FT : GKN expected to reveal plans for cash payout to shareholders

GKN expected to reveal plans for cash payout to shareholders
UK group expected to say it will sell powder metallurgy arm as it seeks to fend off Melrose

UK engineering company GKN is expected to lay out plans for a cash payout to shareholders this week. as it seeks to fight off Melrose’s £7bn hostile takeover bid. 

The FTSE 100 company will publish its detailed defence plan, which is expected to say it will sell its powder metallurgy business, which could be valued at more than £2bn. The defence document, which must be published by February 16, will include proposals on how GKN will increase margins and cut costs across the business. 

A sale of the powder metallurgy business would enable GKN to inject money into its pension scheme, which has a £1.1bn deficit, and return cash to investors. 

The plan was first revealed in the Sunday Times. GKN declined to comment. 

In Melrose, GKN’s management is battling with a company that has an established record of buying, turning round and selling industrial businesses. Investors have criticised GKN’s margin growth and cash generation. 

As part of its offer for GKN, which is 80 per cent shares and 20 per cent cash, Melrose has already laid out plans to sell the powder metallurgy business.

The battle for the 259-year-old company has in effect turned into a contest over which management team can win over investors, as each is offering a similar plan to revive performance. 

However, GKN is likely to stress that any pay out by existing management will be worth 100 per cent to investors, whereas under the terms of Melrose’s offer, shareholders would receive less, because they would end up owning only 57 per cent of the enlarged group if the bid were successful.

GKN’s attempt to fight off Melrose has also been given a boost from the US. Last week, Florida congressman Neal Dunn wrote to the US government to express his concern that the deal presents a “national security risk”. 

The engineering group makes parts on major US defence programmes such as the F-35 and F-18 fighter jets. Mr Dunn noted that Melrose has no record in defence contracting or relevant high technology businesses. 

Melrose’s bid has attracted political opposition in the UK, with both Labour and the Lib Dems calling on business secretary Greg Clark to block any potential deal.

>>> What to look at this Week End - 10th & 11th of February 2018

Weekly Performance
Dow -5.21% S&P -5.16% Nasdaq -5.06% Russell -4.49% Canada-3.66% MExico -5.52% BRazil -3.74% Nikkei -8.13% Hang Seng -9.49% CSI -10.08% Shanghai -9.60% Shenzen -7.81% EuroStoxx -5.60% FTSE -4.72% Dax -5.30% CAC -5.33% Ibex -5.60% MIB -4.46% SMI -5.84%
Investors will remember this week for a longtime as the spike in volatility that began late last week unmercifully tightened its grip on equity markets. On Tuesday, the VIX surged above 50 on wordthat several highly leveraged volatility ETFs and ETNS essentially blew up overnight. By mid-week stock indices around the globe officially moved into correction territory (-10%) despite little change to overall global economic sentiment. Bouts of intense selling remained prevalent and all eyes were on theS&P's 200-day SMA heading into Friday. US Treasury yields remained pinned at elevated levels, but buyers generally came in when equities move significantly lower. The narrative that higher interest rates were the catalyst that induced stock volatility stayed engrained in many investors’ minds. The Bank of England added to the hand-wringing by signaling the next BOE rate hike could come sooner than expected which backed up against mediocre US Treasury auctions and the wrangling over a $300B spending bill in Washington D.C. Overall though,the volatility remained mostly an equity market story. The US dollar bounced modestly but investors remained reluctant to forcefully push money into traditional safe haven assets while some cracks emerged in other risk-tethered asset classes. Commodities like copper and oil moved lower with WTI crudetrading below $60 for the first time since late December. The high yield bondETF (HYG) has made a steady move and now sits at the lowest levels since lastNovember. For the week, the DJIA and S&P each lost5.2% and the Nasdaq sank 5.1%.

