>>> FNAC/Ceconomy - what next?

Europe Flash: FNAC/Ceconomy - what next? (MergerMArket)

While Dixons Carphone [LON:DC] attracts takeover speculation in the UK, perhaps the most obvious transaction in electrical retail remains a potential combination between FNAC Darty [EPA:FNAC] and industry peer Ceconomy [ETR:CEC].
Soon after it executed a demerger transaction to split from food retailer and wholesaler Metro [ETR:B4B], Ceconomy acquired a 24.3% stake in FNAC in July. Subsequently, Ceconomy subsidiary MediaMarktSaturn signed an agreement with FNAC to create a Europe-wide purchasing alliance.
Takeover talk is a natural consequence of both moves and there are plenty of other reasons why Ceconomy might look to complete a full buyout.
First, Ceconomy has plenty of firepower and good reasons to use it.
Net debt to EBITDA runs at minus 0.3x, with net cash at EUR 197m, versus Dixons Carphone at 0.4x and FNAC at 0.3x. A net cash position can sometimes make sense, but at Ceconomy’s 40% tax rate it looks like a serious drag. Ceconomy’s lower investment grade Baa3 Moody’s credit rating indicates it can borrow at around 1%, falling to 0.6% after taxes.
Secondly, a full buyout could work even better for Ceconomy’s shareholders because of potential tax implications. Ceconomy’s current 40% target tax rate compares to FNAC’s theoretical rate of 33%, and a 2017 effective rate of 28%.
Raising cheap debt in Germany, offset against a high tax rate, while harvesting earnings from lower tax jurisdictions elsewhere, means there’s plenty of financial rationale for a transaction even before operational and strategic options are explored.
Combining the two companies at current market prices would see the pro-forma entity leveraged around 1.9x, trailing 12 month EBITDA, pre-synergies.
FNAC trades at a trailing-12-month price-to-earnings ratio of 17.4x versus Ceconomy on 19.1x and Dixons Carphone at 7.5x. Management guidance and company-compiled consensus numbers from Ceconomy and Dixons implies the two trade at 11.0x and 9.6x on a year-ahead basis. FNAC has not provided detailed forward guidance.
Key risks include competition question marks that a potential combination of the two businesses could prompt. Overlaps appear to be in the Benelux region, where FNAC operates 147 stores and Ceconomy has 74, and Portugal and Spain, where both have a sizeable presence at 52 stores and 88 stores, respectively. A 2016 Metro presentation showed Portugal and Switzerland as the most consolidated markets in electrical retail. Market share among the five top players in most of the relevant markets is below 50%, the document shows.
Ceconomy said last week it is considering a deal to buy 15% of M.Video [MCX:MVID], at a cost of around EUR 150m, alongside a possible capital hike of 10% of its share capital. If executed in that way, it would leave plenty of balance sheet headroom to pursue a deal with FNAC.
A combination between the two peers appears to work wonderfully in theory. Whether it also does so in practice remains to be seen.

Analysts from Dealreporter, Mergermarket’s sister publication, pick out pre-event ideas by combing through transcripts, stock exchange 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 ideas

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • NA.

Select metals/mining stocks trading lower:

  • BBL -2.6%, MT -2.3%, BHP -2.1%, RIO -1.8%, X -1.0%

Other news:

  • MACK -34.4% (announces top-line results from the CARRIE study -- did not meet primary or secondary endpoints)
  • AXON -7.1% (entered into $75 mln Sales Agreement with Cowen to sell common shares through an 'at-the-market' equity offering program)
  • HOG -1.7% (will not raise prices to cover cost of tariffs; estimates the aggregate annual impact due to the EU tariffs to be approximately $90-100 mln)

Analyst comments:

  • PVH -0.8% (initiated with a Sell at Goldman)
  • OHI -0.9% (downgraded to Market Perform from Outperform at Wells Fargo)
  • KR -1.5% (downgraded to Hold at Pivotal Research Group)
  • ORLY -1.7% (downgraded to Neutral from Buy at MoffettNathanson)
  • ATI -1.7% (downgraded to Neutral from Buy at Longbow)
  • KMX -2.1% (downgraded to Neutral from Buy at Guggenheim; downgraded to Neutral from Buy at Buckingham Research)
  • INTC -2.4% (downgraded to Neutral from Buy at Nomura)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • NA.

