Closing Stock Market SummaryThe S&P 500 lost 0.8% on Tuesday, while U.S. Treasuries rallied, as investors continued to show little enthusiasm for risk assets. Tuesday's decline wiped out an early gain for the benchmark index and sent it back near the 2800 level as losses accelerated into the close.
The Dow Jones Industrial Average (-0.9%), the Nasdaq Composite (-0.4%), and the Russell 2000 (-0.7%) also gave up early gains and finished near their session lows.
Trade progress remained elusive, while headlines continued to swirl. President Trump said on Monday he expects a deal in the future but said the U.S. is not ready for one at this moment. Investors showed a lack of buying conviction throughout the day, unraveling the rebound attempt and sending stocks lower in a steady, broad-based retreat.
The S&P 500 consumer staples (-1.8%), utilities (-1.6%), and health care (-1.4%) sectors led the market lower. The Dow Jones Transportation Average (-1.3%) was another laggard, as investors remained concerned about a protracted trade war with China. The communication services sector (+0.2%) was the lone sector to finish higher.
Demand for U.S. Treasuries remained strong, sending yields even lower, amid the trade uncertainty and negative disposition in equities. The 2-yr yield declined four basis points to 2.12%, and the 10-yr yield declined six basis points to 2.27% -- eight basis points below the yield on the 3-month bill. The U.S. Dollar Index advanced 0.3% to 97.93. WTI crude rose 0.8% to $59.11/bbl.
Shares of Advanced Micro Devices (AMD 29.03, +2.59, +9.8%), Total System (TSS 118.84, +5.39, +4.8%), and Fiat-Chrysler (FCAU 13.78, +0.93, +7.2%) bucked the broader trend on Tuesday.
AMD impressed investors with its new products. Total System confirmed its $21.5 billion merger of equals with Global Payments (GPN 148.87, -4.57, -3.0%). Fiat-Chrysler proposed a merger with Renault (RNSDF), which will reportedly give its preliminary approval, according to Bloomberg.
Reviewing Tuesday's economic data, which included the Conference Board's Consumer Confidence Index for May, the FHFA Housing Price Index for March, and the S&P Case-Shiller Home Price Index for March:
- The Conference Board's Consumer Confidence Index increased to 134.1 in May (Briefing.com consensus 130.0) from 129.2 in April. The May reading is the highest level for the index since November 2018.
- The key takeaway from the report is that it shows consumer confidence has not been impacted yet by the increased trade tension between the U.S. and China, which includes an escalation in tariff rates on Chinese imports that could ultimately be passed along to the consumer.
- The FHFA Housing Price Index for March increased 0.1% (consensus 0.3%) following a revised increase of 0.4% in February (from 0.3%).
- The S&P Case-Shiller Home Price Index for March increased 2.7% (consensus 2.9%) following a 3.0% increase in February.
Looking ahead, investors will receive the weekly MBA Mortgage Applications Index on Wednesday.
- Nasdaq Composite +14.7% YTD
- S&P 500 +11.8% YTD
- Russell 2000 +11.5% YTD
- Dow Jones Industrial Average +8.7% YTD
‘Hell’ for Nissan boss as merger plan raises the stakes
Prospect of Renault-Fiat Chrysler deal creates new problems for Hiroto Saikawa
Just two months ago, in a bid to put the mayhem of Carlos Ghosn’s arrest behind them and convince the world that the future was bright, the leaders of Renault and Nissan linked hands on stage, beamed for the cameras and declared the “restart of the alliance”.
For Hiroto Saikawa, the Nissan chief executive whose leadership hung by a thread and whose future depends on navigating a global company through crisis, it was a crucial show of unity.
But for his counterpart in the handshake, the Renault chairman Jean-Dominique Senard, the word “restart” had a much greater meaning than a friendly sound bite. Unknown to Mr Saikawa and the Nissan leadership, Mr Senard was already in serious talks with the Fiat Chrysler Automobiles chairman, John Elkann, that would take the two European giants towards a full merger proposal and fundamentally rebalance the relationship between Renault and Nissan.
As a sign of how soured things have become within the alliance, advisers to FCA even refer to Renault as an active beneficiary of their abrupt intervention: the Italian company’s merger proposal, said one banker involved, “offers Renault a reset of its relationship with the Japanese”.
While that reset, after months of frustrated efforts to advance merger discussions between Nissan and Renault, may seem attractive to Mr Senard and straightforward to FCA, for Mr Saikawa it represents a colossal additional burden on management abilities that analysts judge to be already very stretched.
