Fiat Chrysler's merger options dwindle as Volkswagen rejects overtures
Fiat Chrysler (FCHA.MI) boss Sergio Marchionne's attempts to find a partner were frustrated for a second time in as many days on Wednesday, as Volkswagen (VW) joined General Motors (GM) in dismissing any interest in talks with their smaller rival.
Marchionne said on Tuesday that European market leader VW (VOWG_p.DE) would be hardest hit by PSA Group's (PEUP.PA) purchase of Opel, which will create a stronger European No. 2, and the pressure could prompt VW to sit down with FCA.
But VW chief Matthias Mueller was quick to rebuff the overtures, saying his company had enough on its plate already as it battles to recover from a diesel emissions scandal.
"We are not ready for talks about anything ... we have other problems," he told Reuters on the fringes of the Geneva auto show on Wednesday. "I haven't seen Marchionne for months."
Marchionne has long advocated car industry mergers to share the costs of making cleaner and more technologically advanced vehicles and on Tuesday stressed deals were as vital as ever.
"You need to achieve scale or we will end up delivering an incredibly poor return and margins on this business. We need to fix this," he said, referring to the wider auto industry.
The PSA-Opel deal leaves FCA in an increasingly difficult position in Europe. The indebted group has a European market share of only about 7 percent, its operating margin of 2.5 percent lags most rivals, as does its spending on cleaner and more autonomous cars.
Mueller's rejection follows a similar snub from GM (GM.N), after Marchionne said the U.S. company remained his favorite merger candidate despite its decision to exit Europe by selling Opel and having rebuffed FCA's approaches several times already.
"We weren't interested before and we're even less interested now," GM President Dan Ammann told reporters in Geneva.
A combination of VW and FCA could in theory create a European market leader with a share of around 30 percent, give VW a strong foothold in North America through FCA's Chrysler operations and fix FCA's lack of scale in Asia. But the combination could also mean thousands of job losses that unions and politicians from Italy to Germany would strongly oppose.
Mueller also stressed scale was not a priority for VW.
"In my opinion, size does not matter," he said. "I have always said volume is not our sole goal. We want to be a successful manufacturer in every way."
DIESELGATE WOES
Marchionne is courting VW at the worst possible time.
The German company is at the start of a multi-billion-euro transformation to embrace electric cars and automated driving as it struggles to overcome its emissions scandal.
While grappling with billions of costs for fines, buy-backs and other charges in the United States, VW is also facing a mounting challenges from consumer groups seeking compensation.
The group is battling with its powerful labor unions too about cost cuts to fund its new strategy.
Since being rejected by GM, Marchionne has focused on eliminating debt and shifting production towards higher-margin vehicles, including SUVs, to become a more attractive merger partner in future. But his options appear to be dwindling.
"In western countries we believe that Volkswagen remains the main candidate for M&A, but after dieselgate, which likely stopped everything for a while, the top candidates for an FCA deal moved to the East (Koreans or Chinese), with all the risks on timing and political consequences that they would bring," said Angelo Meda, head of equities at Banor SIM.
Some analysts also question why anyone would buy FCA now when the price could be set to fall, given the North American market - where it makes most of its profits - may be peaking.
