TheChek News Flow

Asian Market Update: China PMIs diverge again with official rebounding and HSBC declining; RBA acknowledges housing pickup and cautious investment sentiment

***Economic Data*** - (CN) CHINA MAR MANUFACTURING PMI: 50.3 V 50.1E (1st rise in four months) - (CN) CHINA MAR FINAL HSBC MANUFACTURING PMI: 48.0 V 48.1E (3rd contraction and 8-month low) - (AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 2.50% (AS EXPECTED) - (AU) AUSTRALIA MAR AIG PERFORMANCE OF MANUFACTURING INDEX: 47.9 V 48.6 PRIOR (5th consecutive month of contraction) - (JP) JAPAN Q1 TANKAN LARGE MANUFACTURING INDEX: 17 V 19E; LARGE ALL INDUSTRIAL CAPEX: 0.1% V 0.0%E; LARGE MANUFACTURING OUTLOOK: 8 V 13E - (JP) JAPAN FEB LABOR CASH EARNINGS Y/Y: 0.0% V -0.1%E - (JP) JAPAN FEB LOANS & DISCOUNTS CORP: 2.2% V 2.3% PRIOR - (KR) SOUTH KOREA MAR TRADE BALANCE: $4.2B V $3.9BE - (KR) SOUTH KOREA MAR HSBC MANUFACTURING PMI: 50.4 V 49.8 PRIOR - (KR) SOUTH KOREA MAR CPI M/M: 0.2% V 0.3%E; Y/Y: 1.3% V 1.4%E (17th month below 2.5-3.5% target band); CORE CPI Y/Y: 2.1% V 1.7% PRIOR

Market Snapshot (as of 03:30 GMT): - Nikkei225 -0.3%, S&P/ASX -0.2%, Kospi flat, Shanghai Composite +0.3%, Hang Seng +0.9%, Jun S&P500 +0.1% at 1,865, Jun gold flat at $1,284, May crude oil -0.3% at $101.32/brl

***Highlights/Observations/Insights*** - China twin manufacturing PMIs once again revealed a divergence - the official figure suggesting a modest rebound in the performance of the larger state-owned enterprises, while the HSBC final print sank to a new 8-month low, presumably reflecting softer performance by the smaller firms. Analysts appear to be siding with the more cautious view, which is actually boosting local equity markets on rising expectation of a more proactive fiscal response by the State Council. HSBC chief economist reiterated that view, noting the latest figure "implies that 1Q GDP growth is likely to have fallen below the annual growth target of 7.5%. We expect Beijing to fine-tune policy sooner rather than later to stabilise growth." - Separately in China, 21st Century Business Herald reported construction firm Xuzhou Zhongsen Tonghao has defaulted on about CNY180M in interest payments, which is the first private equity debt default in China.

- Bank of Japan released its quarterly Tankan survey results for Q1. While the current quarter conditions improved from Q4, the outlook for the next quarter suggests a notable slowdown. Japan Fin Min Aso remarked after the data that the Tankan shows economy benefiting from Abenomics, but still requiring a steady implementation of short-term support measures.

- Reserve Bank of Australia held policy rates at 2.50% as expected, and also offered a mixed/neutral accompanying statement. RBA acknowledged the pickup in housing, adding "recent information foreshadows a solid expansion in housing construction", but also noted firms wait for more evidence of improved conditions before committing to expansion plans. RBA also reiterated that FX rate remains high by historical standards and added early signs point to a China slowdown thus far in 2014. AUD/USD spiked to fresh 4-month highs after the decision above $0.93 but quickly reversed those gains to fall below $0.9260.

***Fixed Income/Commodities/Currencies*** - JGB: (JP) Japan MoF sells ¥2.18T in 0.6% (0.6% prior) 10-yr notes; Avg yield: 0.634% v 0.597% prior; Bid to cover: 4.76x (highest since Feb 2005) v 3.52x prior - (CN) PBoC to drain CNY50B in 14-day repos, CNY22B in 28-day repos (12th consective drain) - SLV: iShares Silver Trust ETF daily holdings rise to 10,212 tonnes from 10,164 tonnes prior (highest since Dec 2013) - GLD: SPDR Gold Trust ETF daily holdings fall 3.9 tonnes to 813.1 tonnes (lowest since Mar 20th) - USD/CNY: (CN) PBoC sets yuan mid point at 6.1503 v 6.1521 prior setting (first stronger CNY setting in 5 sessions)

