Akzo/Axalta: applying a gloss
Keeping the US company’s managers on board will make the deal more polished
Repair shops use a low-bake oven to harden paint and keep dust away from resprayed cars. Akzo Nobel needs to purify the atmosphere too as it pursues a merger with Axalta Coating Systems, a US group whose coatings adorn many vehicles.
On Monday, the Dutch group confirmed it is in talks on a “merger of equals” with Axalta. Inevitably, the transaction is being viewed by some as a protective coating to ward off US rival PPG Industries. PPG tried and failed to take over Akzo earlier this year, and under Dutch takeover rules could re-enter the fray as early as December.
PPG’s bid for Akzo contemplated $750m of annual cost savings, just under 5 per cent of the target’s historic sales. Applying that percentage to Axalta implies savings of $185m. Taxed and capitalised, they could be worth $1.4bn. But under the merger of equals structure envisaged by Akzo, those savings would have to be shared with Axalta’s shareholders.
The key question is, in what proportion? The answer is complicated by Akzo’s plan to sell or demerge its speciality chemicals business and return any net proceeds to shareholders, leaving a smaller but more focused group. This should go ahead next year, regardless of the outcome of the Axalta talks.
UBS thinks the specialty chemicals sale could fetch €9.2bn. Strip that out and add in Axalta’s undisturbed enterprise value — the shares jumped when deal reports surfaced — and you get a pro forma total of $24.3bn. Based on forecast earnings before interest, tax, depreciation and amortisation before any cost savings, Axalta’s investors should own about 38 per cent of that — equivalent, backing out each company’s most recent net debt figures, to about $24 per share.
That is below Axalta’s $28 share price before the talks became public. Either the rise in Axalta’s shares, already rated higher than Akzo’s, has been over-exuberant or Akzo is set to pay a premium to its own valuation and rely on cost savings to justify it.
One way to assuage the concerns of investors, who would have to vote on any deal, might be to apply the merger of equals logic to the division of boardroom jobs. Axalta’s managers are highly regarded, having raised ebitda margins by about 8 percentage points since 2012. That partly explains the company’s higher multiple. Keeping them on board would make the transaction look more polished.
IMF warns volatility products loom as next big market shock
Assets invested in such strategies estimated to have risen to about $500bn
The International Monetary Fund has warned that the increasing use of exotic financial products tied to equity volatility by investors such as pension funds is creating unknown risks that could result in a severe shock to financial markets.
In an interview with the Financial Times Tobias Adrian, director of the Monetary and Capital Markets Department of the IMF, said an increasing appetite for yield was driving investors to look for ways to boost income through complex instruments.
“The combination of low yields and low volatility facilitates the use of leverage by investors to increase returns, and we have seen rapid growth in some types of products that do this,” he said
Equity market volatility has plumbed to its lowest level in a decade, with the Chicago Board Options Exchange’s implied volatility index, also known as the Vix, sitting at a level close to 10 compared with an historical average of about 20.
The IMF believes that sustained low volatility increases incentives for investors to take on higher levels of leverage while causing risk models that use volatility as an important input to understate real levels of risk participants may be taking on.
“A sustained increase in volatility could then trigger a sell-off in the assets underlying these products, amplifying the shock to markets,” Mr Adrian said.
Mr Adrian’s warning comes amid increasing evidence that pension funds and insurance companies are venturing into riskier types of investments to gain income. Some are also effectively writing insurance contracts against a market crash to pocket premiums.
Last year the $14bn Hawaii Employees Retirement System said it was writing put options to boost its income, while other US pension schemes such as the South Carolina Retirement System Investment Commission and Illinois State Universities Retirement System have also hired outside managers to use option writing strategies.
The IMF estimates that assets invested in volatility targeting strategies have risen to about $500bn, with this amount increasing by more than half over the past three years.