“It’s hell for Mr Saikawa whether he says yes or no [to the FCA-Renault deal],” said Koji Endo, head of equity research at SBI Securities. “It’s going to be a very tough negotiation for Mr Saikawa as he faces a Renault that will gain bigger bargaining powers by combining with FCA.”
Officially, Mr Saikawa had taken over as CEO when he was handpicked for the role in 2017. While Mr Ghosn was around, all-powerful and straddling the chairmanships of Nissan and Renault, say analysts, Mr Saikawa’s powers were constrained; with the former chairman now ousted, he has been forced not just to meet the full demands of the role but to reshape Nissan’s entire position in the alliance without the one person who once glued it together.
On one view, the mess has been galvanising. Against early predictions that he would not last more than a few months since the November arrest, Mr Saikawa is already preparing to face his third annual meeting of shareholders as CEO. The key to his survival, say people close to Nissan, was his hardline negotiating powers against what was seen as an aggressive push towards a merger by the French government.
But it was precisely Mr Saikawa’s unwavering tough stance, said people close to Renault, that eventually prompted Mr Senard to dramatically pivot his focus away from Nissan to FCA.
As Mr Saikawa prepares for his alliance board meeting with Mr Senard on Wednesday, he has signalled he would be open to talks to strengthen the partnership. The big question facing Mr Saikawa is whether he is prepared to take the group, which is now 43 per cent-owned by Renault, into a convoluted French-Italian-American-Japanese minefield where its voice will be less represented than in the current alliance.
“It was hard to understand Renault alone. Now talks will get even more complicated,” said one person close to Nissan’s board. “But it has always been Mr Saikawa who has been negotiating with Renault and he has the connections, so in that sense, his role will become even more critical.”
If Renault combines with FCA, analysts say Nissan’s position within the alliance will visibly weaken. In its existing alliance with the French carmaker, its leverage came from the bigger profits and sales it generated from two core markets that Renault was a minor participant in: the US and China. But if the merger takes place, Nissan’s sales of €94bn and profits of €3bn will be dwarfed by the merged entity’s sales of €170bn and profits of €8bn.
Because of those factors and the fact that FCA’s proposal has emerged from Nissan’s rebuff of Renault’s merger efforts, said CLSA analyst Christopher Richter, it could be argued that under Mr Saikawa, Nissan has been blind to the possibility that its stance could ultimately leave it in a weaker position.
“You could argue that Nissan has been looking for more independence but they lose that if their voice becomes secondary,” said Mr Richter.
Some Nissan executives remain sceptical about the latest deal since they were kept in the dark until a few days before FCA announced its merger proposal for Renault. People close to the talks explained that the decision was based on their belief that they should be able to clearly lay out the benefits of the FCA-Renault merger for Nissan before approaching the company.
Theoretically, those benefits in FCA’s proposal are compelling. Nissan, which now owns a non-voting 15 per cent stake in Renault, will be granted voting rights on a 7.5 per cent stake in the new merged entity, and a seat on the board. Crucially, the French state, which owns 15 per cent of Renault, will give up its double voting rights that Nissan believed gave it undue influence over alliance matters.
“Nissan is not being asked to do anything,” said one of the people close to the talks.
Investors also say Nissan may benefit from a partnership with FCA to revive its struggling business in the US. But for the Italian-American carmaker, an alliance with Nissan and its partner Mitsubishi Motors will also bring access to their electric vehicle technology and a stronger presence in China and other parts of Asia.
Longer term, people close to FCA say, the Italian group is open to a three-way merger that includes Nissan, an idea that will probably draw ire from the Japanese government and the carmaker.
Investors say, however, that if Mr Saikawa plays his cards right with FCA, he may get the concessions Nissan has long wanted to rebalance its relationship with Renault, while maintaining its independence within the expanded alliance in the short term.
The deal also gives Mr Saikawa breathing space since Renault will in effect shelve merger talks with Nissan while it focuses on its deal with FCA. In the meantime, the Japanese group can take time to assess how the integration goes between the two companies.
“He just bought himself five years,” said a London-based investor in Nissan. “What Nissan may have lost is a chance to be a dominant force in the merger, but they can preserve their independence.”
JPMorgan analyst Akira Kishimoto said Mr Saikawa would ultimately be judged by whether he can revive Nissan’s struggling US business and stem rapidly deteriorating profits with the time he has been granted.
“Results will be demanded from Mr Saikawa,” said Mr Kishimoto. “A turnround is not going to be easy and it’s going to take a considerable amount of time.”
