FT : Vonovia/Deutsche Wohnen: German rent seekers combine for strength

Vonovia/Deutsche Wohnen: German rent seekers combine for strength
When business takes on politics it is the former that usually comes off worse

In its cities, many Germans prefer to rent their homes. Increasingly those who rent have grown unhappy with their landlords. Ironically, this conflict has enabled Vonovia chief executive Rolf Buch to expand his company’s portfolio. Germany’s largest residential landlord will buy rival Deutsche Wohnen in an €18bn all-cash deal, announced late on Monday. The combination creates a landlord controlling almost €90bn of property.

At €53.03 per share, Vonovia has offered a 25 per cent premium to Deutsche Wohnen’s three-month undisturbed share price. That sounds reasonable. But the price almost exactly equals the reported net asset value at the first quarter. This lack of premium reflects the market’s political concerns about listed landlords. The residential sector trades at a near-record 25 per cent discount to property values, according to Green Street research.

This is Vonovia’s third attempt to bring its smaller peer under one roof. It is well-timed. As demand outstrips supply, hostility against landlords’ efforts to lift rents has flared in Germany. Nowhere is this dispute more intense than in Berlin, the location of three-quarters of Deutsche Wohnen’s properties. Leftwing politicians in Germany introduced national checks on rents back in 2015. In Berlin, leaders went further last year by enacting harsher rent freezes. Last month Germany’s constitutional court over-ruled these.

However, plans by Deutsche Wohnen chief executive Michael Zahn to go after tenants for any lost income only added to the landlord’s miserly image. Its woes provided Vonovia with an opportunity to buy into one of Germany’s fastest-growing cities by population at nil premium to book value. 

Tuesday’s 5 per cent drop in Vonovia’s share price partly reflects the political risk from upcoming elections in September, but also its plans to issue up to €8bn of equity to fund the deal. Promised annual savings of €105m provide little balm for shareholders given the share price premium paid. Rental growth at the newco’s Berlin properties will be limited to 1 per cent annually for three years.

Given the caps, rental supply seems unlikely to surge. For that reason, Vonovia could play consolidator and bide its time. Extra scale should bolster Vonovia’s own clout in any future disputes. Even so, when business takes on politics it is the former that usually comes off worse.

FT : Smiths Group: new boss must engineer long-delayed spin-off

Smiths Group: new boss must engineer long-delayed spin-off
Chief executive Paul Keel needs to pursue a focused strategy

Engineering group Smiths’ efforts to break itself up have gone nowhere fast, just like a song title of the namesake rock band. Over the past decade, attempts by successive bosses to split off the medical division stalled. But the board remains committed to the separation, it said on Tuesday as it unexpectedly installed a new chief executive. The share price, having factored in hopes of a narrowing conglomerate discount, hardly moved.

New boss Paul Keel is a Harvard Business School alumnus who previously worked for conglomerate 3M in the UK and US. His task is to lead the group in what it optimistically describes as its next growth phase. To be fair, investors did not do so badly under Andy Reynolds Smith, chief executive since 2015. The share price rose by more than a half, more than three times as much as the FTSE 100.

But shares have fallen a tenth in the past three years. Many shareholders were unimpressed by the proposed terms of an abortive tie-up in 2018 between the medical division and US-listed ICU Medical.

Another bidder could yet emerge, but it is more likely that the medical division will be spun off and listed. Citi estimates its enterprise value at £2.7bn, about 15 times 2022 ebitda, reflecting a discount to faster-growing European peers. That would leave the remaining businesses trading on a lowly multiple of under 10, ripe for revaluation. Its sum-of-the-parts calculation suggests a 22 per cent potential upside.

Any further dismantling of the portfolio structure is unlikely without external intervention. That is not just because the remaining industrial businesses form a reasonably coherent group. The company has stuck to its belief that the merits of pure play businesses are overblown, even as activists have forced conglomerates across Europe to break themselves up.

Chair Sir George Buckley, a former chief executive of 3M, has described himself as a “conglomerate lover”. That deeply unfashionable sentiment — coupled with the delays to offloading the medical division — makes it all the more important that the new boss pursues a focused strategy.

FT : UK regulator probes $39bn AstraZeneca tie-up with Alexion

UK regulator probes $39bn AstraZeneca tie-up with Alexion
Biotech acquisition has already been approved in 10 countries including the US

The UK competition regulator is probing AstraZeneca’s $39bn takeover of US biotech group Alexion after raising potential antitrust concerns.

