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Swiss Vollgeld referendum: Time to prepare for another Brexit shock?
The Swiss vote on monetary reform on 10 June. A "Yes" to Vollgeld is a low-probability, but a high-impact event. Ring any Brexit bells?
Vollgeld: a Brexit-sized referendum in the Alps
On 10 June, the Swiss vote on “Vollgeld”. This referendum asks whether the Swiss want to reform their monetary system in a fundamental and unprecedented way. The referendum has largely remained under the radar outside of Switzerland. That may, however, be a mistake. Recent polls indicate a rejection is not a done deal. A "Yes" would first herald a period of great uncertainty, in which the Swiss Franc could suffer. In the longer term, more expensive and scarce credit hurt the economy, but the franc may benefit from deflationary policies.
A rejection is
Moreover, the Brexit referendum of 2016 should have taught the forecast community some modesty. And the louder “the experts” recommend to stay away from something, the more inclined people appear to gravitate towards it. After all, to paraphrase a British minister during the Brexit campaign, “people have had enough of experts”. In Switzerland too, the “elite”, including the government, the Swiss central bank (SNB), the banks and a number of scholars, have come out against Vollgeld. If only for that reason, a “Yes” vote should not be excluded – although to be clear, a rejection remains our base case.
What is this Vollgeld and why should I care?
Which brings us to the impact. Here too, an important parallel with Brexit is that a “Yes” would herald a period of uncertainty. In short, Vollgeld would convert commercial bank deposits into SNB liabilities, temporarily replacing the gap on commercial bank balance sheets with SNB loans. Commercial banks would then no longer be allowed to create money when lending.
This basically reverses the order for banks. Currently, they can lend and worry about funding the loan later. Under Vollgeld, they first have to collect the funds, and can then go on and lend these afterwards. That sounds like a simple tweak, but it has big consequences. Vollgeld and various alternatives have been debated among economists for many years. But it has never really been tried – let alone in a developed economy with a big banking sector which finances 33% of its balance sheet with deposits.
A fundamental reform with wide-ranging consequences
Vollgeld is a complicated monetary reform about which books can be (and have been) written. We shortlist some consequences here. We discuss them at greater length in our main report.
- Current accounts are banks' most stable and cheap sources of funding. As these are lost (they are converted into SNB liabilities), bank lending will become more expensive and supply may be reduced. Bank profitability will suffer.
- Current accounts will become more expensive for depositors, as the costs of e.g. cybersecurity and maintaining the payment system will have to be paid for directly.
- The central bank will, whether it wants to or not, get a more politicised role. Vollgeld is created and doled out to the government or citizens "for free", so it is basically helicopter money. The SNB has to decide on the amount of helicopter money to be created. Also, it will have to "ensure the supply of credit to the economy", providing additional funding to banks if necessary.
- Contrary to what proponents argue, Vollgeld will not materially reduce the incidence of crises. After all, financial crises tend to stem from an overextension of credit, not an oversupply of money. In a Vollgeld system, lenders will try and find ways to circumvent the limitations Vollgeld imposes on funding. In addition, reliance on non-bank lending may increase. Non-bank lending was where the 2008 financial crises started in the United States.
So what happens after a "Yes"?
Should the Swiss adopt Vollgeld, then (like with Brexit) initially uncertainty will dominate. This would be a negative for the Swiss Franc. In the longer term, Swiss banks and the economy
If adopted, un
will suffer from reduced credit. The SNB will find it much more difficult to reverse helicopter money creation than to reverse more traditional monetary policy (raising rates, or selling assets to reverse quantitative easing). Therefore, the central bank will want to avoid creating too much money in the first place and adopt a conservative, deflationary monetary policy. This may be a positive for the franc. The positive effect may be reinforced by the safe haven status provided by Francs held directly at the SNB.
Is a fudge still possible after a "Yes"?
The Vollgeld initiative spells out the changes it wants to see implemented in the law. Yet the follow-up to the Swiss "mass immigration" referendum (which the EU judged to be a violation of free movement principles) shows that the Swiss Parliament -- which has come out against Vollgeld -- may try and water it down. This comes with political risks, though. If Vollgeld is adopted with a great majority, its proponents are likely to call for another referendum if they feel Parliament is not implementing Vollgeld properly. A thin majority, on the other hand, increases political leeway for Parliament to come up with a fudge.
PaymentPlus hires Rothschild to explore sale process - sources
PaymentPlus, an Irish payment-services provider, has hired Rothschild to explore a sale process, two sources briefed on the situation said.
The Dublin-based company generates GBP 10m-GBP 15m (EUR 11m-EUR 17m) in EBITDA, these sources and a sector banker said. Rothschild has made preliminary preparations, the first source said, adding that the process is still in its early days.
The sale process is likely to attract both trade players and private equity firms experienced in payments, for example General Atlantic, Francisco Partners and TA Partners, the second source said.
