REuters - Hedge fund Marcato opposes Acreage's sale to cannabis producer Canopy

Hedge fund Marcato opposes Acreage's sale to cannabis producer Canopy - https://reut.rs/2Y9KaWc

(Reuters) - Hedge fund Marcato Capital Management said on Monday it opposed marijuana company Acreage Holdings Inc’s $3.4 billion sale to rival Canopy Growth Corp, arguing Acreage was too hasty in agreeing to a deal at too low a price.

Marcato, which owns 2.7 percent of Acreage, wrote to the company’s board of directors to argue that the proposed takeover, which was agreed to last month and will be voted on by shareholders next month, is “lopsided in Canopy’s favor.”

“It is highly imprudent for Acreage to sell itself today at the proposed valuation, with so much unlocked growth and value embedded in the Company,” Marcato portfolio manager Mick McGuire wrote in the letter seen by Reuters.

In April, Smiths Falls, Ontario-based Canopy said it would pay $3.4 billion in cash and stock for New York-headquartered Acreage, giving Acreage investors $300 million in cash upfront. Acreage shareholders will also receive Canopy shares at a later date, when marijuana use is legalized at a federal level in the United States.

While medical and recreational marijuana use is permitted in many U.S. states, it is still prohibited by federal law, and the deal could be called off if marijuana use does not become legal across the country in the next 7-1/2 years.

Since the announcement, Canopy’s stock price has jumped 15 percent while Acreage’s shares have dropped 6 percent. On Friday, Acreage’s stock closed at $22 a share, below the $25 per share price of its initial public offering last November, and far below sell side analysts’ stock price targets of $31 to $42 a share.

“Canopy’s market capitalization has increased by roughly $3.5 billion since the deal announcement, indicating pro forma economic value to Canopy of $6.9 billion — over 100 percent greater than the price offered to Acreage shareholders,” the letter said.

Marcato is speaking up about the planned takeover days before the May 13 record date when shareholders become eligible to cast their vote and will spearhead opposition when they vote on June 19.

McGuire urged Acreage’s board, which is stocked with well-connected former politicians including former Canadian prime minister Brian Mulroney and John Boehner, a former speaker of the U.S. House of Representatives, to wait.

“Remain independent” and “run a formal and competitive sale process”, the letter said, noting that once the regulatory landscape in the cannabis sector clears, other bidders including tobacco and spirits companies could make offers.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • CAMT -4.2%, FAST -4%, BRK.B -1.8%, TSN -1.5%

Select chip/tech related names showing weakness:

  • STM -4.4%, MU -4.1%, MRVL -3.8%, AMD -3.8%, NVDA -3.7%, SWKS -3.4%, QCOM -3.3%, AMAT -3.2%, AAPL -2.9%, WDC -2.8%, TXN -2.3%

Select China related names showing early weakness:

  • CSIQ -7.4%, BZUN -6.2%, JKS -6.1%, VIPS -6.1%, MOMO -5.6%, WB -5.5%, YY -5.5%, TAL -5%, HTHT -4.8%, JD -4.8%, BABA -4.5%, WYNN -4.3%, EDU -4%, CTRP -4%, SINA -4%, BIDU -3.7%, FCX -3.3%, CMCM -3.2%, CAT -3%

Other news:

  • CYTK -19.2% (presents results of FORTITUDE-ALS -- did not achieve statistical significance for a pre-specified dose-response relationship in its primary endpoint)
  • MT -5.8% (to temporarily reduce annualised European primary steelmaking production by three mln tonnes)
  • ACAD -5.7% (files for 40,203,111 share common stock offering - includes 489,269 shares issuable upon the exercise of warrants by the selling stockholders)
  • ALGN -3.5% (provides update on patent infringement case against 3Shape)
  • ASML -2.9% (US court issues final judgment in favor of ASML against XTAL; $845 mln awarded will be uncollectable, but ASML will own XTAL IP)
  • BA -2.8% (WSJ report Boeing knew about 737 Max safety alert issue for a year)
  • FB -2.2% (renews criticism of alleged social media censorship)
  • OXY -1.5% (Occidental Petroleum (OXY) submits revised proposal to acquire Anadarko for $76.00/share; also reported earnings)
  • KHC -1% (restate series of previous consolidated financial statements and related disclosures)

Analyst comments:

  • PCAR -2.7% (downgraded to Neutral from Buy at Longbow)
  • EXPE -2.6% (downgraded to Neutral from Buy at BofA/Merrill)
  • FIVE -2.5% (downgraded to Equal Weight from Overweight at Barclays)
  • MTOR -1.2% (downgraded to Neutral from Buy at Longbow)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • KOS +5%, ANH +2.9%, BHC +2.8%, DK +2.2%

M&A news:

  • APC +3% (Occidental Petroleum (OXY) submits revised proposal to acquire Anadarko for $76.00/share). 

