GERMAN JUSTICE MINISTER SAYS JOINT LEGAL ACTION AGAINST VOLKSWAGEN COULD INCLUDE UP TO 2 MILLION CAR OWNERS
FOUR LOUD BOOMS HEARD IN SAUDI ARABIAN CAPITAL RIYADH -REUTERS WITNESSES
A little less conversation, maybeWe expect Vivendi to clarify its position on a potential IPO of UMG on 17 May. We argue the market is undervaluing UMG by 30-50%, and that the prospect of a separate listing should continue to drive the Vivendi share price higher near term. We remain Overweight.
* A green light for a partial IPO of UMG? Vivendi’s Management Board will
present its initial findings on “how UMG’s capital might evolve” to the
Supervisory Board on 17 May. If the company announces its intention to float a
minority of UMG with its Q1 revenue announcement that day, we argue the
issues likely to drive the stock price reaction are: (i) will investors price UMG at
more than the valuation currently embedded in Vivendi's share price? (ii) what
impact might this have on Vivendi's conglomerate discount? (iii) what might
Vivendi do with the cash it receives? (iv) will a significant number of shareholders
simply switch their shareholding in Vivendi to UMG? and (v) what impact might
there be on Vivendi's ability to grow its dividend payments over time? Net net, we
believe the stock should continue to trade higher into a partial IPO, driven
primarily by the significant undervaluation of UMG in the current market value
of Vivendi.
* Market undervaluing UMG by 30-50%: At the current share price, we think the
market is valuing UMG at $18B. This strips out Canal Plus at ~€6B, the
quoted/unquoted stakes at ~€8B and other consolidated assets at ~€2B. In our
last report (Vivendi: A Head Full of Dreams), we argued UMG should be valued
at $25B (assumes 17% CAGR in streaming subscribers and 16% terminal EBITDA
margin), with a bull case valuation of $35B (20% CAGR and 21% terminal EBITDA
margin), which suggests the market is currently undervaluing UMG by 30-50%,
assuming no conglomerate discount. To fully reflect our $25B valuation of UMG,
Vivendi should trade at €27 (17% above today's price); to fully reflect our $35B
valuation, Vivendi should trade at $34 (~50% above today's price). To reflect our
€10B bear case valuation of UMG (which assumes zero growth in streaming
subscribers and 16% EBITDA margins), Vivendi should trade at €17 per share
(~25% below today's price).
* 20% conglomerate discount = €7B of equity value: However – arguably –
turning UMG from a 100% controlled subsidiary to one where Vivendi only owns
a stake would create the risk that investors apply a conglomerate discount to
the holding company. This could be justified by (i) the weakening of Vivendi's
control over UMG's future capital allocation strategy, specifically in relation to
the payment of dividends and to M&A; and (ii) the potential impact on Vivendi's ability to pool cash from UMG and to utilize its tax losses. We would highlight
that a 10% conglomerate discount would reduce the fair value of Vivendi's equity
by €3.4B, and a 20% discount would reduce it by €6.8B.
● Coverage universe: nine companies; the European large-cap IOCs and US supermajors Exxon and Chevron. Aggregate market capitalisation is
cUSD1.4trn.
● Oil price assumption: USD60/55/60 for 2018/19/20+.
● Top level views:
Big Oil offers free cash flow yields that are increasingly attractive versus their own recent history and the broader market
Formalising continued Saudi-Russia collaboration at the June 22nd OPEC meeting could provide further support for the back-end of the oil
curve
We therefore argue the risk-reward is skewed to the upside, given a USD10-15/bbl safety net for coverage of full dividends on free cash
flow, for a sector that remains largely unloved by equity generalists
Industrial outlook remains though WIP: Low growth, low returns, higher operational and financial risk, decarbonisation
Stocks…What to own and avoid?
● Shell should be a core global holding
● Ones to avoid… Exxon in the US and Galp in Europe
● What if oil prices remain at these levels? ENI metrics improve markedly…and some E&Ps exposure through Tullow and Aker BP in Europe
Ratings: 3 outperform, 4 neutral, 2 underperform
● (+): Royal Dutch Shell, Total, BP
● (=): Chevron, ENI, Repsol, Statoil
● (-): Exxon Mobil, Galp
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Sainsbury’s bosses exercise share options worth £4.5m
Timing and size of sale could raise eyebrows after Asda merger was announced
Perhaps Mike Coupe’s now famous rendition of “We’re in the Money” was a prediction, rather than a reaction. Four days after announcing a proposed takeover of Asda that sent the group’s stock price soaring, the Sainsbury’s chief executive and colleagues exercised option awards over £4.5m worth of shares.
The transactions were announced in a statement on May 8. The nil-cost options were granted in 2014 and 2015 under a long-term incentive plan, and in May 2016 as a deferred share award. The LTIP shares can only be sold after three and four years.
