Special Situations: CHANGYU.COM, the next Chinese buy-out... BUY

Special Situations: CHANGYU.COM (CYOU)

trade action flash - BUY - possibly the next Chinese buy-out

CYOU: US$ 30.66; target US$ 50.00 January 29, 2014 We recommend buying Changyu.com, one of the last NY listed Chinese developers of online games. Following the buyouts of Giant Interactive (GA) and Shanda Games (GAME), we think that Changyu could be next as it checks all the boxes: 1. The company has a majority owner (Sohu.com which owns 80%); 2. The stock has underperformed since its IPO and has become very cheap; the company is highly profitable (39% ebitda margins); the company has significant net cash on its balance sheet ($350m). Absent of a buyout, the stock is significantly undervalued in the online gaming space, and particularly so compared to the two deals mentioned above. We estimate that a deal could take place at around $40 and that long-term value is well north of $50 (our initial target). FULL REPORT ATTACHED

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(BN) BSkyB Appeal for Vodafone, O2 Grows Amid Deal Spree: Real M&A

BSkyB Appeal for Vodafone, O2 Grows Amid Deal Spree: Real M&A
2014-01-29 15:10:17.769 GMT


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

By Amy Thomson and Kristen Schweizer
     Jan. 29 (Bloomberg) -- British Sky Broadcasting Group Plc
would be a tempting target for Vodafone Group Plc or Telefonica
SA -- if billionaire Rupert Murdoch is ready to give up his
stake in the U.K.’s biggest pay-TV provider.
     “Everybody in the market knows Rupert Murdoch has the
capability to surprise,” said Alex DeGroote, an analyst at
Panmure Gordon & Co. in London. “Vodafone, with its very deep
pockets” could step in, he said. “It’s not about what Sky
wants, it’s about what Vodafone wants to do.”
     BSkyB has a growing subscriber base and premium offerings
at a time when the push to bundle phone, Internet and TV is
sparking consolidation across Europe. Deals for European
telecommunications and cable-TV companies reached an eight-year
high in 2013 of $88.5 billion, according to data compiled by
Bloomberg. Vodafone, on the prowl as AT&T Inc. passes up the
right to bid for the U.K. mobile-phone company for six months,
or Telefonica’s U.K. unit O2 may be interested, UBS AG said.
     Standing in the way of any such deal is media mogul
Murdoch, the $22 billion company’s biggest shareholder, who was
blocked from acquiring the rest of the pay-TV provider in 2011
after a scandal involving phone hacking at his U.K. newspapers.
BSkyB is a more affordable target after rival BT Group Plc won
TV rights to two of Europe’s biggest soccer championships,
sending BSkyB’s shares down almost 9 percent since October.

                       ‘Attractive Asset’

     “The value of the company has come down a bit,” said
Bryan Keane, who helps oversee about $4.5 billion, including
BSkyB and Vodafone shares, at Purchase, New York-based Alpine
Woods Capital Investors LLC. “It still has a quality subscriber
base. They’re still gaining market share. It’s still an
attractive asset.”
     Alice Macandrew, a spokeswoman for BSkyB, declined to
comment on whether the company has been approached by a buyer or
would consider a sale. Representatives for Vodafone and O2 also
declined to comment.
     Julie Henderson, a spokeswoman for Murdoch’s 21st Century
Fox Inc., declined to comment on the New York-based company’s
plans regarding its about 39 percent stake in BSkyB. News Corp.,
Murdoch’s other company, competes with Bloomberg News parent
Bloomberg LP in providing financial news and data.
     BSkyB has more than 11 million customers, and it had
revenue of 7.2 billion pounds ($11.9 billion) for its fiscal
year that ended in June.

                           BT Inroads

     After reaching a 12-year high of 950 pence in October,
BSkyB shares have since fallen as former U.K. phone monopoly BT
agreed to spend $1.4 billion shutting Sky out of the UEFA’s
Champions League and Europa League soccer games. The stock
closed yesterday at 867 pence.
     Even as BSkyB increases production of original programs to
help diversify its content beyond sports, the drop has left
BSkyB trading at a price-earnings ratio of 14, lower than the
industry median of 21, according to data compiled by Bloomberg.
BSkyB’s ratio trails 89 percent of cable and satellite-TV
companies with a market value of more than $1 billion, the data
show.
     “BT is making life uncomfortable and forcing prices up for
rights,” Conor O’Shea, an analyst at Kepler Cheuvreux in Paris,
said in a phone interview. Even so, “Sky has a loyal and long-
established subscriber base and that’s not something replicable
overnight, as BT will find out.”
     BSkyB could be targeted by Vodafone or Telefonica as the
carriers seek to better compete in Europe by offering broader
packages of phone, TV and Internet service, said Polo Tang, a
London-based analyst at UBS. Such a deal “could generate
significant cost and revenue synergies,” he wrote in a Jan. 13
report.