Marko Kolanovic, head of macro, derivative and quantitative Strategies at JPMorgan, last month warned of “strategies that sell on ‘autopilot’”, and how risk management models that use volatility could be luring investors into taking on too much risk. “Very expensive assets often have very low volatility, and despite downside risk are deemed perfectly safe by these models,” he wrote in a note to clients.
With equity implied volatility continuing to drop over the course of this year investors who have bet that markets will remain tranquil have been rewarded. Yet the true quantity of complex products being sold that are linked to volatility of various assets is hard to ascertain due to such deals mostly being done in private. Regulators therefore find it difficult to map out the risks in the event of an unexpected market shock.
DEBT OF MORE THAN $1 BLN - SOURCES, DOCUMENT
EXCLUSIVE-Chad wants to cut off Glencore's oil supplies in debt row - Reuters News
30-Oct-2017 15:36:32
By Madjiasra Nako and Julia Payne
N'DJAMENA/LONDON, Oct 30 (Reuters) - Chad is on a collision course with top creditor Glencore GLEN.L as it wants to divert oil from the Swiss trading house to U.S. energy company ExxonMobil XOM.N from the new year amid a dispute over debt restructuring.
A government document showed that Chad wants to hand over crude oil marketing rights currently held by Glencore under a $1.4 billion loan agreement to Exxon, the biggest oil producer in the Central African country.
Three government and industry sources confirmed the details.
Sources close to Glencore say they believe the contract does not allow such a change.
Under pressure from the International Monetary Fund, Chad is renegotiating its hefty external commercial debt, namely to Glencore, which eats up nearly all of its oil profits - the country's main source of revenue.
The near $1.4 billion debt to Glencore is being restructured for a second time since the 2014 oil price crash, in a move expected to be completed by the year-end or early next year. (Full Story)
Weighed down by drought, a refugee crisis and militant group Boko Haram, the government has become frustrated with Glencore and its handling of the debt restructuring, sources in the administration say.
Since 2014, Exxon has been paying royalties to the government in physical crude cargoes that were subsequently allocated by state firm SHT to Glencore.
But this process will end in early January as the government has asked Exxon to pay royalties in cash instead, according to a letter from the company dating from mid-October.
"In this context, we wish to levy in cash, and not in kind, the royalties due by the Consortium on January 2, 2018," the letter stated.
The change will see Exxon replace Glencore as the marketer of the royalty oil.
Spokesmen for ExxonMobil and Glencore declined to comment. Chad's finance ministry did not respond immediately to requests for comment.
Exxon operates the Doba consortium, the biggest producing group in the country at around 63,000 barrels per day (bpd) out of Chad's 131,000 bpd in 2017, government data showed.
Cash-strapped Chad has received loans from the IMF, World Bank and African Development Bank among other entities, with another $12.9 billion of pledged funding as of September from public and private donors for its 2017-2021 national development plan.
A sticking point, a banking source said, was a request from Chad for another grace period on principal repayment that Glencore had so far refused.
Chad previously had a grace period in 2016, after Brent oil futures LCOc1 hit their lowest level since the end of 2003.
"Glencore does not want to hear about a restructuring," a government source said. "This is why we have decided to take the marketing of our oil away from them."
A source close to Glencore said the development would represent a "clear and serious breach of the agreement".
"Glencore is in the middle of negotiations and is optimistic about a restructuring," the source said.
Liberty Coca-Cola acquires bottling operations from The Coca-Cola Company
30 OCT 2017
Liberty Coca-Cola Beverages, LLC, a Philadelphia, Pennsylvania-based privately-owned bottler and distributor of soft beverages, has acquired bottling operations across the New York Tri-State Metro area from Atlanta, Georgia-based The Coca-Cola Company [NYSE: KO].
Deal Snapshot
- Terms: Undisclosed
- Strategic Rationale: To refranchise its operations in North America.
-
Target (The Coca-Cola Company - bottling operations across the New York Tri-State Metro area)
- Business Description: Produces soft drinks, juices, sports drinks, bottled water, coffee and tea.
- Ownership: The Coca-Cola Company [NYSE: KO].