The Competition and Markets Authority said on Tuesday it was investigating the deal signed in December when AstraZeneca — a key Covid-19 vaccine producer — agreed to buy US company Alexion, a biotech specialising in treatments for rare diseases. 

The UK regulator said the deal had met its test for a relevant merger — meaning there was a risk that the two companies would cease to be distinct, and had met the threshold for the CMA to investigate. 

The CMA has set a deadline of June 3 to receive views from interested parties and has until July 21 to decide whether to launch a more in-depth investigation.

AstraZeneca said it still expected the deal to close in the third quarter. “The commencement of the UK CMA’s formal review is another important step towards closing of the proposed acquisition,” the company said. 

The deal has already been approved in ten countries, including by the US Federal Trade Commission and is being examined by regulators in the EU and Japan. More than 99 per cent of AstraZeneca and Alexion shareholders recently voted in favour of the deal. 

The $39bn acquisition is designed to add five approved medicines and a pipeline of 11 potential drugs, adding double-digit revenue growth until 2025 at the London-listed pharmaceutical company.

There is no significant geographic or product overlap between the two companies. AstraZeneca is hoping that Alexion’s research and development in the area of complement biology, which it has so far focused on rare diseases caused by uncontrolled activation of the immune system, could be used for more common conditions, including cancers.

But the UK regulator has a broad discretion to justify analysing mergers that could affect UK markets, and has taken an increasingly flexible approach to the tests it uses to intervene. In February 2020 the CMA looked at US biotech company Roche’s planned $5bn acquisition of fellow US company Spark despite the fact the latter had no UK turnover. The CMA said Spark’s research and development activities in Britain justified a phase 1 analysis, but did not take the investigation further.

Alexion is based in Boston, Massachusetts, and books its largest sales in the US. It runs its international operations from Switzerland and sells its drugs in more than 50 countries, including the UK.

When AstraZeneca announced the deal last year, chief executive Pascal Soriot said it would strengthen the UK-based drugmaker’s position in the US, where it has been growing, especially in oncology. He said AstraZeneca could help Alexion expand in emerging markets, including China. 

Shares in AstraZeneca fell 0.4 per cent to £81.20p in morning trading in London. 

The CMA’s decision to probe AstraZeneca and Alexion comes as it weighs new approaches to dealing with pharma mergers. In March it joined regulators including the US Federal Trade Commission and the European Commission in a working group to consider expanding the “theories of harm” it uses when addressing big pharma deals.

CMA chief executive Andrea Coscelli said at the time that he wanted to “protect consumers from anti-competitive deals” in the sector, but noted “big pharma plays an essential role in our society”.

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:

  • RIDE -12.5%, DY -3.2%, HA -0.9%

Other news:

  • TLMD -9.9% (stock offering)
  • EAF -6.7% (stock offering by selling shareholders)
  • RIOT -4.7% (names new Exec Chair)
  • JBT -4.1% (to offer $350 mln aggregate principal amount of convertible senior notes due 2026 in a private offering)
  • AZEK -3.3% (stock offering)
  • REXR -2.6% (prices offering of 9 mln shares of common stock for gross proceeds of $500.4 mln)
  • OSH -2.5% (stock offering)
  • BALY -2.2% (enters mobile sports betting market with launch of beta version of mobile sportsbook in Colorado)
  • ALK -1.8% (provides update on its Q2 outlook for various measures)

Analyst comments:

  • VKTX -1.2% (downgraded to Outperform from Strong Buy at Raymond James)
  • DPZ -0.7% (downgraded to Neutral from Buy at Goldman)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • TIGR +6.9%, MMYT +5.3%, NDSN +4.2%, CRMT +4.1%, ARCE +2.7%

Other news:

