FT Opinion : Altice: the warnings were unmistakable

Sir, The travails of Altice should be no surprise to objective, knowledgeable and independent experts in the telecommunications field.

In 2015-16 the Federal Communications Commission reviewed Altice’s application to acquire Cablevision (now Optimum) in the US. During this review a few interveners including myself presented documented, verifiable evidence based on Patrick Drahi’s and Dexter Goei’s records in Europe and elsewhere about the foreseeable consequences of Mr Drahi’s debt-laden business model and his governance style.

Also emphasised was Altice’s unsupported claim of uniquely beneficial capabilities thanks to unrealistic assertions of how deeply it could reduce costs without incurring consequences, notably loss of subscribers and deterioration in the quality of services, already visible in France.

Of course Mr Drahi’s lenders, such as JPMorgan, Barclays and BNP, which did not want to stop the flow of substantial fees they have received from his dealmaking, and others that benefited financially in the short term from his ventures (for example the Canadian Pension Plan Investment Board) supported his application. US regulators (federal and state) eventually approved this deal, ignoring unmistakable warnings. The adage “Fool me once, shame on you, fool me twice (then thrice and more), shame on me” applies.

Martyn Roetter
Boston, MA, US

>>> After Hours Summary: GME +5%, GES -10%, DRYS / HPE -6%, HPQ -3.5% following

After Hours Summary: GME +5%, GES -10%, DRYS / HPE -6%, HPQ -3.5% following earnings/guidance, AXTA seeing volatile action on Akzo news / potential Nippon deal
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: GME +4.6%
Companies trading higher in after hours in reaction to news: TIVO +7.6% (ITC gives favorable ruling in U.S. trade case against Comcast), EKSO +6.1% (after 40% move higher on Tuesday), SSY +5.3% (very thinly traded; commences tender offer to repurchase up to 1,562,500 of common shares at $1.60 per share; officers intend to purchase portion), CLSN +3.5% (after 30% move higher today), AXTA +3% (initially under pressure after Akzo Nobel and Axalta confirmed they have ended their merger discussions without an agreement; has since recouped after hours losses on Reuters report of Nippon Paint offer), EXEL +1.3% (ticking higher; phase 3 CELESTIAL trial results have been accepted as late-breaking presentation at 2018 ASCO-GI Symposium Jan 18--20; to submit supplemental NDA in Q1)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: CAL -10.5%, GES -10.3%, DRYS -6.6%, HPE -5.9% (also announces effective February 1, 2018, Antonio Neri, current President of HPE, will become President and CEO, and will join the HPE Board of Directors), BZUN -5.3%, HPQ -3.5%, CRM -1.5%
Companies trading lower in after hours in reaction to news: DCIX -2.1% (DRYS sympathy), TYHT -1.8% (thinly traded; files for $25 mln mixed securities shelf offering)

>>> Asian Update

Asia Market Update: RBA Gov Lowe next move will be higher; China remains committed to increasing regulations; Equities gain as risk-on continues

***Headlines/Economic Data***
- General Themes: Asian equity markets trade broadly higher, after US gains. MSCI Asia Pacific Index on track for record close
-Best performing sectors include Energy and Materials

Japan
-Nikkei 225 opened +0.8%, closed +0.5%
-Continued strength in Auto (Toyota +1%, Honda +0.5%) and Steel sectors (Nippon Steel +0.8%, JFE Steel +2%, tracks 1.1% gain in shares of US Steel).
-Financials add on to Tuesday’s gains: Mega Banks (MUFJ +1.9%, Mizuho +0.6%, SMFG +1%)
-Nippon Paint halted following merger speculation related to Axalta Coating Systems.
- (JP) Japan plans to reduce its annual float of 30-yr and 40-yr bonds for the first time ever FY18 due to low rates sapping demand – Nikkei; The possible reduction may be discussed at the Finance Ministry's meeting of bond market participants which is expected to be held later today.
- Bank of Japan (BOJ) said to be hinting that it could move away from crisis mode stimulus earlier than expect through a future hike in its yield target - financial press
- (JP) Japan govt said to plan FY17/18 extra budget of ¥2.0-2.5T - Japanese press
- (JP) Japan govt said to be again leaning towards cutting CPI and GDP estimates in next mid-term report - financial press
- Looking Ahead: Tokyo Stock Exchange to close on Thursday in observance of Labour Thanksgiving Day

