TheChek News Flow

Billionaires battle for market share

The battle of the French billionaires is hotting up. Martin Bouygues, head of the number three mobile operator in France, has mounted a €15.5bn bid for number two SFR, owned by Vivendi, in which Vincent Bolloré is the largest shareholder. Another billionaire, Patrick Drahi, is determined to win SFR for his Numericable cable group, and has put forward a €14.5bn offer of his own. Xavier Niel, France’s sixth-richest individual, owns the fourth biggest mobile operator, Free, whose entry into the market in 2012 ushered in one of Europe’s most brutal price wars. Messrs Bolloré and Bouygues have history. Mr Bolloré has been in bad odour with Mr Bouygues ever since the former mounted a corporate raid on the Bouygues conglomerate in 1997s. Meanwhile, Mr Bouygues has accused the colourful Mr Niel of being a gravedigger. Name-calling aside, the tussle over the French telecoms market has a serious rationale. A Bouygues tie-up with SFR would reduce the number of mobile operators from four to three, benefiting Bouygues, but also helping Orange, the market leader, and Free. A combination of Numericable and SFR would create a stronger fixed-line/mobile competitor to Orange. Each of the actors in the drama hopes that, by absorbing SFR, they will be able to raise prices and thus profit margins. They argue that this would also benefit consumers even if prices rise, as the winners would then make much-needed investments in customer service and infrastructure. But the French government may yet intervene. It opposed any consolidation in the market until this year, when it reluctantly gave the go-ahead as long as prices did not increase and jobs would not be lost – thus removing the incentive for any deal. France is not the only country where telecoms operators are engaged in a scramble for market share at the expense of profitability. In 2012, Hong Kong’s Hutchison Whampoa bought France Telecom’s Orange Austria, reducing the number of mobile operators in Austria to three, and Bouygues must hope the battle in France will have the same result – prices started to rise, prompting sighs of relief in Europe’s telecom industry. Last month Andreas Bierwirth, head of T-Mobile Austria, described the modest price rises since the deal as the end of "more or less a joint suicide pact". As well as France, other large markets with four players include Spain, Italy, the UK and Poland, and more domestic consolidation in these countries seems likely – BT is the only fixed-line incumbent in Europe, for example, without a mobile operation. The region’s regulators seem resigned to allowing just three operators in one country, although key tests will come in the next few months when the EU Competition Commission rules on Hutchison’s 3 Ireland purchase of O2 Ireland, and Telefónica’s bid for KPN’s E-Plus mobile subsidiary in Germany. But, although these deals are expected to pass, albeit with some remedies required, the regulator is unlikely to countenance further reduction of domestic players from three to two. Duopolies rarely deliver the best outcome for customers, but this leaves the operators with few strategic alternatives. The industry seems to have realised there are few benefits to be gained from cross-border deals. As Moody’s points out in a recent report, geographically diversified operators are no more profitable than single market ones. The reasons are not hard to find; each country has its own regulator, spectrum is sold country by country under different auction rules, and the lack of a single language means it is difficult to make savings on marketing or customer service. Political interference, as in France, may also hamper commercial decisions. Many of Europe’s telecoms companies are partly state-owned and governments are often unwilling to lose control. The EU has long cherished a vision of a single European telecoms market, with a small group of large pan-regional operators competing with smaller local companies, delivering competitive prices for consumers allied to fat enough margins for investment. Sadly for both customers and investors, rarely has this vision seemed further from the reality. The European Parliament votes next month on proposals to reform the sector, but these will focus on ending international roaming charges and making spectrum allocation more uniform, rather than grappling with the bigger structural obstacles to regional consolidation. Like Europe’s energy market, the region’s telecoms market is in fact fragmenting rather than consolidating, and whatever the outcome of the hostilities in France, there will be no winners in this battle.

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HCP Invites $34 Billion Merger as Valuation Nears Low: Real M&A 2014-03-26 00:03:03.421 GMT

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

By Brooke Sutherland March 26 (Bloomberg) -- The timing may be right for a $34 billion merger between two of the biggest managers of U.S. health-care facilities. HCP Inc. is near its cheapest level since 2009, after it lost its title as the largest health-care real estate investment trust this year, according to data compiled by Bloomberg. The stock slump amid a slowdown in deals and the firing of Chief Executive Officer James F. Flaherty could spur Ventas Inc. or Health Care REIT Inc., known as HCN, to weigh a bid for the $17 billion company, said Adelante Capital Management LLC. A takeover by either would be the industry’s biggest deal ever. Buying HCP could lower capital costs for future acquisitions, though it also would make it harder to find deals big enough to boost growth after that, said Stifel Financial Corp. Ventas, the biggest of the three REITs, may have more financial flexibility for a takeover than HCN, said Bahl & Gaynor Investment Counsel Inc. While no deal is imminent, investors may start encouraging HCP to explore a sale if its performance doesn’t improve after a year, said Bank of Montreal. The valuation has “been deteriorating,” Jeung Hyun, a fund manager at Oakland, California-based Adelante Capital, which oversees about $1.8 billion including shares of HCP and Ventas, said in a phone interview. “It’s a reasonable time for the other two health-care companies to take a look at it.”

