TheChek News Flow

Belgium government fires Belgacom chief over ‘criticism’

BRUSSELS, Nov 15 – Belgium’s prime minister announced the dismissal of Belgacom chief executive Didier Bellens on Friday, saying the government, the telecom group’s majority shareholder, had acted partly because of his repeated criticism of the authorities. Mr Bellens has had a turbulent year during which media reports on his outspoken views on the political and regulatory situation in the country drew complaints from Belgian politicians.

The government, which has a 53.5 per cent stake in Belgacom, said the search for a successor to Bellens was under way. “Repeated criticism and incidents have irrevocably undermined the confidence of the Belgian government in Mr Didier Bellens,” Prime Minister Elio di Rupo said. “For this reason the federal government recalls Mr Didier Bellens from the post of the chief executive of Belgacom,” he told a news conference. Belgacom declined when asked to comment earlier on Friday about newspaper reports that Mr Bellens was about to be dismissed. Mr Bellens had forcefully voiced frustration that mobile operators were barred from installing a new, high-speed “4G” mobile network in Brussels, because of the city’s strict radiation regulations, although it is already used in Germany and the United States. He was also reported to have told a Brussels business club meeting that, in receiving an annual dividend from Belgacom, Mr Di Rupo was like a child coming for his present from Santa Claus. Mr Bellens, previously at Belgian holding group GBL and media group RTL, became CEO of Belgacom in March 2003. His mandate would have run until 2015 after being extended for a six-year term in 2009. Investors in the company view Mr Bellens as having done a reasonable job at a tough time for European telecoms operators, many of which have paid top dollar for mobile licences at a time when regulators moved to cap prices in the sector. “We believe Mr Bellens has done a fine job at Belgacom, balancing investments with a consistent (dividend) payout policy,” KBC analyst Thomas Deschepper wrote in a note to clients on Wednesday.

Telecoms dividends set for further fall

European telecoms dividend payouts will fall by a sixth this year, excluding the resumption of payments from Telefónica, as the sector continues to struggle with sluggish demand and fierce competition. Dividends in the telecoms sector plunged 44 per cent last year from a peak of more than €22bn paid for 2011, according to Markit, the financial information services group, as companies slashed payouts to conserve cash on overstretched balance sheets.

The telecoms sector has traditionally attracted more defensive investors given its long-term record of shareholder returns given income from mobile and fixed-line services. The dividend yield on the sector has been among the highest with an average forward looking yield of 5.1 per cent even after the cuts. Competition in the sector combined with the economic downturn and the effects of regulation has dragged down revenues in the past few years, which hit the cash position of group’s guilty of over expansion into new markets over the past decade. Even so, companies in the sector only began to take remedial action to bolster balance sheets through dividend cuts last year. According to Markit, 12 of the 19 major companies in the sector have reduced or suspended payments either this year or last. Tom Matheson, analyst at Markit, said: “Band wave auctions, LTE network rollout, regulations and changing customer behaviour all add up to a squeezed free cash flow. BT’s audacious £1bn assault on premium content for interactive services is just the latest example of how hot competition is getting.” These risks, he added, combined with sluggish growth and the need for restorative M&A, have led the market to attach a high risk premium on any dividends paid. Markit said dividends will be 16 per cent lower this year again overall, although the group stripped out the effects of the resumption of Telefonica’s dividend after a one-year hiatus. Including the payment by the Spanish group, aggregate dividends across the sector are forecast to grow 12% year-on-year. Last year, the Spanish group axed its shareholder payments in order to reduce its net debt to earnings ratio. Telefónica will resume its dividend policy with payment worth about €3.4bn, according to Markit. Markit predicted that the “worst might be over” in spite of the forecast of further cuts to come this year, most notably by Telecom Italia. There was an “improving picture by 2014”, by which time all companies that it tracks are forecast to resume dividends. Next year, Markit expects that five groups will even increase dividends again. Before then, Markit forecasts seven companies to cut dividends again this year, including KPN and Deutsche Telekom. Of companies where management has yet to make intentions clear, Markit said its primary concerns were Telecom Italia and Belgacom. Telecom Italia has a huge debt that needs to be reduced, he said, while Belgacom has low free cash flow. “We’re forecasting Telecom Italia to scrap its payment entirely and we’re forecasting Belgacom to reduce its annual payment by over 30 per cent,” according to Mr Matheson. “Both these companies have high short interest.” Belgacom fired Didier Bellens last week after the chief executive remarked that the government was only interested in the company’s dividends. Markit predicted last week that Mr Bellens might be ousted over the comments, which it said could mean “twists to come” for the majority stated-owned group. Meanwhile, the outperformer in the industry has been Telenor, the Norwegian operator, according to Markit. “Exceptionally, it has increased its dividend every year since 2010 and shows no signs of bucking this trend,” it said.

