>>> Shire/Takeda: US dollar-denominated bond attractive if offered at concession

Shire/Takeda: US dollar-denominated bond attractive if offered at concession – investors
28 AUG 2018
  • Takeda’s heightened leverage gives investors pause on USD 15bn bond issue
  • Bond would have to be issued at 10-15 basis point concession on yield – investor

Takeda Pharmaceutical [TYO:4502], which is planning to tap bond markets to finance its acquisition of Shire [LON:SHP], will have to issue its reported USD 15bn dollar-denominated bond at a concession for the offering to be deemed attractive, said two fixed-income portfolio managers.
The first portfolio manager said he was fairly sceptical of the issue because Takeda is layering on a lot of debt and will have a stretched balance sheet.
Takeda plans to issue up to USD 20bn in bonds to replace some of the USD 30.8bn (JPY 3.36trn) of bridge loans it has borrowed from JP Morgan and others to finance its takeover of Ireland-based Shire, according to Japanese media reports. Takeda is expected to issue USD 15bn in dollar-denominated bonds and USD 4.5bn (JPY 499.5bn) in yen-denominated subordinated bonds.
The potential bond issuance comes as Takeda minority shareholders have raised objections to the deal, partly on concerns additional leverage could impair Takeda’s ability to pay its dividend. The acquirer’s shareholders will vote on whether to issue equity to fund the proposed merger; the measure requires a two-thirds threshold. A vote earlier this year that would have restricted Takeda’s board’s ability to ink large deals failed with only 10% shareholder support.
Both portfolio managers said there was a price for everything and there would be interest in Takeda’s bond offering if it were priced correctly.
However, the first portfolio manager did note that concessions on Takeda’s dollar-denominated bonds would have to be “sizeable.”
Long-term fundamentals in the pharma sector, including regulatory risks, were a concern, this portfolio manager said, adding that he was not convinced of the underlying fundamentals of the Shire/Takeda deal.
The offering wouldn’t be high on his conviction list, he said, while conceding that the market might take a different view.
Takeda's pro forma gross debt/EBITDA will almost double to about 6x, ratings agency Moody’s has previously warned . Takeda itself has said the bridge loan will push up its debt-to-EBITDA ratio to 4x-5x.
However, Takeda, which has said it wants to maintain its investment grade rating, has said it will bring its leverage down to 2.0x or lower in the medium term.
Cash flow generation from the acquisition is expected to help Takeda deliver, company executives previously said. The company has also said it will divest poorly performing non-core assets, while continuing to focus R&D efforts on its core therapeutic areas of oncology, gastroenterology and the central nervous system.
Given that Takeda has a single ‘A’ credit rating, if the company offered a 10-15 basis point concession on its existing yield, then its bond offering would be viewed as a good deal, said the second fund manager.
It is possible that Takeda and its lenders could roll over bridge loans if they cannot find buyers for the bonds, thought it remains unclear whether an extension would be necessary, this news service reported last month.
Takeda has previously said it expects to refinance the bridge facility before deal closing with a combination of long-term debt, hybrid capital and cash.
A fair amount of the leverage Takeda is taking on to fund its acquisition of Shire is already priced into its existing debt, said the second portfolio manager.
The company has one outstanding US bond due in 2022 and spreads on that bond have already risen to account for the “meaningful debt accretion” from the Shire deal, the second portfolio manager noted.
Appetite for Takeda’s JPY 499.5bn (USD 4.5bn) yen-denominated subordinated bond offering plan will likely be buoyed by investors awash with cash, as long as the offering is correctly priced, and its timing is right, bankers have previously told this news service.
Takeda did not respond to requests for comment. Shire declined to comment.