***Equities*** US markets: - BAC: US Judge said to have recommended SEC lawsuit over $855M mortgage securities to go forward - financial press; +0.1% afterhours - YHOO: Reportedly could pay up to $300M for acquisition of online video service News Distribution Network Inc as Yahoo works to build YouTube competitor - financial press; flat afterhours - GM: Recalls over 1.3M cars in US due to power steering issues; recalls to cost up to $750M in Q1 - financial press; -0.3% afterhours - ARTX: Reports Q4 -$0.03 v $0.02e, R$20.9M v $21.7Me (only 1 est.); -15.6% afterhours

Notable movers by sector: - Consumer Discretionary: Bright Dairy & Food 600597.CN -2.2% (FY13 results); Capcom Co 9697.JP -7.8% (revises FY13/14 outlook); Seven West Media SVW.AU -5.0% (analyst action) - Financials: Evergrande Real Estate Group 3333.HK +5.7% (FY13 results); Haitong Securities 6837.HK +1.6% (in talks with Alibaba and Jingdong.com on cooperation); Industrial Bank 601166.CN -2.0% (FY13 results) - Energy: Shanxi Xishan Coal & Electricity Power 000983.CN +0.8% (FY13 results) - Industrials: Xiamen Savings Environmental 300056.CN +2.3% (FY13 results); Virgin Australia VAH.AU +2.7% (Feb operating results); Guangxi Liugong Machinery 000528.CN +2.9% (FY13 results) - Utilities: Hokkaido Electric Power 9509.JP -8.6% (govt to make cash infusion)

After Hours Summary: DHRM +4.3%, VRNT +4.2%, THTI +2.7%, YOD -14.7%, ARTX -12.2%, CUI -9.1% following earnings/guidance

After Hours Gainers: Companies trading higher in after hours in reaction to earnings: - DHRM +4.3%, VRNT +4.2%, THTI +2.7%, LJPC +2.6%, NGLS +1.3%, EGAS +1.3%, BVX +1.3%

Companies trading higher in after hours in reaction to news: - DRTX +7.3% (confirmed FDA Advisory Committee unanimously recommended approval of Dalvance for the treatment of acute bacterial skin and skin structure infections), - AMRN +2.2% (co and Kowa Pharmaceuticals America announced a U.S. Co-Promotion agreement for Vascepa (icosapent ethyl) Capsules), - KGC +2.2% (released Tasiast expansion feasibility study: 3.1 million ounce increase in estimated mineral reserves to 9.6 million ounces), - FST +1.6% (announced pudate to credit facility), - DBLE +1.4% (announced changed to Escalera Resources; begins trading under ticker symbol 'ESCR' effective April 1; announces strategic update conference call), - GALT +1.2% (announced that first cohort results in co's Phase 1 trial reveal biomarker evidence of therapeutic effect on fibrosis and inflammation in NASH with advanced fibrosis)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: - YOD -14.7%, ARTX -12.2%, CUI -9.1%, KGJI -3.0%, CLDN -1.5%, XON -1.1%, KINS -0.9%

Companies trading lower in after hours in reaction to news: - MDCO -12.2% (trading lower following FDA Advisory Committee support for bacterial skin infection products from Durata (DRTX) and Cubist (CBST)), - MDVN -5.3% (named Rick Bierly Chief Financial Officer following retirement of Patrick Machado), - MDR -2.8% (announced public offering of 10 mln tangible equity units, each with a stated value of $25), - QCRH -0.9% (announced redemption of $15 mln of small business lending fund preferred stock)

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Danone Swallowing Mead Johnson Would Challenge Nestle: Real M&A 2014-04-01 00:23:52.909 GMT

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

By Brooke Sutherland April 1 (Bloomberg) -- Buying Mead Johnson Nutrition Co. is one way for Danone to break Nestle SA’s lock on the baby-food industry. Danone could help finance a purchase with proceeds from shedding its medical nutrition unit, said Credit Suisse Group AG. The $45 billion company is weighing a sale of the business in a deal that may bring in more than 3 billion euros ($4.1 billion), according to a person familiar with the matter. Nestle bought Pfizer Inc.’s baby nutrition division in 2012. Earnings at Danone, a distant second to Nestle in baby food, dropped 15 percent last year as a botulism scare hurt formula sales in Asia. The company’s struggles may increase its interest in Mead Johnson, which has boosted revenue almost 50 percent since its 2009 spinoff from Bristol-Myers Squibb Co., said Berenberg Bank. Mead Johnson, which has been speculated as a target since the spinoff, may cost about 15 billion euros, said Jefferies Group LLC. While a deal would be expensive, “Mead Johnson would be a very good buy,” Ingrid Yin, a New York-based analyst at Oppenheimer Holdings Inc., said in a phone interview. “It’s a pure play. All their focus is on infant and children nutrition. It can be attractive in many companies’ eyes.” Representatives for Mead Johnson, the $17 billion company based in Glenview, Illinois, and Paris-based Danone declined to comment.