Korea
-Kospi opened +0.6%; Samsung Electronics +1%, Hynix +2% (tracks US chip sector gains)
-Brokerage firms track gains in equity market
-Lotte Shopping -4% (share placement)
- USD/KRW (KR) South Korea FX Official: KRW gain pace faster than other currencies; KRW hit 2.5 year high in the session, analyst expect this downward trend to continue for the time being but the pace will probably be controlled
- (KR) UN Command: North Korea violated Korean War armistice last week when it fired on defecting soldier at demilitarized zone
- South Korea FX Official: KRW gain pace faster than other currencies
-South Korea Q3 Household Credit (KRW): 1.42T v 1.39T prior; Household Debt y/y: 9.5% v 10.4% prior

China/Hong Kong
-Shanghai Composite opened +0.2%, Hang Seng +0.9% (hit 10-year high above 30,0000)
-Hang Seng Materials Index +2.4%, Energy Index +1.5%, Financials Index +1.2%
-Hang Seng Property/Construction Index +1%; China to give priority to reducing property bubble – Xinhua
- China offshore yuan (CNH) +0.2%
- (CN) China PBOC Gov Zhou: Will reduce currency intervention to advance yuan internationalization; to strengthen policy coordination between central and local financial regulators. Reiterates calls for preventing systemic financial risks
- (CN) China Ministry of Housing and Urban-Rural Development, the Ministry of Land Resources and PBOC in a joint meeting stressed regulations to curb property sector risks must not be relaxed
- (CN) China National Development and Reform Commission (NDRC) target to cut coal capacity by 500Mt in 2016 within 3-5 years will most likely be met ahead of schedule
-China Q3 overseas real estate investments $2.5B, -51% y/y (lowest level since Q4 2013)
-Chinese airlines trade generally higher: Air China +11.5%, China Southern Airlines +10.5%, China Eastern Airlines +9.5%
-China Southern Airlines President the company is planning to use American Airlines ties to ‘beef up’ US routes
-China Securities Regulatory Commission (CSRC) Chairman Liu Shiyu: creating a new committee to oversee a powerful panel that reviews stock-issuance applications
-Weichai Power +4% (fuel cell agreement with Robert Bosch; Chow Tai Fook Jewellery Group +5.5% (H1 profits +44% y/y)
- Geopolitics: US Treasury sanctions 4 China companies and 1 citizen for North Korea ties
-Air China says to suspend flights to Beijing from Pyongyang, North Korea as the operation is ‘unsatisfying.’
-Fixed Income: Chinese corporates continue to tap USD bond market (Shenzhen International, Times Property Holdings, China State Construction)
- (CN) PBoC OMO: Injects CNY190B v CNY180B injected in 7,14 and 63-day reverse repos prior; Net injects CNY0B v CNY10B prior
- USD/CNY (CN) PBoC sets yuan reference rate at 6.6290 v 6.6356 prior
- (CN) China to sell CNY7B in 'Dim Sum' Bond in Hong Kong during week of Nov 27th
-China MoF sells 3-year bonds: avg yield 3.7365% v 3.74%e
- (HK) Offshore yuan 1-day HIBOR +3.4ppts to 5.97968%; 1-week +1.76ppts to 4.99478%; 1-month +64bps to 4.50467%