- Financials/Size Description: Areas of service includes the cities of Philadelphia and New York, part of Delaware, the state of New Jersey, Long Island, parts of Hudson Valley, NY, and Fairfield County, CT.
Buyer (Liberty Coca-Cola Beverages)
- Ownership: Private
- Business Description: Bottler and distributor of soft beverages
- Size: n/a
-
Acquisition History: First acquisition
Liberty Coca-Cola Beverages, LLC, a Philadelphia, PA-based privately-owned bottler and distributor of soft beverages, has acquired bottling operations across the New York Tri-State Metro area from The Coca-Cola Company [NYSE: KO], an Atlanta, GA-based soft beverages group making soft drinks, juices, sports drinks, bottled water, coffee and tea. Financial terms of the transaction were not disclosed.
Liberty Coca-Cola officially opened its doors today, and welcomes more than 4,600 associates to its family. The new bottler’s areas of service includes the cities of Philadelphia and New York, part of Delaware, the state of New Jersey, Long Island, parts of Hudson Valley, NY, and Fairfield County, CT. Liberty Coca-Cola will operate four production facilities and ten distribution centers throughout the region.
Coca-Cola Refreshments executives Paul Mulligan and Fran McGorry are at the helm of the new venture, and bring a combined 55-years of experience from the Coca-Cola system. Fran McGorry has been President of the Tri-State Metro Operating Unit of Coca-Cola Refreshments for the last two years. Prior to his current role, McGorry’s career included serving as President of the Philadelphia Coca-Cola Bottling Company.
Press release:
Liberty Coca-Cola officially opened its doors today, and welcomes more than 4,600 associates to its family. The new bottler’s areas of service includes the cities of Philadelphia and New York, part of Delaware, the state of New Jersey, Long Island, parts of Hudson Valley, NY, and Fairfield County, CT. Liberty Coca-Cola will operate four production facilities and ten distribution centers throughout the region.
Coca-Cola Refreshments executives Paul Mulligan and Fran McGorry are at the helm of the new venture, and bring a combined 55-years of experience from the Coca-Cola system. Fran McGorry has been President of the Tri-State Metro Operating Unit of Coca-Cola Refreshments for the last two years. Prior to his current role, McGorry’s career included serving as President of the Philadelphia Coca-Cola Bottling Company.
Press release:
Liberty Coca-Cola Beverages, LLC announced today that it has closed its deal to acquire territory from The Coca-Cola Company across the New York Tri-State Metro area. The definitive agreement, signed October 28, 2017, comes approximately five months after The Coca-Cola Company announced a letter of intent with the bottling partner as part of a broader plan to refranchise its operations in North America.
Liberty Coca-Cola officially opened its doors today, and welcomes more than 4,600 associates to its family. The new bottler’s areas of service includes the cities of Philadelphia and New York, part of Delaware, the state of New Jersey, Long Island, parts of Hudson Valley, NY, and Fairfield County, CT. Liberty Coca-Cola will operate four production facilities and ten distribution centers throughout the region.
Coca-Cola Refreshments executives Paul Mulligan and Fran McGorry are at the helm of the new venture, and bring a combined 55-years of experience from the Coca-Cola system. Over the past 20 years, Paul has led the charge overseas from Europe to Japan to Latin America and most recently with Coca-Cola Refreshments in the U.S.; transitioning bottlers across North America to become part of the Company’s 21st Century Beverage Partnership Model.
Fran McGorry has been President of the Tri-State Metro Operating Unit of Coca-Cola Refreshments for the last two years. Prior to his current role, McGorry’s career included serving as President of the Philadelphia Coca-Cola Bottling Company. He is a native of Philadelphia and has strong, local connections throughout the region.
Liberty Coca-Cola is committed to driving growth in the marketplace by investing in its No. 1 asset - people. Resources are in place to develop a culture of ownership, safety and fun; where associates are empowered to make decisions that will impact the future growth of the business.