Asian Market Update: China stocks surge on more details from 3rd plenum agenda, while y/y property price gains accelerate

***Observations/Insights*** - China markets are broadly outperforming with Hang Seng at 2-month highs above 23,550 and Shanghai Composite hitting 3-week highs above 2,160; Late on Friday, China cabinet released the formal decision of the third plenary session of the 18th Central Committee containing much more detailed and ambitious layout for reform than initially expressed in a communique earlier last week that widely disappointed investors. Specifically, markets are cheering a push to establish a deposit insurance system, accelerate Yuan convertibility, allow transfer of non-farming rural land, and loosen one-child policy so as not to penalize the 2nd child born to a family of just one only-child parent. - China October new home prices saw m/m increases slow down slightly due to some of the recent curbs in the property sector, but on y/y basis the 10th consecutive increase was at a record high pace of 9.6%. Bureau Stats officials said the biggest margin of increase was in the larger cities, and with the plenum outlining an easier path of transition for migrant workers from rural areas, housing supply is likely to remain tight. - The start of a Dubai Air Show saw GE, Boeing, and EADS land multibillion dollar contracts.

***Economic Data*** - (CN) CHINA OCT NEW HOME PRICES M/M: PRICES RISE IN 65 OF 70 CITIES V 65 PRIOR; Y/Y: PRICES RISE IN 69 OF 70 CITIES V 69 PRIOR - (JP) JAPAN Q3 HOUSING LOANS Y/Y: 3.0% V 3.2% PRIOR (1-yr low) - (JP) JAPAN OCT TOKYO CONDOMINIUM SALES Y/Y: 21.4% V 77.3% PRIOR - (KR) SOUTH KOREA OCT PPI Y/Y: -1.4% V -1.8% PRIOR (13th consecutive decline) - (SG) SINGAPORE OCT ELECTRONIC EXPORTS Y/Y: -1.4% V -5.5% PRIOR; NON-OIL DOMESTIC EXPORTS M/M: +3.2% V -2.0E; Y/Y: +2.8% V -3.1%E - (TH) THAILAND Q3 GDP Q/Q: 1.3% V 1.5%E; Y/Y: 2.7% V 2.9%E - (NZ) NEW ZEALAND OCT PERFORMANCE SERVICES INDEX: 58.2 V 56.4 PRIOR (6-year high) - (UK) UK NOV RIGHTMOVE HOUSE PRICES M/M: -2.4% V +2.8% PRIOR (11-month low); Y/Y: 4.0% V 3.8% PRIOR

***Fixed Income/Commodities/Currencies*** - (JP) BOJ offers to buy ¥400B in 5-10yr JGB; To buy ¥450B in CP and ¥20B in inflation-indexed bonds - (KR) South Korea MoF sells KRW1.75T in 10-yr bonds, avg yield 3.580% - SLV: iShares Silver Trust ETF daily holdings rise to 10,404 tonnes (first rise since Oct 28th) from 10,392 tonnes

- AUD and NZD are up about 50 and 30pips respectively on the dollar, boosted by upbeat sentiment in China stocks. AUD/USD tested above the $0.94 handle, and NZD/USD rose as high as $0.8360. USD/JPY pared initial gains above 100.40 to briefly fall below ¥100 handle, while EUR/USD traded in a 25pip range capped by $1.35.

