Sent from Bloomberg Professional for Android
Sent from Bloomberg Professional for Android
Sent from Bloomberg Professional for Android
How Renault Got Run Over by a Shareholder Called the French Government
Can the French government hurt Renault ’s shareholders more than it already has?
It’s the serious question that investors in the French car maker should ponder after a series of blunders and mishaps put an end to the company’s merger talks with Italy’s Fiat Chrysler Automobiles (ticker: FCAU). Not for the first time, Renault (RNO.France) experienced how clumsy the French state can be when dealing with the company that has been under state tutelage since it was fully nationalized right after World War II. The fear is that it might not have been the last time, even though the French state’s holding has shrunk in 75 years from 100% to just 15% today.
It seems that, at Renault, some shareholders are more equal than others. The drama that unfolded over 10 days in May and June looked like a bad play whose actors couldn’t help fumbling lines they had spent weeks rehearsing. Irked that the Renault board, after hours of meeting, couldn’t decide whether to enter formal talks, Fiat Chairman John Elkann pulled the offer he had made on May 27 for the proverbial “merger of equals” between the two companies. The official reason is that, at the last minute, French Finance Minister Bruno Le Maire—who couldn’t be reached by the Renault government-appointed director because he was at a dinner—wanted a few more days to try to convince Renault’s longtime industrial partner, Nissan Motor (7201.Japan), of the merger’s benefits.
That could, indeed, have been a good argument if the French government and Fiat representatives hadn’t spent weeks before the formal announcement working on terms that would be acceptable to all. A little bit of political posturing in Paris would have been expected, along with some grandstanding about “French interests” and jobs to be saved. But it appeared as if the French took that old tradition to extremes, which gave the Fiat chairman second thoughts about the possibility of a smooth implementation of the merger in coming years.
French President Emmanuel Macron took care not to appear on the front lines of the dispute. His government, however, consists of ministers who hardly speak, let alone act, without prior authorization from the presidency. As a result, the credibility of France as a new business-friendly haven in Europe has taken a hit. It will be restored only if the French government stops playing for the gallery in the name of job preservation and starts acting like a responsible shareholder in companies it holds stakes in.
Renault in the short term is now left to its own devices, its shares down by almost a quarter in the past year and valued at a 33% discount to those of French rival Peugeot (UG.France). The fact that Fiat simmers in comparable misery isn’t much consolation.
But never say never in the automobile industry, where megaflops have never killed the idea of megadeals, and grand plans regularly demonstrate the triumph of hope over experience. (Daimler-Chrysler, anyone?) Renault, Fiat, and Nissan can always come back to the table at some point. But they will have to decide on the shape of that table—whether it can be round, or has to be square because the French government insists on behaving like the fourth party.
Global stocks opened the week on a positive note after President Trump refrained from slapping tariffs on Mexico, for now, but continued to espouse the utility of using tariffs as a blunt tool to address what he sees as unbalanced trade around the world. Monday also saw significant deals in the tech, defense and energy sectors revive animal spirits, pushing the S&P back within 2% of its all-time high. There was little new to report on the US/China trade spat and it remains unclear whether Presidents Xi and Trump will meet and the G20 later this month. Trump did indicate he had no deadline for additional China tariffs at this time, but only after saying early in the week that if Pres Xi doesn't come to the G20, he would put the next $300B of tariffs into effect immediately.
After WTI prices dropped following mid-week inventory readings that showed crude stockpiles continued to climb, on Thursday investors woke to find oil prices bouncing following an attack on two tankers sailing from Saudi Arabia near the Strait of Hormuz. US and UK officials were quick to point the finger squarely at Iran. By Friday, US indices opened lower and gold prices rose to a new high for the year. Chinese industrial production data disappointed investors while geopolitical concerns continued to rise after the U.S. released a video it said proved Iran was involved in the attacks on the oil tankers.
For the week, the S&P gained 0.5%, the DJIA added 0.4%, and the Nasdaq rose 0.7%. Merger announcements took top billing in corporate news this week. United Technologies announced a plan to combine its aerospace business with Raytheon in an all-stock merger that would create a new manufacturing behemoth, though President Trump noted he was ‘a little concerned’ about the deal’s effects on competition in the defense sector. Salesforce revealed its plans to acquire Tableau Software for $15.7B in an all-stock deal in order to diversify further into analytics. Ten state attorneys general, led by New York AG James, filed a lawsuit to block the Sprint/T-Mobile merger, though the two companies vowed to fight the states’ efforts if they do receive approval from the DOJ. Broadcom’s earnings report blunted a rebound in the chip sector as management confirmed that the US/China trade dispute and the ban on Huawei are hurting business to the tune of a $2B cut in FY guidance. The IPO market continued to be red hot, with the launches of CrowdStrike, Fiverr, and Chewy all drawing strong interest from investors.