Netflix acquires Cannes Film Festival's Grand Prix winner
It also bought an independent critics' winner at the festival.
Netflix isn't done pushing back against Cannes for rejecting its movies -- if anything, it's escalating the fight. The company has acquired international rights for two winners at the 2019 Cannes Film Festival, with its crown jewel being Mati Diop's Atlantics. The tale of a perilous love in Dakar won Cannes' Grand Prix, the second most prestigious award at the festival. It also stands out as Diop's first feature-length movie as well as the first movie helmed by a black woman to be in the running for the Palme d'Or.
The other title, I Lost My Body, won the best film award at the Independent International Critics' Week section of the festival and also took the Nespresso Grand Prize. The animated flick from Jérémy Clapin is an unusual one -- it follows a cut-off hand as it flees a lab to get back to the young man that it belongs to, and the woman that changed their lives.
As with earlier acquisitions, Netflix's latest moves are fairly transparent. This helps it add prestige to its movie catalog and could help it chase further critical glory. It's also a reminder to the Cannes organizers that excluding streaming services like Netflix won't necessarily prevent those upstarts from competing with conventional theatrical releases -- they'll just find another way around.
Behind FCA-Renault Talks: The Diverging Fates of Three Car Guys
Fiat Chairman John Elkann has long wanted to trim his family’s holdings in the auto sector, and the death of former Fiat CEO Sergio Marchionne and the arrest of Renault’s longtime chairman Carlos Ghosn shifted the dynamic in putting together a proposed deal.
A death in Zurich, an arrest in Tokyo and a young heir who has long wanted to ease his family’s dependence on the car business are the powerful human factors helping propel a proposed merger that could shake up the global auto industry.
John Elkann, the New York-born scion of one of Europe’s most famous business dynasties, became vice chairman of Italian car maker Fiat in 2004 at age 28, bringing little attachment to cars or Italy.
Since then, and now as chairman, he has worked to turn the Agnelli-Elkann family into diversified global investors, emulating one of his heroes, Warren Buffett. First, though, he needs to build a bigger car maker.
His proposed merger of Fiat Chrysler Automobiles NV with Renault SA RNO 1.95% of France would create the world’s third-biggest auto manufacturer by volume after Toyota Motor Corp. and Volkswagen AG , overtaking General Motors Co.
The proposal is born of the same commercial pressures that have driven many other automotive tie-ups: the need for scale to survive intense global competition and fast-changing technology.
But the deal stems also from the void left last year by the exit of two of the industry’s most dominant and hard-driving figures.
Fiat Chrysler’s former chief executive Sergio Marchionne and Renault’s longtime chairman Carlos Ghosn had circled each other for years and had informally discussed cooperation.
Mr. Marchionne died last July in a clinic in Zurich from complications linked to an undisclosed condition, robbing Mr. Elkann of his friend and counselor. All along, Mr. Marchionne’s reputation as a bruising negotiator was a factor that made potential partners wary.
A few months later, Mr. Ghosn was arrested in Japan for alleged financial misconduct, which he denies. His towering status at Renault also made potential merger partners guarded. He was replaced by Jean-Dominique Senard, a polished European executive whom Mr. Elkann found easier to deal with, according to a person familiar with the matter.
The success of any marriage between Fiat Chrysler and Renault would depend on whether the two companies can meld their corporate cultures and follow through with promised savings. The French and Italian governments and unions would likely fight any plans to close plants or shrink their workforces, neither of which were included in the plans announced Monday.
This account is based on interviews with executives, advisers and other people familiar with Fiat Chrysler and Renault’s thinking over many years.
Family Milestone
For Mr. Elkann, who would become the new company’s nonexecutive chairman, according to a person familiar with the matter, the deal would be a milestone in a long-held ambition to reduce his family’s exposure to the auto sector.
His family’s holding company, Exor NV, would be left with a stake of about 14.5% in the merged group, as opposed to the current de facto controlling stake of 29% in Fiat Chrysler. It would likely be easier and not so politically explosive for the family, as less-dominant shareholders, to sell down their stake to raise funds for investments in other sectors, including technology, one of Mr. Elkann’s passions.
“Once you have less than 15% in a bigger company, it becomes a financial investment and you can sell part of it for liquidity without raising eyebrows,” says an investment banker who has advised Mr. Elkann.