Gapping down
In reaction to disappointing earnings/guidance:
In reaction to disappointing earnings/guidance:
- GNE -14.7%, VRA -14.2%, EXPR -11.9%,
- ALQA -11.5%, (also initiated a process of identifying strategic alternatives for the contract manufacturing business )
- ARA -10.9%, HYGS -8.9%, PQ -8.7%, URBN -6.7%, BOJA -6.1%, CIEN -3.9%, BOBE -3.6%
- RGNX -2.6%, (also announces that the first patient in a Phase I/II clinical trial of REGENXBIO's investigational gene therapy RGX-501 for the treatment of homozygous familial hypercholesterolemia has been dosed)
- KODK -2.5%, RRR -1.4%
Select metals/mining stocks trading lower:
- GFI -3.5%, SBGL -3.4%, AG -2.6%, HMY -2.3%, BHP -1.9%, AUY -0.8%, ABX -0.7%
Select oil/gas related names showing early weakness:
- RIG -1.4%, RDS.A -1.2%, MRO -1%, BP -0.8%, TOT -0.8%
Other news:
- HIIQ -15% (launches a secondary underwritten public offering of shares of its Class A common stock )
- GEO -6.3% (prices its previously announced public offering of 6,000,000 shares at $41.75/share)
- LADR -4.8% (prices 3 mln common stock offering by selling stockholders for gross proceeds of approx. $42 mln)
- FOXF -4.2% (announces secondary offering of 5,108,718 shares by one of its existing stockholders)
- LAND -3.9% (to sell approx. 1.4 mln shares of its common stock in an underwritten public offering)
- CAT -2.1% (NY Times report discussing allegations of tax fraud)
- COTV -2% (prices offering of 8.42 mln shares of common stock, by certain stockholders at a $36.00 per share)
- NVO -1.2% (Bloomberg details that Novo Nordisk (NVO) might miss its diabetics treatment targets)
Analyst comments:
- GOLD -2.1% (downgraded to Underperform at RBC Capital Mkts)
- BT -1.4% (downgraded to Neutral from Buy at Goldman)
Gapping up
In reaction to strong earnings/guidance:
In reaction to strong earnings/guidance:
- MFIN +35.1%, HH +31.7%, PRSS +19.2%, REXX +17.5%, BIOC +17.3%, EKSO +11.1%
- AVAV +7.1%, YIN +7.1%, PLCE +6.8%, ZAGG +6.7%, SCMP +6.7%, CLNE +6.6%, HRB +6%
- TLGT +3.8%, NCS +3.4%, REGI +2.8%, OPTT +2%, GTT +2%, AERI +1.8%,RIGL +1.5%
- OA +1.4%, TISI +1%, CERS +0.8%, CBIO +0.7%
M&A news:
- TSL +5.7% (still checking, potentially related to pending to "go private" soon)
- RH +1.9% (UK Betaville blogger suggests Williams-Sonoma is 'stalking Restoration Hardware')
Select EU financial names showing strength:
- ING +2%, CS +1.8%, DB +1.4%, LYG +1%
Other news:
- PRKR +50.2% (continued strength following favorable patent ruling)
- XTLB +14.4% (continued strength)
- SHIP +12.6% (enters into a definitive agreement with one of its senior lenders for the early termination of a credit facility, which is expected to result into a material gain and equity accretion; the gain to the Company is estimated to be approximately $11.4 million after completion)
- EXTR +7.4% ( to acquire Avaya's networking business for approximately $100 million )
- NTLA +5.1% (presents updated data showing increased levels of genome editing efficiency in vivo and durability results with its CRISPR/Cas9 technology)
- CLRB +4.5% (enters into a licensing agreement with the Wisconsin Alumni Research Foundation for intellectual property rights covering the method of use for CLR 131), TLGT +3.8% (receives approval of the Co's abbreviated new drug application from the FDA of Clobetasol Propionate Gel)
- KERX +3.3% (FDA has accepted for review the supplemental New Drug Application for Auryxia)
- OPK +2.8% (receives notification from the EC designating its oligonucleotide-based AntagoNAT)
- FCSC +1.9% (Fibrocell Science entered into securities purchase agreement with existing investors for sale of $8.0 mln Series A Convertible Preferred Stock and accompanying warrants )
- DKS +0.9% (slightly rebounding following yesterday's 9% decline, also several analysts defending stock this morning)
Analyst comments:
