Arconic considering USD 11bn bid received Friday from Apollo Global Management - report
23 OCT 2018
Arconic Inc [ARNC.N] is considering an USD 11bn bid received Friday from Apollo Global Management, according to a newswire report.
Reuters cited people familiar with the matter in reporting the size of the offer this morning. One source told Reuters, Apollo's offer values the aluminum products maker at USD 23 to USD 24 per share.
The offer adds pressure on Arconic to come to a decision regarding whether it will stay independent in the wake of President Trump's aluminum tariffs imposition, which drove the company's costs upward in 2018, the article reported.
Shares in Arconic closed Monday at USD 21.45, the article noted, adding that the company had total debt of USD 6.3bn, with USD1.46bn cash at 30 June 2018.
Whether a bidding group comprising Caryle Group LP [CG.O], Blackstone Group LP [BX.N], Canada Pension Plan Investment Board and Onex Group [ONEX.TO] will submit an offer is unclear, the sources told Reuters.
No deadline has been set for bids for Arconic, the article reported, and it's unclear whether additional bids will come forth. Arconic wants to decide whether to proceed with selling itself by its investor day in November, sources told Reuters.
Sources have said that Elliott Management Corp, which has representation on Arconic's board, has been pushing the exploration of a sale, the article reported.
Celanese eyeing ‘meaningful bolt-ons’ in 2019
23 OCT 2018
Celanese [NYSE:CE], the Irving, Texas-based provider of engineered polymers and acetyl products, is looking to make notable bolt-on acquisitions next year, COO Scott Sutton said.
On the 3Q18 earnings call held 19 October, Deutsche Bank’s David Begleiter noted the recent agreement to buy Next Polymers and asked how the M&A pipeline is looking for this year and next.
“We still have a healthy pipeline, particularly in Engineered Materials, and there's good opportunity to do some meaningful bolt-ons next year,” the COO replied.
Later on the call, RBC analyst Arun Viswanathan asked about cash deployment for the next three years and how it will be split between buybacks and acquisitions. CEO Mark Rohr said the company has earmarked USD 1bn for buybacks and the same for acquisitions over the time period. He added that while Celanese hadn’t reached that level in terms of acquisitions this year, it has some attractive potential opportunities coming next year.
Asked if these figures could increase based upon the company’s ability to generate more than USD 3bn over three years, Rohr replied affirmatively, noting that it would continue to be opportunistic.
Celanese announced earlier this month its agreement to buy India-based engineering thermoplastics compounders company Next Polymers. No financial terms were disclosed.
In the 3Q18 earnings press release on 18 October, COO Sutton said the Next Polymers deal would more than double Celanese’s current business in India. He noted that the company’s M&A strategy is influenced by insights gained from its opportunity pipeline model, while studying project wins and losses enables it to see where additional polymers, regional presence or application capabilities are needed.
“We continue to have a number of potential M&A candidates in the pipeline to work with to further enhance our competitiveness and our competencies,” Sutton said in the press release.
Separately, on the 19 October earnings call, UBS’ John Roberts asked for an update on whether Celanese will replace the filter tow deal it previously attempted with Blackstone [NYSE:BX] with an alternative transaction.
“We're still working that,” CEO Rohr said. “It's not a lot of options out there. We haven't found one yet. I remain convinced… that there are opportunities for us to do things out there may be more structurally based around manufacturing, but we're working hard to try to find opportunities.”
Celanese said in March it had abandoned its proposed joint venture with Blackstone after being unable to reach an agreement with the European Commission to get Phase II clearance for their deal. The two companies announced in June 2017 their agreement to form a JV to create a global acetate tow supplier.
The remarks on last week’s call added to those made on the 1Q18 earnings held in April, when COO Sutton said the company had a “very big pipeline” of potential acquisition opportunities in its Engineered Materials business and was talking to 100 to 200 candidates over the course of 12 months.
Celanese is organized around two complementary cores: Materials Solutions and Acetyl Chain. In the former, it principally operates through two business segments: Advanced Engineered Materials and Consumer Specialties. Acetyl Chain includes the Industrial Specialties and Acetyl Intermediates business segments.