Macro :
- Iran to Announce Further Retreat From Nuclear Deal on Monday
Keep an eye on :
- AIR FP : Airbus Warns European Governments to Prepare for No-Deal Brexit
- AIR FP : CFM Pledges to Have Engine Ready If Boeing Speeds 737 Successor
- ALV GY : Allianz Buys 49% Stake in Hudson Yards Building for $384 Million
- AZN LN : AstraZeneca to Invest $630 Million in South Korean Health Sector
- CHWY US : Chewy Tops LendingClub for Decade’s Second-Best Mega-IPO Pop (1)
- ENGI FP : GIP in Talks to Buy Engie’s Indian Solar Power Business: Mint
- ENX FP : Caisse des Dépôts to Buy Euronext Shares from ABN Amro, SocGen
- FCA IM : Fiat Chrysler, Renault May Seek to Restart Merger Talks: Sole
- GBT US : Global Blood Drops as Sickle-Cell Data Fail to Quiet Critics
- HIAG SW : Hiag & Six End Talks About Secure Swiss Cloud Service
- IAM MC : Maroc Telecom’s Offering Prices at 125.3 Dirhams a Share
- KER FP : Kering Stock Buyback’s Second Tranche To Begin June 17
- KIE LN : cites Times report that Kier plans to sell housebuilding unit
- KBX GY : Knorr-Bremse May See 2H Truck Unit Slowdown: Euro am Sonntag
- LLOY LN : Lloyds Sells Out of Philip Green’s Arcadia Group: FT
- MRK GY : Merck KGaA to Hold Off From Big M&A in Short Term, Boersen Says
- NZYMB DC : Novozymes Targets 5% or Above Annual Organic Sales Growth
- OCI NA : OCI Confirms Talks With Adnoc on MENA Fertilizer Assets
- RBS LN : RBS Sees Positive Financial Impact From Merger of Saudi Banks
- RNO FP : Fiat-Renault Deal Revival Hinges on Nissan Backing, French Role
- ROG SW : Bristol-Myers, Roche Settle Patent Suit on Tecentriq Cancer Drug
- SAF FP : CFM Pledges to Have Engine Ready If Boeing Speeds 737 Successor
- SGO FP : Saint-Gobain Cancels 6 Million Held Shares
- SESG FP : Verizon CEO Asks FCC Chief to Move ‘Quickly’ on C-Band Airwaves
- SRP LN : Babcock’s Board Rejects Serco’s Merger Proposal, Times Says
- TESB BB : Tessenderlo Buys Operator of T-Power From Itochu Unit; No Terms
- TIT IM : Telecom Italia to Start Voluntary Delisting of ADSs From NYSE
- VOLVB SS : Volvo Seen Offering Better Value Than Traton, Analysts Say (1)
- VOW3 GY : Volkswagen Tennessee Workers Reject Union, Dealing Blow to UAW
- WDI GY : Wirecard and Crédit Agricole payment services announce next stages of strategic partnership
Barron’s weekend summary: positive feature on drug distributors (MCK CAH ABC) and on upcoming IPO Slack
* Cover story: Barron’s list of the World’s Best CEOs contains 30 names selected after screening the S&P 500 index and a roster of large non-U.S. companies for standout results in recent years on growth in revenue, earnings, and shareholder returns; the names are not ranked, but separated into three groups: visionary founders, growth leaders, and change agents; New to the list this year are Mary Dillon of ULTA, Steve Easterbrook of MCD, Henry Fernandez of MSCI, Marilyn Hewson of LMT, Craig Jelinek of COST, David Lewis of Tesco, Brian Moynihan of BAC, Francois-Henri Pinault of Kering, James Robo of NEE, Stephen Schwartzman of BX, and Lisa Su of AMD.
* Features: 1) Positive on MCK, CAH, ABC: Shares of drug distributors have taken a hit amid declining prices for generic drugs, lawsuits accusing the companies of liability in the opioid crisis, and regulatory proposals that could upset their business models, but for long-term investors who can stomach risk, the shares present an opportunity; 2) Positive on WORK: There are ample reasons to be bullish about the long-term opportunity for Slack and the performance of its stock, and whether to buy or sell will come down to its valuation on day one of its direct listing, which doesn’t come with any capital raise. Best CEO profiles: 1) Change agent Lisa Su joined AMD in 2014 and quickly refocused it on its core high-performance computing business, establishing an ironclad policy of meeting commitments to customers, and made bold bets on chip-manufacturing technologies; 2) Growth leader Brian Moynihan of BAC follows a mantra of responsible growth, which means treating customers and borrowers fairly, controlling risk, acting to limit global warming, and creating a strong corporate culture; 3) Visionary founder Stephen Schwarzman of BX leads a firm that puts money to work for investors willing to lock up cash for years in investments that may be more attractive than stocks and bonds, such as private equity, real estate, credit strategies, and hedge funds, and alternatives.