  • TLC +12.1% (receives approval of NDA of Liposomal Amphotericin B in India)
  • JYNT +10.8% (to be added to the S&P SmallCap 600)
  • PSTI +8.9% (to receive EUR20 mln in non-dilutive funding from the EIB)
  • SRRK +8.3% (apitegromab granted Fast Track designation for Spinal Muscular Atrophy)
  • TGTX +6.8% (FDA has accepted the Biologics License Application for ublituximab in combination with UKONIQ)
  • TLSA +5.6% (initiates clinical trial in a secondary progressive multiple sclerosis patient)
  • GSMG +4.1% (commences the commercial applications of its blockchain and NFT technologies through its digital copyright management platform)
  • HYFM +3.3% (to acquire House & Garden)
  • YTRA +2.4% (stock offering and mixed shelf offering)
  • OCN +2.1% (to acquire $48 bln in bulk servicing rights from AmeriHome Mortgage)
  • LAD +1.8% (announces the acquisition of three Hyundai dealerships in LV)
  • CONE +1.6% (names new Chair of Board)
  • ONEM +1.5% (reports that a longitudinal study finds that its primary care model delivers outsized impact in controlling diabetes)
  • FSR +1.5% (selects ServiceNow (NOW) solutions to accelerate electric vehicle product development)
  • AUTL +1.4% (announces an additional nature publication for AUTO1)
  • UAL +1.4% (has experienced an acceleration in ticketed yields for the second quarter, ahead of previous expectations)
  • ATSG +1.1% (announces lease with DHL to provide four additional Boeing 767 freighters)
  • BA +1.1% (receives order for 14 Boeing 737 MAX Jets from SMBC Aviation Capital)

Analyst comments:

  • SHAK +5.5% (upgraded to Buy from Neutral at Goldman)
  • CGC +4% (upgraded to Buy from Neutral at MKM Partners)
  • TELL +3.3% (upgraded to Buy from Hold at DNB Markets)
  • DK +2.7% (upgraded to Overweight from Neutral at Piper Sandler)
  • DHT +2.6% (upgraded to Outperform from In-line at Evercore ISI)
  • APPN +2.3% (upgraded to Neutral from Underperform at Macquarie)

>>> US Early premarket gappers

Early premarket gappers

  • Gapping up:
    • JYNT +10.9%, TLSA +8.2%, TLC +7.4%, TIGR +5.4%, HYFM +5.2%, SRRK +4.8%, NDSN +4.2%, CRMT +4.1%, CONE +3.8%, LEGO +3.2%, OCN +2.9%, HCA +2.9%, ARCE +2.7%, YTRA +1.9%, ONEM +1.5%, ATSG +1.1%, SQ +0.9%, BA +0.9%
  • Gapping down:
    • RIDE -15.6%, TLMD -10%, AZEK -4.2%, OSH -4.1%, QDEL -2.9%, RIOT -2.6%, EAF -2.1%, API -2%, REXR -1.9%, BKR -0.8%, ALXN -0.6%

WSJ : Lordstown Motors Says It Needs to Raise Cash, Lowers Production Forecast

Lordstown Motors Says It Needs to Raise Cash, Lowers Production Forecast
Electric-truck startup is facing increasing competition as well as questions about its preorders and production plans

Electric-truck startup Lordstown Motors Corp. RIDE 0.94% said Monday it faces higher-than-expected costs, is cutting its 2021 production forecast by at least 50% and needs to raise more capital, as it tries to launch its electric pickup truck later this year.

The company said that without additional capital, it will finish the year with between $50 million and $75 million on hand, down from the $200 million forecast the company provided in March.

“Capital may limit our ability to make as many vehicles as we would like,” said Steve Burns, Lordstown’s chief executive, on a call with analysts. “We wanted to make sure everybody knew the worst, worst case.” The company reported having $587 million on hand at the end of the first quarter.

Shares in Lordstown Motors dropped 9% to $8.80 in aftermarket trading. The stock has fallen 52% this year, through the close Monday, amid questions about the strength of its preorders and production plans as well as increased competition from legacy auto makers.

Lordstown Motors is one of several electric-vehicle startups to go public in a rash of mergers with special-purpose acquisition companies over the past year. While investors initially saw impressive returns, shares of many have since retreated, as the startups missed targets and added costs in their earliest days as publicly traded companies.

Mr. Burns reiterated the company’s plans to begin production in September and deliver its first vehicles by the end of the year. The company didn’t have any sales in the first quarter.

The truck maker is in talks to secure more financing, Mr. Burns said, including discussions over an asset-backed financing plan and pursuit of an award through a federal loan program aimed at spurring electric-vehicle manufacturing.

“We have zero debt, and we have a lot of assets,” Mr. Burns said. “There’s folks that want to finance that.”

Lordstown reported a loss of $125.2 million in the first quarter, compared with a loss of $11.9 million for the year-earlier period. The startup said it spent about $92 million in the latest quarter on research and development expenses, up from $8.5 million in spending during the first quarter of 2020.