***Speakers/Political/In the Papers*** - (CN) China National Bureau of Stats (NBS): China Oct home prices m/m narrows partially due to property curbs; Home prices rise y/y by larger margin mostly in Tier-1 cities and some Tier-2 and -3 cities - (CN) China National Bureau of Stats (NBS): China to push forward new GDP accounting system by end of 2014 - Chinese press - (CN) China Iron and Steel Association (CISA): China avg daily crude steel production 2.144M tonnes in early Nov, +2.2% from last ten days - (CN) Goldman Sachs: China 3rd plenum pledges are ambitious; Decisions to boost sentiment

- (JP) Japan, EU agree to further efforts for early FTA deal - Kyodo News - (JP) Japan Defense Ministry reported China reconnaissance plane sighted near disputed Senkaku island territories - Japanese press

- (KR) Bank of Korea (BOK) Gov Kim: South Korea economy unlikely to be hit by household debt crisis - Korean press - (KR) South Korea state-run think tank Korea Development Institute (KDI): Weak domestic demand and falling costs of imports have led to low inflation rates; Little chance inflation will pick up soon - Korean press

- (DE) Bundesbank board member Nagel: No asset price bubble is building for the time being; Investors are aware low interest rates will not last - German press - (FR) France Budget Min Cazeneuve: Weak economic growth causing a €5.5B shortfall in tax revenue - BFM - (IR) Senior Iran negotiator Araqchi: Next round of nuclear talks likely to be difficult - press

- (US) Federal Reserve said to be considering delaying the deadline for banks to comply with the Volcker Rule - FT

***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 +0.2%, S&P/ASX -0.3%, Kospi +0.4%, Shanghai Composite +1.4%, Hang Seng +2.2%, Dec S&P500 -0.1% at 1,792, Dec gold -0.1% at $1,286, Dec crude oil -0.3% at $93.53/brl

US markets: - BA: awarded record 777x orders as Dubai Airshow - GE: Received $26B in jet engine orders, services agreements - WMT: Completes inspections at 75 factories in Bangladesh; Half of factories failed audits, requiring remedies - financial press - AAPL: Said to be in plans to acquire PrimeSense for $345M - financial press

Notable movers by sector: - Consumer discretionary: Panasonic Corporation 6752.JP -0.6% (to sell mobile-phone repair unit); Bright Dairy & Food 600597.CN +0.7% (cancels stock repurchase); Gree Inc 3632.JP +6.5% (acquisition plans) - Industrials: Downer EDI DOW.AU +1.6% (awarded contract); Elders ELD.AU -4.2% (FY13 results); Grand Ming Group Holdings Ltd 1271.HK +16.1% (H1 results); Shanghai International Airport Co Ltd 600009.CN +2.5% (Oct results); Hyundai Heavy 000720.KR +1.4% (awarded contract) - Materials: Yueyang Forest & Paper Co Ltd 600963.CN +4.0% (govt subsidy) - Financials: China Pacific Insurance Group Co Ltd 601601.CN +3.1%, First Tractor Co Ltd 38.HK +8.9%, Yashili International Holdings Ltd 1230.HK +10.1% (China reform plans) - Technology: Yahoo! Japan Corp 4689.JP +3.4% (forms strategic partnership) - Telecom: ZTE Corp 763.HK +2.2% (smart watch plans)

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Altice Buys 10% Stake in Numericable for EU25.58 a Share 2013-11-17 20:06:20.346 GMT

By Andrea Snyder Nov. 17 (Bloomberg) -- Altice will hold 40% stake in Numericable, will seek to increase stake to majority, co. says in e-mailed statement. * Carlyle, Cinven each selling 5% stake to Altice * NOTE: Numericable closed at EU27.90 on Nov. 15 * NOTE: Altice is biggest holder * NOTE: Oct. 28, French Cable Company Numericable Raising $900 Million in IPO {NSN MVDLIG6S973B <go>} * Link to statement: {NSN MWFBHR6K50XS <GO>}

