NYT : DealBook Briefing: What Is Disney Paying For in Its Deal With Fox?

DealBook Briefing: What Is Disney Paying For in Its Deal With Fox?

Good Thursday morning. We break down Disney’s deal to buy a huge part of 21st Century Fox. The Republican tax overhaul is near the finish line. And the F.C.C. will vote to repeal net neutrality rules today.
The latest deal to reshape the media landscape is here.
Let’s break down the Disney deal with Fox that was just announced:
• Disney will pay about $29.45 a share in an all-stock transaction, buying a big chunk of Fox businesses valued at about $66 billion, including debt.
• Fox shareholders as a whole will own about 25 percent of The Walt Disney Company.
• As expected, today’s announcement has no mention of a role for James Murdoch at Disney. That may come down the line as he negotiates with Disney.
• The Murdochs, who own about 17 percent of existing shares in Fox, will own less than 5 percent of Disney and won’t have any board seats there.
What Robert Iger of Disney has to say
We’re honored and grateful that Rupert Murdoch has entrusted us with the future of businesses he spent a lifetime building, and we’re excited about this extraordinary opportunity to significantly increase our portfolio of well-loved franchises and branded content to greatly enhance our growing direct-to-consumer offerings.
What’s at stake: Disney wants to bolster its defenses against Netflix and Amazon. The deal will give the media giant another production studio to pump out content for its forthcoming video streaming service. And Fox’s international broadcasting operations will extend its reach abroad.
A deeper dive: Ben Thompson of Stratechery takes a look at how effective a response this is to Netflix. He writes, “What has been so impressive over the last few months is the extent and speed with which Disney has seemingly figured it out — and acted accordingly.”

>>> US Gapping down

Gapping down
M&A news:
  • FOXA -6.1% (Anticipated merger with DIS announced; Deal is approx $52.4 bln in stock),
  • DIS -2.1% (Anticipated merger with FOXA announced; Deal is approx $52.4 bln in stock).
Other news:
  • GPP -9.7% (thinly traded; indicated lower on block trade pricing),
  • PTI -3.7% (prices underwritten public offering of 8 mln shares of its common stock at a price to the public of $5.00 per share),
  • CASI -3.5% (files $100 mln mixed securities shelf offering),
  • OMF -3.3% (announces secondary offering of 7.5 mln shares of common stock by selling stockholder).
Analyst comments:
  • PIR -27.2% (downgraded to Sell from Hold at Gordon Haskett; tgt $3.50),
  • VRX -3.7% (downgraded to Underweight from Neutral at JP Morgan),
  • THC -2.4% (downgraded to Underweight from Neutral at JP Morgan),
  • CBL -1.6% (downgraded to Sell from Neutral at Citigroup),
  • NLSN -1.5% (downgraded to Underweight from Equal Weight at Barclays),
  • WU -1.1% (resumed with a Sell at Goldman; tgt $17),
  • GPS -1.1% (downgraded to Perform from Outperform at Oppenheimer),
  • ONCE -0.8% (downgraded to Neutral from Buy at Goldman; tgt lowered to $58 from $106)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:
  • SMIT +22.6%, (thinly traded), NDSN +10.3%.
Other news:
  • IMUC +119.2% (achieved a key milestone in its research-stage Stem-to-T-Cell immuno-oncology program),
  • MBOT +22.5% (announces the U.S. Patent and Trademark Office (USPTO) has issued a Notice of Allowance covering the Company's TipCAT technology platform),
  • PSDV +10.4% (reports positive Phase 1 Knee Osteoarthritis pain study data),
  • MYO +8.5% (modestly rebounding from 13% two day decline),
  • GLUU +7.5% (attributed to new game launch),
  • DPW +7.5% (following today's 21% move higher),
  • TEVA +7.2% (unveils restructuring plan and additional measures to improve business and financial performance),
  • VERU +7.1% (after closing near highs - up 40% on the day),
  • MARK +6.7% (announced that China ShenHua Energy Company has selected KanKan as its artificial intelligence technology partner),
  • HMNY +3.8% (after closing down 33% on the day),
  • CMCM +2.6% (Cheetah Mobile and Microsoft announce collaboration to incorporate Microsoft's AI into Cheetah's product matrix; official version will be released January 2018),
  • BBBY +2.5% (following PIR earnings),
  • UBS +1.2% UBS AG announces changes to Group Executive Board, new Group Chief Operating Officer named).
Analyst comments:
  • GWPH +4.1% (upgraded to Buy from Neutral at Goldman),
  • FINL +2.5% (upgraded to Hold from Sell at Deutsche Bank),
  • LULU +2.4% (upgraded to Buy from Hold at Deutsche Bank),
  • LPSN +1.4% (initiated with a Buy at B. Riley FBR, Inc.; tgt $16.50),
  • KEY +1.3% (upgraded to Overweight at Stephens),
  • COP +1.2% (upgraded to Buy from Neutral at Goldman),
  • NAT +0.8% (upgraded to Hold from Underperform at Jefferies),
  • ELY +0.8% (initiated with a Overweight at JP Morgan; tgt $18).