Macro :
- EU’s Vestager ‘Disappointed’ No Class-Action Suits in Europe: RP
- JPMorgan Sees ‘Severe’ Unwind by Systematic Strategies Ending
- Goldman Says Energy Selloff is Chance to Build Long Positions
- XIV Is Just the Tip of the Iceberg for This Hedge Fund Investor

Keep an eye on :
- AIR FP : Airbus Has Halted Deliveries of Pratt-Powered A320neos: IndiGo
- AIR FP : Airbus: Munich Prosecutor Ends Eurofighter Austria Probe
- AMZN US : Amazon-Driven Jitters Make FedEx a Buying Opportunity: Cowen
- BABA US : Alibaba to Invest 5.45b Yuan for 15% Stake in Beijing Easyhome
- ARW US : Arrowhead Pharma 1Q Loss Per Share Wider Than Est.
- BKIA SM : Bankia, Unions Reach Accord on Staff Reduction: Europa Press
- BMC SOft IPO : BMC Software Is Said to Explore IPO With >$10B Valuation: Rtrs
- BMPS IM : Paschi Chairman Says Possible Govt Change Won’t Affect Bank Plan
- BPE IM : BPER Banca CEO Says Lender Focused on NPLs Reduction Plan
- BPL PL : Banco BPM May Consider M&A Opportunities From End of 2019: CEO
- DAI GY : Daimler CEO Said to Have Earned Less Than EU10m in 2017: FAS
- DELIVEROO IPO : Deliveroo Is Said to Consider IPO in Next 12-18 Mos.: S. Times
- DEZ GY : Deutz Flags Improved 2017 Sales, Profit on Engine Demand: Welt
- ELE FP : Euler Hermes Full Year Net Income 1.2% Below Estimates
- GET FP : Eurotunnel Reports Launch of Eurostar London-Amsterdam Service
- ISP IM : Intesa Sanpaolo Chairman Says ‘Confident’ on Reaching NPL Deal
- JMT PL : Jeronimo Martins Plans to Seek New Market to Grow, Expresso Says
- KORS US : Michael Kors Growth Profile Questionable, JPMorgan Says
- GVC LN : Ladbrokes Coral Says FY Op. Profit at Top End of Forecasts
- LLOY LN : Lloyds to Gauge Interest on EU5b Mortgage Book Sale: S. Times
- MELI US : MercadoLibre Falls Most Since Oct. Amid Amazon Warehouse Reports
- NOVN VX : Novartis Loses Bid to Challenge One AbbVie Patent on Humira
- NOVN VX : Novartis Says Unaware of Swiss Investigation Linked to Greece
- PHIA NA : Philips to End Cleveland Diagnostic Imaging Manufacturing Ops
- PAH3 GY : Audi, Porsche to Share Electric Car Platform:Stuttgarter Zeitung
- RNO FP : Renault Performance Chief Mueller Is Said to Step Down: Reuters
- RIO LN : Rio Tinto Is Said to Consider Pacific Aluminium Unit IPO: AFR
- RYA LN : Ryanair Says It Will Shed U.K. Investors in Hard Brexit: Times
- SDRL NO : Seadrill Says It’s Close to Resolution of Restructuring Conflict
- SIXT GY : Sixt Sees Earnings for 2017 to Be ‘Substantially’ Higher
- SNAP US : Snap Lures Instagram Advertisers by Offering Free Ads: Recode
- TSCO LN : UK’s Tesco Is Planning A Chain of Discount Stores: Reuters
- VIV FP : Universal’s ‘Fifty Shades’ Tops Weekend Box Office: ComScore
- VONN SS : Vontobel Agrees on Untaxed Asset Settlement W/German Authorities

>>> Fortum may have hard time raising Uniper ownership to 75% (translated)

Fortum may have hard time raising Uniper ownership to 75% (translated)
10 FEB 2018
Finnish energy company Fortum [HEL:FORTUM] may have a hard time raising its ownership of the German Uniper [ETR: UN01] to 75%, according to Tekniikka ja Talous. The Finnish-language piece cited a report in the German Handelsblatt, which in turn cited Klaus Schäfer, the chief executive of Uniper, who was delighted that Fortum only managed to gain 47.12% of the shares in Uniper.
On the other hand, raising ownership to 75% is more difficult, Handelsblatt estimates. Fortum should therefore be able to agree to a deal with hedge funds that owned Uniper shares, but they are unlikely to agree at least in the near future.