Cash Proceeds

Danone is working with JPMorgan Chase & Co. on a potential sale of its medical nutrition unit, a person familiar with the matter said in February, asking not to be identified because the talks are private. The division, which sells Fortimel supplements to treat malnutrition, was acquired as part of a takeover of Royal Numico NV that also gave Danone brands including Nutricia and Cow & Gate. A price tag of more than $5 billion is possible for the medical nutrition unit, according to Alex Molloy, a London-based analyst at Credit Suisse. Should Danone sell it, one use for the cash is investing in its baby division with a bid for Mead Johnson, Molloy wrote in a March 26 report. “It makes sense to us that the division would be Danone’s investment priority,” the analyst wrote. “Having missed out on Wyeth, Mead Johnson represents one of the few remaining opportunities for Danone to challenge Nestle for global leadership of the infant nutrition category.”

Top Seller

Nestle edged out Danone to acquire Pfizer’s Wyeth baby-food business in 2012 and increase its lead as the top seller of infant nutrition products. Its offer of $11.9 billion topped a bid of more than $11.6 billion from the world’s largest yogurt maker, a person familiar with the matter said at the time. Before that deal, Mead Johnson was speculated as a potential target for Nestle, Danone and H.J. Heinz Co. In September 2009, Danone denied a report that it was weighing a bid for the maker of Enfamil baby formula. Danone may be more keen on a deal for Mead Johnson now, said James Targett of Berenberg. The yogurt maker’s sales are poised to grow by about 1 percent this year, the worst since 2009, according to data compiled by Bloomberg. Mead Johnson’s revenue will increase 24 percent over the next three years, according to analysts’ estimates compiled by Bloomberg. “It’s an even more compelling strategic rationale than it was,” Targett, a London-based analyst at Berenberg, said in a phone interview. “I think ultimately it comes down to if they can afford it.”

‘Good Growth’

Buying Mead Johnson would give Danone more of a presence in the U.S. baby-food market and bolster its position in China, where sales have been pressured after a supplier warned of botulism-causing bacteria in milk powders, spurring a recall, said Amit Sharma, a New York-based analyst at Bank of Montreal. The scare turned out to be a false alarm. “You can see why it would be appealing for Danone to acquire a very large baby-food business,” Sharma said in a phone interview. “It gives them good growth.” The challenge will be convincing Chinese regulators to approve a deal, the analyst said. Regulators probably wouldn’t support “too much consolidation in the hands of some producers, especially in China where everybody is trying to become bigger,” Sharma said.

Not Cheap

A deal for Mead Johnson, whose shares have almost tripled in the past five years, would also be expensive and could require equity financing, said Molloy of Credit Suisse and Targett of Berenberg. Jefferies analyst Alex Howson’s estimated price tag of about 15 billion euros values Mead Johnson at one of the highest profit multiples paid in a food deal of more than $10 billion, according to data compiled by Bloomberg. Danone may prefer to do smaller acquisitions in Asia, said David Hayes, a London-based analyst at Nomura Holdings Inc. After the botulism scare in Asia, “it’s taken a while to get the brand equity that was there repaired,” Hayes said in a phone interview. “If you could find an asset that would give you, in a more surgical way, very direct help without having a lot of baggage with it, then you would take the opportunity.” Even so, Danone needs a big transaction if it has any hopes of becoming a leader in baby formula, according to Molloy of Credit Suisse. “While a tie-up wouldn’t be without challenges and without a partner it would stretch Danone’s financial resources, it would also be the only realistic way to challenge Nestle,” the analyst wrote.

For Related News and Information: Danone Sees Second-Half Rebound After Full-Year Earnings Slump NSN N1AI5X6VDKHX <GO> Danone Said to Consider Sale of Medical Nutrition Division NSN N0XMPE6VDKHS <GO> Danone’s Growth Goals Set Back Six Months After Recalls in Asia NSN MURDS81A74E9 <GO> Danone deal news: BN FP <Equity> TCNI MNA <GO> Top deal news: DTOP <GO> Real M&A Columns: NI REALMNA <GO>

--With assistance from Andrew Roberts in Paris.

To contact the reporter on this story: Brooke Sutherland in New York at +1-212-617-0448 or bsutherland7@bloomberg.net To contact the editors responsible for this story: Beth Williams at +1-212-617-2307 or bewilliams@bloomberg.net Whitney Kisling