M&A news:

  • XRM +100.8% (to be acquired by Andritz AG for $13.50/share in cash)
  • EDR +1.3% (to be acquired by Greystar Real Estate Partners for $41.50/share in cash, or approximately $4.6 bln)

Other news:

  • GKOS +2.7% (receives PMA from the FDA for the iStent inject Trabecular Micro-Bypass System indicated for the reduction of intraocular pressure in adult mild-to-moderate primary open-angle glaucoma (POAG) patients undergoing concomitant cataract surgery)
  • MNKD +2% (reports positive clinical data for Afrezza)
  • TKC +1.6% (following Turkey elections)
  • ARRY +1.3% (reports Phase 3 BEACON CRC safety lead-in of the combination of Encorafenib, Binimetinib and Cetuximab)
  • NVO +1.3% (Significant blood sugar improvement with Xultophy compared to insulin glargine U-100 when used as add-on to oral diabetes medications)
  • SM +0.8% (provides interim second quarter update - production exceeding expectations)

Analyst comments:

  • FSLR +3.4% (upgraded to Buy from Neutral at BofA/Merrill)
  • ALRM +1.8% (upgraded to Strong Buy at Raymond James)
  • CIEN +1.7% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • BWA +0.8% (upgraded to Buy from Neutral at Goldman)
  • NTR +0.6% (upgraded to Strong Buy from Outperform at Raymond James)
  • TPR +0.6% (initiated with a Buy at Goldman and added to Conviction Buy List)

>>> Tyler Technologies sees M&A opportunities in fragmented government services

Tyler Technologies sees M&A opportunities in fragmented government services market - CFO
25 JUN 2018
Tyler Technologies [NYSE:TYL], a provider of management solutions for the public sector, is looking for tuck-in acquisitions to add new products and technologies, or expand its client base, CFO Brian Miller said.
The industry for government software solutions and services is highly fragmented with many small regional and locally focused firms that the Plano, Texas-based company can target, according to Miller.
But it can be a challenge to find acquisition targets with reasonable valuations, he said, especially with private equity firms paying multiples that are often higher than Tyler believes the businesses are worth.
Tyler has had the most success acquiring competitors and customers that don’t run auctions, Miller said.
The company prefers to spend between USD 15m and USD 50m on acquisitions, he said. But it can make bigger deals, too. On 30 April, it bought Seattle-based analytics provider Socrata for USD 150m in cash. That same day it also purchased Portland, Maine-based Sage Data Security. Terms were not disclosed.
Since 2008, Tyler has made 25 acquisitions. Its largest deal to date is its purchase of Troy, Michigan-based software provider New World Systems for USD 699m in cash and stock in November 2015.
The company reported it had more than USD 210m in cash on hand as of 31 March.
Tyler generates more than USD 200 in free cash flow, Miller noted during a presentation to investors at a B Riley event last month. He said it is also a beneficiary of the new tax code, saving USD 30m this year.
Traditionally, the company has relied on an on-premises software licensing model. But about five years ago, it started selling software subscriptions, which now constitute approximately 40% of revenues.
In addition to acquisitions, Tyler has ramped up its research and development spend over the last couple of years to create new products and enhance old ones to address competitive deficiencies.
Infor, Oracle [NYSE:ORCL], SAP [NYSE:SAP] and Thomson Reuters [NYSE:TRI] are its main competitors.
Tyler’s stock closed at USD 230.34 on Friday, giving it a market capitalization of USD 8.81bn.

>>> US Early premarket gappers

Early premarket gappers

Gapping up:

  • AVAV +4.3%, MBT +3.2%, ENPH +2.9%, TKC +2.7%, FSLR +2.3%, CIFS +2.1%, MNKD +2%, NEPT +1.6%, ARRY +1.3%, CBL +1%, KGC +0.8%, HON +0.8%, SM +0.8%, GPK +0.8%, TPR +0.6%

Gapping down:

  • RENN -12.3%, SOGO -4.9%, FRO -3.5%, ASML -3.1%, LPSN -3.1%, STM -3%, TRUP -2.9%, MT -2.9%, WIX -2.9%, BZUN -2.9%, BBL -2.6%, IRBT -2.5%, ABB -2.4%, BHP -2.3%, ADBE -2.1%, MU -2%, P -1%

WSJ : ECB Could Discuss Raising Rates From Autumn Next Year, Top Policy Maker Sa

ECB Could Discuss Raising Rates From Autumn Next Year, Top Policy Maker Says
Head of Lithuania’s central bank echoes Mario Draghi’s recent caution

VILNIUS, Lithuania—European Central Bank officials could start to discuss raising short-term interest rates from autumn next year, a top ECB policy maker said, amplifying the caution expressed by the bank’s President Mario Draghi in recent days.