The company blamed the higher costs on Covid-19-related expenses and industrywide supply-chain issues that have increased prices for parts and equipment. Company executives said Monday that the company was also spending more than it anticipated on outside engineering support.

Lordstown Motors, named after the Ohio town where the company took over a closed General Motors Co. assembly plant, went public last November through a SPAC merger that valued the company at $1.9 billion and provided it with $675 million in funding. Lordstown’s debut model, the Endurance, is targeted at operators of commercial fleets for whom electric vehicles can lower projected fuel and maintenance costs.

In March, short seller Hindenburg Research took aim at Lordstown Motors with a report claiming the company had misled investors about the strength of its preorder reservations and progress made toward starting production.

After the report’s publication, Mr. Burns characterized it as half-truths and lies in an interview with The Wall Street Journal.

The following week, Mr. Burns opened Lordstown Motors’ first earnings call as a publicly traded entity, saying the company was cooperating with an inquiry by the Securities and Exchange Commission into its SPAC merger and preorders.

Lordstown also faces pressure from conventional auto makers like Ford Motor Co. , which showed off an electric version of its F-150 pickup truck last week. The lowest-priced versions of that truck will list for more than $10,000 less than Lordstown Motors’ announced price for the Endurance.

Mr. Burns said beating Ford to be first to market should provide it an advantage if it can begin production later this year as it plans. The company said Monday that the retooling of its assembly plant was nearly complete and the company had begun crash-testing the Endurance.

“We want as many people buying our vehicle while we’re the only game in town,” he said.

>>> Europe : Brokers Upgrades & Downgrades - 25th of May 2021 V2(+)

>>> Up
* Gjensidige Raised to Buy at HSBC; PT 225 kroner
* Royal Mail Raised to Buy at Peel Hunt; PT 680 pence
* Sartorius Raised to Buy at SocGen; PT 533 euros
* Wizz Air Raised to Buy at Wood & Company; PT 5,400 pence

>>> Down
* Cimarex Cut to Inline at Evercore ISI
* Holmen Cut to Hold at Danske Bank Markets; PT 410 kronor (+)
* Metsa Board Cut to Hold at Danske Bank Markets; PT 10.30 euros (+)
* Poste Italiane Cut to Hold at Deutsche Bank; PT 11.90 euros
* SCA Cut to Hold at Danske Bank Markets; PT 150 kronor (+)
* Stora Enso Cut to Hold at Danske Bank Markets; PT 15.70 euros (+)

>>> Initiation
* AERI LN Rated New Hold at Stifel (+)
* A.G. Barr Rated New Add at Peel Hunt; PT 575 pence
* Coinbase Rated New Overweight at JPMorgan; PT $371
* Getinge Reinstated Buy at Jefferies; PT 340 kronor
* Quantum Genomics SAS Rated New Outperform at Oddo BHF
* Wallstreet:Online Rated New Buy at Bankhaus Metzler; PT 35 euros

>>> Call
* Nel Shares May Drop After Iberdrola/Cummins Pact: Morgan Stanley
* Richemont’s ‘Magnificent’ Jewels Spur Vontobel Price Target Hike (+)
* Royal Mail Discount Looks Unjustified, Upgrade to Buy: Peel Hunt
* Shaftesbury’s Net Asset Value Slides, Missing Liberum Estimate (+)
* Shell’s Refinery Stake Sale Shows Improving Metrics: Jefferies

>>> Stoxx 600 Pre-Market Indications

  • Deutsche Wohnen (DWNI TH) +16%
    • Germany’s Vonovia to Buy Deutsche Wohnen for $23 Billion
  • Sartorius (SRT3 TH) +2.4%
    • Sartorius Raised to Buy at SocGen; PT 533 euros
  • Erste (EBO TH) +2.2%
  • Rio Tinto (RIO1 TH) +2%
  • Prosus (1TY TH) +1.9%
  • HeidelbergCement (HEI TH) +1.8%
  • Delivery Hero (DHER TH) +1.8%
  • Siemens Energy (ENR TH) +1.8%
    • Aker Solutions Signs Contract for East Anglia 3 Wind Project
  • Imperial Brands (ITB TH) +1.7%
  • Coloplast (CBHD TH) -1%
  • Kone (KC4 TH) -1.1%
  • TUI (TUI1 TH) -1.2%
  • Vonovia (VNA TH) -2.1%