceoff in Brazil Portends GVT Bidding War: Real M&A


Telefonica Faceoff in Brazil Portends GVT Bidding War: Real M&A
2014-08-26 22:21:20.259 GMT


(For a Real M&A column news alert: {SALT REALMNA <GO>}.)

By Rodrigo Orihuela and Daniele Lepido
Aug. 27 (Bloomberg) -- The chance to gain control of one of
Brazil’s fastest-growing Internet providers has former European
phone allies Telefonica SA and Telecom Italia SpA preparing for
a bidding war.
Madrid-based Telefonica’s lower debt burden relative to
profit, higher credit rating, and larger market value may give
it more financial flexibility than Telecom Italia as it looks to
purchase Vivendi SA’s Brazilian broadband unit GVT. Telefonica,
which this month offered 6.7 billion euros ($8.8 billion) for
GVT, is now considering an even higher bid before a potential
counterproposal from Milan-based Telecom Italia, according to a
person with knowledge of the matter.
“It will be Telecom Italia that will have to give up if
Telefonica is aggressive enough to increase the bid,” Erhan
Gurses, an analyst at Bloomberg Intelligence, said in a phone
interview. Telecom Italia “has a really high debt level so
obviously they want to have a stock-based offer to avoid raising
so much debt.”
Telecom Italia is preparing a counterbid valued at as much
as 7 billion euros to merge GVT with Tim Participacoes SA, its
Brazilian division, people with knowledge of the plan said last
week. Telecom Italia’s board is scheduled to discuss its GVT bid
today.
Telefonica and Telecom Italia, which joined forces seven
years ago and have since grown estranged amid a management
fallout, are vying for GVT to strengthen their positions in one
of their biggest markets amid flagging revenue at home.
Telefonica’s improved offer could potentially value GVT at as
much as 8 billion euros, representing a premium to the average
profit multiple paid in comparable deals in the past five years,
according to data compiled by Bloomberg Intelligence.

‘Valuable Player’

“GVT is a valuable player,” said Cyrus Mewawalla,
director of research at London-based CM Research. “It offers
broadband, cable television and telephone services,” helping an
acquirer gain scale in a number of related markets.
Telefonica may present a revised bid for GVT ahead of
Vivendi’s scheduled board meeting tomorrow, said the person with
knowledge of the matter, asking not to be identified because the
deliberations are confidential. No final decision has been made,
and Telefonica’s board could decide to stick with its current
offer, the person said.
Representatives for Telefonica, Telecom Italia and Paris-
based Vivendi declined to comment.
Telefonica has an indirect stake in Telecom Italia through
its holdings in Telco SpA. The investment vehicle was formed in
2007 to take a stake in Telecom Italia, thwarting a takeover bid
from AT&T Inc. and Carlos Slim’s America Movil SAB.

GVT Bid

Telefonica, which has spent billions since 2000 in Latin
America, approached GVT in 2009 and lost out to Vivendi. This
month, it offered the French company 6.7 billion euros, mostly
cash, in a proposal to combine Telefonica’s Brazilian unit with
GVT.
Vivendi said on Aug. 5, after Telefonica’s bid, that none
of its units are for sale, though its board would consider
Telefonica’s offer.
The Spanish carrier’s offer followed an attempt to split
Telecom Italia’s Tim between three operators to address
regulatory concerns stemming from its stake in the Italian
carrier. Brazil’s antitrust watchdog has ordered Telefonica to
resolve the conflict of interest, either by reducing its own
local holdings, including through a sale of its Telecom Italia
stake, or by persuading Telecom Italia to divest its own
operations there.

Stage Set

While Telefonica pressured Telecom Italia to consider the
latter option, Chief Executive Officer Marco Patuano prefers to
keep Tim and expand it by combining with GVT, people familiar
with the matter said in May. Now the stage is set for the two
companies to go head to head in the quest for control of GVT.
As part of its GVT bid, Telefonica offered Vivendi a right
to buy a stake of about 8 percent in Telecom Italia, which would
bring Telefonica’s holding in the company close to zero.
Telecom Italia and Vivendi also have an indirect link,
through Vivendi Chairman Vincent Bollore. The magnate also heads
France’s Bollore Group, a stakeholder in Mediobanca SpA, which
in turn is one of the four partners in Telecom Italia’s largest
investor group Telco.