                          Making Deals

     “There’s so much convergence taking place nowadays that
overlaps across the board between BSkyB, BT and Vodafone are
only bound to increase overtime,” said Claudio Aspesi, an
analyst at Sanford C. Bernstein & Co. in London. “BSkyB is a
cheap asset now.”
     Vodafone, based in Newbury, England, is stepping up
spending to upgrade its network and make acquisitions after
agreeing last year to sell its stake in Verizon Wireless in the
U.S. to partner Verizon Communications Inc. for $130 billion.
     The carrier already spent more than $10 billion to buy
Germany’s Kabel Deutschland Holding AG last year after it
acquired U.K. fiber company Cable & Wireless Worldwide in 2012.
Vodafone had about 10 billion pounds in cash and equivalents as
of September.

                         Market Position

     Vodafone isn’t alone in making deals to fortify its
position in Europe. Liberty Global Plc, the European cable
company controlled by billionaire John Malone, agreed this week
to fully take over Dutch broadband provider Ziggo NV for $6.7
billion. Last year, it bought the U.K.’s Virgin Media Inc. for
about $16 billion.
     “As a broadcaster you want your material on as many
devices as you can,” said Steven Hartley, an analyst at Ovum in
London. Vodafone’s purchase in October of German cable provider
Kabel Deutschland illustrated the telecom company’s commitment
to TV, Hartley said. “It’s got to do something to shore up that
market position, so maybe buying BSkyB will be a roll of the
dice; they’ll say, ‘Let’s just go for it.’”
     Vodafone and BSkyB are already partners, striking a deal to
show Sky Sports content on mobile phones last year. The two
companies have had further discussions about giving Vodafone
customers access to BSkyB’s Internet and TV services, people
familiar with the companies’ plans said this month.

                         Stopping Short?

     To be sure, combinations of mobile companies and broadband
or TV providers are complicated and many operators stop short of
full mergers.
     Vodafone reached a deal with Deutsche Telekom AG in May to
offer Internet speeds of as fast as 50 megabits per second as
well as video and Web-based TV.
     “Vodafone has said that they are looking to get access --
and the word access is important -- to pay TV and content,”
said Guy Peddy, an analyst at Macquarie Group Ltd. “That is
very different to ownership.”
     Telefonica, O2’s Madrid-based parent, is increasing its
influence over Telecom Italia SpA, and also agreed last year
with Royal KPN NV to combine their German wireless businesses.
At the same time, it sold off assets in Ireland and the Czech
Republic to cut debt, which stood at about $83 billion as of
September, according to data compiled by Bloomberg.

                            Fox Stake

     Even if Vodafone or another buyer wants to do a deal, it
all depends on Murdoch, who also owns stakes in cable companies
across Europe through Fox, the TV and film company split off
from News Corp. last year. Fox owns 100 percent of Sky Italia
and controls Sky Deutschland in Germany, and it bid for all of
BSkyB as part of a plan to win greater exposure to cable across
Europe.
     While the political repercussions from the hacking scandal
may keep Fox from renewing its bid for all of BSkyB soon,
Murdoch may in time consider making another run at the company
to fulfill what Fox has characterized as unfinished business at
its European TV operations, O’Shea at Kepler Cheuvreux said.
     Murdoch “may still have his eye on buying them out to
create his pan-European Sky network, but the hacking scandal
hasn’t completely blown over in the U.K.,” Keane at Alpine
Woods said. For him to agree to sell the stake “would require a
stiff premium. The asset is very attractive.”