The diversification has already begun. In 2015, Mr. Elkann led Exor’s successful $6.8 billion hostile bid to buy reinsurer Partner Re Ltd. He took his case directly to Partner Re shareholders after management had rejected his offer. Mr. Elkann also spearheaded last year’s creation of Exor Seeds, an investment fund with $100 million to invest in tech startups.
In 2015, Mr. Marchionne gave a presentation to industry analysts that he called “Confessions of a Capital Junkie.” Consolidation, he argued, was the best way for car makers to share costs, increase cash flow and afford the billions needed to design, develop and build the vehicles of the future.
Still Smarting
Mr. Marchionne had already tried and failed, twice, to persuade GM of a merger’s merits. Mr. Marchionne even cajoled GM shareholders to put pressure on GM’s board. His tactics made headlines but added to his reputation as a bullying negotiator.
Some at GM were still smarting from an earlier bruising encounter with Mr. Marchionne, who as the new Fiat CEO in 2004 forced GM to cough up $2 billion to buy its way out of an earlier cooperation agreement with Fiat.
Exploratory talks with other rivals, including Ford Motor Co. and Volkswagen AG, led nowhere.
Discussions between Mr. Marchionne and former Renault head Mr. Ghosn about forging closer ties between the companies three years ago didn’t produce a breakthrough. Both were demanding bosses with a reputation for driving a hard bargain. Maurice Lévy, chairman of advertising giant Publicis Groupe SA, recalled hosting the two men at the start of the talks at Publicis’s headquarters overlooking the Arch de Triomphe. “It didn’t work, because it was not the right time,” Mr. Lévy said.
In July last year, with Fiat Chrysler’s hunt for a partner unresolved, Mr. Marchionne went to the Zurich clinic for what was supposed to be routine surgery. He died later that month from an undisclosed illness, which people familiar with the matter said was cancer. Mr. Elkann, who had always preferred to avoid the limelight, had lost his guide and adviser.
Opening Seen
Following Mr. Marchionne’s passing, Mr. Elkann took charge of trying to get a deal done, making it known to peers in the global car business that Fiat Chrysler was still searching for a partner, said people familiar with the matter. The new face at the head of negotiations changed the dynamic.
Other car company executives, who had been reluctant to negotiate with Mr. Marchionne, also saw an opening to explore tie-up possibilities with Fiat Chrysler, the people said.
An early success for Mr. Elkann emboldened him to renew the pursuit of a major merger. Fiat Chrysler had long been trying to sell its auto-parts arm, Magneti Marelli, but Mr. Marchionne had been unable to secure the price he wanted.
In October, Mr. Elkann and his newly appointed CEO, Mike Manley, sold Magneti Marelli to Japan-based Calsonic Kansei, owned by KKR & Co., for €6.2 billion ($6.94 billion), a richer price than many expected.
Soon afterward, Mr. Elkann turned his attention to France. The country’s two car makers—Renault and PSA Group, maker of Peugeot —were both looking to bolster their global footprints. PSA in particular was looking to re-enter the U.S. car market, and a tie-up with Fiat Chrysler could give it access to American dealers and factories. Renault, meanwhile, was trying to coax its Japanese partner Nissan Motor Co. into forging closer ties.
On Nov. 19 last year, Mr. Ghosn was arrested in Tokyo and soon charged with misstating deferred compensation on financial statements submitted to regulators. Mr. Ghosn denied any wrongdoing but resigned as chairman and CEO of Renault after spending more than two months in a Japanese jail cell.
Some Fiat Chrysler executives wondered what Mr. Ghosn’s fall meant for the Renault-Nissan-Mitsubishi alliance, and whether Fiat Chrysler would fare better in a match with Renault without its powerful chairman calling the shots.
Mr. Elkann, a flawless French speaker who went to high school in Paris, visited Mr. Senard frequently in the French capital this spring, often returning to Turin in the evening to see his wife and three young children.
Messrs. Elkann and Senard “share a very European elegance: they speak well, they’re well-mannered,” said a person familiar with their talks. “They’re not the same age but they have the same codes.”
Fiat Chrysler was also having parallel discussions with PSA, whose chief executive is Carlos Tavares. As late as this month, Mr. Manley had held separate workshops with executives from Renault and PSA to discuss the synergies that could flow from a tie-up, said one person close to the talks.
Discussions with Renault grew from sharing platforms, technology and procurement into ideas for a full-blown merger.
In mid-May, Mr. Elkann called Mr. Senard to say, we are already doing a lot together, maybe we should look at a rapprochement and start talking about a deal, according to the person familiar with their talks.