Debt Load

Telecom Italia’s 3.56 ratio of net debt to earnings before
interest, taxes, depreciation and amortization is the highest
among Western European peers with a market value greater than
$10 billion. Telefonica by contrast has a leverage ratio of
about 2.6 and is assigned a credit rating of Baa2 by Moody’s
Investors Service, two levels above Telecom Italia at Ba1.
Given its debt level, Telecom Italia will be pushed to
finance an offer with its own stock, while Telefonica has cash
available to pay for the deal, according to Daniel Isidori, a
fund manager at Threadneedle Asset Management Ltd.
“I think that what will happen is that Telefonica will
look at Telecom Italia’s balance sheet and based on that decide
how much to offer,” Isidori said in a phone interview. Isidori
said the fund doesn’t currently hold Brazilian phone operators.
Acquiring GVT would offer Telefonica a larger stake in the
fixed-line broadband market in Brazil and strengthen its ability
to compete with America Movil and Oi SA in so called bundle
packages -- subscription packages that include fixed- and
mobile-phone, pay-TV and Internet.

Other Bidders

GVT also could attract interest from AT&T after the U.S.
carrier agreed to acquire DirecTV in May, Deutsche Bank AG
analysts said in a note in May. DirecTV has more than 5 million
pay-TV subscribers in Brazil.
Even as the Brazilian broadband market booms, competition
there is also intensifying, meaning an acquirer paying too much
will fail to earn a return for the investment. Seeking a deal in
Brazil through a bidding war is part of an aggressive strategy
that may not be in investors’ best interests, said Daniel
Lacalle, a senior portfolio manager at Ecofin Ltd.
“Sometimes companies become obsessed with being present in
a market just to position themselves and grab income,” Lacalle
said in a phone interview from London. “This can be risky.”
Still, a Telefonica acquisition would shield it from
renewed competition with Telecom Italia, which doesn’t have a
broadband presence in the sector currently even though it is the
second-largest mobile-phone operator in Brazil.
“Brazil offers growth perspectives, it’s an emerging
market,” said Gurses of Bloomberg Intelligence. “If the market
moves to convergence, whereby you sell products in bundles, then
this will be bad” for Telecom Italia.

For Related News and Information:
Telefonica Board Said to Discuss Improving GVT Offer This Week
NSN NAX2QI6S9729 <GO>
Telefonica Offers $9 Billion for Vivendi Brazilian Unit GVT
NSN N9UCSF6TTDSH <GO>
Telecom Italia Said to Prepare GVT Bid of Up to $9.4 Billion
NSN NAIUIL6S972D <GO>
Goldman, Credit Suisse Said to Work With GVT on Sale Process
NSN NAEUZY6K50XS <GO>
Brazil deal news: TNI BRAZIL MNA <GO>
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>

--With assistance from Manuel Baigorri in London and Brooke
Sutherland in New York.

To contact the reporters on this story:
Rodrigo Orihuela in Madrid at +34-91-700-9647 or
rorihuela@bloomberg.net;
Daniele Lepido in Milan at +39-02-8064-4266 or
dlepido1@bloomberg.net
To contact the editors responsible for this story:
Kenneth Wong at +49-30-70010-6215 or
kwong11@bloomberg.net;
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Beth Williams

WSJ : Snapchat Fetches $10 Billion Valuation

Snapchat Fetches $10 Billion Valuation Kleiner Perkins Investment Gives the Messaging Service a Shot in the Arm

Kleiner Perkins Caufield & Byers has agreed to invest in Snapchat Inc., an ephemeral messaging service, at close to a $10 billion valuation, people with knowledge of the matter said.

More Snapchat Said to Have More Than 100 Million Monthly Active Users Snapchat, which has talked to several potential investors in recent months, is in the process of raising a large investment round that would make it one of the most valuable private, tech startups despite virtually no revenue.

The venture-capital firm committed to invest up to $20 million in May, one person added.