Dropped Talks

HCP had talks with Ventas about a possible deal late last year, said a person familiar with the matter. The deal fell apart after Flaherty left the CEO job, said the person, who asked not to be identified because the discussions were private. Lauralee Martin took over for Flaherty, who was fired because HCP’s board lost confidence in his “leadership and his leadership style,” the nursing-home owner said Oct. 3. Representatives for Long Beach, California-based HCP didn’t respond to requests for comment. Lori Wittman of Chicago-based Ventas and Zachary Ottenstein of Toledo, Ohio-based HCN said their companies don’t comment on market speculation. Shares of most health-care REITs have fallen in the last 12 months on prospects for higher interest rates. While HCN dropped 12 percent and Ventas slipped 16 percent, HCP plunged 24 percent.

Deal Dearth

The laggard performance by HCP is tied to investor uncertainty about the company’s direction after the abrupt management change and a dearth of dealmaking, said Michael Carroll, an analyst at Royal Bank of Canada. HCP hasn’t spent a dollar on acquisitions since buying 133 senior housing communities for $1.7 billion in October 2012, according to data based on reported deals compiled by Bloomberg. Martin is still somewhat of an unknown for shareholders, who are waiting to see how she will make her mark on HCP, said Rich Anderson, a New York-based analyst at BMO. If about a year goes by without any meaningful deals or internal improvements that lift the stock, investors may “start asking the question, ‘Why don’t you sell yourself?’” Anderson said in a phone interview. “As big as these companies get, nothing surprises us in terms of what the next step could be, and I can’t say I’d be terribly surprised if one of these humongous companies got twice as big.” HCP last week was valued at 14.84 times its earnings before interest, taxes, depreciation and amortization, not far from its lowest valuation since July 2009, according to data compiled by Bloomberg. The company also has the cheapest price-earnings multiple among 11 U.S. health-care REITs valued at more than $1 billion, the data show.

Good Timing

“This probably is a more likely time than normal for a merger to happen,” John Leslie, a money manager and analyst at Miller/Howard Investments Inc., said in a phone interview. While he said a deal may never materialize, if HCN or Ventas have any interest in HCP, “now is probably the time” to strike. Miller/Howard, based in Woodstock, New York, oversees about $6.7 billion, including shares of HCP, HCN and Ventas, according to Leslie. Should HCN or Ventas merge with HCP, the combined company would be valued at about $34 billion, based on yesterday’s closing stock prices. HCN’s market capitalization is $17 billion and Ventas’s is closer to $18 billion, data compiled by Bloomberg show. The largest health-care REIT deal on record was Ventas’s acquisition of Nationwide Health Properties Inc. for about $7 billion, according to data compiled by Bloomberg.

‘Very Large’

“They’re all very large so a merger between any two of the three would create a very, very large REIT,” Stephanie Thomas, a fund manager at Cincinnati-based Bahl & Gaynor, which oversees about $11 billion including shares of HCP, HCN and Ventas, said in a phone interview. Ventas’s debt is 0.53 times its market capitalization, compared with HCN’s ratio of 0.63, data compiled by Bloomberg show. That may give Ventas more financial flexibility than HCN, Thomas said. The appeal of a merger with HCP for either would be the opportunity to reduce capital costs, said Rob Mains, a Saratoga Springs, New York-based analyst at Stifel. A transaction would also create barriers to finding potential future deals, which are needed to fuel earnings growth, he added. “It’s been tough for all three of the big health-care REITs to do a lot of M&A over the last year or so,” the analyst said. “If they were to double in size, then they would have to do double the amount of acquisitions to sustain the same percentage growth.”

Strategic Fit

HCN also may not be interested in a deal because it has been working to reduce its exposure to skilled nursing facilities, said Carroll of RBC. Buying HCP would move it in the opposite direction, he said. Any deal would also have to gain regulatory approval and pass antitrust tests. Even though HCN and Ventas have been more acquisitive than HCP, they still face pressure to do deals. That’s particularly true because they probably missed out on senior-housing operator Emeritus Corp., which agreed to sell itself to Brookdale Senior Living Inc. last month, said Hyun of Adelante Capital. “This was one of the first times where a big deal kind of got away from the REITs, so I think there’s additional pressure on the REITs to do something bigger, to show that they can still acquire, they can still use their currency to do accretive transactions,” Hyun said. While doubling in size may make it harder to find meaningful deals later, “you dance until the music stops,” he said. “As long as it’s accretive and as long as the companies are getting rewarded for growth, I think they have to do it.”