The ECB’s patient approach comes as the 19-nation eurozone economy slows and faces burgeoning threats, including rising oil prices and escalating trade tensions between the world’s biggest economic blocs.

“I think from the current perspective, maybe we can think about the possibility to discuss further steps in autumn [next year], but as I said, discuss,” said Vitas Vasiliauskas, who sits on the ECB’s rate-setting committee as head of Lithuania’s central bank, in an interview.

His comments that the ECB could “discuss” rate increases only in the fall of 2019 suggest it could be the end of next year before the ECB actually increases interest rates, further widening an already large gap with the U.S., which have been rising steadily.

After its meeting on June 14 in Riga, Latvia, the ECB unveiled plans to phase out its giant bond-buying program but said that it didn’t expect to raise interest rates “through summer 2019.” The bank’s key policy rate, the deposit rate, has been minus 0.4% for more than two years. At a press conference after the meeting, Mr. Draghi declined to be pinned down on whether that forward guidance meant the ECB’s scheduled meeting in September next year was in play for a rate increase.

Asked whether the “summer” guidance for keeping rates steady into 2019 included that September meeting, Mr. Draghi said “Well, if it had meant September, we would’ve said September.” Many analysts interpreted the comments to mean that the ECB chief wasn’t ruling out an interest-rate rise as soon as a planned policy meeting on Sept. 12, 2019.

Mr. Vasiliauskas was more specific during an interview with The Wall Street Journal in his office in Lithuania’s capital, suggesting that the September 2019 meeting wasn’t in play.

“In this part of the world, summer means until the end of September,” said Mr. Vasiliauskas, underscoring that a rate rise—the ECB’s first since 2011—is a long way off.

While ECB officials are optimistic about the region’s growth, which is expected to continue at a faster pace than economists consider sustainable over the longer term, Mr. Vasiliauskas warned of possible “downward risks.” Trade conflicts are “one of the risks which can make the current balance of risks negative,” he said.

It isn’t the first time the ECB has triggered a debate over the seasons of the year, a topic befitting meteorologists, not central bankers. The ECB promised last July to discuss the future of its stimulus policies “in the fall,” and a spokesman tweeted a link to a definition of “meteorological autumn,” which begins on Sept. 1. The astronomical season begins only on Sept. 22.

Still, the discussion underscores how tricky it is for central bankers to signal their intentions to investors while at the same time trying to maintain some flexibility for themselves.

The Lithuanian central-bank head indicated that the ECB is unlikely to extend its €2.5 trillion bond-buying program beyond the end of this year. After its June 14 meeting the ECB said it expected to end net purchases of government bonds at the end of this year, though it will continue to reinvest payments on the principal of maturing bonds.

Asked whether the ECB has the capacity to extend its bond purchases if necessary, Mr. Vasiliauskas replied that analysts focused too much on the program, known as quantitative easing or QE. He said that the ECB could turn to other tools to fight any economic downturn, including long-term loans known as targeted longer-term refinancing operations, or TLTROs.


After more than two years of large-scale bond purchases, the world’s number two central bank would likely struggle to extend QE beyond December without violating self-imposed limits. Those limits are designed to insure the program doesn’t overly distort financial markets or finance governments, which would be problematic under European Union law.

“Of course QE has limits but as we said in Riga, reinvestment is also a very important factor of the program,” Mr. Vasiliauskas said. “We also have additional tools that were used and can be used in future if needed…For example TLTRO was a very successful instrument.”

>>> Hispasat price tag raises again on the back of sector deals

Hispasat price tag raises again on the back of sector deals

Abertis Infraestructuras’ [BME:ABE] new owners Atlantia [MI:ATL] and ACS [BME:ACS] have again increased their price expectations for the satellite unit Hispasat, reported Expansion citing financial sources.
The reason, according to the report, is the recent interest of EchoStar [NASDAQ:SATS], the Englewood, Colorado-based digital set-top boxes for direct-to-home satellite service designer, in Inmarsat [LSE:ISAT.L], the UK-based global mobile satellite communications services provider.
In the three weeks since the interest of EchoStar was confirmed, the valuation of Inmarsat has gone from EUR 1.8bn to EUR 2.9bn, according to the report.
Meanwhile, Hispasat’s price tag is now higher than the EUR 1.149bn deal, Abertis agreed with Red Electrica de Espana [BME:REE] (REE) and above the EUR 1.254bn valuation set by ACS’s German unit Hochtief [FRA:HOT], the Spanish-language paper said. After the offer for Abertis ended, ACS and Atlantia began to sound out the market for Hispasat with a price tag of more EUR 1.3bn, according to the report.