PaymentPlus provides multichannel payment solutions and services, including Ingenico [EPA:ING] payment terminals, to small and medium-sized businesses. It also works in partnership with the UK payment company Barclaycard and Germany’s Wirecard [ETR:WDI], and has operations in Scotland. It was founded in 2011.
Mergermarket reported earlier this month that ParentPay, a UK-based school payment management company, is coming to market this year in another process led by Rothschild. Separately, Allpay, a UK-based online bill payment services provider, has hired EY to guide its sale process, which is set to kick off in June-July, also reported by Mergermarket.
PaymentPlus and Rothschild did not respond to requests for comment.
Dean Foods seen as target but interest may be lukewarm, sector advisors say
22 MAY 2018
- Turnaround of commodity-driven milk business calls for patient investor
- International strategics might face regulatory barriers
Dean Foods [NYSE: DF] could struggle to attract a buyer as growth challenges continue to impact the dairy market with the shift in consumer preferences toward plant-based options, according to four sector advisors.
The nation’s largest processor and direct-to-store distributor of fresh fluid milk has been on the radar screens of private equity firms and international strategics in recent years, these sector advisors said. Though widely viewed as a buyout target, the company is not known to be running a sale process at this point, according to the advisers.
Since 2017, the Dallas-based Dean Foods’ stock has lost more than half of its value, falling to USD 9.79 per sharefrom USD 21.78 per share as of 21 May 2018. In 1Q18, the company, with a market cap of USD 908.49m, reported a total leverage ratio of 2.68, with total outstanding debt at approximately USD 884m as of 31 March. Recently, activist Swiss firm VV Value Vals AG took a 10% stake in Dean Foods.
The nation’s largest processor and direct-to-store distributor of fresh fluid milk has been on the radar screens of private equity firms and international strategics in recent years, these sector advisors said. Though widely viewed as a buyout target, the company is not known to be running a sale process at this point, according to the advisers.
Since 2017, the Dallas-based Dean Foods’ stock has lost more than half of its value, falling to USD 9.79 per sharefrom USD 21.78 per share as of 21 May 2018. In 1Q18, the company, with a market cap of USD 908.49m, reported a total leverage ratio of 2.68, with total outstanding debt at approximately USD 884m as of 31 March. Recently, activist Swiss firm VV Value Vals AG took a 10% stake in Dean Foods.
Alex Jacobs, the former head of the food and beverage group at KeyBanc Capital Markets, has just been hired to take on a new business development role at Dean Foods.
Recent research reportedly conducted by Cargill reveals that while 67% of American adults regularly consume dairy, about half of them also buy vegan options. The global dairy alternatives market is expected to surpass USD 34bn mark by 2024, according to ResearchAndMarkets.com.
A turnaround of Dean Foods’ business would require an investor with a long-term vision necessary to ride out the milk market’s commodity price swings and grapple with the company’s massive physical infrastructure, the first sector advisor said. These factors suggest a sale to a patient investor, like a private equity firm, may be a more viable option for Dean Foods to fix its issues privately than to remain a public company, this sector advisor said.
Dean Foods, however, could also attract foreign strategic buyers, including companies in Asia and Brazil, some of the sector advisors said. In particular, Chinese companies like Bright Dairy & Food Company [SHA:600597] and the USD 26bn market cap Inner Mongolia Yili Industrial Group [SHA:600887], which have been on a buying spree for overseas dairy assets, could step in and take a look at Dean Foods, they agreed.
In 2016, Chinese beverage firm Hangzhou Wahah was seeking financing for a possible acquisition of Dean Foods, according to a Financial Times report. Last year, Inner Mongolia Yili made an USD 859m offer for Stonyfield, the US dairy subsidiary of French food group Danone [EPA:BN], but the organic yogurt maker ultimately sold itself to France-based Lactalis for USD 875m.
In 2011, Shanghai-based Bright Dairy & Food tried to buy a majority stake in French dairy company Yoplait with an approximately EUR 1.75bn (USD 2.06bn) offer. The company was eventually acquired by General Mills [NYSE: GIS] for around USD 1.2bn, which was lower than Bright Dairy’s bid.
A Chinese suitor, though, would face hurdles getting regulatory approval from the Committee on Foreign Investment in the United States (CFIUS), and could face questions regarding food safety concerns, some of the sector advisors said. Given these complications, it would be more likely for a Chinese group to partner with a US private equity firm for a buyout bid, they noted.
Dean Foods would likely fetch at least USD 2bn in the event of a sale, the sector advisors said. Dairy companies are going for at least 9x of EBITDA, according to the second advisor. The company generated adjusted TTM EBITDA of USD 324.5m for 2017.