Link to Company News:{9464363Z FP <Equity> CN <GO>} Link to Company News:{NUM FP <Equity> CN <GO>} Link to Company News:{1709Z LN <Equity> CN <GO>} Link to Company News:{CG US <Equity> CN <GO>}

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To contact the reporter on this story: Andrea Snyder in Washington at +1-202-624-1831 or asnyder5@bloomberg.net

To contact the editor responsible for this story: John Simpson at +1-416-203-5726 or jsimpson12@bloomberg.net

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Apple to Buy Israel’s PrimeSense for $345M, Calcalist Reports 2013-11-17 07:16:56.375 GMT

By David Wainer Nov. 17 (Bloomberg) -- Official announcement of the deal expected in coming weeks, Calcalist reported, without citing its sources. * “We do not comment on what any of our partners, customers or potential customers are doing and we do not relate to rumors or re-cycled rumors,” a spokeswoman for PrimeSense said in an e-mail.

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To contact the reporter on this story: David Wainer in Tel Aviv at +972-3-542-7110 or dwainer3@bloomberg.net

Fasten-Belt Light Isn't Off at SAS

SAS has pulled itself out of a tailspin.

The Scandinavian airline is expected in the year to October to have made its first annual profit since 2007, thanks to an aggressive restructuring. Its shares have soared almost 120% this year, making it the best-performing airline stock in Europe.

But the skies are never clear for long in the aviation business.

A year on from an ambitious cost-cutting plan that Chief Executive Rickard Gustafson described as SAS's "final call," the airline has made good progress. It has cut hundreds of administrative jobs and teed up a deal to sell its ground-handling unit to Swissport. Wage cuts and revised working hours for its crews mean greater flexibility to add capacity in peak periods. SAS already has booked about 1.5 billion Swedish kronor ($226 million) in cost savings, half the amount it is aiming for by 2015.

The snag: The sales outlook has dimmed.

Fears over Ryanair Holdings RYAAY -0.96% ' plans to fly into more Nordic cities look overdone; the low-cost carrier doesn't serve main airports like SAS. But SAS flies wing to wing with low-cost regional rival Norwegian Air Shuttle NAS.OS +0.51% on 70% of its routes. And Norwegian is adding over 30% to seat capacity in the final quarter of this year alone. Norwegian has started flying long haul so some of that will be outside Scandinavia. SAS is only expected to add 3% to 4% to capacity throughout fiscal 2014, according to HSBC.

SAS reckons it can boost sales by attracting more leisure travelers, where demand is forecast to rise 6% to 8% a year compared with a flat market for business travel. And SAS's restructuring aims to cut unit costs 15% by 2015, making it more competitive.

But the flag carrier's unit costs still are roughly double Norwegian's before adjusting for its longer average routes. Even assuming holiday travelers are willing to pay a premium to fly SAS, it isn't clear how the carrier can compete profitably in the long term.

SAS might look like a good value at 2.8 forecast 2014 earnings before interest, taxes, depreciation and amortization, when peers like Deutsche Lufthansa LHA.XE +1.71% and Air France-KLM, AF.FR -1.06% which also are restructuring, trade at more than three times.

Even so, small changes in sales will have a big impact on still-fragile earnings.

Splitting the Pill at Novartis Will Be Easier Said

Than Novartis is considering whether it needs a new look.

The Swiss pharmaceutical company has one of the most diversified businesses in the industry, ranging from drugs and vaccines to generics, animal health and eye care. But under new Chairman and Chief Executive Joseph Jimenez, Novartis is weighing whether to sell or separate some of its disparate divisions.

Still, those hoping for a significant revamp at this week's investor day may be disappointed. True, Novartis's renewed emphasis on owning only market-leading businesses seems to imply putting its animal health, vaccines and over-the-counter drugs units on the block. And its holding in fellow Swiss pharmaceutical company Roche Holding, ROG.VX +0.35% a 33% voting stake, may no longer be considered strategic.

Novartis's soul searching comes as other pharmaceutical companies consider streamlining. When blockbuster drugs were set to lose patent protection, Big Pharma bulked up to help mitigate the hit to revenue. Now, as the wave of patent expirations approaches its end and new drug pipelines show more promise, peeling away layers of diversification may win a better valuation for a more rapidly expanding core.