- MIK +2.6% (upgraded to Buy from Neutral at BofA/Merrill)
- IPXL +2.2% (upgraded to Buy from Hold at Deutsche Bank)
- MWA +1.6% (initiated with a Buy at Goldman)
- SWKS +1% (initiated with a Outperform at Wells Fargo)
- AVB +1% (upgraded to Buy from Neutral at BofA/Merrill)
Early premarket gappers
Gapping up: PRKR +61%, MFIN +35.1%, BIOC +19.5%, PRSS +19.2%, SHIP +15.8%,EKSO +11.1%, XTLB +10.7%, REXX +9.7%, AVAV +9%, YIN +8.2%, SCMP +8%,HRB +7.8%, CLNE +7%, EXTR +6.6%, ZAGG +6.6%, PLCE +6.6%, TSL +5.5%, SDRL+3.6%, NCS +3.4%, TLGT +3.1%, CCE +3%, NWL +3%, REGI +2.8%, OPTT +2%,REVG +1.8%, RIGL +1.5%, GTT +1.5%, RAD +1.4%, RIO +1.4%, OA +1.4%, MT+1.3%, STM +1%, TISI +1%, CBIO +0.9%, AMD +0.8%, AUY +0.8%, FCX +0.8%,CERS +0.8%
Gapping down: EXPR -17.6%, HIIQ -13.5%, ARA -10.9%, ALQA -10.3%, HYGS-8.9%, PQ -8.7%, GEO -6.3%, URBN -5.5%, BOJA -4.8%, EDIT -4.6%, CIEN -4.3%,LAND -3.8%, CAT -3.8%, FOXF -3.7%, BOBE -3.6%, LADR -3.4%, SBGL -3.4%, GFI-3.2%, AERI -2.6%, RGNX -2.6%, SHPG -2.5%, KODK -2.5%, FCSC -1.9%, GSK-1.7%, BHP -1.6%, GOLD -1.3%, AZN -1.3%, BUD -1.3%, APC -1.2%, VRX -1.2%,RDS.A -1.1%, RIG -0.6%, ABX -0.6%, TOT -0.6%, BP -0.6%, MRO -0.5
Gapping down: EXPR -17.6%, HIIQ -13.5%, ARA -10.9%, ALQA -10.3%, HYGS-8.9%, PQ -8.7%, GEO -6.3%, URBN -5.5%, BOJA -4.8%, EDIT -4.6%, CIEN -4.3%,LAND -3.8%, CAT -3.8%, FOXF -3.7%, BOBE -3.6%, LADR -3.4%, SBGL -3.4%, GFI-3.2%, AERI -2.6%, RGNX -2.6%, SHPG -2.5%, KODK -2.5%, FCSC -1.9%, GSK-1.7%, BHP -1.6%, GOLD -1.3%, AZN -1.3%, BUD -1.3%, APC -1.2%, VRX -1.2%,RDS.A -1.1%, RIG -0.6%, ABX -0.6%, TOT -0.6%, BP -0.6%, MRO -0.5
David Tepper of Appaloosa Management discusses markets on CNBC; constructive on market despite valuation
- David Tepper (Appaloosa Management) is on CNBC discussing the markets...
- Tepper notes the market isn't cheap but there is synchronized growth around the world, sugar is still being put on by the ECB, BOJ and Fed, and there will be less regulation, so it's hard to short.
- Notes he was guarded about the market before due to trade friction with China, but believes we're past that now; notes the immigration policy has been watered down and hopefully will get trade tensions with Mexico figured out; all positives from a business perspective.
- Believes the Fed is behind the ball and needs to raise rates faster.
- Notes he is short bonds and long European equities
Japanese investors sold off French government bonds for the third consecutive month at the start of the year, reflecting souring sentiment on the country’s debt ahead of its presidential election next month.
The latest figures from the Ministry of Finance show Japanese money market managers sold ¥34.9bn ($0.3bn) of French debt in January. That is a significant slowdown from the ¥232bn dumped at the start of the year, but marks the first three-month selling streak since 2011. Japanese investors hold around 7 per cent of outstanding French debt.
Investors have sold off debt from the eurozone’s second largest economy as they begin to price in the increasing chances of Marine Le Pen triumphing in elections concluding in May. The far-right National Front leader has promised to hold a referendum on France’s eurozone membership and rip up the country’s EU budget rules, representing the biggest threat to the bloc’s established order in 60 years.
“Although the flow [of selling] was moderate there is a risk that it rises further in the run-up to the French election if the perceived risk of a Le Pen victory remains high,” said Elsa Lignos at RBC Capital Markets.
French bond yields have come under sustained pressure since the start of the year, with yields on 10-year debt hitting an 18-month high of 1.1 per cent last month (yields rise when a bond’s price falls).
The country’s debt is the worst performing major asset class this year, with benchmark yields up 32 basis points while German bunds have gained around 14bps.