WWS : Ermenegildo Zegna Group Buys Majority Stake in Thom Browne

Ermenegildo Zegna Group Buys Majority Stake in Thom Browne
The Italian men's wear giant is acquiring 85 percent of the business of the American designer, who will retain his role of chief creative officer.
By Luisa Zargani on August 28, 2018
Backstage at Thom Browne Men's Spring 2019
Courtesy Photo

MILAN – In the latest shakeup in the constantly evolving men’s wear scene and in a surprising end-of-summer twist, the Ermenegildo Zegna Group said Tuesday that it is buying an 85 percent stake in Thom Browne Inc.
The agreement was reached with Sandbridge Capital and the namesake designer for an enterprise valuation of about $500 million. Minority shareholder Stripe International is also no longer an investor. Browne, who founded the brand in 2001, will be the sole other shareholder, and will continue to hold the role of chief creative officer. The Thom Browne business will remain independently run. Rodrigo Bazan,who joined Thom Browne in May 2016 from Alexander Wang and has helped grow the label, will remain the company’s chief executive officer.


Gildo Zegna, ceo of the family-owned group, said the company has “always been open to opportunities for external growth. And, since we started looking at partnerships, I always knew that Thom Browne would be the perfect fit. In addition to the immediate benefits with regards to fabrics and manufacturing support we can leverage our global reach to further expand Thom Browne’s retail network. Most importantly, we share the same passion for excellence and impeccable, modern tailoring. Thom’s visionary approach and his unique point of view have enabled him to build and nurture the most loyal clientele. On this strong footing, and thanks to a thriving women’s business and strong appeal with Millennials, we believe that we can build long-term value for all of our stakeholders. Finally, I am very proud to oversee a rare major investment by an Italian luxury player in an American company. I have always been a strong admirer of the United States, and look forward to our strengthened presence there.”
Browne expressed his pride and excitement for this new partnership with Zegna. “I feel that their passion for only the best quality and craftsmanship is very much aligned with how I have always approached my collections … my conceptual approach to design and the long-term vision of growing a true luxury design-led collection for men and women is something we both feel strongly about as the future strength of Thom Browne … with Zegna, Thom Browne will have a partner who not only understands the fundamentals of this business, but truly embodies them and brings the knowledge and skills of a global leader.”
Browne also took the time to thank Sandbridge Capital and founding managing partner Ken Suslow in particular, for being “such a good partner, but more importantly, being such a good friend … I have always valued our friendship over the years of our partnership because he has always proven to be a true gentleman … We would have not achieved the outstanding growth of Thom Browne without his support.”
Suslow said that the transaction “ensures the continued long-term growth” of the company. “I am profoundly grateful for the successful partnership that Thom and I have developed over the years. Thom is a uniquely talented visionary – his enduring commitment to building a modern American luxury house dedicated to the finest craftsmanship and tailoring is truly inspiring,” said Suslow. “I believe that Zegna is the ideal partner for the Thom Browne brand. It is for this reason that we did not engage with other interested parties, and that instead Gildo, Thom and I agreed upon this deal in a privately negotiated manner.”