* Tech Trader: Over the past few days, there has been an out-of-left-field revival for the IPO market following the poor performance of UBER and LYFT; The market “went gaga” for CHWY, CRWD, FVRR, likely because of “megacap fatigue” with AMZN, AAPL, FB, and GOOGL, which face intense government scrutiny.
* Trader: The small-cap Russell 2000 index has dropped 7.2% during the past 12 months, even as the S&P 500 has gained 6.2%, just the fifth time in the past 20 years that small has underperformed large by 10 percentage points or more based on monthly prices; Since the start of June, the materials sector has trounced the rest of the market, rising more than 10% in the past two weeks, but “two weeks does not a trend reversal make”; Positive on GRUB: Company stands to benefit from AMZN’s decision to shutter Amazon Restaurants and exit the meal-delivery sector to focus on groceries.
* Interview: Louis-Vincent Gave of GaveKal Research says that by weaponizing the dollar, the Trump administration has opened the door to a reversal in the global power structure that will create a new world order in which China comes out on top.
* Profile: Elisa Mazen, co-manager of the ClearBridge International Growth fund, scrutinizes whether a company can keep growing for years, and just how large that growth can be, which sometimes means taking a more conservative approach than peers (top 10 holdings: Nestle, Shiseido, SAP, DEO, London Stock Exchange Group, Rentokil Initial, LVMH Moet Hennessy, NVS, CP, ICLR).
* European Trader: Cautious on Renault: Some investors wonder if the French government can hurt the automaker’s shareholders more than it already has following a series of blunders that led FCAU to end talks for a “merger of equals.”
* Emerging Markets: Vietnam is an ascendant nation—economic growth is 6% to 7% annually, powered by a strong export sector, but making money on Vietnamese stocks isn’t so simple, and the country has yet to be recognized as an official emerging market by MSCI.
* Commodities: “U.S. farmers are millions of acres behind their usual pace of corn planting this spring because of flooding, which may lead to a supply shortage that lifts prices by year end to their highest in five years.”
* Streetwise: “Autonomous driving will eventually solve for the least-scalable part of food delivery—people,” says columnist Jack Hough. “Costs will plunge. Companies that survive the thin-margin years between now and then could enjoy powerful network effects, and rich profits.”
Weekend Papers Summary
* NYT (Saturday): The Trump administration began an urgent debate Friday over how to respond to what officials say has grown into a shadow war with Iran, which allegedly attacked oil tankers in the Persian Gulf—Trump said the U.S. would push back, but offered no details about how; related story says a president accusing another country of an act of war must overcome skepticism at home and abroad, which for Trump, known for falsehoods and bombast, will be a daunting task; For the third time, the World Health Organization declined to declare the Ebola outbreak in the Democratic Republic of Congo a public health emergency, though the outbreak has moved into neighboring Uganda and ranks as the second deadliest in history; +/- GE, Siemens: A review of dozens of Chinese court cases, internal corporate documents, and interviews with company insiders sheds light on how foreign firms have become deeply enmeshed in the corruption pervading China’s health care industry, which often involves signing deals with contractors who pay bribes; European authorities say Russian groups waged disinformation campaigns designed to depress turnout and sway public opinion in last month’s European Union elections, and that many tech platforms remain vulnerable to meddling; A British court set February 2020 as the date for the full extradition hearing on whether WikiLeaks founder Julian Assange should be sent to the U.S. to face a host of charges, including several under the Espionage Act; Every city, town, and county in the U.S. could receive a payout in a settlement with the largest makers, distributors and retailers of prescription opioids, if a judge approves an innovative proposal made in an Ohio federal court by lawyers for hundreds of local governments; (Sunday): The U.S. is increasing its digital incursions into Russia’s electric power grid in a warning to president Vladimir Putin, a sign the Trump administration is using new authorities to deploy cybertools more aggressively; On Saturday, Zuzana Caputova, a 45-year-old lawyer and political neophyte who has never held state office, became the first woman ever to be sworn in as president of Slovakia; A car bomb exploded on Saturday at a checkpoint near the Somali Parliament, killing at least eight people and injuring 16 others, while a separate blast from a roadside bomb in Mogadishu hit a police vehicle, killing several of the 11 officers inside; Priests in robes and hard hats held the first Mass at the Cathedral of Notre-Dame in Paris since the iconic structure was devastated by fire in April, leaving it in a fragile state, including a vault that has not been secured and could still collapse; Carrie Lam, Hong Kong’s chief executive, suspended an unpopular bill to allow extraditions to mainland China, and expressed hope the move would restore peace and order in the city after a string of major demonstrations