Amid swirling political uncertainty, Japanese investors have taken comfort in German bonds instead, according to the MoF data. They snapped up ¥594.1bn of German debt last month, marking the biggest three-monthly cumulative rise in holdings since late 2014.
Despite a widening in the polls between Mr Macron and Ms Le Pen, betting company Betfair is showing just a one in four chance of a far-right triumph in May.
Still, yields have eased in the past week as polls show a widening lead for centrist Emmanuel Macron over Ms Le Pen in the final round run-off after rival François Fillon vowed to stay in the race despite an escalating embezzlement scandal.
A Trump hotel project seems to have involved a front for Iran's Revolutionary Guard
It wouldn’t be the first time Trump got into money-laundering trouble.
A lengthy new investigative story published by Adam Davidson in the New Yorker reveals that Donald Trump’s business dealings in Azerbaijan likely violated the Foreign and Corrupt Practices Act, and may have served as a conduit for money-laundering and other underhanded activities undertaken by the Iranian Revolutionary Guard.
It’s a very long New Yorker-y story that deserves your time and attention. But one of the main things it shows isn’t anything specific to Azerbaijan or Iran. It’s simply that we know very little overall about who Trump is in business with currently — and even less about who he has been in business with in the recent past.
The kind of exacting scrutiny that his finances would necessarily undergo in the event of a thorough investigation of Trump’s possible links to the Russian government would bring an enormous amount to light about a huge range of deals. That, in turn, might uncover illegal or scandalous activity that, like this story about Trump in Azerbaijan, has no apparent relationship at all with Vladimir Putin or Russian intelligence.
The key points:
- The Trump Organization partnered with an Azerbaijani businessman to build Trump Tower Baku, a hotel project in the country’s capital that, for a variety of reasons related to location and macroeconomic conditions, seemed like a very dubious economic prospect.
- The Trump Organization did not actually develop the project, but rather was paid to license the brand and for consulting services related to the hotel and the Trump brand — Trump people seem to have been fairly intimately involved as service providers.
- “The Azerbaijanis behind the project were close relatives of Ziya Mammadov, the Transportation Minister and one of the country’s wealthiest and most powerful oligarchs.”
- US diplomats have described Mammadov as “notoriously corrupt, even for Azerbaijan.”
- The Mammadovs were also deeply in business with an Iranian-owned firm called Azarpassillo, and Davidson quotes an expert on Iran who says “It looks like Azarpassillo is a front organization for the Revolutionary Guard.”
The story raises two related legal issues.
One is whether Trump’s business ties to an extraordinarily corrupt Azerbaijani family involved violations of the Foreign Corrupt Practices Act, a law that Trump has been sharply critical of in public but which remains on the books and which Attorney General Jeff Sessions swore during his confirmation hearings he was committed to upholding.
The other is whether the Mammadov-Azarpassillo nexus violates US sanctions against Iran. The legal rules barring US firms from receiving funds that originated with a sanctioned Iranian entity, which certainly includes the Revolutionary Guard, are quite strict. You can’t simply say you didn’t know that the developer who was paying you for your licensing services was actually getting his money from a Revolutionary Guard front group. You need to do strict due diligence.
Davidson’s case is strictly circumstantial since he can’t subpoena the kind of internal corporate records that would demonstrate clearly what the Trump Organization knew — or didn’t want to know — about the Mammadovs or their Iranian friends. But Trump’s Atlantic City casinos paid $10 million in fines two years ago for noncompliance with federal rules about money laundering. The Trump SoHo project also seems to have been a front for money laundering, though Trump himself evades legal liability for that one on the grounds that he didn’t actually own the project.
To know whether there is really a prosecutable offense here (as there was with the Atlantic City money laundering) or just some ties to shady friends (as seems to be the case with Trump SoHo), you would need to take a close look at the financial details of the Trump Organization and other such matters. And the fact that there may be crimes associated with this deal — or with other deals that we don’t happen to have in-depth journalism on — is one reason that an independent inquiry into the Russia situation is dangerous for Trump.
An independent prosecutor looking into Russia matters would want to see those documents. And once you pry into the documents, there’s no telling what you’ll find. Trump has been paying a political price for nondisclosure of his finances since long before the Russia story started dominating the headlines. The reason for that could have something to do with Moscow. But it might be something else entirely.