FT Lex : Sky/Comcast/Fox: sudden debt shootout

Sky/Comcast/Fox: sudden debt shootout
Lex: It is Sky that emerges from the gun smoke as the real hard-bitten survivor

The paradox known as the gunfighter’s dilemma insists that a reactive shot is more deadly than an isolated one. So neither Comcast nor 21st Century Fox had a tactical advantage in the final shootout to control Sky. Both bid blind, in an auction run by the UK’s takeover regulator. With no opposing price to react to, beyond that set by Comcast itself in the second round, the US cable giant outgunned the US news and entertainment group with a winning bid at an enterprise value of some £37bn.

It is moot who has really been left sprawling in the dust by the encounter, whose prize is a high-quality foothold in the European media industry. Comcast is paying an extraordinary price for Sky. The UK-listed broadcaster and broadband group had been written off as doomed to slow decline by many UK investors, until Fox came in with a long-awaited offer for the group in December 2016. The premium Comcast is offering over the Sky market price just before that offer is an incredible 124 per cent.

The multiple of ebitda to enterprise value is an elevated 15 times, according to data for S&P Global. But this is also the ratio at around which Disney is buying the entertainment assets of Fox, including a 39 per cent stake in Sky.

As a result, Comcast and Disney are now confronting each other down a dusty main street. The Mouse has to decide whether to sell out at £17.28 per share, as independent shareholders would be well-advised to do. The alternative is to hang on as a minority investor, powerless except in the ability to block the integration of Sky by Comcast.

That would leave the cable group, which is menaced by the US trend for “cord-cutting”, unable to trade content and technology with Sky except at arm’s length commercial rates. Comcast would still be stuck with sharply higher net debt of over $100bn, a quick-and-dirty calculation suggests. That is equivalent to about 3.3 times combined forward ebitda, which is high, though not ruinous.

You may not credit great prudence to Comcast boss Brian Roberts, who jokingly claimed a conversation with a London cabbie inspired him to bid for Sky. But you cannot fault his resolve. He won because he wanted Sky more. Given doubts over Comcast’s business model – Disney has the backstop of a superb rights catalogue – he may simply be more desperate.

Sky, meanwhile, has proved all its detractors wrong. A business whose debt-burdened demise was regularly prophesied in the noughties survived monopolistic competition to become a trophy asset in the digital era. It is Sky, rather than Comcast, that emerges from the gun smoke as the real hard-bitten survivor.

WSJ : Oil Producers Signal Confidence in Managing Supply Disruptions

Oil Producers Signal Confidence in Managing Supply Disruptions
OPEC and non-OPEC oil producers meeting in Vienna

ALGIERS—Saudi Arabia and Russia began a meeting between OPEC and non-OPEC oil producers with an early signal Sunday that they had confidence in the group’s ability to manage supply disruptions and any big price increases.

After nearly two years of close coordination on crude oil output, the Organization of the Petroleum Exporting Countries—de facto led by Saudi Arabia—and its allies led by Russia, said supply and demand in the market had been sufficiently rebalanced.

“We have achieved the objectives pretty much of what we set out in 2016,” said Saudi Arabian energy minister Khalid al-Falih at the start of the gathering. “Markets are relatively balanced,” he added.

Mr. Falih also insisted that Saudi Arabia had enough spare oil capacity—around 1.5 million barrels a day—to meet any shortages in the global oil market.

The meeting, which is expected to last for hours, comes amid growing risks to global supply, including from OPEC members Iran, Venezuela and Libya.

Market concerns over falling Iranian exports in particular have helped to bolster prices recently, sending Brent crude—the global benchmark—close to multiyear highs. Buyers of Iranian crude have begun cutting back imports over the past few months in the run up to planned U.S. economic sanctions on Iran’s oil industry, set to take effect November 4.

President Donald Trumpin May pulled the U.S. out of a 2015 international agreement to curb Iran’s nuclear program, triggering the reinstatement of economic sanctions on the Islamic Republic.