* WSJ (Weekend): Front page story reports that “Governments and tanker companies are stepping up efforts to protect shipping lanes after tankers were attacked near the Strait of Hormuz, through which more than a third of the world’s seaborne oil is shipped”; In his 2016 presidential campaign, Donald Tromp broke tradition with a chaotic and unscripted campaign, but for 2020 his re-election team is taking a more conventional approach involving branding and merchandising, direct marketing, and data mining; In passing a sweeping overhaul of rent laws that bring increased power to tenants, New York state lawmakers gave a boost to a movement among state capitals to try to address rental-housing affordability; American shoppers increased spending in May, providing a boost to the U.S. economy’s continued expansion despite trade tensions and slowing global growth; With its record $214.8B budget, California became the first state in the U.S. to expand government-subsidized health care for some adult immigrants living in the country illegally; Republican Sen. Chuck Grassley from Iowa and other lawmakers plan to move forward on legislation to change laws that give the president wide authority to impose trade sanctions; Former vice president Joe Biden, senators Bernie Sanders and Kamala Harris and mayor Pete Butigieg will share the stage on the second night of the Democratic Party’s 2020 presidential primary debate, while the first night will feature senators Elizabeth Warren, Cory Booker, Amy Klobuchar former Texas representative Beto O’Rourke; The U.S. and its NATO allies “flexed their muscles” along Russia’s western border this week with military exercises and a pledge of new troops that have deepened Moscow’s fears of U.S. intentions in the region; Russia’s central bank is the latest among emerging markets to cut interest rates as expectations of easier money in the U.S. gives developing markets the room to stimulate their economies; The technology that underpins the development of self-driving vehicles is making human-driven cars safer at a rate that completely autonomous vehicles may have trouble matching; + FB: Social site plans to more than double its global advertising spending as it aims to rebuild trust after a series of privacy missteps and other controversies dented its reputation; +/- SNE: The latest push by activist investor Daniel Loeb to break up the company poses a dilemma for chief Kenichiro Yoshida, who is generally sympathetic to Wall Street’s thinking but wants to keep his conglomerate intact; +/- Hudson’s Bay: A move to take the company private doesn’t change the fact that holdings like department stores Saks Fifth Avenue and Lord & Taylor have been losing share for years to discount chains, e-commerce companies, and other upstarts; High-speed trading firms Citadel Securities, GTS Securities, and the U.S. arm of Amsterdam-based IMC said in a joint court filing that the SEC’s plan, called the Transaction Fee Pilot, was an “ill-conceived” program that would harm investors; H.O.T.S.: Tech venture-capital funds are pouring money into innovative kitchen and bathroom brands like Brandless and Charlotte Tilbury, but rapid growth doesn’t always translate well to consumer products; “Companies fear a trade war and recession, but they can’t easily cut back on hiring with domestic demand strong”; In his push to split up SNE, Dan Loeb “may not get everything he wants, but he probably won’t come away empty-handed either.
* FT (Weekend): Europe and Russia yesterday urged caution over the explosions on two oil tankers in the Gulf of Oman as Donald Trump accused Iran of attacking the vessels, heightening tensions between and Washington and Tehran; European Union finance ministers agreed to small steps towards creating a Eurozone budget after marathon talks failed to settle a longstanding Franco-Dutch dispute over how it should be funded; Big Read piece says “Fears that the U.S.–China trade war will cause a slowdown have forced the Fed to think about cutting rates again, but the central bank also worries that such a move would be seen as caving in to the White House”; Lex Column: Bayer’s admission that it needs alternatives to Roundup, a core product, is a tacit acknowledgment it acted rashly in its Monsanto deal; CHWY’s public shareholders may grow uneasy with its business model before PetSmart can fully monetize its investment; Demand has been weak for Hong Kong-listed stocks, a potentially ominous sign; Comment: Hong Kong is in danger of being hollowed out again, says Michael Schuman, because if Beijing damages business confidence in the rule of law, the territory becomes just another Chinese city.
* NY POST (Saturday): + SNAP: Company’s future looks more global than it current dominance among U.S. teens and early 20-somethings might suggest, and it is seeing greater user activity in countries such as Saudi Arabia and India; (Sunday): New York state, which is usually top of list when it comes to taxing things, has some of the lowest beer taxes in the nation, as do several neighboring states such as New Jersey and Pennsylvania, according to a report from the Tax Foundation.