Knowing the political sensitivity of mergers involving big French companies, Mr. Senard broached the topic with French President Emmanuel Macron.
The French government, which owns 15% in Renault, trusted the diplomatically tactful Mr. Senard to explore merger ideas while defending France’s national industrial interests.
In contrast, Fiat Chrysler didn’t inform the fractious and leaky government in Rome. The Italian treasury owns no stake in Fiat Chrysler, so Mr. Elkann saw no need to consult it.
Neither did Renault tell its Japanese partner Nissan, despite the potential sensitivity of a deal. Renault owns 43.4% of Nissan, which in turn owns 15% of the French company.
Renault also thought a deal with Fiat Chrysler would strengthen its hand in its relationship with Nissan, which had turned tense since the scandal over Mr. Ghosn’s financial dealings, said people familiar with the discussions.
Decades of Fiat
A successful deal would be a financial triumph for Mr. Elkann, whose peripatetic childhood in the U.S., Brazil, France, Italy and the U.K. left him a polyglot who speaks Italian with a slight accent and imparted only a loose attachment to Italy, say people who know him.
His Italian mother, Margherita Agnelli, was the only daughter of Gianni Agnelli, who for decades was Italy’s richest man, its most powerful industrialist and was known as the uncrowned king of Italy.
The dashing playboy, who is said to have counted Anita Ekberg and Rita Hayworth among his extramarital affairs, turned the Fiat car company that his grandfather founded in Turin into one of Europe’s biggest companies. At its 1960s peak, Fiat was Italy’s biggest private-sector employer and brought mass mobility to a nation enjoying a long postwar economic boom. In the late 1970s, the company produced almost seven of every 10 cars sold in Italy, according to Giuseppe Berta, a professor at Milan’s Bocconi University.
But the era of rising global competition that followed the fall of the Berlin Wall was harder for Fiat, as for much of Italian industry. Fiat was in steady decline by 1997, when Mr. Agnelli brought his 21-year-old grandson, Mr. Elkann, onto its board, with the aim of grooming him as his successor at the company’s helm.
Mr. Agnelli died in 2003, followed by his brother Umberto a little more than a year later, leaving the inexperienced Mr. Elkann to deal with a financial mess. The company had racked up €6 billion in losses in 2002 and 2003. Italian banks held a $3 billion loan that Fiat was unable to pay, and were pressing the Agnelli family to sell.
Instead, Mr. Elkann persuaded most of the Agnelli family to invest more money in Fiat. He hired Mr. Marchionne, who previously ran a small Swiss company owned by the Agnellis, in 2004 and tasked him with stanching Fiat’s heavy losses. Mr. Marchionne not only did that but five years later made an audacious bid to take control of then-bankrupt Chrysler.
On Sunday, Fiat Chrysler sent its proposal to Renault. A 50:50 merger would leave Mr. Senard as CEO, Mr. Elkann as nonexecutive chairman, and the Agnelli family as well as the French government with diluted stakes and voting powers.
On Monday morning, Renault’s board gave management permission to explore it further.
Travelport Worldwide +2.5% after M&A blog suggests imminent Russia approval for pending acquisition
This comes after the NY Post reported late Friday that said approval could take as long as nine months
Gapping down
In reaction to disappointing earnings/guidance:
- JT -5.5%, MYOV -3.5%, AMWD -0.5%
M&A news:
- GPN -4.1% (Total System & Global Payments (GPN) confirm $21.5 bln merger -- consideration reflects price per share of $119.86 for each share of TSYS common stock)
Select EU financial related names showing weakness:
- LYG -1.7%, DB -1.4%, BBVA -1.1%, HSBC -0.9%, SAN -0.7%, BCS -0.7%
Other news:
- KZR -23% (EULAR publishes abstract detailing data from the first two cohorts of an open-label dose escalation trial of KZR-616 in patients with systemic lupus erythematosus
- MYOV -3.5% (files mixed securities shelf offering and ~24K common share secondary offering by holders)
- TEAM -1.6% (co-CEOs Scott Farquhar and Mike Cannon-Brookes adopted new stock trading plans under Rule 10b5-1 to sell a portion of their stock over time)
- TD -1.1% (files for $45 bln mixed securities shelf offering)
- FDX -0.6% (Huawei is reviewing its relationship with FedEx
Analyst comments:
- GILD -2.2% (downgraded to Sell from Neutral at Goldman)
- OKTA -1.5% (downgraded to Neutral at Monness Crespi & Hardt)
- ROKU -0.6% (downgraded to Equal-Weight from Overweight at Stephens)