Celanese has been active on the M&A front over the past few years. It announced last year its agreement to buy Indiana-based Omni Plastics. While full financial details were not disclosed, Celanese said in its 2017 annual report that it used USD 158m of cash on hand and borrowings under its credit facility to fund the deal.
Celanese completed its purchase of Israel-based Nilit’s nylon compounding division in May 2017, while Italy-based thermoplastic compounder company SO.F.TER. was bought in 2016.
Celanese used Gibson, Dunn & Crutcher for the Omni deal, while ALRUD, De Brauw Blackstone Westbroek and Kirkland & Ellis were used for the terminated Blackstone JV.
O'Melveny & Myers was used for the Nilit and SO.F.TER transactions, according to the Mergermarket M&A database.
Financial advisory is typically handled in-house on the buy side.
Celanese has a market capitalization of USD 13.4bn.
Relevant links (supplied by Perfect Information, an Acuris Company)
Lennox thinking about consolidation, Arconic said to draw Apollo, Rockwell/UTX China fears
23 OCT 2018
Each morning analysts from Dealreporter, Mergermarket's sister publication, pick out hints of future material developments in merger arb and special situations by combing through dozens of transcripts, SEC filings, analyst reports and news stories.This raw data is combined with proprietary insights and commentary to produce an exclusive report that offers short- and long-term actionable ideas. If you have any ideas for coverage, please email morningflash@dealreporter.com
- LII reports 3Q18
- ARNC faces Grenfell repercussions
- UTX/COL spread widens
Climate control solutions company Lennox International [NYSE:LII] faced some consolidation questions on yesterday’s 3Q18 earnings call. CEO Todd Bluedorn was asked to clarify some remarks made at a recent conference about the potential for consolidation among the top residential players. The executive said he thinks that York – part of Johnson Controls [NYSE:JCI] – has residential market share in the single digits, “so I think they could combine with other players in the industry”. He added that “Sterling could combine with us”. Asked later about United Technologies’ [NYSE:UTX] Carrier division, Bluedorn said that he believed that its market share started in the double digits, but wasn’t sure. However, that didn’t stop the executive from mentioning the possibility of Carrier combining with either York or LII. Later, Bluedorn mentioned clear logic for cost cuts from M&A, highlighting that, unlike most of its competitors, LII has a campus in Mexico, which can be used to lower costs. The comments on consolidation were mostly hypothetical situations, so it doesn’t sound as if any serious talks are happening behind the scenes. Still, with increased activity in the industrial space recently, specifically climate, LII’s view of consolidation possibilities is certainly interesting. Bluedorn did note that LII is committed to maintaining leveragethe 1.5x to 2x range in order to keep its investment grade rating, but said that, if “we had something that could create real shareholder value, like an industry-consolidating acquisition, we would think about it.”
Arconic [NYSE:ARNC] shares were trading up 1% in the premarket after Reuters reported that it has received an offer from Apollo Global Management [NYSE:APO] that values the metals manufacturer at between USD 23 and USD 24 a share. However, a report out of the New York Post stresses that bidders are leery of a potential liability tied to the 2017 Grenfell Tower fire in West London that has been uncovered during due diligence late into the process. This report also noted that APO was the most interested bidder. We would note that there are two other potential issues that may give suitors pause. First, with debt funding expected to be near USD 19bn, the recent rise in rates will increase costs. Asset sales – ARNC already plans to sell its buildings and construction systems (BCS) business – could help offset some of that debt. Second, the Trump administration’s aluminum tariffs are hurting ARNC and there is no sign that there will be a near-term resolution of the trade war. China continues its tough talk, with officials telling US investors yesterday that China doesn’t fear a trade war.
Another deal negatively influenced by tough trade talk is United Technologies’ [NYSE:UTX] proposed acquisition of Rockwell Collins[NYSE:COL]. The Flash flagged this deal in late July as facing potential issues. UTX had said that it expected the deal to close by the end of September. Now that we are almost into November with no Chinese approval, investors are getting nervous. The net spread on the deal has blown out, going from near 3% to almost 8%. This news service previously reported that the deal is waiting for ministerial-level sign off at China’s State Administration for Market Regulation (SAMR). The termination date for the transaction is 4 March 2019. Operationally, though, UTX continues to fire on all cylinders. This morning, it reported 3Q18 results that beat analyst expectations and also raised FY18 guidance.