Analysts have estimated around one million barrels a day of Iran’s roughly 2.5 million barrels a day in exports could be at risk as a result of the sanctions.

Mr. Trump’s decision helped Brent temporarily breach the $80 a barrel threshold for the first time in 3 ½-years in May, prompting concerns by some producers that prices had risen too high and could dampen global demand.

Saudi Arabia and Russia in late June engineered a plan to have OPEC and its partners begin ramping up production this summer after more than a year of holding back output. The move helped put a cap on rapidly rising prices, until Brent again temporarily surpassed the $80 a barrel mark earlier this month as the market refocused on risks to Iranian supply.

OPEC and 10 producers outside the cartel—led by Russia—first agreed in late 2016 to hold back production by around 1.8 million barrels a day starting in January 2017, in an effort to rein in a supply glut that had weighed on prices since late 2014.

Oil market participants are looking to the Algiers meeting for signs about whether the Saudis and Russians are prepared to further ramp up output and fill the supply gap left by Iran.

OPEC has also faced sustained pressure from Mr. Trump to churn out more oil to keep oil prices lower. “The OPEC monopoly must get prices down!” Mr. Trump tweeted Friday, as OPEC ministers descended on Algiers.

Mr. Falih on Sunday that it was “of course not true” that OPEC was responding to pressure from the president. “We have been looking at more important aspects, which is adequacy of supply,” he added.

>>> Barrons weekend summary: cover story on gold; also discusses Bitcoin and can

Barrons weekend summary: cover story on gold; also discusses Bitcoin and cannabis stocks

* Cover story: Gold, “long seen as the investment choice of the cranky and fearful” and out-of-favor because it doesn’t yield anything, now deserves a place in investment portfolios; Compared with stocks and other financial assets, gold looks inexpensive, and provides a hedge against rising inflation.

* Features: 1) Bitcoin could be a potential threat to gold bulls—some investors believe that as it becomes more mainstream, the cryptocurrency could replace gold in some portfolios, though others say gold is less volatile and is a well-understood commodity; 2) Positive on AMAT, BWA, CAT, KEY, PH: Barron’s screened for promising companies in the capital goods, financial, auto, and semiconductor sectors, and found five stocks with below-average valuations and healthy growth prospects; 3) Cautious on BX, TRI: Much of the $17B buyout of Thomson Reuters’ financial data business by a Blackstone-led consortium will be financed by debt, which makes it reminiscent of 2007—though it has several distinctly modern features; 4) Interval funds, which provide access to illiquid assets and which have long been on the market, are gaining new ground among some fund managers.

* Tech Trader: Positive on BSX, ISRG: Companies are hot performers in the medical-device sector, which has been one of the year’s strongest gainers—and though valuations are high, it’s likely many of the sector’s shares will stay aloft.

* Trader: Rising yields could signal a lasting shift away from tech stocks, says Thomas Lee of Fundstrat Global Advisors, and turn some of this year’s winners into losers; Investors need to approach bank shares with caution—the spaces remains healthy, says Ken Zerbe of MS, but things are getting weaker on the loan-growth side; Cautious on BA, LMT: “The defense sector has benefited from forces that are now starting to reverse, at a time when valuations are historically high,” and investors may see less-robust returns.

* Profile: Howard Greene and Jeff Given, co-managers of the John Hancock Bond fund, invest in multiple sectors of the bond market and aren’t afraid to take credit risk, most recently in securities backed by prime auto loans.

* Interview: Bill McGlashan, founder and managing partner of TPG Growth, talks about investing for a cleaner, healthier, and more equitable world through his Rise fund, which raised $2.1B last year. Follow-Up: Positive on Berkshire Hathaway: The company may no be a “screaming bargain,” says David Rolfe of Wedgewood Partners, but the shares are still undervalued.

* European Trader: Turkey’s stock and currency have taken a hit, but the recent stabilization of the Turkish lira may be paving the way for a bounceback in the shares; Investors seeking to profit from the potential upturn should consider TUR.