At least one strategic investor has also committed to invest in the round, which isn't yet closed, two of the people said.

A spokeswoman for Kleiner Perkins wasn't immediately available for comment.

WSJD is the Journal's home for tech news, analysis and product reviews.

Amazon's Play: Videogames as Sport For Steve Ballmer's Next Act, a $2 Billion Impulse Buy Google Search Results Are Disrupted by Repeating Image Blacks, Latinos Dominate Silicon Valley's 'Invisible Workforce' A Snapchat spokeswoman said: "The valuation of our business and our capital requirements are the least exciting aspects of supporting the Snapchat community. We have no further comment at this time."

Snapchat's valuation, at about $2 billion last year, has soared even as the startup lacks a clear business model. Investors see potential to make money from the millions of teenagers and college students on the three-year-old app, a group that is highly coveted by advertisers and increasingly difficult to reach through traditional media like television and magazines.

New capital could help Snapchat gear up for its first foray into advertising, expected later this year. The company has held talks with media companies and advertisers in recent weeks about a new content service called Snapchat Discovery, a person familiar with the matter told The Wall Street Journal earlier this month. The service that would let users read daily editions of publications, video clips and ads by holding down a finger on the screen, like they do with photos and other messages on the app before disappearing.

>>> US Close Dow+0,17% S&P+0,10% Nasdaq +0,29%

Closing Market Summary: Small Caps Lead Stocks Higher

Equity indices ended the Tuesday session on an upbeat note with small-cap stocks pacing the advance. The Russell 2000 jumped 0.9%, while the S&P 500 posted a slim gain of 0.1% with seven sectors ending higher.

In some ways, today's session resembled yesterday's affair as the key indices climbed out of the gate, reached their highs during the first half of action, and spent the remainder of the session in a slow retreat from their best levels of the day. Trading volume was light once again, but today's session generated a bit more activity (501 million) than what was observed yesterday.

Biotechnology outperformed for the second day in a row with the iShares Nasdaq Biotechnology ETF (IBB 275.71, +3.08) climbing to a new record high. The ETF rose 1.1%, while the health care sector (+0.4%) was the only outperformer among countercyclical sectors.

Meanwhile, the cyclical side fared a bit better with energy (+0.5%) and financials (+0.3%) spending the entire session ahead of the broader market. Energy rebounded from recent underperformance, while crude oil added 0.5% to $93.85/bbl.

For its part, the financial sector received support from heavily-weighted components like Citigroup (C 52.13, +0.50) and JPMorgan Chase (JPM 59.74, +0.40). Similarly, foreign banks fared well with the likes of Deutsche Bank (DB 34.55, +0.66) and UBS (UBS 17.96, +0.11) posting respective gains of 2.0% and 0.6%.

The remaining cyclical sectors ended on a mixed note with consumer discretionary (+0.1%) and technology (+0.1%) finishing right behind the S&P 500, while industrials (-0.3%) settled in the red.

In the discretionary space, shares of Best Buy (BBY 29.80, -2.19) fell 6.9% after the company's cautious second-half outlook masked better than expected earnings. On the flip side, DSW (DSW 30.99, +2.62) soared 9.2% in reaction to strong results. Overall, retailers displayed strength with the SPDR S&P Retail ETF (XRT 89.17, +0.66) climbing 0.8%.

On the downside, the industrial sector lagged amid weakness in transport stocks. Alaska Air (ALK 46.28, -0.61) and Delta Air Lines (DAL 39.90, -0.62) both lost near 1.4%, while the Dow Jones Transportation Average shed 0.4%.

Treasuries ended little changed after surrendering their overnight gains. The 10-yr yield finished at 2.39%.

Also of note, Presidents of Russia and Ukraine met in Minsk today for the first time since the conflict between the two governments broke out. The meeting did not produce any results, but both parties have agreed to return to the capital of Belarus for future talks.