WSJ : Cloud Bills Will Get Loftier

Cloud Bills Will Get Loftier
Capital spending by big cloud operators accelerated last year and is unlikely to slow this year

The world’s largest tech companies further their advantage by building out extensive, global networks to deliver online services to businesses and consumers. This has never been an inexpensive endeavor, but the need for further sophistication and computing power has the bills growing larger each year and there are no signs of a slowdown on the horizon.
Take, for example, the largest three U.S.-based operators of cloud computing services.Amazon.com , AMZN -0.81% Microsoft MSFT 3.73% and Alphabet Inc.’s GOOGL 3.83%Google had a combined $41.6 billion in capital expenditures and capital lease deals in 2017. That is up 33% from the previous year and represents an acceleration from the 23% growth in spending seen in 2016. Not all of this goes to data-center construction, though all three have identified network expansion as a major area of focus for their capital spending plans.

A broader group of companies shows a similar trend. Nineteen cloud service operators tracked by RBC Capital Markets spent a total of $63.8 billion in 2017, up 22% from the previous year. RBC analyst Amit Daryanani projected on Thursday that this total will rise 27% this year to a little over $81 billion. Analysts for KeyBanc Capital Markets also have projected 27% growth in cloud capital expenditures this year.

Why the jump? Demand for cloud-computing services remains hot and shows no signs of slowing down. Amazon’s AWS division saw revenue surge 43% for the year to $17.5 billion. Microsoft’s Azure service nearly doubled its revenue to about $5.3 billion, estimates J.P. Morgan. Alphabet Inc., Google’s parent company, said that its Google Cloud Platform service is now generating about $1 billion in revenue per quarter, though the company doesn’t report detailed results for that business.
That bodes well for companies supplying the weapons for this particular arms race. Nvidia, NVDA 6.69% whose chips are used to enhance artificial intelligence in cloud networks, posted its seventh consecutive quarter of triple-digit growth for its data-center business on Thursday. Intel Corp. INTC 2.81% surprised investors last month with a 20% jump in revenue for its own data-center segment. Arista Networks , which sells specialized networking gear to all of the major cloud providers, is expected to post a 41% jump in fourth-quarter revenue when it reports quarterly results on Thursday.
This level of investment is justified by the large growth opportunity ahead. Spending on cloud services is still a relatively small portion of total corporate information technology spending. KeyBanc analysts project that total cloud revenue will hit $314 billion by 2022—triple the current level. For the companies already ahead in this race, there is little incentive to tap on the brakes now.

WSJ : Experimental Drug Promises to Kill the Flu Virus in a Day

Experimental Drug Promises to Kill the Flu Virus in a Day
Even if drug lives up to claim, it likely won’t be available in U.S. until next year at earliest

As Americans suffer through the worst influenza outbreak in almost a decade, a Japanese drugmaker says it has developed a pill that can kill the virus within a day. But even if the experimental drug lives up to the claim, it likely won’t be available in the U.S. until next year at the earliest.
A late-stage trial on Japanese and American flu patients found that for the people who took the Shionogi 4507 -3.04% & Co. compound, the median time taken to wipe out the virus was 24 hours. That is much quicker than any other flu drug on the market, including Roche AG’sRHHBY -0.07% Tamiflu, which the trial showed took three times longer to achieve the same result. Quickly killing the virus could reduce its contagious effects, Shionogi said.
Also, Shionogi’s experimental drug requires only a single dose, while patients need to take two doses of Tamiflu a day, for five days.
Both Shionogi’s compound and Tamiflu take roughly the same amount of time to entirely contain flu symptoms, but Shionogi says its compound provides immediate relief faster.
Scientists at the Japanese company leveraged their work on a blockbuster anti-HIV drug to create the compound, which works differently from existing flu medicines. It blocks the flu virus from hijacking human cellular machinery, Chief Executive Isao Teshirogi said. Switzerland’s Roche has acquired the international license to distribute Shionogi’s experimental drug.