The closing of Liberty Coca-Cola Beverages is among the final transactions to complete the Coca-Cola Company’s process of refranchising all of its U.S. bottling territories. The bottling system in North America now will be comprised of economically aligned partners that are able to serve major customers while maintaining strong, local ties throughout diverse communities across the country.
Financial terms of the Liberty Coca-Cola Beverages, LLC agreement are not being disclosed.
“This is a team that truly believes in the power of our brands and world-class portfolio execution,” said J. Alexander “Sandy” Douglas Jr., President, Coca-Cola North America. “Winning in one of the nation’s biggest and most complex markets is mission critical, and Paul Mulligan, Fran McGorry and their tri-state team are the perfect people to make it happen for this newly established bottling partner.”
Liberty Coca-Cola officially opened its doors today, and welcomes more than 4,600 associates to its family. The new bottler’s areas of service includes the cities of Philadelphia and New York, part of Delaware, the state of New Jersey, Long Island, parts of Hudson Valley, NY, and Fairfield County, CT. Liberty Coca-Cola will operate four production facilities and ten distribution centers throughout the region.
Coca-Cola Refreshments executives Paul Mulligan and Fran McGorry are at the helm of the new venture, and bring a combined 55-years of experience from the Coca-Cola system. Over the past 20 years, Paul has led the charge overseas from Europe to Japan to Latin America and most recently with Coca-Cola Refreshments in the U.S.; transitioning bottlers across North America to become part of the Company’s 21st Century Beverage Partnership Model.
Fran McGorry has been President of the Tri-State Metro Operating Unit of Coca-Cola Refreshments for the last two years. Prior to his current role, McGorry’s career included serving as President of the Philadelphia Coca-Cola Bottling Company. He is a native of Philadelphia and has strong, local connections throughout the region.
Liberty Coca-Cola is committed to driving growth in the marketplace by investing in its No. 1 asset - people. Resources are in place to develop a culture of ownership, safety and fun; where associates are empowered to make decisions that will impact the future growth of the business.
The closing of Liberty Coca-Cola Beverages is among the final transactions to complete the Coca-Cola Company’s process of refranchising all of its U.S. bottling territories. The bottling system in North America now will be comprised of economically aligned partners that are able to serve major customers while maintaining strong, local ties throughout diverse communities across the country.
Financial terms of the Liberty Coca-Cola Beverages, LLC agreement are not being disclosed.
“This is a team that truly believes in the power of our brands and world-class portfolio execution,” said J. Alexander “Sandy” Douglas Jr., President, Coca-Cola North America. “Winning in one of the nation’s biggest and most complex markets is mission critical, and Paul Mulligan, Fran McGorry and their tri-state team are the perfect people to make it happen for this newly established bottling partner.”
“Becoming a Coca-Cola franchise owner is an honor and a privilege, with a responsibility and challenge we respect,” said Paul Mulligan, Co-Owner Liberty Coca-Cola Beverages LLC. “We are passionate about the opportunity to refresh such a diverse marketplace with the world’s most iconic beverages, and look forward to growing and innovating with our customers and consumers in each one.”
“I have been part of the Coca-Cola family for 30 years, and achieving this dream of localizing the business not only for a brand I love, but in a market that I have grown up in, makes it all the more special,” said Fran McGorry, Co-Owner Liberty Coca-Cola Beverages LLC. “We are excited to return to our local roots and be part of the fabric of the communities that we serve.
Ex-Trump campaign manager Manafort surrenders to FBI: reports
WASHINGTON (Reuters) - Paul Manafort, a former campaign manager for U.S. President Donald Trump, surrendered to federal authorities on Monday in the first charges stemming from a special counsel investigation of possible Russian meddling in the 2016 U.S. presidential election, according to media reports.
Manafort arrived at the Federal Bureau of Investigation Washington field office, television video showed. He was to surrender to federal authorities, the New York Times and CNN reported, citing sources.
The charges against Manafort would be the first arising from the investigation by Justice Department special counsel Robert Mueller, who was appointed to look into alleged Russian meddling to sway the election in favor of Trump.