Economic data included Durable Orders, FHFA Housing Price Index, Case-Shiller 20-city Index, and Consumer Confidence:

* Durable goods orders soared 22.6% in July after increasing an upwardly revised 2.7% (from 1.7%) in June, while the Briefing.com consensus expected an increase of 7.0% 

* The headline surge was due to Boeing (BA 128.60, +0.27) reporting record-setting orders in July, which resulted in a 318% increase in orders of nondefense aircraft and parts, leading to an outsized 74.2% increase in transportation orders  * Excluding transportation, orders fell 0.8%, while the consensus expected an increase of 0.6% 

* The June Housing Price Index from the FHFA rose 0.4%, which followed a revised increase of 0.1% observed during the prior month (from 0.4%)  * The Case-Shiller 20-city Home Price Index for June rose 8.1%, while an 8.3% increase had been expected by the Briefing.com consensus  * The Conference Board's Consumer Confidence Index rose to 92.4 in August from a downwardly revised 90.3 (from 90.9) in July, while the consensus expected a decline to 88.3 

* The Present Conditions Index increased to 94.6 in August from 87.9 in July, while the Expectations Index fell to 90.9 from 91.9 

Tomorrow's economic data will be limited to the weekly MBA Mortgage Index, which will be released at 7:00 ET.

* Nasdaq Composite +9.4% YTD  * S&P 500 +8.2% YTD  * Dow Jones Industrial Average +3.2% YTD  * Russell 2000 +1.0% YTD

(BFW) Apple Said to Prepare New 12.9-Inch IPad for Early 2015 Release



Apple Said to Prepare New 12.9-Inch IPad for Early 2015 Release
2014-08-26 18:52:39.347 GMT


By Jeran Wittenstein
Aug. 26 (Bloomberg) -- Apple suppliers are preparing to
manufacture the largest-ever iPad with production scheduled to
start by 1Q of next year, people familiar tell Bloomberg’s Tim
Culpan, Adam Satariano and Ian King.
* AAPL currently makes iPads with 9.7-inch and 7.9-inch
displays
* AAPL has been working with suppliers for at least a year to
develop a new range of larger devices
* AAPL spokeswoman declined to comment
* NOTE: Suppliers have recently started making an updated 9.7-
inch screen iPad and were also set to enter productin of a
new version of the iPad mini, people familiar have said;
those devices are set to be available in time for this
holiday season
Full story: NSN NAXGBB6TTDS7 <GO>


For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Jeran Wittenstein in San Francisco at +1-415-617-7203 or
jwittenstei1@bloomberg.net
To contact the editor responsible for this story:
Arie Shapira at +1-212-617-1488 or
ashapira3@bloomberg.net

WSJ : Berkshire to Pay U.S. Tax Rate on Burger King Investment

Berkshire to Pay U.S. Tax Rate on Burger King Investment
Fast-Food Chain to Buy Tim Hortons, Set Headquarters in Canada

Warren Buffett's Berkshire Hathaway Inc. BRKB +0.35% will pay the U.S. corporate tax rate on any income it receives from helping to finance Burger King's BKW +19.51% planned takeover of Canadian coffee-and-doughnuts chain Tim Hortons, THI.T +19.26% according to a person familiar with the deal.

Under the agreement, announced Tuesday morning, the merged company will be based in Canada. For Berkshire, which is providing $3 billion of the total $12.5 billion in financing for the deal, there won't be significant tax savings by having the company based in Canada, the person said.

Although Canada has a lower corporate tax rate than the U.S., the parties are likely to say that a lower corporate-ax bill isn't the motivator for this particular combination.

Combined federal and state corporate taxes for Canada are in the neighborhood of 27%, while in the U.S. they are closer to 40%.

If the deal goes through, Berkshire will get preferred stock in the combined Canadian company, according to the person familiar with the deal. The preferred shares will pay Berkshire a dividend at a high interest rate.

However, since Berkshire is a U.S. company based in Omaha, Neb., it would pay U.S. federal corporate taxes at the rate of 35% on the dividend amount. Canada's federal corporate income-tax rate is about 15%.

Mr. Buffett drove a hard bargain during negotiations, even though Berkshire is a passive equity investor and won't have an operational role.

Berkshire has structured its portion of the deal so that it gets compensated for more than $50 million in higher taxes it expects to pay as a U.S. financier, the person familiar with the matter said. In other words, the combined Burger King-Tim Hortons will help subsidize Berkshire's higher tax bill.