APRIL receives expression of preliminary interest from prospective bidder
23 OCT 2018
APRIL (Euronext Paris (Compartment B), the French insurance broker, has received a preliminary expression of interest from a prospective bidder for the company.
The company posted sales of EUR 928.4m in 2017.
Stock exchange announcement follows:
Following market rumours, APRIL indicated that it had initiated discussions with its majority shareholder as part of the analysis of the various strategic options and possible changes in its shareholding in the Company`s capital. The Company confirms that it has received preliminary expressions of interest. The Company will not comment further on any discussions and will communicate in a timely manner, in accordance with applicable regulations.
CONTACTS
Analysts and investors
Guillaume Cerezo: +33 (0)4 72 36 49 31 / +33 (0)6 20 26 06 24 - guillaume.cerezo@april.com
Press
Maya Raimbaud-Cayon: +33 (0)4 26 10 13 10 / +33 (0)6 26 56 64 70 - maya.raimbaud@april.com
Mélanie Sutter: +33 (0)4 72 36 49 33 / +33 (0)6 43 54 66 67 - melanie.sutter@april.com
This release contains forward-looking statements that are based on assessments or assumptions that were reasonable at the date of the release, and which may change or be altered due to, in particular, random events or uncertainties and risks relating to the economic, financial, regulatory and competitive environment, the risks set out in the 2017 Registration Document and any risks that are unknown or non-material to date that may subsequently occur. The Company undertakes to publish or disclose any adjustments or updates to this information as part of the periodic and permanent information obligation to which all listed companies are subject.
About APRIL
In 2018, APRIL-the international insurance services group and leading wholesale broker in France-will be celebrating its 30th anniversary. And at 30 years young, APRIL still has many more years to offer to simplify the lives of its customers and partners-be they individuals, professionals or businesses-in the 31 countries where the group operates. On their behalf, APRIL`s 3,800 employees design, manage and distribute specialist insurance solutions (health and personal protection, mortgage, property and casualty, mobility and legal protection) as well as insurance services, capitalising on its experience to make insurance easier and more accessible to as many customers as possible.
Listed on Euronext Paris (Compartment B), the group posted sales of EUR928.4m in 2017.
Full regulated information is available on our website at www.april.com (Investors section).
Erdogan Says Saudis Planned Murder of Journalist Jamal Khashoggi
Turkish president vows to identify all culprits ‘from the lowest to the highest rank’
Turkey’s President Recep Tayyip Erdogan vowed to identify any high-ranking Saudi officials who ordered the killing of journalist Jamal Khashoggi, as the kingdom’s powerful crown prince attended an investment conference that opened under a cloud cast by the crisis.
Mr. Erdogan challenged the kingdom’s narrative that Mr. Khashoggi died in a brawl on Oct. 2, saying the killing in Saudi Arabia’s consulate in Istanbul was premeditated and conducted by 15 operatives who had come from Riyadh.
“All the responsible people, from the lowest to the highest rank, should be uncovered and held accountable before the law,” Mr. Erdogan said in an address to lawmakers from his ruling party, adding that it wasn’t possible “to put the blame on a few security and intelligence officials.”
At the investment conference, which many foreign executives backed out of after Mr. Khashoggi disappeared, Saudi Crown Prince Mohammed bin Salman made his first public appearance since the crisis erupted. He was scheduled to speak publicly at the conference on Wednesday morning.
Prince Mohammed and his father, King Salman, also met with two relatives of Mr. Khashoggi and “expressed their sincerest condolences,” Saudi state news agency SPA reported on Tuesday.
Among them was Mr. Khashoggi’s son Salah, one of the journalist’s four adult children and the only one in Saudi Arabia. After Mr. Khashoggi left the kingdom last year, the Saudi government banned Salah from leaving the country in an apparent effort to put pressure on the critic, according to people familiar with the matter.
Saudi officials didn’t respond to requests for comment. It wasn’t known whether the government has lifted the travel ban on Salah in the wake of his father’s death.