“The data that we’ve seen looks very promising,” said Martin Howell Friede, who leads the World Health Organization’s advisory on vaccines, including for influenza. “This could be a breakthrough in the way that we treat influenza.”
Shionogi said Japan’s drug regulator is fast-tracking its approval and could approve it for use in Japan as early as March. The regulator declined to comment. Roche and Shionogi say they will apply for U.S. approval this summer and Shionogi doesn’t expect a decision until next year.
Other players including Johnson & Johnson ,AstraZeneca PLC and a startup backed by Merck& Co. are testing new compounds to treat influenza A, the most common flu strain. Shionogi’s candidate is furthest along and it says the compound can also treat B strains that infect humans too.
The U.S. has been hit by one of the worst flu epidemics in years, and transmissions are now the most intense since a pandemic in 2009.
The first line of defense is vaccination, although vaccines aren’t always effective as sometimes they don’t target all the circulating flu strains. Scientists around the world are seeking to develop a super vaccine to prevent all strains of the flu, but any breakthrough remains at least a decade away.

Less research has gone into developing new drugs to treat the flu once people are infected—only a handful of such treatments exist, including Tamiflu. Part of what makes the virus hard to tackle is that it invades human cells and tricks them into producing viral material instead of human proteins.
Existing drugs allow the virus to hijack cells, working instead to block the viral material from escaping and infecting other cells. Some still escape, so the drugs slow the rate of infection without immediately containing it.
Shionogi scientists began researching a novel flu drug more than a decade ago, shelving almost 2,500 compounds in the process. Then, the 140-year-old Osaka company, which has created blockbuster drugs used to treat HIV and high cholesterol, had a breakthrough.
Shionogi scientists knew from their research that an anti-HIV drug the company had developed with a joint venture of Pfizer Inc. and GlaxoSmithKline Co. worked by blocking a metallic enzyme that HIV uses as a weapon to hijack human cells. They found the flu virus was also exploiting a metallic enzyme.
“So we said, ‘why don’t we build on our HIV knowledge to find a way to treat the flu?’ And we did,” said Takeki Uehara, who led the compound’s development.
A Roche spokesman said the compound proved significantly faster at killing the virus, and that its single-dose requirement was more convenient. He said the compound offered “improved tolerability” for participants over Tamiflu. Shionogi and Roche are in the final stages of conducting a second late-stage global trial.
J&J’s drug division, Janssen, last month began late-stage trials involving one anti-flu compound named pimodivir, which blocks a different enzyme that allows the flu virus to multiply inside the human body, said Brian Woodfall, head of Janssen’s infectious disease development.

Results from an earlier trial demonstrated that pimodivir “significantly decreased viral load over seven days,” a company spokeswoman said. Pimodivir worked better in combination with Tamiflu. J&J will take several years to enroll patients in the trial, the spokeswoman said.
Separately, Janssen is researching a biologic injectable, which AstraZeneca and Merck-backed Visterra Inc. are also developing. These injections act like antidotes, attaching themselves to foreign invaders, such as viruses, and then disabling them, while leaving healthy cells alone.
AstraZeneca’s biologics unit said it is evaluating preliminary results from a mid-stage trial in patients. Future plans depend on the findings. Cambridge, Mass.-based Visterra said it began enrolling hospitalized flu patients in December for a mid-stage trial.

WSJ : Nvidia’s Cryptic Road Ahead

Nvidia’s Cryptic Road Ahead
Chip maker’s record fiscal year creates high hopes for a repeat

Nvidia may have only high-quality problems these days, but it still needs to solve them.
One problem the chip maker has is that it seems to be selling all the chips it can make. Nvidia’s graphics processors, also called GPUs, are in hot demand by everyone from giant tech companies building data centers to videogamers to cryptocurrency enthusiasts. The latter two in particular are competing for the type of GPU cards used in supercharged PCs, causing a shortage that began last summer but seemed to have worsened later in the year as the value of cryptocurrencies continued to soar.
That gave a boost to what was already a strong year for Nvidia. Revenue from the company’s gaming segment jumped 33% to a record $5.5 billion for the fiscal year ended Jan. 28. This included an unspecified contribution from crypto demand, as well as the chips the company sells to Nintendo that are used in its popular Switch console.
Nvidia is a “fabless” chip company that outsources the actual manufacturing of its chips to others. CEO Jensen Huang said on the company’s earnings call Thursday that it is working with its partners to “catch up to that demand.”