Sandbridge took control of Thom Browne in March 2016 from Japan’s Stripe International, formerly the Cross Company, which became involved with Browne’s business in 2009. Cross initially took a 20 percent stake in the company and upped it to a 67 percent controlling interest later that year.
The New York-based consumer and retail-focused Sandbridge was formed in 2012 with the involvement of a group of fashion industry heavyweights, including former Gucci Group ceo Domenico De Sole and Tommy Hilfiger. The private equity firm’s stable has over the years included stakes in Derek Lam, Tamara Mellon, Farfetch, Rossignol, Topshop and Karl Lagerfeld.
Zegna has been actively building its group. The Thom Browne news comes after Zegna in July acquired a minority stake in India’s luxury men’s wear firm Raghavendra Rathore Jodhpur, partnering with Reliance Brands Ltd. to enhance the label’s growth and brand potential with the goal to establish the company as one of Asia’s leading men’s wear players. Zegna also has a controlling stake in Bonotto SpA, a high-end textile manufacturer based in Molvena, near Vicenza, and bought Cappellificio Cervo, a historic men’s hat brand based in Biella. At the beginning of 2018, the Zegna Group further strengthened its creative offer and production capacity by finalizing the acquisition of a controlling stake in Pelle Tessuta, a company specialized in the weaving of leather.
The Zegna Group closed 2017 with a 64 percent spike in net profits, which totaled 32.8 million euros, compared with 20 million euros in 2016. Revenues increased 2.3 percent to 1.18 billion euros, compared with 1.15 billion euros in 2016. At constant exchange, sales gained 4.5 percent. In 2017, the net financial position grew stronger, increasing 36 percent to 316 million euros from 233 million euros in 2016.
Sources expect Thom Browne’s 2018 revenues to total between 140 million and 150 million euros. The company counts 30 stores globally and it plans to open 10 additional units next year, especially in Japan and Greater China. A store in Miami will open in October in the Design District. Europe accounts for 35 percent of total sales and the U.S. and Canada for 25 percent.
In July, Bazan defined the Thom Brown brand for WWD: “I call it substance of product, really well-designed and really well-made, anchored in the Fifties but modern, with the most important [being] materials and craftsmanship. There is consistency in the design and clarity in the message. From May 2016, we’ve expanded the men’s world. It was full-canvas tailoring and sportswear; now from that we’ve moved to unconstructed tailoring, which is very important and a great success, and sportswear, not in terms of sweatshirts or functional sportswear, but an elevated American sportswear, JFK in the Fifties, that kind of sensibility. The market goes toward streetwear — we are not that, and we will never do that.”
The deal may also open additional possibilities in terms of women’s wear, since Zegna controls the Agnona brand and Browne has been consistently growing his women’s division, first launched in 2011. Bazan said in July that in two or three years the expectation is for women’s wear to account for 50 percent of the brand’s business.

>>> Best Buy down 5.5% despite strong Q2 results and guidance boost amid high ex

Best Buy down 5.5% despite strong Q2 results and guidance boost amid high expectations: Call notes (81.66)
  • Pleased with strength on financial performance
  • Top line performance broad based with increases in traffic, transaction and conversion; encouraged by net promoter scores and market share gains
  • Comps by segment: consumer electronics +6.8%; computing/mobile phones +4.2%, entertainment +8.5%; appliances +10.3%, services +6.6%
  • Generated comparable sales growth across multiple categories, with the largest drivers being home theater, computing, appliances, gaming, mobile phones and smart home. These positive drivers were partially offset by declines in digital imaging and tablets.
  • Domestic online revenue of $1.21 billion increased 10.1% on a comparable basis (vs. +12% in Q1), primarily due to higher conversion rates and increased traffic. Domestic online revenue mix increased 80 bps to 14%. Gaining share despite slowing growth online. Consumer electronics ecommerce is a mature market. Best Buy invested heavily in omnichannel (started buy online pick up I stores 10 years ago). Doubled online sales in four years
  • Saw minimal share loss in TVs as the company lapped significant share gains, TV units were up and ASP was down; really like position in TV market (SNE, AMZN, ROKU)
  • Fortnite related products doing well (HEAR)
  • Calendar shift represents 70 bps headwind on Q3 domestic comps (tailwind in Q4)
  • Sees gross profit pressure in Q3 from transportation costs and tech support roll out.
  • Operating margin decline in Q3 with expansion in Q4 company
  • Guidance includes tariffs, relly only impacting laundry
  • Great call acquisition: enrich lives with technology; big oppty in health market; great company: profitable, growing recurring rev (900K subs, $300M in rev); significant value creation oppty with complimentary assets

Digitimes : TSMC, Foxconn 4Q18 revenues to hit new highs on iPhone shipments

TSMC, Foxconn 4Q18 revenues to hit new highs on iPhone shipments
http://bit.ly/2wszeqq

