>>> Up
* BASF Upgraded to Overweight at Barclays; PT 105 Euros
* Britvic Upgraded to Buy at SocGen; PT 9.45 Pounds
* Scor Upgraded to Outperform at MedioBanca; Price Target 38 Euros
>>> Down
* AB Foods Downgraded to Neutral at Goldman; PT 30 Pounds
* Bakkavor Downgraded to Hold at HSBC; Price Target 2.10 Pounds
* Bunzl Downgraded to Neutral at Goldman; Price Target 25 Pounds
* Commerzbank Cut to Equal-weight at Morgan Stanley; PT 12 Euros
* Cosmo Downgraded to Underperform at Credit Suisse; PT 85 Francs
* Munich Re Downgraded to Underperform at MedioBanca; PT 188 Euros
* ProSieben Downgraded to Sell at Goldman; PT 26.30 Euros
* Swiss Re Downgraded to Underperform at MedioBanca; PT 93 Francs
>>> Initiation
* Magforce Rated New Outperform at MainFirst; PT 15.60 Euros
* Monte Paschi Rated New Buy at Hammer Partners SA; PT 3.60 Euros
* Safe Orthopaedics Reinstated Neutral at Louis Capital Markets
* Solvay Reinstated at MainFirst With Outperform; PT 141 Euros
>>> Call
Big bank mergers again being contemplated after a long break
One scoop to start: A trio of top shareholders in Ireland’s Smurfit Kappa have demanded that Europe’s largest cardboard box maker end its refusal to engage with International Paper and enter into negotiations with the US group that has offered nearly €9bn to buy it. More here.
In the decade since the financial crisis, big banking takeovers have been like hen’s teeth. But now the animal spirits seem to be stirring again, writes the FT's Martin Arnold.
The latest to rediscover the thrill of the chase is Barclays, which has been tossing around the idea of a merger with Standard Chartered while doing some “blue-sky thinking” on how to respond to the arrival of an activist investor.
The trigger for senior Barclays directors to start “scanning the horizon” for M&A options as well as looking at ways to return more capital to shareholders and to expand in its home UK market, is the 5.4 per cent interest acquired in the bank by Edward Bramson’s activist fund Sherborne (he's profiled here).
Quite how far Barclays has gone in scoping out these contingency plans is unclear. But it seems that the idea of a merger with StanChart – which has echoes of an approach it made several decades ago – is at an extremely early stage.
The merits of such a combination, which Lex weighs here, were discussed in theoretical terms between a director at each of the banks, according to people familiar with recent events. But there hasn’t been a formal book drawn up on StanChart and the idea has not been discussed by the full Barclays board.
Shares in Barclays were down 1.09 per cent on Wednesday after the FT first reported the news about its consideration of a deal with StanChart. Its rival’s shares closed up 0.4 per cent, having given up much of their earlier gains.
So what conclusions can we draw from this? First, it is clear that Barclays is taking Bramson very seriously. Second, the bank does not appear to have full confidence that its current strategy of slightly upping the resources in its investment bank while moderately increasing its dividend will be enough to keep the activist and his many supporters at bay.
Could it also mean that big bank M&A is back on the cards? Given the highly sceptical reaction of many shareholders and analysts to the idea of a “BarChart” deal on Wednesday, that still seems a bit of a stretch.
Intelligent curation and exclusive information: This is Due Diligence, the FT’s daily briefing on corporate finance, private equity and M&A. DD is delivered to your inbox Tuesday-Friday at 5am UK time. Meet the team, catch up on previous editions and sign up here. Get in touch with us: Due.Diligence@FT.com
The great M&A wave in US banking
The UK isn't the only country primed for banking consolidation. FIG bankers in America are scanning the horizon with a new sense of urgency. After Tuesday’s rollback of certain Dodd-Frank provisions, which amounts to the biggest changes to financial regulation in eight years, a great M&A wave could be coming.
Consolidation among US banks is a secular trend. The number of banks halved in the past 20 years and will probably halve again in the next 20, says Jason Goldberg, analyst at Barclays, as more and more small lenders look to cut costs by combining.
Data released on Tuesday showed there were 5,607 federally insured commercial banks and savings institutions at the end of the first quarter, a fall from 5,670 the year before.
But now things could really start to pick up at the bigger end. Monday’s $4.7bn deal between Fifth Third Bancorp of Cincinnati and Chicago’s MB Financial could be a taste of things to come, say bankers, as management teams take advantage of high share prices, lower taxes and — crucially — lighter regulation to plot moves they have long dreamed of.
The market didn’t like the deal much. Fifth Third’s shares fell about 8 per cent on the day, as investors saw that the bank was paying $2.70 for every dollar of book value, and that even with aggressive assumptions on cost cuts it expected to take seven years — about double the average in deals like this — to earn back that premium.
“It’s higher risk with lower reward,” sniffed one M&A banker unconnected to the deal.
But on Tuesday Fifth Third recovered about 3 per cent, while some of MB’s regional rivals (Wintrust and First Midwest) held on to gains they’d made on Monday.
LVMH has led a fundraising round in fashion search platform Lyst as the world’s largest luxury group by revenues seeks to expand and improve its presence online.
As part of the investment, LVMH’s head of digital Ian Rogers will have a seat on the board of Lyst.