* Emerging Markets: Emerging markets are going through a “slow motion crisis,” says Harvard international finance professor Carmen Reinhart—and it’s not just hot spots such as Argentina, Brazil, and Turkey.

* Commodities: “There are still several weeks before U.S. sanctions on Iranian oil actually kick in, but expectations of tight crude inventories already have contributed to much of this year’s gains in global prices.”

* Streetwise: “It’s hard to understand why TLRY is valued above large, more established rivals like Aurora Cannabis and CGC” in the marijuana sector, whose “stocks are the new bitcoin,” says Barron’s columnist Bill Alpert.

ZH : Evidence The Housing Bubble Is Bursting?: "Home Sellers Slashing Prices At

Evidence The Housing Bubble Is Bursting?: "Home Sellers Slashing Prices At Fastest Rate In Over Eight Years"

The housing market indicated that a crisis was coming in 2008. Is the same thing happening once again in 2018?
For several years, the housing market has been one of the bright spots for the U.S. economy. Home prices, especially in the hottest markets on the east and west coasts, had been soaring. But now that has completely changed, and home sellers are cutting prices at a pace that we have not seen since the last recession. In case you are wondering, this is definitely a major red flag for the economy. According to CNBC, home sellers are “slashing prices at the highest rate in at least eight years”…
After three years of soaring home prices, the heat is coming off the U.S. housing market. Home sellers are slashing prices at the highest rate in at least eight years, especially in the West, where the price gains were hottest.

It is quite interesting that prices are being cut fastest in the markets that were once the hottest, because that is exactly what happened during the subprime mortgage meltdown in 2008 too.
In a previous article, I documented the fact that experts were warning that “the U.S. housing market looks headed for its worst slowdown in years”, but even I was stunned by how bad these new numbers are.
According to Redfin, more than one out of every four homes for sale in America had a price drop within the most recent four week period…
In the four weeks ended Sept. 16, more than one-quarter of the homes listed for sale had a price drop, according to Redfin, a real estate brokerage. That is the highest level since the company began tracking the metric in 2010. Redfin defines a price drop as a reduction in the list price of more than 1 percent and less than 50 percent.
That is absolutely crazy.

I have never even heard of a number anywhere close to that in a 30 day period.
Of course the reason why prices are being dropped is because homes are not selling. The supply of homes available for sale is shooting up, and that is good news for buyers but really bad news for sellers.
It could be argued that home prices needed to come down because they had gotten ridiculously high in recent months, and I don’t think that there are too many people that would argue with that.
But is this just an “adjustment”, or is this the beginning of another crisis for the housing market?