The recently ended fiscal year was the company’s best ever. Sales jumped 41% to a record $9.7 billion, while operating income surged 66% to $3.2 billion—another record. The company’s operating margin for the year was also at a record high 33%, compared with 28% the previous year. Data center sales, representing chips sold to companies such as Google, Amazon and Microsoft to establish artificial intelligence capabilities in their networks, more than doubled during the year.
That means Nvidia’s main “problem” for the year ahead is how to improve on perfection. Chances are that it can. Capital spending on data centers is expected to continue growing in the double-digit range this year. Gaming demand will remain strong as well, particularly with Nintendo boosting production of the Switch. Crypto is a wild card, with the value of those currencies swinging wildly of late, but Nvidia is wisely cautious about those customers, maintaining its focus on its gamer base and the burgeoning data center opportunity.

Still, the company has a lot to live up to. Its stock defied Friday’s turbulence to pick up 7% after already having surged nearly 90% in the previous 12 months. Nvidia’s market value is now ahead of that of IBM ’s , with the shares fetching 37 times forward earnings. High expectations can set up disappointments down the road. Still, there are worse problems to have.

WSJ : Investors Brace for More Market Turbulence After Rocky Week

Investors Brace for More Market Turbulence After Rocky Week
Many investors remain cautiously optimistic that calm will return, amid signs that expectations for economic and corporate growth remain sound

A week of plummeting shares, record fund outflows and volatility has unsettled many traders and investors, reflecting fears that markets are struggling to find a new equilibrium.
Sparked by signs of increasing inflation, the Dow Jones Industrial Average last week fell more than 5%, extending a fortnight-long selloff totaling 2,400 points. Investors withdrew $22.9 billion from U.S. stock mutual funds and exchange-traded funds during the first week of February, according to fund tracker EPFR Global, the highest total on record.
Volatility soared, with the Cboe Volatility Index, or VIX, a measure of expected swings in the S&P 500, closing Tuesday at its highest level since August 2015 before ending the week up nearly 70%.
Foreign stocks weren’t spared. Major indexes in Europe and Asia lost 5% or more for the week, and a measure of expected volatility in 50 European stocks reached its highest level since June 2016.
Despite the headspinning action, many investors remained cautiously optimistic. Gold, a traditionally popular holding during periods of market turmoil, posted its largest decline in two months, a sign that fear of a deeper plunge is muted. Long-term Treasury yields were little changed, suggesting that the stock fall hasn’t dented expectations that strong economic growth would eventually cause volatility to subside.

“There definitely are more warning signs,” said Thomas Martin, senior portfolio manager at Globalt, an Atlanta money manager. “It’s not as simple as, ‘Everything is fine, jump back in.’”
Among other warning signs: Investors pulled more than $5 billion out of high-yield bond funds during the week ended Wednesday, according to EPFR. Big declines in high-yield energy bonds and other junk debt rattled financial markets in 2015.
Net flows into emerging market funds got off to a weak start in February at $19.4 million for the week ended Wednesday, compared with the multiyear high of $25.7 billion for the month of January.
Copper, a popular barometer of global growth, has fallen to its lowest level in two months, while oil slipped below $60 for the first time this year. Some riskier bonds have experienced selloffs. And some investors have sought shelter in the dollar, boosting the currency above its three-year low.
David Rosenberg, chief economist at Gluskin Sheff & Associates Inc., said he thought the selling will continue. He said S&P 500 futures and options markets were still skewed toward bullish positions as of Tuesday, according to his firm’s analysis of Commodity Futures Trading Commission data. Until that positioning reverses and more fear creeps in, he said, the market is unlikely to bottom. “There’s really nobody…screaming uncle,” he said.
Others expect market calm to return soon.
The gap between yields on U.S. corporate bonds and Treasury debt, known as the spread, has been relatively stable, a sign that the volatility hasn’t yet raised concerns about the creditworthiness of investment-grade companies. The gap widened only slightly this week from its lowest level in more than a decade.