Mr Coupe exercised a total of 608,700 options and sold £864,000 worth of the shares to satisfy the tax and national insurance due upon encashment of the options. He retains a total of 1.6m shares in Sainsbury’s, worth about £4.7m at the closing price of 295p on May 8. A week earlier, they would have been worth closer to £4.3m.
John Rogers, the chief executive of Argos, exercised options over more than 350,000 shares, selling 271,000 of them and retaining a total holding of 937,636.
The company played down suggestions of a vast payday. “Mike is not selling any shares for cash and is not making any immediate profit,” the company said. “He is selling a portion of shares to meet tax and national insurance obligations. This is standard practice and happens in May every year, immediately after the publication of our preliminary results.”
It has also said that the transaction with Asda should not result in the closure of any stores or the loss of any jobs, though many politicians and union leaders fear this pledge will not be honoured.
However, the timing and the size of the sale is likely to raise eyebrows. The equivalent disposal in 2017 was far smaller; Mr Coupe exercised 182,814 options and sold 86,095. This is partly because it did not include any element from the long-term incentive plan, only the deferred share awards which recognise short-term performance on financial and non-financial metrics. The long-term plan targets relate mostly to return on capital and cash flow. Additionally, Mr Coupe received no cash bonus last year because Sainsbury’s failed to hit agreed profit targets.
Just under three-quarters of Sainsbury’s shareholders approved a new pay policy at last June’s annual meeting, that will mean LTIP shares not normally being released until five years after their grant.
Mr Coupe was paid a total of £2.35m for the year to March 2017, compared with £4.15m for Dave Lewis, his counterpart at Tesco and £2.79m for David Potts, the chief executive of Morrison. Justin King, his predecessor at Sainsbury’s, earned £3.95m in the year to March 2014, his last at the company.
Siemens lifts outlook as software unit boosts earnings
Power and gas unit notches another decline in earnings
Siemens raised its full-year outlook on Wednesday following first-half results that beat analysts forecasts thanks to strong earnings growth in the group's software unit which offset another decline in its fossil fuel based power unit.
Europe's largest conglomerate said second quarter revenue was €20.1bn, flat from a year ago and in line with forecasts. Net income in the quarter rose to €2.0bn, up 39 per cent from a year ago and in the face of forecasts for a decline. Siemens said the figure includes a €700m profit from "centrally managed portfolio activities."
The group raised its outlook for basic earnings per share from net income to a range of €7.70 to €8.00, versus an earlier range of €7.20 to €7.70.
Full year revenue is still expected to see "modest" growth and profit margin in its core industrial businesses are expected between 11.0% and 12.0%.
"Most of our businesses, primarily our digital offerings, showed impressive performance and operationally more than offset structural challenges in fossil power generation," said CEO Joe Kaeser. "By raising our guidance, we demonstrate our commitment to the company’s capability to master structural change and shape digital industry."
The power and gas unit is suffering from overcapacity as global energy needs shift away from fossil fuels and move into renewables. Siemens, which on Tuesday reached a labour agreement to restructure the unit and save hundreds of millions of euros, said profit at the unit fell 74 per cent from a year ago to €114m.
That decline hurt earnings for Siemens’ broader grouping of industrial businesses, which saw profits fall from €2.5bn a year ago to €2.3bn, "held back by a sharp decrease in profit and profitability at Power and Gas," Siemens said. It added that "market forces drove a €325m reduction in profit year-over-year in the troubled division.
Analysts had expected the decline to be worse, with forecasts for industrial profits at €2.1bn.
The company said the power and gas troubles were offset by growth in Digital Factory — its high-margin technology-based services unit for integrating hardware and software.
The software division "sharply increased its profit on strength in its short-cycle and product lifecycle management software businesses," Siemens said, noting that revenue grew by a fifth and profits climbed 40 per cent to €682m.
Aside from the problems at its power and gas division, Siemens said currency headwinds took seven percentage points off order and six percentage points from revenue development.
Vodafone Confirms Deal to Buy Some Liberty Global European Assets for Nearly $23 Billion
Deal includes operations in Germany, Hungary, Russia and Czech Republic and would create one of the continent’s biggest telecommunications carriers
LONDON—Britain’s Vodafone Group VOD -0.97% PLC has agreed to a nearly $23 billion deal to buy operations in four European countries from John Malone’s Liberty Global LBTYA -5.35% PLC, a merger that would create one of the continent’s biggest telecommunications carriers.
Liberty Global, the world’s biggest international cable company, has agreed sell its businesses in Germany, Hungary, Romania and the Czech Republic to Vodafone, the world’s second-largest wireless carrier by subscribers behind China Mobile Ltd.