But it isn't clear how much Novartis can achieve, at least in the short term. It announced last week the sale of its blood-diagnostics business to Spain's Grifols GRFS +2.19% for $1.7 billion. But this was a small, profitable part of Novartis's loss-making vaccines division.

Bigger sales may prove difficult. Admittedly, Novartis's animal-health business, valued at perhaps $4 billion, could be attractive to companies like Bayer BAYN.XE -0.17% and Eli Lilly. LLY -0.04% The vaccines business, though, is dependent on low-margin flu shots; other vaccine makers like GlaxoSmithKline GSK -0.10% or Sanofi SNY +1.72% could also face antitrust issues if they try to buy it. Meanwhile, striking a deal with Roche for a stake repurchase could be tricky should Novartis want to sell at a premium. Selling all three subscale divisions, and the Roche stake, could raise up to $32 billion, according to Deutsche Bank. Novartis could use the funds to repurchase stock, pleasing investors. But that assumes the company doesn't hang onto proceeds for deal making, an option to which it has alluded in the past.

Then there is the issue of what is left behind. Novartis has had success with its late-stage pipeline. But Glivec, its biggest and most profitable drug, is set to lose patent protection, and sales growth and margins could come under pressure. Some of Novartis's disposal candidates offer better sales growth than its pharmaceuticals division in the next two years, partly because the over-the-counter medicines unit is recovering from manufacturing problems.

Pfizer's PFE +0.63% streamlining, after it shed its infant-nutrition and animal-health businesses, has been hailed as a success. But Pfizer was trading at eight times forward earnings when it started the process, compared with Novartis, which is already on a multiple of close to 15 times. Valuing the constituent parts of Novartis's business yields a total only just above the current share price, argues Bank of America Merrill Lynch. Breaking up is a messy business. Finding any value in it remains tough.

Vale offered chance to settle $14bn tax dispute

An employee stands at the Alunorte aluminum refinery, owned by Cia Vale do Rio Doce, in Barcarena, Brazil©Bloomberg An overhaul of Brazil’s tax amnesty scheme is set to allow Vale to almost halve a $14bn claim against it while potentially ending a dispute that has scared investors away from the iron ore producer’s shares. Vale has until the end of next week to accept the terms of the government’s so-called Refis programme, which would allow it to slash the tax charge to around $8.5bn and pay it back over 15 years, say tax lawyers and analysts.

Rio Tinto may raise stake in Oyu Tolgoi Underwriters of Barrick Gold equity issue left with unsold stock Brazil’s tax authorities claim Vale owes around $14bn in unpaid taxes on profits from the sale of foreign subsidiaries from 1996 to 2008. Vale says it followed the law and has been fighting the claims in the courts. Concerns about the liabilities – equivalent to about three times Vale’s 2012 net profit – are a key reason why Vale trades at a discount to fellow miners such as Rio Tinto, said Rui Dias at Banco Espírito Santo. “It has been a big cloud over the stock,” he said. However, Brazil’s government last week eased the terms of its Refis to encourage companies to settle disputes out of court and pay 20 per cent of their alleged debts immediately. The government is under pressure to plug a widening budget shortfall as presidential elections loom next year. Although Vale and others still believe they could win in court, the improved terms of the settlement offer mean they will be less likely to take the risk, says Luiz Roberto Peroba, tax partner of Pinheiro Neto, a Brazilian law firm. “It’s not that companies are saying they made a mistake so they will pay . . . but the discount being offered is good – and if they pursue the issue and lose, they will have to pay the full amount,” he said. Vale is also likely to settle in order to ease relations with the government, which it relies upon for the mining licences it needs to increase its domestic production, said Mr Dias. “If they join the Refis programme . . . they avoid having to go through the courts for the next few years and they will also avoid having to enter further confrontations with the government,” he said. The upfront payment – likely to be around $1.7bn – would be covered by cash raised through recent divestments such as the $1.8bn sale of its shares in the Norwegian aluminium producer Norsk Hydro last week, analysts said. Vale declined to comment.