“The equity market seems to have a higher amplification of nervousness, whereas the bond market, if there is an idea the [Federal Reserve] is going to go so much faster than expected, the 10-year Treasury [yield] would have to be higher,” said Nandini Ramakrishnan, global market strategist at J.P. Morgan Asset Management.
Bond funds had positive inflows for the third consecutive week in the period to Wednesday, data from EPFR showed, easing selling pressure on the bond market. Nearly $300 million also flowed out of gold mutual and exchange-traded funds in the same time frame, according to EPFR.
Some analysts said gold’s weakness could be a sign of inflation worries picking up, since gold struggles to compete with yield-bearing assets when the Fed raises interest rates faster than expected. Others said it suggested that investor anxiety over stocks wasn’t leading to broader economic worries.

Some big emerging markets like South Korea and China enjoyed positive fund flows, and there are few signs so far that credit spreads in developing markets are widening in a sign of deepening risk aversion.
“So far, this has been an equity-centered selloff, and not hit other markets,” said Jason Draho, head of tactical asset allocation for the Americas at UBS Wealth Management. As the decline grows steeper, investors are watching to see “if it can go from being a technical selloff to something more fundamental.”

FT : Amgen ‘looking hard’ at striking deals using $27bn cash pile

Amgen ‘looking hard’ at striking deals using $27bn cash pile

Chief financial officer of world’s largest biotech company cautions on high valuations

Amgen, the world’s largest biotech company, has said it is “looking hard” for deals to deploy its $27bn cash pile but warned it is struggling to find targets amid soaring valuations in the life sciences sector. 

The note of caution comes as mergers and acquisitions activity in the healthcare sector recorded its strongest start to a year in more than a decade, with almost $32bn of global deals announced since the start of January. 

However, buyers have been offering record premiums to clinch deals, with Celgene agreeing to pay $9bn for cell therapy group Juno — almost twice its undisturbed market value. Sanofi paid a 63 per cent premium for haemophilia specialist Bioverativ. 

“We want to deploy any excess cash and our first priority is to do acquisitions and invest in the business,” said David Meline, Amgen’s chief financial officer, in an interview with the Financial Times. 

But he added: “We see all of these deals announced, and we participate pretty actively in considering whether to bid, but we haven’t been able to come up with a business case that would make a return for our shareholders. 

“We will keep pushing ourselves and keep looking ourselves, because we have lots of financial flexibility.” 

He cautioned it would be difficult “as long as people are willing to pay levels above what we deem we can make a return on”. 

Mr Meline was talking before the recent market gyrations, which have sent valuations for biotech groups lower. 

Amgen’s stance runs counter to predictions of a deals frenzy from bankers and lawyers, who say they are working on more M&A leads than they have done in years. 

The company’s warnings on valuations carry additional weight because it is among the pharmaceutical companies with the most firepower to do big-ticket acquisitions. 

In a recent note to investors, Geoffrey Porges, an analyst at Leerink, estimated that Amgen had as much as $70bn in dry powder that could be spent on M&A, including $27bn of available cash; the ability to easily raise $40bn on debt markets; and $3bn in retained free cash flow. 

Mr Porges suggested that Amgen would need to do a deal at some point, given that its product sales declined last year, while the launch of its new cholesterol drug Repatha has fallen short of Wall Street’s expectations. 

“Amgen’s growth outlook is not exciting, and the pressure on its legacy products is only going to increase.” said Mr Porges. 

He added: “We expect big things, which are most likely to be dilutive to margins and earnings near term, but to confer some growth and further diversification longer term.”