For Related News and Information: HCP Names Jones Lang’s Lauralee Martin CEO as Flaherty Is Fired NSN MU3J416S972P <GO> Elderly Housing Consolidation Points to Capital Senior: Real M&A NSN N1Q6TE6VDKHW <GO> HCP deal news: HCP US <EQUITY> TCNI MNA <GO> Real M&A columns: NI REALMNA <GO> Bloomberg Industries, health-care REITs: BI HLCRN <GO> Top deal stories: DTOP <GO>

--With assistance from David Welch in New York.

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

Asian Market Update: China CIC sovereign wealth fund worried over US QE, still expects Q2 recovery; RBA Gov Stevens sends AUD to 4-month highs with more neutral comments

***Economic Data*** - (KR) SOUTH KOREA Q4 FINAL GDP Q/Q: 0.9% V 0.9% PRELIM; Y/Y: 3.7% V 3.4% PRELIM; 2013 GDP 3.0% vs 2.3% in 2012 - (JP) JAPAN FEB CORPORATE SERVICE PRICE INDEX Y/Y: 0.7% V 0.8%E

Market Snapshot (as of 03:30 GMT): - Nikkei225 +0.2%, S&P/ASX +0.9%, Kospi +1.1%, Shanghai Composite -0.1%, Hang Seng +1.1%, Jun S&P500 +0.1% at 1,861, Jun gold +0.1% at $1,313, May crude oil +0.2% at $99.34/brl

***Highlights/Observations/Insights*** China: - Sovereign wealth fund (CIC) Chairman Li expressed concern that it is becoming more difficult to find investible long-term projects, also noting that while QE may weigh on emerging markets in the short term, those challenges would likely be temporary. Li also said Q1 GDP in China thus far appears to be unsatisfactory, but Q2 will likely see "very real growth." - China's Ag Bank is up over 3% after reporting FY13 results overnight. Profits were in line, Rev above expectations, and NPL ratio fell 11bps to 1.22%.

Japan: - Japan PM Abe's economic advisor Honda echoed sentiment from adviser Hamada earlier this week, pushing the BOJ into further policy easing with the announcement as early as mid-May if the upcoming consumption tax increase derails the fragile progress of Abenomics. Separately, a press report late in the day suggesting the govt is looking to bring forward public works spending to offset the impact of Apr 1st sales tax hike, with plans to spend minimum of ¥10T of public works budget by end of September.

Australia: - AUD/USD hit fresh 4-month highs above $0.9180 after a fairly neutral set of remarks from RBA Gov Stevens. With the markets seemingly accustomed to consistent jawboning of the currency by the central bank, the absence of any meaningful verbal intervention further signifies the RBA is firmly entrenched at 2.50% OCR. Moreover, in addition to reiterated expectations of recovering growth and the handover from mining to consumption sector of the economy being underway, Stevens continued to allude to the central bank's focus on the rising property market, which has given rise to speculation the RBA may actually surprise with a rate hike as early as late-2014. Earlier in the day, the semiannual RBA Financial Stability Review als announced the bank is monitoring development for speculative and risky practices in the mortgage sector.

US tech: - In a busy extended session for the US tech sector, Facebook announced another large acquisition, paying $2B in cash ($400M) and stock (23.1M shrs) for virtual reality gaming technology company Oculus. The company is seen as the "leader in immersive virtual reality technology and has already built strong interest among developers, having received more than 75,000 orders for development kits for the company's virtual reality headset, the Oculus Rift." In a subsequent conference call, Facebook CEO Zuckerberg explained that he is looking ahead of Mobile to the next major computing platform interface, noting Oculus can be used as more than just platform for gaming, potentially becoming the "most social platform ever" through the "immersive" world of virtual reality. Asked about the brisk pace of M&A announcements, Zuckerberg said the recent acquisitions have been "incredibly rare" opportunities, and that investors should not expect us to make multi-billion dollar acquisitions frequently. - Separately, King Digital Entertainment - the designer of the highly addictive Candy Crush mobile videogame - announced its widely-anticipated IPO pricing of 22.2M shares at $22.50/shr ($21-24 projected range). Trading in KING will start Wednesday morning.