Australia/New Zealand
-ASX 200 opened +0.3%; ASX 200 Energy index +1.1% (oil prices +1.8% on Tuesday), Resources Index +1.1% (copper prices +1.2% on Tuesday)
-ASX 200 Financials Index +0.1%: (AU) Australia PM Turnbull said to be planning to discuss reversing opposition to an inquiry into misconduct in banking sector - UK press
-ASX 200 Utilities -0.5%, tracks underperformance in S&P 500 Utilities Sector
-AUD trades higher then pares gains, amid recent comments from RBA Gov Lowe and better than expected Q3 construction work done data.
- AUSTRALIA Q3 CONSTRUCTION WORK DONE Q/Q: 15.7% V -2.3%E; -Building construction work done -0.4% q/q, Engineering construction work done +33.0% q/q
-Australia 10-year bond yield -2bps (US Treasury yield ended down on Tuesday)
-WebJet -10% (FY18 outlook, restructuring measures)
- (NZ) Reserve Bank of New Zealand (RBNZ): Developing strategic plans for future currency issues, to consider feasibility of alternative digital currency
- (AU) Australia sells A$900M vs A$900M indicated in 2.25% May 2028 bonds, avg yield 2.5746%
- (NZ) Fonterra Global Dairy Trade Auction: Dairy Trade price index: -3.4% v -3.5% prior; Avg winning auction price: $2,970 vs. $3,105 prior
-Looking Ahead: New Zealand Q3 retail sales due on Thursday

Other Asia
Malaysia:
-Ringgit (MYR) gains over 0.3% amid equity flows and higher oil prices
-Malaysia’s Government postpones today’s release of Oct CPI data to Nov 24th (no reason initially cited)
-Malaysia sells MYR2.0B in 2033 Bonds: avg yield 4.55%, bid to cover 3.81x

Taiwan
-Taiex opened +0.3%
-UMC +3.5%: 2018 silicon wafer prices may increase by 25-35% amid higher demand, says Taiwanese press report
-Taiwan Dollar (TWD) trades at strongest level since early Sept

North America
- Fed Speak: Fed Chair Yellen: Must keep an open mind and not be trapped by forecast; Some hint inflation expectations may be drifting down; Don't think expectations have drifted down very much - speaking in New York
-US equities ended broadly higher: Nasdaq +1.1%, Russell 2000 +1%, S&P 500 +0.7%, Dow Jones +0.7%
-Outperforming sectors on S&P 500: Technology +1.1%,Healthcare +0.9%
- (US) Weekly API Oil Inventories: Crude: -6.4M v +6.5M prior
-After Market Movers: Gamestop(GME) Reports Q3 $0.54 v $0.43e, Rev $1.99B v $1.96Be; +8.8% afterhours ; Guess (GES) Reports Q3 $0.12 v $0.11e, Rev $554M v $566Me; -11.1% afterhours, Hewlett Packard Enterprise (HPE) Reports Q4 $0.29 v $0.28e, Rev $7.70B v $7.71Be; Antonio Neri to succeed Meg Whitman as CEO; -7.2% afterhours; HP Inc (HPQ) Reports Q4 $0.44 v $0.44e, Rev $13.9B v $13.2Be; -5.8% afterhours , Salesforce.com (CRM) Reports Q3 $0.39 v $0.37e, Rev $2.68B v $2.65Be; -1.4% afterhours
M&A: Japan’s Nippon Paint declined comment on speculation that it could bid for Axalta Coating Systems.
-Key Safety Systems to pay $1.59B to acquire substantially all of Japan Takata’s assets
-Shares of Pepsi rose during NY session on speculation of possible interest from Kraft Heinz
Politics: US Special Prosecutor Mueller said to be investigating Kushner contact with foreign leaders before President Trump's inauguration - financial press
Tax Reform: (US) Sen Murkowski (R-AK): To support Obamacare mandate repeal in tax bill - press
Trade: (US) USTR Lighthizer: Remains concerned about the lack of headway made at the NAFTA talks; Seeks meaningful progress before end of the year; Says seen no evidence Canada and Mexico are willing to seriously engage on US demands.
- Mexico Econ Min Guajardo: Mexico is seriously committed to NAFTA negotiation; Can consider trade rebalance only via expansion.
- NAFTA round six discussions in Montreal scheduled for Jan 23-28 - press