Just like a decade ago, millions of American families have really stretched themselves financially to get into homes that they really can’t afford. If a new economic downturn results in large numbers of Americans losing their jobs, we are once again going to see mortgage defaults rise to stunning heights.
We live at a time when the middle class is shrinking and most families are barely making it from month to month. The cost of living is steadily rising, but paychecks are not, and that is resulting in a huge middle class squeeze. I really like how my good friend MN Gordon made this point in his most recent article…
The general burden of the American worker is the daily task of squaring the difference between the booming economy reported by the government bureaus and the dreary economy reported in their biweekly paychecks. There is sound reason to believe that this task, this burden of the American worker, has been reduced to some sort of practical joke. An exhausting game of chase the wild goose.
How is it that the economy’s been growing for nearly a decade straight, but the average worker’s seen no meaningful increase in their income? Have workers really been sprinting in place this entire time? How did they end up in this ridiculous situation?
The fact is, for the American worker, America’s brand of a centrally planned economy doesn’t pay. The dual impediments of fake money and regulatory madness apply exactions which cannot be overcome. There are claims to the fruits of one’s labors long before they’ve been earned.
The economy, in other words, has been rigged. The value that workers produce flows to Washington and Wall Street, where it’s siphoned off and misallocated to the cadre of officials, cronies, and big bankers. What’s left is spent to merely keep the lights on, the car running, and food upon the table.
And unfortunately, things are likely to only go downhill from here.
The trade war is really starting to take a toll on the global economy, and it continues to escalate. Back during the Great Depression we faced a similar scenario, and we would be wise to learn from history. In a recent post, Robert Wenzel shared a quote from Dr. Benjamin M. Anderson that was pulled from his book entitled “Economics and the Public Welfare: A Financial and Economic History of the United States, 1914-1946”…
[T]here came another folly of government intervention in 1930 transcending all the rest in significance. In a world staggering under a load of international debt which could be carried only if countries under pressure could produce goods and export them to their creditors, we, the great creditor nation of the world, with tariffs already far too high, raised our tariffs again. The Hawley-Smoot Tariff Act of June 1930 was the crowning folly of the who period from 1920 to 1933….
Protectionism ran wild all over the world. Markets were cut off. Trade lines were narrowed. Unemployment in the export industries all over the world grew with great rapidity, and the prices of export commodities, notably farm commodities in the United States, dropped with ominous rapidity….
The dangers of this measure were so well understood in financial circles that, up to the very last, the New York financial district retained hope the President Hoover would veto the tariff bill. But late on Sunday, June 15, it was announced that he would sign the bill. This was headline news Monday morning. The stock market broke twelve points in the New York Time averages that day and the industrials broke nearly twenty points. The market, not the President, was right.
Even though the stock market has been booming, everything else appears to indicate that the U.S. economy is slowing down.
If home prices continue to fall precipitously, that is going to put even more pressure on the system, and it won’t be too long before we reach a breaking point.

NYT DealBook : Airbnb Wants Hosts to Be Shareholders

Airbnb wants its hosts to be shareholders. The start-up sent a letter to the Securities and Exchange Commission asking it to revise its rules on whom private companies can award equity to, Axios reported. Under federal security law, private firms can grant stock to employees but not to contractors. Airbnb wants the S.E.C. to add an exemption for participants in the so-called sharing economy. “Airbnb believes that 21st-century companies are most successful when the interests of all stakeholders are aligned,” the company said in its letter. “For sharing economy companies like Airbnb, this includes our employees and investors, but also the hosts who use our marketplace.”

The boom in corporate America’s bottom line looks set to continue. With just a few weeks until companies start reporting third-quarter results, analysts are again forecasting robust profits. Companies in the Standard & Poor’s 500-stock index are expected to report that earnings grew 19.3 percent, according to FactSet. But this year is most likely as good as it gets for earnings. Analysts expect profits to increase 10.3 percent next year.

Speaking of earnings, how much credit should last year’s tax cut get for the soaring profits? Perhaps not as much as conventional wisdom holds. Sales growth, not taxes, deserves much of the credit, according to the Leuthold Group. Profits increased 22.2 percent in the second quarter. Rising sales accounted for half that growth, while the tax cuts drove roughly a third.

Corporate America’s decade of buybacks. Since the failure of Lehman Brothers roughly 10 years ago, United States companies have repurchased $4.4 trillion of their shares, according to Bank of America Merrill Lynch. To put that in perspective, the Federal Reserve’s asset purchases totaled $3.6 trillion over that period.

A return to 2 percent growth? The United States economy continues to grow strongly — 4.2 percent in the second quarter with third-quarter forecasts at 4.4 percent. But such growth is unlikely to persist into the new year. If the trade war between the United States and China continues to escalate, it could shave one percentage point off gross domestic product growth next year and take it to 2 percent, according to Oxford Economics. That rate would be in line with the average of the past eight years.

NYT DealBook : Comcast Outbids Fox for Control of British Broadcaster Sky

LONDON — Comcast emerged as the victor for the British broadcaster Sky on Saturday, beating 21st Century Fox in a monthslong battle whose outcome promises to reshape the media landscape.