The Saudi government said Tuesday that the kingdom had taken measures to “uncover the truth and hold people responsible accountable.”
In response to mounting pressure, the kingdom’s leadership has doubled down on efforts to insulate the crown prince from the fallout of the crisis. In a clear sign the prince was unlikely to suffer direct repercussions, King Salman on Saturday tasked his 33-year-old son with overhauling Saudi Arabia’s intelligence agency.
“The top priority is to protect MBS,” said a Western official briefed on the Saudi government’s thinking, referring to the prince by his initials.
In his only public comment on the case, an interview with Bloomberg conducted on Oct. 3, Prince Mohammed said Mr. Khashoggi had left the consulate alive. Saudi Foreign Minister Adel al-Jubeir on Sunday called the targeting of Mr. Khashoggi a “rogue operation” and said Prince Mohammed wasn’t aware of it.
With U.S. officials, including President Trump, saying they aren’t satisfied with Saudi Arabia’s explanations of how Mr. Khashoggi died, Turkish officials say the scandal provides Ankara with an opportunity to weaken the kingdom’s standing and that of Prince Mohammed.
Ultimately, the Turkish officials said, Mr. Erdogan would like the Saudi leader, King Salman, to pick a different heir.
Prince Mohammed doesn’t appear to feel pressure from Mr. Erdogan and believes his friendship with Mr. Trump’s son-in-law Jared Kushner will help him survive, say people close to the royal family. The prince’s father, King Salman, is confident his son will weather the crisis and remain popular, the people said.
“He thinks the whole world will get tired of this story,” one of the people said.
Tensions have grown between Turkey and Saudi Arabia since Mr. Erdogan backed Qatar in its dispute with Riyadh last year. Mr. Erdogan has also been angered by Mr. Trump’s decision to forge a closer military alliance with Saudi Arabia that has left Turkey, Washington’s ally in the North Atlantic Treaty Organization, isolated.
Mr. Erdogan’s speech on Tuesday, which marked the first time the Turkish president has discussed Saudi Arabia’s responsibility for the death of the journalist, came short of his weekend pledge to reveal the facts “in their naked truth.”
In particular, the president didn’t discuss what Turkish officials have described as a central piece of intelligence in their probe: an audio recording they say proves how Mr. Khashoggi was beaten, drugged and killed inside the consulate, before his body was dismembered.
Still, he mentioned evidence that Saudi officials tampered with the CCTV system of the consulate and went to a forest in northern Istanbul before Mr. Khashoggi was killed, suggesting Turkish authorities may have more revelations.
“We have strong evidence that this murder was planned,” Mr. Erdogan said. “He was brutally murdered.”
Mr. Erdogan said a criminal investigation into the journalist’s death would continue, adding prosecutors would seek to identify possible accomplices in foreign countries. He said he wanted 18 people Saudi authorities have detained in connection with the case to be tried in Istanbul.
“This murder may have taken place in the Saudi consulate building, but it should not be forgotten that this is within the Turkish republic’s borders,” Mr. Erdogan said.
The people close to the royal family said Saudi Arabia won’t accede to Mr. Erdogan’s demands to turn over suspects for trial in Turkey.
At the investment conference, Prince Mohammed sat in the audience, accompanied by King Abdullah II of Jordan, one of Saudi Arabia’s closest regional allies. Prince Mohammed is scheduled to speak publicly at the conference on Wednesday morning.
As Western executives and officials pulled out of the conference, of which Prince Mohammed is the chief patron, Saudi Arabia has relied on leaders from allied countries to show their support.
Prince Mohammed last week personally invited Pakistani Prime Minister Imran Khan, who was among Tuesday’s speakers. Pakistan recently asked Saudi Arabia to provide it with financial aid to help address an urgent balance-of-payments crisis.
Corrections & Amplifications
King Salman and Crown Prince Mohammed bin Salman met with two relatives of Mr. Khashoggi, one of whom was a son. An earlier version incorrectly said they met with two sons of Mr. Khashoggi. (Oct. 23, 2018)
In First for Europe, Brussels Rejects Italy’s Budget
The populist Italian government has vowed to press ahead with plans to cut taxes and expand welfare and pension benefits
The European Union took the unprecedented step Tuesday of rejecting Italy’s draft budget as incompatible with the bloc’s rules on fiscal discipline, escalating a battle between Europe’s establishment and populists in Rome.