>>> US Early premarket gappers

Early premarket gappers
Gapping up:
  • IMUC +119.2%, SMIT +22.6%, MBOT +22.5%, PSDV +10.4%, NDSN +10.3%, MYO +8.5%, GLUU +7.5%, DPW +7.5%, TEVA +7.2%, VERU +7.1%, MARK +6.7%, HMNY +3.8%, CMCM +2.6%, BBBY +2.5%, UBS +1.2%, DIS +1.1%.

Gapping down:
  • PIR -27.2%, GPP -9.7%, PTI -3.7%, CASI -3.5%, OMF -3.3%

(Kepler-Cheuvreux) Top idea for 2018


--> AB Inbev, Essity, Novartis, Orange, ABN, Generali, ABB, H&M & Atos

Reconciling both worlds
Since the launch of this product four years ago, our approach has been to identify high-conviction bottom-up ideas that best fit our strategy framework. With the help of our seven local heads of research and our sector heads, we have surveyed our 105 analysts and publish seven Country Top Picks and two European Selected Lists (Large and SMID caps).
Since its launch, our Large Caps Selected List has delivered a 33% cumulative relative (LCXP index) performance excluding dividends.

European Large Caps Selected List going into 2018
While all our picks offer some defensive features in their respective sectors, our real defensive pillars are AB Inbev, Essity, Novartis (unchanged), and Orange (new idea). ABI is controversial, and we recently issued a 360 Report
as the US business is misunderstood and the Brazilian recovery is underappreciated. Orange is exiting its big capex phase and is set to reap the benefits of its fibre rollout. Our two financials offer a convincing bottom-up case, are very much rate-sensitive, and should do better through a market correction: ABN (replacing BNP, a pure retail bank in a growing economy, capital return story) and Generali (extremely cheap, disposals improving capital, fundamentally well positioned). We also add ABB (strong Swiss balance sheet, late cyclical, cost-cutting) and keep H&M (consensus at rockbottom, most unloved of European large caps, first CMD is upcoming, euro tailwinds) and keep Atos (resilient model, M&A optionality).

(GS) Energy : Oil : Earnings upgrade cycle starts as Big Oils move into the Age

Earnings upgrade cycle starts as Big Oils move into the Age of Free Cash Flow

We believe Big Oils are entering the Age of Free Cash Flow, as a new industry structure emerges and Seven Sisters again dominate complex global developments. This should allow Big Oils to re-employ capital at double-digit returns and foster
structural cost deflation. We expect European Big Oils to generate the strongest free cash flow in over a decade in 2018 and deliver a 3% volume CAGR to 2021, allowing for full cash coverage of capex and dividends from 4Q17 and excess free cash flow thereafter. Earnings are expected to lag free cash flow, as depreciation reflects inflated historical costs. However, we think the sector is entering a positive earnings-revision cycle, with 16% median upside to 2018E consensus EPS, supported by the end of share dilution through scrip dividends and the start of a new buyback cycle. Inside we update our earnings estimates, increasing our 12-month PTs by 5% on average. Top picks: Buy TOTAL (on CL), RDShell and ENI; Sell Statoil.

Our 2018E EPS are 16% above Bloomberg consensus on average, with the 2018E Brent oil price in line with the forward curve at c.US$62/bl

We have updated our estimates to reflect the latest news flow and our new Brent oil price forecasts (c.US$62/bl, c.US$60/bl and c.US$55/bl in 2018/19/20E), resulting in EPS changes of +6%, +15% and +11% in 2017/18/19E on average for European Big Oils. While our 2018E Brent oil price is in line with the forward curve, our 2018E EPS are on aggregate 16% above consensus, providing strong support for a positive earnings revision cycle after strong negative earnings revisions in the first half of 2017. On our estimate changes, we raise our 12-month price targets by 5% on average.

Top picks: Buy TOTAL (on CL), RDShell and ENI; Sell Statoil

We think TOTAL offers strong cash flow generation (8-9% 2018-21E FCF yield) and high growth (5% production CAGR to 2021E). RDShell offers the strongest cash return to shareholders on our estimates, with a 6% dividend yield fully paid in cash and an incremental 3% pa buyback. ENI is transforming into a higher-return business, driven by exploration success, disposals and a strong pipeline of project start-ups. We are Sell rated on Statoil, on a more expensive valuation and lack of major project start-ups in 2018.