With a final offer that values Sky at about 29.7 billion pounds, or roughly $39 billion, the American cable giant wrested away control of Sky from Rupert Murdoch and the Walt Disney Company, which is buying most of Mr. Murdoch’s company, Fox.

The final battle for control of Sky, a pay-television company whose reach extends across Europe, came down to an unusual one-day, three-round auction overseen by Britain’s Takeover Panel. At the end, Comcast bid £17.28 per Sky share, while Fox had bid £15.67 a share.

Comcast and its chief executive, Brian L. Roberts, have succeeded in an international foray into empire building, gaining a big European outpost. Sky also represents yet another source of content that could prove valuable as traditional media and telecommunications companies vie against Netflix. While Comcast already owns NBCUniversal, more original shows and sports programming rights could help retain existing subscribers and draw new ones.

“This is a great day for Comcast,” Mr. Roberts said in a statement. “This acquisition will allow us to quickly, efficiently and meaningfully increase our customer base and expand internationally.”

Martin Gilbert, the chairman of the Sky board committee that oversaw takeover bids for the company, said in a statement that Comcast’s offer was “an excellent outcome” for shareholders and recommended that they accept the bid.

While Comcast emerged as the definitive winner of the auction, one unresolved question is whether Fox and its soon-to-be owner, Disney, would sell the 39 percent stake it already owns in Sky to its rival. Analysts have speculated that Fox and Disney would be willing to trade that holding in return for Comcast’s roughly 30 percent stake in Hulu, the American streaming service. (Such a deal would give Disney near total control of that business.)

It is also unclear whether Mr. Roberts’s costly pursuit will sit well with his own shareholders. Comcast’s winning bid is nearly 61 percent above Fox’s initial bid of about $23 billion in late 2016.

Mr. Murdoch founded Sky in the 1990s and it has since become one of Europe’s top television and broadband companies. Both bidders had coveted Sky’s international reach — it has about 23 million customers in five European countries — and its mix of original content and valuable sports broadcasting rights like English Premier League soccer.

That overseas footprint would give Comcast a way to diversify away from the American market, where cord-cutting has slowed the growth of its traditional broadband and pay-TV businesses.

Sky has also been developing a video-streaming platform known as Q, which Mr. Roberts has praised as impressive.

Rarely has a multibillion-dollar takeover battle played out in such dramatic fashion, with a government-supervised auction taking place over a weekend. But the battle for control of Sky has been full of drama for nearly two years.

Fox sought to buy the 61 percent of Sky that it did not already own in late 2016. It was the second time in a decade that the Murdoch family had tried to buy full control of Sky. The Murdochs’ first attempt was in 2011, but they were forced to withdraw amid a phone-hacking scandal in Britain involving a Murdoch-owned tabloid.

Fox’s 2016 offer for Sky was met with skepticism by British lawmakers and regulators, who feared giving the family too much control over Britain’s media market. Mr. Murdoch already controls news outlets like The Sun and The Times of London, and skeptics worried that full control of Sky’s in-house news arm would give him too much power.

Ultimately, Fox was allowed to bid for Sky by the British government.

Then last year, Fox agreed to sell the bulk of itself — including its 39 percent stake in Sky — to Walt Disney in a $52.4 billion deal.

Sky ultimately became a key target in a complex bidding war for Fox between Comcast and Disney. Comcast made a higher takeover offer for Sky this spring, in part to spoil Disney’s bid to acquire most of Fox. Fox — and behind the scenes, Disney — raised its offer for Sky.

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Our columnist Andrew Ross Sorkin and his Times colleagues help you make sense of major business and policy headlines — and the power-brokers who shape them.

Disney ultimately prevailed in the fight for Fox, but did not gain control of Sky, which Robert A. Iger, the head of Disney, had called “a real crown jewel.”

Comcast, however, did not walk away from Sky. Instead, it and Fox continued to vie for dominance, leading the Takeover Panel to announce the unusual auction that took place on Saturday.