Europe
- (EU) ECB's Coeure (France): Expects change in monetary policy outlook soon, expected to occur by Sept of 2018 - Handelsblatt
- (DE) Supporters of Chancellor Merkel reportedly anticipate grand coalition with SPD to end political impasse – press
- (DE) Germany Free Democratic Party (FDP) spokesperson: we won't re-enter coalition govt talks - press
- (UK) British and EU negotiators reportedly are targeting Brexit divorce deal within three weeks – FT
- (EU) Smaller companies in the UK plan to cut use of euro for settling international payments by 7.8% in the next 6 months – East & Partners Pty Study
- (EU) Some EU countries reportedly are balking at plans to boost taxes on tech multinationals – press
-Dutch Telecom Altice SA said to have held talks with banks over tower sale plans (press)
-AkzoNobel ends merger talks with Axalta Coating Systems.
Looking ahead: Upcoming UK Autumn Budget Statement in focus

***Levels as of 01:00ET***
- Nikkei +0.5%, Hang Seng +0.6%; Shanghai Composite +0.1%; ASX200 +0.4%, Kospi +0.3%
- Equity Futures: S&P500 +0.0%; Nasdaq100 +0.0%, Dax +0.1%; FTSE100 +0.1%
- EUR 1.1748-1.1733; JPY 112.50-112.16; AUD 0.7595-0.7562;NZD 0.6854-0.6825
- Dec Gold +0.0% at $1,281/oz; Jan Crude Oil +1.5% at $57.70/brl; Dec Copper -0.0% at $3.13/lb

>>> Uniper says time for discussions with Fortum starts now

Uniper says time for discussions with Fortum starts now (translated)
22 NOV 2017

Uniper [ETR:UN01], the German energy group, said the time for discussions over the company's sale to the Finnish Fortum [HEL:FORTUM], starts now, according to Kauppalehti.

The Finnish-language piece cited Uniper CEO Klaus Schäfer as speaking at the company's press event in Germany after it announced the board's recommendation to reject Fortum's EUR 22 per share offer. According to Schäfer, the time for discussions starts now, and the company will closely monitor Fortum's public promises regarding maintaining Uniper's independence as far as possible.

Schäfer admitted that it is almost certain that E.On [ETR: EOAN] will sell its 47% stake in Uniper to Fortum, however, the offer cannot be accepted as it does not match Uniper's true value, and Fortum's real intentions are still unclear, the item said.

The biggest thing for Uniper management is that Fortum's EUR 22 per share offer is below the company stock price, which was nearly EUR 24 as on Tuesday afternoon. Uniper has good growth potential, and Fortum's strategy and know-how do not add value to its growth, Schäfer said in the piece.

>>> US Close Dow +0.69% S&P +0.65% Nasdaq +1.06% Russell +1.03%

Closing Market Summary: Back to Record Territory

Equities sprung to new record highs on Tuesday, with technology shares leading the charge.

The tech-heavy Nasdaq (+1.1%) outpaced the S&P 500 (+0.7%) and the Dow (+0.7%), but all three major stock indices finished at fresh record highs. The small-cap Russell 2000 (+1.0%) also posted a new all-time high, marking its first record close since October 5.

Trading volume was light once again on Tuesday and will likely remain that way throughout the abbreviated holiday week, creating the potential for outsized moves in either direction.

While there wasn't a particular catalyst to credit for the unexpected wave of buying, a positive performance from equity markets overseas certainly contributed to Wall Street's bullish bias. Indices in the Asia-Pacific region finished Tuesday broadly higher, with Hong Kong's Hang Seng (+1.9%) pacing the advance.

Stocks were strong in Europe as well, sending the Euro Stoxx 50 higher by 0.5%, despite continued uncertainty stemming from the collapse of coalition talks in Germany. On a related note, German Chancellor Angela Merkel said that she would prefer new elections rather than trying to form a minority government.

With the positive tone having already been set in both Europe and Asia, U.S. equities followed suit, opening Tuesday's session in the green. The major U.S. averages extended their opening gains for the first hour of trading, but then began a sideways trend that carried them to the closing bell.