A statement from Lyst said that the investment will support its continued international expansion into new markets, and will fuel its growth across its teams in London and New York. Lyst said that it is now profitable and has grown revenues over 400 per cent in the past three years since it last raised funds.
Terms of the deal, which was first flagged by Sky News, were not disclosed. The size of LVMH's investment was below $60m, according to a person familiar with the situation.
London-based startup Lyst is a digital shopping platform that allows consumers to search and shop over 11,000 designers and stores in one place, offering them daily curated edits and personalised style recommendations.
Luxury groups are jostling for a share of the fast-growing ecommerce market. Last year 9 per cent of luxury purchases were made online, according to consultant Bain & Company, which predicts that this will reach 20 per cent by 2025.
As part of this push, in October 2015 LVMH hired Mr Rogers from Apple to the newly-created role of head of digital. Last year he helped LVMH launch a push into ecommerce with 24Sevres.com, a site that brings its iconic Parisian department store Le Bon Marché online. It’s entering a highly-competitive market dominated by the likes of Yoox, Net-a-Porter, Farfetch and Alibaba-owned Tmall.
Bernard Arnault, chairman and chief executive of LVMH, invested in Lyst three years through his family office Groupe Arnault in a $40m funding round with venture capital firms including Accel and Balderton.
After Hours Summary: WSM +14%, SMRT +11%, LASR +2% are higher, while LB -6%, NTAP -4% are lower following earnings/guidance, BW +21% on shareholder buyout proposalAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: WSM +14.4%, SMRT +11.3%, UVV +7.3% (ticking higher), LASR +1.9%
Companies trading higher in after hours in reaction to news: BW +20.6% (Steel Partners Holdings files amended 13D -- prepared to acquire all shares it does not currently own for $3.00-3.50/share in cash), MRNS +9.4% (initiated with Outperform rating at Robert W. Baird), APLS +4% (initiated with Overweight ratings and $52 tgt at Cantor Fitzgerald), NRG +2.6% (still checking), CASY +2.1% (following late volatility on JANA stake speculation), HUN +0.9% (approves increase to share repurchase authorization up to $1 bln and announces a new $1.2 bln unsecured revolving credit facility), ELF +0.8% (ticking higher - initiated with a Outperform at Oppenheimer), GM +0.7% (on reports that Trump Administration is considering tariffs on new imported autos) MSCC +0.3% (Microchip Technology received antitrust clearance in Taiwan and acquisition approval by Microsemi shareholders; expects merger will close on May 29, 2018)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: LB -5.9%, NTAP -3.9%
Companies trading lower in after hours in reaction to news: QUIK -8.3% (commences offering of common stock and corresponding warrants), EIGR -4.7% (commences an underwritten public offering of common stock), FCAU -2.1% and TM -1.8% (following reports that the Trump Administration is considering tariffs on new imported autos) FND -1.7% (announces secondary offering of 10 mln shares of common stock by funds affiliated with Ares Management (ARES) and Freeman Spogli; also files mixed securities shelf offering), AGNC -1.6% (announces public offering of 30.0 mln shares of common stock)
Activist Hohn urges Fox to engage on Comcast offer
TCI fund reveals it has built 7.4% stake
Christopher Hohn, the activist investor behind the TCI fund, has built a 7.4 per cent stake in Rupert Murdoch’s 21st Century Fox and has urged the mogul “to immediately engage” with Comcast when the US cable operator makes a formal offer for its entertainment assets.
TCI has steadily built a stake in Fox, which is controlled by Mr Murdoch through dual class shares.
In a letter to Mr Murdoch, Sir Christopher called on Mr Murdoch to welcome any proposal from Comcast.
Comcast on Wednesday confirmed that it was exploring an all-cash bid for the Fox assets, adding that any offer would be at a premium to a rival all stock deal offer from Walt Disney. Disney has agreed a deal with Fox that values the entertainment assets at $66bn, including debt.
The letter stated:
“We are aware that the Murdoch family has a potential conflict of interest because of capital gains tax, which could lead them to preferring a lower priced Disney stock offer, to a higher priced offer from Comcast. However, the personal tax position of the Murdoch family must be an irrelevant consideration for the board, in order for the board to comply with their fiduciary duties.”
Sir Christopher added in the letter that he viewed the regulatory risk in both offers “to be equal and low”.
“It is imperative that the 21st Century Fox board runs a fair auction . . . and sells it to the highest bidder,” he said.
Smurfit/International Paper: Smurfit investors holding more than 8% of shares pushing for company to engage
23 MAY 2018
Smurfit Kappa [ISE:SKG] investors holding more than 8% of its share capital are pushing the company to engage in talks with International Paper [NYSE:IP], the Financial Times reported.
Janus Henderson, a 4.3% shareholder, is one of those investors, telling the FT that while it will not support an offer below EUR 40 per share, it does want Smurfit to engage with IP. Two other shareholdes holding another 4% of shares, which were not identified, reportedly support that position.
The Irish Takeover Panel has set a 6 June deadline for IP to decide whether or not it wants to make a binding offer for Smurfit. IP has indicated that it is not willing to go hostile, saying it would make a binding offer only if it was recommended by Smurfit.
The EUR 40 per share price level echoes that given to this news service by Smurfit investors last week, including Sycomore Asset Management and Merrion.