Since Dean Foods has consolidated much of its manufacturing and milk production lines, it would be hard for the company to be split up, sector advisors said. For this reason, a sale of the entire company is more likely, the second advisor said. Its portfolio includes DairyPure, which calls itself the first and largest fresh, white milk national brand, and TruMoo, a leading flavored milk brand, along with regional dairy brands such as Alta Dena, Berkeley Farms and Country Fresh.
Another of the sector advisors said that Dean Foods trades at a low EBITDA multiple of 5.6x, and would likely expect a premium to be paid to that, but the dairy market is considered to be a melting iceberg. Health-conscious people are consuming fewer milk products, which would give some buyers pause about Dean Foods’ growth prospects. Last year, Dean consolidated a lot of its manufacturing capacity and made cost cuts, he said.
Not just Dean Foods, but the overall dairy market is struggling as big companies invested heavily in organic milk production yet customers have not met the forecast demand. Instead, they have leaned towards plant-based alternatives such as soy and almond milk, creating a production glut, the first sector advisor said. This has forced some companies to cut prices for organic milk, he added.
In 2012, Dean Foods announced the spin-off of its wholly-owned subsidiary The WhiteWave Foods Company, the maker of Silk Soy Milk, in a USD 300m IPO. In 2017, the unit was acquired by French diary giant Danone for USD 12.5bn for the plant-based portfolio.
Dean Foods is the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the US. It has more than 50 national, regional and local dairy brands as well as private label products, and makes and distributes ice cream, cultured products, juices, teas and bottled water.
Dean Foods did not return request for comments.
Dean Foods, however, could also attract foreign strategic buyers, including companies in Asia and Brazil, some of the sector advisors said. In particular, Chinese companies like Bright Dairy & Food Company [SHA:600597] and the USD 26bn market cap Inner Mongolia Yili Industrial Group [SHA:600887], which have been on a buying spree for overseas dairy assets, could step in and take a look at Dean Foods, they agreed.
In 2016, Chinese beverage firm Hangzhou Wahah was seeking financing for a possible acquisition of Dean Foods, according to a Financial Times report. Last year, Inner Mongolia Yili made an USD 859m offer for Stonyfield, the US dairy subsidiary of French food group Danone [EPA:BN], but the organic yogurt maker ultimately sold itself to France-based Lactalis for USD 875m.
In 2011, Shanghai-based Bright Dairy & Food tried to buy a majority stake in French dairy company Yoplait with an approximately EUR 1.75bn (USD 2.06bn) offer. The company was eventually acquired by General Mills [NYSE: GIS] for around USD 1.2bn, which was lower than Bright Dairy’s bid.
A Chinese suitor, though, would face hurdles getting regulatory approval from the Committee on Foreign Investment in the United States (CFIUS), and could face questions regarding food safety concerns, some of the sector advisors said. Given these complications, it would be more likely for a Chinese group to partner with a US private equity firm for a buyout bid, they noted.
Dean Foods would likely fetch at least USD 2bn in the event of a sale, the sector advisors said. Dairy companies are going for at least 9x of EBITDA, according to the second advisor. The company generated adjusted TTM EBITDA of USD 324.5m for 2017.
Since Dean Foods has consolidated much of its manufacturing and milk production lines, it would be hard for the company to be split up, sector advisors said. For this reason, a sale of the entire company is more likely, the second advisor said. Its portfolio includes DairyPure, which calls itself the first and largest fresh, white milk national brand, and TruMoo, a leading flavored milk brand, along with regional dairy brands such as Alta Dena, Berkeley Farms and Country Fresh.
Another of the sector advisors said that Dean Foods trades at a low EBITDA multiple of 5.6x, and would likely expect a premium to be paid to that, but the dairy market is considered to be a melting iceberg. Health-conscious people are consuming fewer milk products, which would give some buyers pause about Dean Foods’ growth prospects. Last year, Dean consolidated a lot of its manufacturing capacity and made cost cuts, he said.
Not just Dean Foods, but the overall dairy market is struggling as big companies invested heavily in organic milk production yet customers have not met the forecast demand. Instead, they have leaned towards plant-based alternatives such as soy and almond milk, creating a production glut, the first sector advisor said. This has forced some companies to cut prices for organic milk, he added.
In 2012, Dean Foods announced the spin-off of its wholly-owned subsidiary The WhiteWave Foods Company, the maker of Silk Soy Milk, in a USD 300m IPO. In 2017, the unit was acquired by French diary giant Danone for USD 12.5bn for the plant-based portfolio.
Dean Foods is the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the US. It has more than 50 national, regional and local dairy brands as well as private label products, and makes and distributes ice cream, cultured products, juices, teas and bottled water.
Dean Foods did not return request for comments.
Private equity giants queue up for taste of Costa Coffee
https://www.irishexaminer.com/breakingnews/business/private-equity-giants-queue-up-for-taste-of-costa-coffee-844409.html
Costa Coffee is being circled by a clutch of private equity firms, opening the door to a potential £3 billion sale of the high street chain.