Other news:

  • AXSM +17% (announces that the development status and plan for AXS-05 in the treatment of major depressive disorder and treatment resistant depression have been expedited following a Breakthrough Therapy meeting with the FDA)
  • SBGI +13.5% (Sinclair Broadcast to acquire 21 Regional Sports Networks from Disney (DIS) at a valuation of $10.6 bln / purchase price of $9.6 bln)
  • ESPR +11.1% (FDA has accepted both New Drug Applications for bempedoic acid and the bempedoic acid / ezetimibe combination tablet for filing and regulatory review)
  • ADAP +8.8% (announced significant clinical progress with partial responses in 4 out of 5 synovial sarcoma patients treated with ~10 billion cells in the ADP-A2M4 pilot study, and tumor shrinkage seen in nearly all assessed synovial sarcoma patients)
  • ZYNE +6.7% (receives FDA Fast Track Designation for Zygel or treatment of behavioral symptoms associated with Fragile X Syndrome)
  • VYGR +0.9% (Voyager Therapeutics and Neurocrine Biosciences (NBIX) present Phase I results for VY-AADC)
  • NBIX +0.8% (Voyager Therapeutics and Neurocrine Biosciences (NBIX) present Phase I results for VY-AADC)
  • RHT +0.8% (DOJ concludes review of IBM's proposed acquisition of Red Hat without remedies or conditions and received a notice of early termination of the waiting period)

Analyst comments:

  • IMGN +5.6% (upgraded to Buy at H.C. Wainwright; upgraded to Outperform from Market Perform at Cowen)

>>> Kosmos Energy beats by $0.01, beats on revs (6.60) Reports Q1 (Mar) loss of

Kosmos Energy beats by $0.01, beats on revs (6.60)
  • Reports Q1 (Mar) loss of $0.06 per share, $0.01 better than the S&P Capital IQ Consensus of ($0.07); revenues rose 133.3% year/year to $296.8 mln vs the $283.07 mln S&P Capital IQ Consensus.
  • During the first quarter of 2019, net production volumes from Ghana averaged approximately 28,620 barrels of oil per day, including net volumes from the Jubilee and TEN fields which averaged approximately 18,315 bopd and 10,305 bopd, respectively. Kosmos lifted two cargoes, as forecasted, from Ghana during the first quart
-->+5% pre mkt

FT : Foxconn chief Gou tells China to recognise Taiwan’s independence

Foxconn chief Gou tells China to recognise Taiwan’s independence
Comments from presidential hopeful highlight challenge of not being seen to pander to Beijing

Terry Gou, the chairman of Apple supplier Foxconn who has joined the race to be Taiwan’s next president, has challenged China to recognise its existence as a sovereign state.

China “must acknowledge the existence of the Republic of China”, Mr Gou told reporters on Monday, referring to the official name of Taiwan in a move that highlights his challenge of not being seen as pandering to Beijing. 

He added that he would not consider meeting Chinese president Xi Jinping unless he had received clarification from Beijing on its policy towards Taipei and had become Taiwanese president himself. 

The Republic of China was founded in China following the first Chinese revolution in 1911. Taiwan has continued to use the term and the framework on which it was based, such as its founding constitution, after the Kuomintang (KMT) fled to the island following its defeat in the Chinese civil war of 1949. 

The Chinese Communist party claims Taiwan as its territory, and has threatened to invade if Taipei continues to resist unification. According to opinion polls, a vast majority of the Taiwanese public wants to retain its de facto independence. 

Mr Gou has yet to secure the nomination of KMT, Taiwan’s main opposition party, to run in next January’s polls. But since most of Foxconn’s factories are based in China — where it is the largest private-sector employer and the biggest exporter — analysts see him as a potential security risk. They argue that as president, his business interests could conflict with the Taipei’s national interest. 

Mr Gou’s comments came just a few days after he sparked a backlash by calling Taiwan a part of China.

The statement echoes language used by Tsai Ing-wen, the current president with whom Beijing has refused to engage. Ms Tsai said earlier this year that China “must face up to the fact of the existence of the Republic of China”. She has also stressed that Beijing and Taipei should handle their disagreements on a peaceful and equal basis, demanded that the Taiwanese people’s wish for freedom and democracy be respected and insisted that any talks happen only through official channels. 

Mr Gou said on Monday that he too wanted to deal with the mainland on an equal basis, even as he is supposedly a presidential candidate on the opposite end of the political spectrum to Ms Tsai.

Other KMT presidential hopefuls have also sought to maintain a careful balance on China policy. The party’s official position is that Taiwan is part of one China but Taipei and Beijing have different interpretations of what this means. Any move beyond this vague formula, including a suggestion of peace talks, is risky as some voters suspect KMT candidates might place a Chinese identity ahead of Taiwan’s interests. 

Within Taiwan, there is no serious debate on whether the island should unify with the People’s Republic of China, the official name of the mainland. Only 2.9 per cent want unification with China now and another 12 per cent support keeping the status quo now and considering unification later, according to a poll conducted by National Chengchi University in March.

Instead, domestic political divisions are over adopting a Chinese or Taiwanese identity, and whether the country should drop the ROC label and formalise its independence as Taiwan.