Burger King's controlling shareholder, 3G Capital Management, likely obliged Mr. Buffett's demands because the two are already partners. As another person familiar with the matter said, "it doesn't hurt to be associated with Berkshire."

Last year, Berkshire and 3G teamed up to buy ketchup maker H.J. Heinz for $23 billion, and that partnership is said to be doing well.

Also, part of the reason for getting Berkshire involved is to keep Burger King's current debt rating, one of the people said. Preferred-share investments usually get counted as equity rather than debt.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: DSW +11.7%, PINC +2.1%, DAKT +0.9%.

M&A news: THI +11.8% (Tim Hortons shareholders will receive C$65.50 in cash and 0.8025 common shares of the new company per Tim Hortons share from BKW), BKW +4.2% (also, Warren Buffet (BRK.B) plans to invest in Tim Horton's (THI) & BKW deal, according to reports).

Select pharma/biotech related names showing strength: BABY +13%, ENZN +5.2%, IDRA +4.9%, ACHN +4.5%, DNDN +4.5%, PVCT +4.5%, ICPT +3.2%, REGN +1.6%, TKMR +1%.

Select metals/mining stocks trading higher: IGLD +2%, GDX +1.4%, ABX +1.3%, GFI +1.2%, SLV +1.1%, GOLD +1.1%, AEM +0.9%, KCG +0%, .

Other news: GENE +18.3% (announced earlier further patent success in USA), KITE +16% (announced patients with aggressive non-Hodgkin's lymphoma experience positive results afte rreceiving anti-CD19 chimeric antigen receptor T Cells; 12 out of 13 evaluable patients had complete remissions or partial remissions), ZGNX +15.4% (Armistice Capital discloses 5.9% passive stake in 13G filing) DGLY +13.2% (following 50%+ move higher yesterday), MNOV +12% (to initiate clinical trial of MN-166 (ibudilast) in ALS ), KNDI +8.8% (China will consider $16 bln in funding for electric vesicles, according to reports ), PE +3.4% (acquired Midland Basin assets for ~$252 mln;), CMTL +2.6% (confirmed it is exploring strategic alternatives), PINC +2.1% (announced the acquisition of Aperek, Inc. for $48.5 mln in cash; co also reported earnings), PT +1.6% (still checking), AMKR +1.1% (poisitve Mad Money Mention), NEM +1.1% (mining arbitration case against Indonesia has been withdrawn, according to reports).

Analyst comments: MBLY +3.7% (initiated with an Overweight at Barclays, initiated with an Outperform at William Blair, among others), MT +3.2% (upgraded to Buy from Sell at UBS), VE +2.4% (upgraded to Outperform from Neutral at Exane BNP Paribas), ENPH +2.2% (initiated with a Buy at Needham), MPEL +1.6% (upgraded to Overweight from Equal-Weight at Morgan Stanley), PCYC+1.2% (Hearing positive comments at Deutsche Bank related to prospects of Imbruvica)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: ADEP -17.4%, KANG -16.3%, TSL -8.8%, SAFM -6.2%, MOV -4.3%, BBY -3.7%, PSEC -3.5%.

Other news: DRL -19.1% (Co disclosed that it was unable to reach a settlement agreement with Treasury of Puerto Rico), ASTI -7.7% (announced 1-for-10 reverse stock split), COCO -5.9% (disclosed it expects a $55-59 mln impairment charge; co also disclosed it continues to need to obtain additional sources of liquidity), BLMN -2.7% (negative Mad Money Mention), RWC -2.4% (following late strength on story that FBI has scuttled a contested $500 mln deal with Motorola), NES -1.7% (announced that VeroLube has proposed a reduction in the purchase price of Thermo Fluids to $145 mln from $175 mln), ROYT -0.9% (declared a September cash distribution of $0.11417 per unit, 14% below prior months distribution of $0.13234 per unit).

Analyst comments: ARCO -1.8% (downgraded to Neutral from Buy at BofA/Merril), SPG -0.4% (downgraded to Market Perform from Outperform at BMO Capital Mkts).