The S&P 500's technology sector (+1.2%) was strong from the jump, helped by upbeat performances from mega-cap names like Apple (AAPL 173.14, +3.16), Microsoft (MSFT 83.72, +1.19), Facebook (FB 181.86, +3.12), and Alphabet (GOOG 1034.49, +16.11)--all of which added at least 1.4%.

Following Tuesday's rally, the technology sector has added 38.6% year to date, more than double the S&P 500's advance of 16.1%.

The health care sector (+0.9%) also outperformed on Tuesday, led by medical device company Medtronic (MDT 82.66, +3.76), which jumped 4.8%. MDT shares advanced after the company reported better-than-expected profits for its fiscal second quarter and reaffirmed its guidance for the fiscal year.

On the downside, AT&T (T 34.33, -0.31) struggled, losing 0.9%, after the U.S. Department of Justice announced its decision to file a lawsuit against the company's acquisition of Time Warner (TWX 89.56, +1.85). Conversely, TWX shares added 2.1%. The DOJ's decision was announced on Monday afternoon.

The telecom services group (-0.5%) was the only sector to finish in the red, but the heavily-weighted financial space (+0.3%) underperformed as the yield curve continued to flatten--which doesn't bode well for the earnings prospects of lenders. 

U.S. Treasuries ended Tuesday on a mixed note, cutting the 2yr-10-yr spread to 59 basis points. The yield on the benchmark 10-yr Treasury note slipped one basis point to 2.36%, while the 2-yr yield climbed two basis points to 1.77%.

Reviewing Tuesday's economic data, which was limited to Existing Home Sales for October:

  • Existing home sales increased 2.0% in October to an annualized rate of 5.48 million units (consensus 5.42 million). The September reading was revised to 5.37 million from 5.39 million.
    • The key takeaway from the report is that notable supply constraints remain, which will continue to act as a drag on overall sales due to the limited inventory and the high prices on available inventory that is crimping affordability.

On Wednesday, investors will receive a number of economic reports, including the weekly MBA Mortgage Applications Index at 7:00 ET, weekly Initial Claims (consensus 239K) at 8:30 ET, October Durable Goods Orders (consensus +0.4%) also at 8:30 ET, and the final reading of the University of Michigan Consumer Sentiment Index for November (consensus 97.9) at 10:00 ET.

Also of note, the minutes from the latest FOMC meeting will be released on Wednesday at 14:00 ET.

  • Nasdaq Composite +27.5% YTD
  • Dow Jones Industrial Average +19.4% YTD
  • S&P 500 +16.1% YTD
  • Russell 2000 +11.9% YTD

>>> HP reports EPS in-line, beats on revs; guides Q1 EPS in-line; guides FY18 EP

HP reports EPS in-line, beats on revs; guides Q1 EPS in-line; guides FY18 EPS in-line (22.46 +0.34)
  • Reports Q4 (Oct) earnings of $0.44 per share, in-line with the Capital IQ Consensus of $0.44; revenues rose 11.3% year/year to $13.93 bln vs the $13.36 bln Capital IQ Consensus.
    • Personal Systems net revenue was up 13% year over year (up 14% in constant currency) with a 3.8% operating margin.
    • Commercial net revenue increased 11% and Consumer net revenue increased 18%.
    • Total units were up 6% with Notebooks units up 8% and Desktops units up 2%.
    • Printing net revenue was up 7% year over year (up 7% in constant currency) with a 16.6% operating margin.
    • Total hardware units were up 3% with Commercial hardware units flat and Consumer hardware units up 3%. Supplies net revenue was up 10% (+11% ex-FX).
  • Co issues in-line guidance for Q1, sees EPS of $0.40-0.43, excluding non-recurring items, vs. $0.42 Capital IQ Consensus Estimate.
  • Co issues in-line guidance for FY18, sees EPS of $1.75-1.85, excluding non-recurring items, vs. $1.79 Capital IQ Consensus Estimate.