FT : Kraft Heinz to restate nearly 3 years of earnings after investigation Compa

Kraft Heinz to restate nearly 3 years of earnings after investigation
Company also warns it would also miss deadline for filing first quarter results

Kraft Heinz has warned it is restating almost three years worth of financial statements after the US food group uncovered evidence of “misconduct” among employees.

The company, which earlier in the year said it had received a subpoena from the Securities and Exchange Commission into accounting in procurement, disclosed on Monday it needed to fix “errors” in previously issued accounts for 2016, 2017 and the first three quarters of 2018.

The misstatements related largely to “timing and recognition of supplier contracts” in procurement, Kraft Heinz said. The company, which has already missed a filing deadline for its 2018 annual report, also said that its SEC filing for the first quarter of 2019 would be delayed.

Kraft Heinz said it had found evidence of “discrepancies” during an internal investigation. While the misstatements were not “quantitatively material”, the group said it was making corrections “due to the qualitative nature of the matters identified in the investigation, including the number of years over which the misconduct occurred and the number of transactions, suppliers, and procurement employees involved”.

Kraft Heinz said it was “taking action to improve our policies and procedures and will continue to strengthen our internal financial controls”.

The findings from the company’s investigation, which was “substantially complete”, did not identify any misconduct by “any member of the senior management team”.

Shares in Kraft Heinz were down 1.8 per cent in pre-market trading.

More to come . . .

FT : Eurozone is running low on ways to boost growth More radical measures from

Eurozone is running low on ways to boost growth
More radical measures from the ECB and other policymakers may be needed

The recent slowdown in growth in the eurozone is raising difficult questions for policymakers. If the current policy mix of modest fiscal stimulus and accommodative policies from the European Central Bank proves insufficient to boost growth, more radical measures may be needed.

In theory, the euro area has ample room to increase government spending and/or to cut taxes. With a fiscal deficit of just 0.5 per cent of gross domestic product and a public debt/GDP ratio of about 85 per cent, the euro area in aggregate has a sounder fiscal position than the US, the UK or Japan. It also faces a very low probability of incurring a situation of fiscal stress in which financial markets stop funding governments, or do so only at very high yields.

But the problem facing policymakers is that the aggregate position across the euro area conceals a great deal of variation across the bloc. A number of eurozone countries run structural government surpluses, while others run structural deficits. Public debt/GDP ratios also diverge significantly. Both points imply that “fiscal space”, or capacity to spend and/or to lower taxes without risking a period of fiscal distress, is distributed unevenly.

There is a good amount of space in countries that have already returned to full employment, but little or no room for fiscal expansion in countries that we believe need it most. Investors are well aware of this and are therefore pricing Austrian or Finnish government bonds differently from, say, Spanish or Portuguese ones. Across the eurozone spreads over German Bunds are wider and more dispersed than before the European sovereign crisis — a sign that the “bond vigilantes” are pricing fiscal risks in the monetary union more adequately.

With respect to fiscal space, our research shows that euro-area countries fall into three groups. Germany and many small euro-area countries have strong public finances and can boost spending without risking a period of distress. At the other end of the spectrum, Italy has little or no room for manoeuvre, as demonstrated by the economic and financial markets’ fierce reaction to the measures announced with the 2019 government budget. France, Spain and Portugal are in between; additional fiscal easing would probably come with increased borrowing costs that partially crowd out the positive impact on aggregate demand. What is less well understood by the market is how quickly a fiscal expansion can turn from a drizzle into a downpour by exhausting fiscal space in member states with high debt and low credit ratings.

All else being equal, we estimate that a fiscal expansion of, say, 2 per cent of GDP would increase our index of fiscal stress by very little in France, by a more sizeable but still not much more dangerous amount in Spain, but by a magnitude that would make the index jump to its highest level since 2012 in Italy.

If credit rating agencies were to respond by downgrading Italian sovereign bonds, it would probably lead to a period of fiscal stress for Rome. By contrast, in Spain and France, given the more favourable initial level of ratings, a downgrade would have less severe consequences. As such, a fiscal expansion of the same size could stimulate growth and be bullish for the equity and debt markets of countries with fiscal space — but could have exactly the opposite effect in countries with high debt and low ratings.

For countries with limited fiscal space that nevertheless want to boost growth via the use of fiscal policy, the only viable option is to use the kind of policy package that the ECB has consistently advocated: cuts in current government spending and income taxes, combined with increases in public investment.

If this still proves insufficient for euro area countries to avert a renewed downturn, bolder policy options might be necessary, especially in light of the likely escalation of anti-European sentiment that a recession would bring. The ECB would probably provide the first line of defence: its options include extending forward guidance, cutting interest rates further and re-initiating asset purchases. In the end, though, euro-area policymakers may also need to consider more radical fiscal measures.

These could involve debt mutualisation — pooling the debt of the individual euro-area countries so that it becomes a joint liability of all members. Or there could be a common fiscal policy funded by pooling member-country tax revenues; a “safe asset” bought by the ECB as a part of its asset purchase programme; or even a form of “helicopter money” that explicitly finances fiscal expansion via central bank credit.

None of these options is in our current baseline forecast. But if any of them were to be granted serious consideration it could be another “whatever it takes” moment for the euro area.