The charges against Manafort would include tax fraud, according to the Wall Street Journal.
A federal grand jury issued the indictment on Friday and a federal judge ordered it sealed, a source briefed on the matter told Reuters, adding it could be unsealed as soon as Monday.
Manafort associate Rick Gates would also surrender, the Times reported.
Lawyers for Gates and Manafort would not immediately return calls for comment.
Manafort, 68, served the Trump campaign from June to August of 2016 before resigning amid reports he may have received millions in illegal payments from a pro-Russian political party in Ukraine.
Former Trump campaign manager Paul Manafort hides behind his car visor as he leaves his home in Alexandria, Virginia, this morning. REUTERS/Jonathan Ernst
Mueller has been investigating Manafort’s financial and real estate dealings and his prior work for that political group, the Party of Regions, which backed former Ukrainian leader Viktor Yanukovich, sources have told Reuters.
Investigators also examined potential money laundering by Manafort and other possible financial crimes, according to the sources.
Gates was a long-time business partner of Manafort and has ties to many of the same Russian and Ukrainian oligarchs. He also served as deputy to Manafort during his brief tenure as Trump’s campaign chairman.
Trump has denied any allegations of collusion with the Russians and called the probe “a witch hunt.” The Kremlin also has denied the allegations.
Just before the Manafort report came out, Trump senior adviser Kellyanne Conway insisted any charges would not necessarily implicate Trump or his campaign.
“Whatever happens today with the Mueller investigation, we don’t even know that it has anything to do with the campaign ...,” Conway said on Fox.
The Russia investigation has cast a shadow over Trump’s 9-month-old presidency and widened the partisan rift between Republicans and Democrats.
U.S. intelligence agencies concluded in January that Russia interfered in the election to try to help Trump defeat Democrat Hillary Clinton by hacking and releasing embarrassing emails and disseminating propaganda via social media to discredit her.
Mueller is also investigating whether Trump campaign officials colluded with the Russian efforts.
Gapping up
In reaction to strong earnings/guidance:
In reaction to strong earnings/guidance:
- DO +9.1%, IRMD +5.9%, SONS +4.9%, URG +1.9%, EDR +1.1%, L +0.6%
M&A news:
- AVIR +25.3% (Vaxart and Aviragen Therapeutics enter merger agreement)
- CAA +19.2% (CalAtlantic Group and Lennar (LEN) announce merger (80% stock and 20% cash), implied value of the stock consideration is $51.34 per share)
- DYN +13.8% (Dynegy and Vistra Energy (VST) to merge in all-stock transaction; DYN shareholders will receive 0.652 shares of VST stock)
- AAAP +9.9% (receives tender offer by Novartis (NVS) for $82 per share)
Other news:
- MICT +36.8% (received a purchase order valued at approximately $3,100,000 for its recently released SmartHub-TREQr5 product)
- SOHU +3.7% (subsidiary Sogou filed amendment relating to an IPO)
- PTIE +3.1% (FDA has agreed to a pre-NDA guidance meeting to discuss its NDA resubmission for REMOXY ER)
- SRRA +2.8% (reports preclinical data supporting the ongoing clinical development strategy for its Chk1 inhibitor, SRA737)
- BMY +2.7% (benefitting from MRK withdrawal of its European application for KEYTRUDA)
- SHPG +1.3% (Barron's profiles positive view on Shire)
- CELG +1.3% (reports Second Phase III Trial for Ozanimod demonstrating superiority versus Avonex)
- AVXL +1% (announces additional data for ANAVEX2-73)
Analyst comments:
- ADMS +16.6% (initiated with a Outperform at Evercore ISI (settled at $19.51 on Friday))
- JD +1.4% (upgraded to Buy from Neutral at UBS)
- WETF +1.2% (added to US Focus List at Citigroup)
- CAG +0.8% (upgraded to Buy from Hold at Stifel)
- INTC +0.5% (upgraded to Outperform from Market Perform at BMO Capital Markets)