The Press Association understands that Costa’s owner, Whitbread, which last month said it would split the chain and list it as a separate entity, has been approached informally over a potential buyout of the firm.
Those thought to be considering a move on Costa include heavyweight private equity groups Bain Capital, CVC and TPG, people with knowledge of the matter said.
Whitbread is pressing ahead with plans to spin off Costa in a separate listing on the London Stock Exchange, but a private bid for the group, which is valued at £2 billion to £3 billion, would have to be considered by the board.
Costa, which Whitbread acquired in 1995 from founders Sergio and Bruno Costa, has more than 2,400 stores and is embarking on overseas expansion.
It is thought that a private buyer would continue the expansion and tighten up costs at the group.
In April, Whitbread announced its proposals for Costa following pressure from activist investor Elliott.
The firm said it will pursue a “demerger of Costa” within two years after Elliott become the firm’s largest shareholder and agitated for a break up of the group.
Whitbread chief executive Alison Brittain said at the time that the separation would create “long-term value” for stakeholders.
Whitbread will remain the owner and operator of hotels group Premier Inn following the split.
Gapping down
In reaction to disappointing earnings/guidance:
- PSTG -9.7%, DY -8.8%, TOL -6%, NDSN -5.7%, IGT -2.5%, (also announces variable forward transaction by De Agostini S.p.A. and related registered public offering of 18 mln ordinary shares ), AAP -2.2%
Other news:
- ARDX -8.8% (commenced $50 mln common stock offering and entered into $50.0 mln senior secured term loan facility)
- MLNT -8.2% (commences $75 mln common stock offering)
- CADE -6% (announces proposed secondary offering of 15 mln shares of common stock; files mixed securities shelf offering)
- SAIL -3.4% (files prelim prospectus for 15 mln share common stock offering by selling stockholders)
- BNFT -2.6% (Benefitfocus announces 2.5 mln share common stock secondary offering by funds managed by Goldman Sachs )
- SHOP -1.8% (following news that Adobe will acquire commerce platform Magento Commerce for $1.68 bln)
- CHRS -1.3% (announces public offering of $75 mln of common stock)
- SNE -0.5% (announces FY21 financial targets for electronics and entertainment business; to acquire 60% equity interest in EMI Music Publishing)
Analyst comments:
- RTN -1.4% (downgraded to Neutral from Outperform at Credit Suisse)
Gapping up
In reaction to strong earnings/guidance:
- PLAB +24.3%, GSM +7.9%, KSS +5.4%, RDY +3.5%, CYRN +3.4%, AZO +1.7%
M&A news:
- ADBE +0.8% (to acquire Magento Commerce, a market-leading commerce platform, for $1.68 billion; authorizes New $8 Billion Stock Repurchase Program)
Other news:
- MU +5.6% (announces $10 billion share repurchase authorization)
- NBRV +1.5% (rebounding following Monday's 17% decline)
- BMRN +1.3% (provides an update to its previously reported results of an open-label Phase 1/2 study of valoctocogene roxaparvovec)
- SHPG +1.1% (releases data evaluating Vonvendi in adults with von willebrand disease during and after surgery; Findings suggest potential for more tailored treatment)
- AMGN +0.6% (Amgen's glucocorticoid-induced osteoporosis treatment has been approved by the FDA)
Analyst comments:
- M +2.1% (upgraded to Positive from Neutral at Susquehanna)
Micron: Color on Analyst Day (55.48)
- Cowen raises their MU tgt to $67 from $65. Near term, the financial picture continues to impress as ASP momentum elevates the company's strong execution of its tech road maps. Given a strong demand narrative w/in data center and autos and MU's confidence on yields, they think it makes increasing sense to accelerate DRAM tech enablement. They expect ~$8B/yr of FCF, clearly supporting the massive $10B buyback.
- Stifel raises tgt to $106 from $101. Micron's Analyst and Investor Event held in NYC delivered a clear message that Micron's execution to its strategy and end markets are very healthy. Along with initiating a $10bn share repurchase program, mgmt expects to return 50% of FCF to shareholders. They believe mgmt addressed investors' concerns over capacity by explaining that y/y bit capacity increase is limited to 20% for DRAM and 40%-45% for NAND Flash despite CapEx increases y/y. Mgmt's discussions were around both Micron and the memory industry transforming. Mgmt highlighted strucutral cost reductions since FY16 ($6bn to date + $3bn expected by FY21), managing for ROI above cost of capital, value added products and profitable growth. There was little to no discussion around market share gains. They continue recommending the MU shares as the market will eventually believe that the memory market has transformed
- Rosenblatt raises tgt to Street-high $115.
- Nomura, Morgan Stanley and BAML remain positive
- MU +5.4% premarket