Fedspeak: - Fed's Plosser (hawk, FOMC voter) endorsed tighter policy in the US, noting the economy has recovered sufficiently for interest rates to start rising. Plosser also noted economic models suggest that Fed Funds Rate should be above zero, and calling on the central bank to do more to align public expectations with its plans.

***Fixed Income/Commodities/Currencies*** - (JP) BOJ offers to buy ¥250B in 1-3 year JGB, ¥250B in 3-5 year JGB, ¥400B in 5-10 year JGB, and ¥500B in CP - (AU) Australia MoF (AOFM) sells A$700M in 3.25% Bonds due 2025; Avg yield 4.2036%; bid-to-cover 2.73x - (US) API PETROLEUM INVENTORIES: CRUDE: +6.3M (5th straight build and largest build since Nov 26th) v +3Me, GASOLINE: -2.84M v -1Me, DISTILLATE: +270K v -1.5Me

***Equities*** US markets: - FIVE: Reports Q4 $0.47 adj v $0.45e, R$212M v $209Me; +15.7% afterhours - SCS: Reports Q4 $0.18 (ex items) v $0.17e, R$779M v $777Me; +6.3% afterhours - SFM: Guides Q1 Rev $720M v $691Me, SSS +12.5%, GM 30.5-31.0% v 30.3% y/y; +4.3% afterhours - PVH: Reports Q4 $1.43 v $1.44e, R$2.05B v $2.07Be; +1.0% afterhours - FB: To acquire Oculus VR (private) for total approx $2B (incl $400M cash, 23.1M shrs); CEO Zuckerberg: Want to focus on building the next major computing platform that follows Mobile; Oculus already received orders for 75K development kits - conf call; -0.8% afterhours - PNRA: Reaffirms Q1 $1.49-1.55 v $1.52e, as given on 2/18; new intiatives may depress margins and earning growth in next two years; -1.7% afterhours - IGT: Guides FY14 lower $1.00-1.10 v $1.18e ($1.28-1.38 prior); will cut 7% of workforce in realignment; -7.4% afterhours - BODY: Reports Q4 -$0.74 (adj) v -$0.24e, R$66.2M v $75.0Me; taken several actions to increase liquidity; -23.5% afterhours

Notable movers by sector: - Consumer Discretionary: Fonterra FCG.NZ +1.0% (H1 results); Qingdao Haier 600690.CN +1.1% (FY13 results) - Consumer staples: Tsingtao Brewery 168.HK +0.6% (FY13 results) - Financials: China Life Insurance 2628.HK +1.0% (FY13 results); Agricultural Bank of China 1288.HK +3.1% (FY13 results) - Materials: Fortescue Metals Group FMG.AU +3.4% (CEO comments) - Industrials: China Communications Construction 1800.HK -1.3% (FY13 results); Hyundai Motor 005380.KR +3.4% (investment in China); Nufarm Ltd NUF.AU -2.2% (H1 results) - Technology: AU Optronics Corp 2409.TW +3.4% (to invest in PV systems, solar power stations); Haier Electronics Group 1169.HK -1.0% (FY13 results) - Healthcare: Sigma Pharmaceuticals SIP.AU +4.5% (acquires assets)

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Facebook Agrees to Acquire Device Maker Oculus for $2 Billion 2014-03-25 21:43:48.685 GMT

By Sarah Frier March 25 (Bloomberg) -- Facebook Inc. said it will buy virtual-technology company Oculus VR Inc. for about $2 billion, in its first push into the hardware-technology industry. The deal includes $400 million in cash and 23.1 million Facebook shares, as well as an additional $300 million if the acquisition achieves certain milestones, the Menlo Park, California-based company said in a statement today. Facebook has ramped up its dealmaking this year as it works to beef up its mobile business. The social network acquired mobile photo-sharing application Instagram in 2012 for about $700 million. The company agreed to buy mobile messaging app WhatsApp Inc., which has 450 million users worldwide, for about $19 billion last month. Oculus, based in Irvine, California, makes a ski-goggles-like device. “Mobile is the platform of today, and now we’re also getting ready for the platforms of tomorrow,” said Facebook Chief Executive Officer Mark Zuckerberg in the statement. “Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate” Facebook shares rose 1.2 percent to $64.89 at the close in New York before the acquisition was announced. They have gained 19 percent so far this year.

For Related News and Information: Top Technology Stories: TTOP <GO> Top Stories: TOP <GO>

To contact the reporter on this story: Sarah Frier in San Francisco at +1-415-617-7134 or sfrier1@bloomberg.net To contact the editors responsible for this story: Pui-Wing Tam at +1-415-617-7327 or ptam13@bloomberg.net Jillian Ward