Catching Up on Mediaset

It isn't too late to tune in to Mediaset despite a strong run-up in the shares. Several analysts see a 25% upside.

It isn't too late to tune in to Mediaset despite a strong run-up in the commercial television broadcaster's shares.

Mediaset's stock (ticker: MS.Italy) has more than doubled in value since the start of 2013 on an upbeat outlook for advertising, far outstripping a 26% gain in the Stoxx Europe 600 consumer services sector. Then, in the third quarter, improving ad trends got fuzzy, checking Mediaset's progress.

However, signs of stability in Italy's fragile economy—contractions in quarterly gross domestic product figures are shrinking—could mean that 2014 advertising revenue growth will be a little stronger than expected. Credit Suisse forecasts ad revenue growing 6.5% next year versus a consensus of 2%. That would be a big boost for Mediaset, Italy's largest free-to-air broadcaster with a 62% share of the television ad market.

There are many doubters: Most analysts rate the stock Sell or Underweight. But the recent interruption in its march higher provides an opportunity to get up to speed on the plot—and where it could be headed. Several analysts reckon the stock is worth €4.20 ($5.66) or more, suggesting upside of at least 25%. Mediaset has American depository receipts under the ticker MDIUY.

The Milan-based company, which has a market value of about €4 billion, is more than just a proxy for Italy's economic health. It is an indicator for the two largest economies in Southern Europe, Italy, and Spain. That's because Mediaset owns 42% of Mediaset Espana Comunicacion (TL5.Spain), Spain's biggest free-to-air broadcaster, which may benefit from a rebound in ad spending on an increasingly upbeat outlook for the Spanish economy.

Italy and Spain were both hit hard by the European sovereign-debt crisis. Spain has been much more aggressive in carrying out structural reforms, while Italy has dragged its feet. Ironically, the root of many of Italy's woes accumulated during the tenure of former prime minister Silvio Berlusconi, whose family controls Mediaset through holding company Fininvest. Better prospects for Italy and Spain, where television advertising is expected to see double-digit growth in 2014 and 2015, are key drivers. But cost-cutting is important, too. Mediaset will complete €500 million in savings by the end of this year, €50 million more than initially planned and 12 months ahead of schedule.

There could be more to come. The broadcast rights to Italy's top soccer league are up for renewal in 2015, and management's recent comments indicate the company isn't prepared to pay as much as it did in 2011. Talks could be bruising. Mediaset should return to profitability this year after posting a loss for 2012, but it trades at a lofty 27 times forecast 2014 earnings. It isn't difficult to understand why some investors have decided to see what's on other channels. It lost 25 European cents a share in 2012, but is forecast to make a three-cent profit in 2013, 12 cents in 2014, and 19 cents in 2015. At Friday's close in Milan of €3.40, the stock is trading at 17 times 2015 earnings, in line with European peers like RTL (RTL.Belgium) and Television Francaise 1 (TFI.France). The stock traded toward €5 a share in 2011, when it earned 20 cents a share.

Credit Suisse has a sum-of-the-parts valuation for Mediaset of €5.60, 65% above the latest price. It acknowledges that looks stretched on a historical basis, but notes that the ratio of enterprise value to sales at 1.8 times is well below its peak of about 2.4. Mediaset is worth watching.

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Mercedes May Catch Audi in 2013 Sales: Handelsblatt Cites Study 2013-11-17 16:35:07.203 GMT

By Richard Weiss Nov. 17 (Bloomberg) -- Mercedes sales incl. Smart will increase more than 10% this year to 1.6 million vehicles, while Audi will have about the same number, Handelsblatt says, citing study from Center of Automotive Management. * Mercedes unit sales will overtake Audi’s if third-quarter dynamic continues * Audi can only maintain lead over Mercedes if its China growth exceeds current expectations * BMW’s lead so wide that Mercedes, Audi unlikely to catch up by 2020

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To contact the reporter on this story: Richard Weiss in Frankfurt at +49-69-92041-287 or rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at +49-30-70010-6230 or bkammel@bloomberg.net