The deal, which is valued at €19 billion ($22.5 billion) and would give Liberty Global €10.6 billion in cash, would face a possibly lengthy European Union antitrust review. If completed, the merger would create a continental giant selling the industry’s holy grail “quad-play” package: cable, internet, wireless and landline-phone service on a single bill.
The deal would represent the latest in a global trend of wireless carriers acquiring cable operations, or vice versa, to offer quad-play packages. Wireless carriers need high-speed cable networks to quickly transmit data to cellular towers for 5G, the coming generation of mobile networks that promise to be fast enough to enable near-instantaneous movie downloads and innovations such as self-driving cars.
Both companies have said they have engaged in various forms of merger talks with each other in recent years, but disagreed over price. Vodafone in February said the two sides were again discussing a potential merger. The difference this time, said Liberty Global Chief Executive Mike Fries in an interview: “We agreed on a price. It’s that simple.”
Chief Executive Vittorio Colao’s strategy has been for Vodafone to be the No. 1 or No. 2 carrier in each of the more than 20 countries where it operates. The company believes being first or second allows Vodafone to differentiate itself through better networks and services, and to justify higher prices.
Liberty Global, which is based in Denver and registered in London, runs cable-focused operations in 12 European countries. Its chairman is Mr. Malone, the billionaire media mogul, who leaves Mr. Fries to run the company.
The deal wouldn’t include Liberty Global’s businesses in the U.K. and Ireland, which compete with Vodafone’s. Mr. Fries said neither side was interested in merging those businesses.
The proposed transaction is likely to face close regulatory scrutiny, as well as stiff opposition from Germany’s Deutsche Telekom AG over concerns it would give Vodafone too much power over the country’s TV market.
Mr. Fries said he expected European Union regulators to approve the deal, which would close by the second half of 2019. He called Germany a competitive market where Deutsche Telekom controls the business, and that Vodafone’s acquisition of Liberty Global’s assets there would boost innovation and investment.
A Deutsche Telekom spokesman said Tuesday that the deal would lead to “considerable restrictions for consumers to fear. It will be up to the antitrust authorities to examine the case carefully as soon as it will be announced.”
Asked about a potential Liberty Global-Vodafone deal during a February conference call, Deutsche Telekom Chief Executive Timotheus Höttges said he didn’t think “this kind of concentration in the cable market can be supported” by regulators. “I think there will be no way that this deal is going to be approved and for us it’s completely unacceptable.”
HNA could sell unit stakes to new USD 1.5bn fund to pare debt - report - Clarification
09 MAY 2018
[The headline of this Opp has been amended to clarify the fund's size as USD 1.5bn. The text remains unchanged]
Chinese conglomerate HNA Group could sell stakes in some of its subsidiaries to a new USD 1.5bn fund in a move to reduce its debt, according to a newswire report on 8 May.
Bloomberg, citing sources familiar with the matter, reported that stakes in such HNA units as Tuniu [NASDAQ:TOUR], Tianjin Airlines, SR Technics, Hong Kong Airlines, Avolon, Swissport, St. Regis hotel in Bora Bora and Hilton hotel in Tahiti are among possible targets.
The fund will seek to raise money from external investors who will be guaranteed annual returns of 8%-15%, the item said. The fund could also make investments in other non-HNA assets, it added.
Link to original source.
Disney confident of acquiring Fox assets despite Comcast rivalry
09 MAY 2018
Walt Disney [NYSE:DIS] is confident of succeeding in its USD 52.4bn attempt to acquire assets from Twenty-First Century Fox [Nasdaq:FOX], despite the threat of a potential rival bid from Comcast Corp [Nasdaq:CMCSA], The Wall Street Journal reported. Robert Iger, chief executive of Disney, told analysts in a conference call yesterday, 8 May, that he remains confident the Fox assets under discussion will be a good fit with the business once the all-share transaction has secured approval.
Sources close to the matter say Comcast has lined up funding for a possible all-cash hostile bid for Fox’s assets, the item reported. Fox had previously turned down a Comcast offer which exceeded that from Disney by 16% in value, citing regulatory concerns, the report noted.
In the event of a bidding war, Disney may have to revise its offer upwards or offer cash as well as shares, the report said. Edward Jones analyst Robin Diedrich said Disney should find it easy to raise sufficient debt to conduct such a deal, the item reported. While both Disney and Comcast have robust credit ratings, Disney has the stronger balance sheet, the analyst said.
AT&T [NYSE:T] is attempting to acquire Time Warner [NYSE:TWX] and if that deal passes antitrust hurdles, Comcast is more likely to launch a hostile offer for the Fox properties, sources with close links to the matter said. Both transactions would be considered vertical deals which bring together distribution and content, the report pointed out.
As both Fox and Comcast operate local sports networks, it may be necessary for the would-be acquirer to make disposals in that area to see a deal can succeed, the report said.
Link to original source