Shipments of new iPhone series to be unveiled in mid-September are expected to reach 70-75 million units by the end of the year, the best performance since the launch of iPhone 6 series, according to industry sources. This is expected to push up the revenues of main supply partners including Taiwan Semiconductor Manufacturing Company (TSMC) and Foxconn to hit new highs in the fourth quarter of 2018.
Apple is slated to release three new iPhone devices soon, including two OLED models (5.8-inch and 6.5 inch) and a 6.1-inch LCD model. The impressive upgrades in overall designs and functions as well as the price-friendliness of the 6.1-inch model should give the new devices a shipment momentum much stronger than their two preceding generations, the sources said.
Most supply chain partners are expected to see revenues pick up significantly along with smooth production and strong shipment momentum before peaking in the fourth quarter of the year.
Among them, TSMC, which has landed all the 7nm foundry orders for A12 application processor chips for the new iPhone devices, has seen its revenues pick up starting in July, offsetting a significant revenue contraction ensuing from the sharp decreases in orders for crypto mining ASICs from China's Bitmain and Canaan Creative. The foundry is also expected to fully recover in the fourth quarter from a virus infection's impact on its third-quarter sales performance in August, allowing the company to maintain a higher single-digit growth for its 2018 revenues.
After scoring revenues of US$16.31 billion for the first half of 2018, TSMC is estimated to rake in revenues of US$8.28-8.38 billion in the third quarter and see its fourth-quarter revenues hit a new quarterly high of US$10.4-10.5 billion in the fourth quarter, according to its latest revenue estimates.
20% revenue contribution for 7nm process at TSMC
Industry sources said that besides volume fabrication of Apple's A12 AP chips on 7nm process, TSMC will also use the process to produce HiSilicon's Kirin 980 chipsets for Huawei's latest new-generation Mate 20 flagship series that will hit store shelves in October, as well as Qualcomm's new-generation Snapdragon 855 SoCs to be released soon. By the end of 2018, 7nm process is expected to contribute 20% to the foundry giant's annual revenues for the year, and the contribution ratio is estimated to surge further in 2019, when 7nm volume production of Nvidia and AMD GPU chips are set to kick off.
The assembly of new iPhone devices are shared by Foxconn and Pegatron, with the former landing the majority of the assembly orders for the two OLED-screen models and 30% of orders for the LCD model, the sources disclosed.
Bolstered by the volume production of the new iPhone models, Foxconn saw its July revenues hit a new high ever seen for the same month and its revenue growth momentum is expected to remain through the end of 2018. The company's profitability for the second half of the year is expected to be significantly better than the first half, the sources indicated.

9to5 : Apple to ship highest number of new iPhones this fall since iPhone 6 peak



Apple’s 2018 iPhones are shaping up to land with a big splash. Although Apple is yet to announce its new models, or its event to announce the new models, the expectations are already high; three new models, an iPhone X successor, a new 6.5-inch iPhone X Plus and a mass market 6.1-inch LCD iPhone with thin bezels and Face ID just like the iPhone X.

Digitimes says that Apple suppliers are gearing up to ship the most new iPhones ever, fuelled by strong adoption of the ~$700 6.1-inch model, which will bring the best parts of the iPhone X to accessible price points.

Since the iPhone X’s introduction, Apple has seen shipments stay roughly flat but average selling price of iPhone rise significantly, as the X’s popularity stabilised unit sales and pushed up the price per unit.

With this year’s iteration, it seems like Apple will rebalance around higher unit shipments and slightly lower levels of ASP. The 6.1-inch phone is expected to supplant the iPhone 8 in the line, with a price around $699. With a near-bezel-less design, Face ID camera system and modern internals, it is almost certainly going to be the most popular model.

Other analysts also believe that the new 5.8-inch iPhone X will drop by $100, starting at $899. The 6.5-inch would then become the new $999 iPhone, with upgraded storage options that go higher.

Digitimes says new iPhone shipments should hit 70-75 million units through the end of the year, the highest level since the iPhone 6/6 Plus super cycle. This number is purely on new 2018 iPhone shipments, it does not include sales of older generations.

A Chinese analyst report over the weekend estimated the ratio of sales between the 5.8-inch, 6.1-inch and 6.5-inch as 2:5:3, essentially suggesting that the 6.1-inch LCD sales are equal to the combined sales of the OLED models.