Following a meeting of the European Commission—the EU’s executive arm—Commission Vice President Valdis Dombrovskis said the Italian government was “openly and consciously going against commitments made” to drive down the country’s debt and deficit levels.
The Italian government’s effort on Monday to explain why it had planned its budget in breach of rules was unconvincing, Mr. Dombrovskis added.
The government—a coalition of the antiestablishment 5 Star Movement and the nationalist League—vowed after Mr. Dombrovskis’ rejection to press ahead with its plans to cut taxes and expand welfare and pension entitlements, insisting that Italy’s economy needs a fiscal boost.
The battle is the new front line in disputes pitting the EU’s political mainstream against rebels across Europe that have gained voter support following the region’s economic and migration crises.
Insurgent movements in Italy and elsewhere want to loosen EU constraints on member countries. Victory in the budget battle would bolster the League and 5 Star ahead of elections to the European Parliament in May, a contest in which populist movements around Europe hope to make gains.
Italy, a founding member of the EU and Europe’s fourth-biggest economy, is testing whether a rebel government can defy the bloc’s rules and skirt pressure from financial markets to back down.
Investors have dumped Italy’s government bonds and bank stocks repeatedly since the League and 5 Star agreed to govern together in May. Italy’s combination of high government debt and chronically weak economic growth make it vulnerable to capital flight.
The extra yield that investors demand to hold 10-year Italian bonds over safe German bonds hit 3.3 percentage points last week, the widest gap in more than five years. That has battered shares in Italy’s banking sector, which is heavily exposed to its national debt.
However, markets remain far more stable than during the eurozone debt crisis of 2010-2012. Back then, the spread between Italy and Germany peaked at 5.6 percentage points.
Most investors expect Rome and Brussels ultimately to reach a compromise over the budget. Plus, today’s economic backdrop is better than before. Italy’s economy is expected to grow by around 1% in 2018, in contrast to its sharp contraction during the debt crisis.
League and 5 Star leaders have brushed aside investor pressure to compromise over the budget. The Commission had hoped that this pressure, coupled with its courting of Italy’s pragmatic finance minister, Giovanni Tria, would nudge Rome into compliance.
“Markets love Italy more than some European institutions do,” 5 Star leader Luigi Di Maio said.
He predicted “weeks of strong exchange with the European Commission, but both the Commission and the markets will come to understand that this is a government that believes in what it is doing.”
The Commission has much to lose. Failure to stop a flagrant breach of agreements on fiscal discipline would weaken economic-governance rules created after Europe’s debt crisis that are already tarnished by the waiving of regulations for France. Some member countries have indicated they believe the Commission has already been too lenient with Italy.
Officials also know that disciplinary proceedings against Italy will play into the hands of 5 Star and League politicians, who routinely paint Brussels as a remote bureaucracy hostile to the needs of ordinary Italians.
Under the EU’s protracted procedures, Italy has three weeks to submit a revised budget and the Commission then has three weeks to respond. The budget fight could thus come to a head in early December. That will likely be a sensitive time for Italy, since the European Central Bank has said it plans by the end of 2018 to cease its bond purchases, which have been vital in moderating Italy’s borrowing costs.
If Italy refuses to adopt a compliant budget, the resulting EU disciplinary proceedings could lead to fines equal to 0.2% of Italy’s gross domestic product and the freezing of some funding. Those fines can grow over time if Italy continues to defy Brussels.
Defiance toward Brussels has lifted the Rome government’s popularity. Over 60% of Italy’s electorate support the League or 5 Star, according to recent polls. A similar share of voters say they support the draft budget.
To go into effect, the budget must be approved by the Italian parliament before the end of the year.
The government’s weakest spot is the vulnerability of Italy’s banks, and thereby its economy, to investor flight. Further pressure on Italian bonds could erode the capital of Italian banks and force them to restrict their lending to the country’s businesses and households.