For Related News and Information:
Vodafone Said to Discuss Sharing Broadband With BSkyB in U.K.
NSN MZP4QK6JTSF7 <GO>
Soccer Rights Price Increases Shake Up Pay-TV Broadcasters: Tech
NSN MZ3BNB6JTSE9 <GO>
BSkyB Sales Beat Estimates as Broadband Customers Increase
NSN MUT1K11A74E9 <GO>
BSkyB deal news: BSY LN <Equity> TCNI MNA <GO>
Real M&A columns: NI REALMNA <GO>
Top deal news: DTOP <GO>
Bloomberg Industries, cable and satellite: BI CATVN <GO>

--With assistance from Andy Fixmer in Los Angeles. Editors: Beth
Williams, Sarah Rabil

To contact the reporters on this story:
Amy Thomson in London at +44-20-7392-0662 or
athomson6@bloomberg.net;
Kristen Schweizer in London at +44-20-7330-7526 or
kschweizer1@bloomberg.net

To contact the editors responsible for this story:
Sarah Rabil at +1-212-617-5992 or
srabil@bloomberg.net;
Kenneth Wong at +49-30-70010-6215 or
kwong11@bloomberg.net

>>> Fitch issues commentary on Turkey interest rate increases; could lower the v

Fitch issues commentary on Turkey interest rate increases; could lower the vulnerability in capital flows
- Fitch: By acknowledging the higher premium investors have been demanding to hold Turkish financial assets, the move may reduce the sovereigns vulnerability to short-term capital outflows and could ease pressure on the lira and reserves.
Rate increases will dent domestic demand and could renew concerns about an economic hard landing. But the fall in the lira and improved prospects for global economic recovery, particularly in the eurozone, hold out the prospect of higher net exports and a faster current account adjustment (we
estimate the current account deficit exceeded 7% of GDP in 2013).

>>> Sotheby's Holdings Inc Marcato Capital (6.6% holder) responds to capital all

Sotheby's Holdings Inc Marcato Capital (6.6% holder) responds to capital allocation announcement
- Marcato: "Today's announcement is a modest step in the right direction, but Sothebys can comfortably return more capital to shareholders and do it more quickly than under its proposed plan. Sothebys can and should return a total of $1 billion of capital to shareholders within 12 months using the earnings generated in 2013 and 2014, excess cash on the balance sheet, and capital released from appropriate financing of its Financial Services business and its real estate. Sothebys can return this capital to shareholders and still maintain more than adequate liquidity to meet its long-term strategic objectives. We encourage our fellow shareholders to continue to press this Board and management team to act urgently and return significant additional capital in 2014."

>>> US Gapping down

Gapping down

In reaction to disappointing earnings/guidance: AIRM -5.8%, CRUS -5.3%, KTCC -4.8%, (light volume), YHOO -4.5%, RES -3.1%, (ticking lower), ILMN -3.1%, PSX -3%, (ticking lower), T -2.1%, BA -1.7%, FLS -1.4%, (light volume), VMW -1%, (target raised to $121 from $113 at JP Morgan; upgraded to Strong Buy from Outperform at Raymond James), WLP -0.8%, YDKN -0.8%, AMGN -0.6%, (also announces positive top-line results from Phase 3 LAPLACE-2 Trial Of Evolocumab (AMG 145) in combination with statins in patients with high cholesterol; study meets co-primary endpoints of LDL cholesterol reduction), NVS -0.5%.

M&A news: BCA -2.8% and ITUB -2.3% (Corpbanca agrees to merge with Itau (ITUB) in Chile and to combine business in Colombia; Itau Unibanco will be the controlling shareholder of the new merged Chilean Bank with a 33.58% ownership interest).

Select oil/gas related names showing early weakness: STO -1.8%, TOT -0.7%, BP -0.7%, PTR -0.6%.

Brazil names modestly lower: VIV -1.9%, TSU -1.8%, BBD -1.6%, VALE -1.5%, PBR -1.4%, CBD -1.4%, ABEV -1.2%, BAK -1.2%, BSBR -0.8%

Other news: PGNX -15.8% (Senior Management to webcast discussion of Phase 2 data from two trials in prostate cancer on January 30), CTIC -4.1% (still checking), NMFC -3.4% (announces secondary public offering of 2.325 mln shares of its common stock on behalf of a selling stockholder, New Mountain Finance AIV), ARIA -2.4% (may be attributed to NVS application submition for LDK378 in US), EMC -2.3% (following VMW results), TSRO -2.2% (proposed public offering of $100 mln of its common stock), PRTA -0.5% (priced an underwritten public offering of ~2.767 mln ordinary shares of Prothena at a price to the public of $26.00/share).

Analyst comments: FRAN -5.1% (downgraded to Sell from Neutral at Goldman), TDC -2.1% (downgraded to Sell from Neutral at Goldman), APOL -1.8% (downgraded at Barclays), PHG -1.6% (Philips downgraded to Equal Weight from Overweight at Barclays ), DHI -1.3% (downgraded to Market Perform from Outperform at Keefe )