FT : Chemicals M&A is on fire Premium

Chemicals M&A is on fire Premium
How global chemical dealmaking is reshaping the world

Activist investor Elliott is known for being a patient legal fighter. But it will be hard to hide the pain inflicted on Monday by a Dutch court that knocked down its request to oust Akzo Noble’s chairman, Antony Burgmans, who has opposed engaging with an unwanted €26.9bn takeover approach from US rival PPG Industries.

PPG has been turned away from Akzo Noble three times since March, which means that the only option left for the American paintmaker is to launch a full-blown hostile bid. But what is interesting here is the intensifying battle to consolidate the global chemical industry. Read Michael Pooler’s analysis on the topic here as it offers a lot of insight.

As major economies putted along at a slow pace last year, large chemical makers have looked to buy revenue growth. Announced or completed chemicals deals in 2016 hit $263.6bn including debt, according to data provider Dealogic, compared to $177.4bn in 2015. During that time, chemical deals have reshaped global markets for everything from food production to oil additives.

For example, three agrichemical megadeals have rocked the world of dealmaking recently. With ChemChina’s $44bn takeover of Swiss seed maker Syngenta, many of the world’s top patents for crop seeds will be entrusted to the Chinese government, which controls ChemChina.

PPG’s aggressive activity in the lowlands follows other paint megamergers, such as US paintmaker Sherwin-Williams’ agreement to pay $11.3bn for domestic rival Valspar in March last year. In industrial gases, decades of consolidation was punctuated last week with the finalisation the $70bn merger between Germany’s Linde and Praxair of the US.

With the number of chemical groups shrinking, there’s also likely to be backlash from regulators and shareholders, bankers have warned. DD is watching the splitting of the Dow and DuPont merger as a harbinger of things to come.

(ZH) "This Market Is Crazy": Hedge Fund Returns Hundreds Of Millions To Clients

While hardly a novel claim - in the past many have warned that Australia's housing and stock market are massive asset bubbles (which local banks were have been forced to deny as their fates are closely intertwined with asset prices even as the RBA is increasingly worried) - so far few if any have gone the distance of putting their money where their mouth was. That changed, when Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return "hundreds of millions" of dollars to its clients according to the Sydney Morning Herald, citing an impending property market "calamity" and the "overvalued and dangerous time in this cycle".

"Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client's assets is what all fund managers should put before their own interests," Philip Parker, who serves as Altair's chairman and chief investment officer, said in a statement on Monday quoted by the SMH.

The 30-year investing veteran said that on May 15 he had advised Altair clients that he planned to "sell all the underlying shares in the Altair unit trusts and to then hand back the cash to those same managed fund investors." Parker also said he had "disbanded the team for time being", including his investment committee comprising of several prominent bears such as former Morgan Stanley chief economist and noted bear Gerard Minack and former UBS economist Stephen Roberts.

Parker said he wanted "to make clear this is not a winding up of Altair, but a decision to hand back client monies out of equities which I deem to be far too risky at this point."

"We think that there is too much risk in this market at the moment, we think it's crazy," Parker said with a candidness few of his colleagues are capable of, at least when still managing money.

"Valuations are stretched, property is massively overstretched and most of the companies that we follow are at our one-year rolling returns targets – and that's after we've ticked them up over the past year. Now we are asking 'is there any more juice in these companies valuations?' and the answer is stridently, and with very few exceptions, 'no there isn't'."

Parker outlined a list of "the more obvious reasons to exit the riskier asset markets of shares and property". These include:
* the Australian east-coast property market "bubble" and its "impending correction";
* worries that issues around China's hot property sector and escalating debt levels will blow up "later this year";
* "oversized" geopolitical risks and an "unpredictable" US political environment;
* and the "overvalued" Aussie equity market.
But, to Parker, it was the overheated local property market that was the clearest and most present danger. "When you speak to people candidly in the banks, they'll tell you very specifically that they are extraordinarily worried about the over-leverage of the Australian population in general," he said. He flagged how exposed the country's lenders were to a correction.

"If they get a property downturn anything similar to 1989 to 1991 then they are going to have all sorts of issues," Parker said.

Parker's decision comes after a robust year of double-digit gains on the ASX. Not only that, but he is acting on his convictions by returning money to clients and abandoning the fees attached to a $2 billion advisory agreement.

Parker, however, displayed little nervousness about making such a significant decision. In fact, he said he has never been more certain of anything.

"Let me tell you I've never been more certain of anything in my life," Parker said. "I am absolutely certain we are in a bubble in this property market. Mortgage fraud is endemic, it's systemic, it's just terrible what's going on. When you've got 30-year-olds, who have never seen a property downturn before, borrowing up to 80 per cent to buy three and four apartments, it's a bubble."

In a rather dire forecast, Parker outlined a situation where the stock market could fall as low as 5200 points in the coming months, depending on the confluence of his identified risk factors.

"Australia hasn't had its GFC event, we've been living in this fool's paradise. But if China slows down the way the guys think it will towards the end of this year, then that's 70 per cent of our exports [affected]. You can see already that the commodity market is turning down."

Some speculated whether there is another motive behind the sudden shuttering, but Parker stridently denied any suggestion that there were other factors at play other than a pure investment decision. No personal issues, no position that has blown up and forced his hand. "No, God no," he said. "We've sold out all of our positions at huge profits for our clients."

"This game is all about reputation. I feel that we are right."

For now, Mr Parker said he was happy to take some time off. "I've never had more than five weeks off in a row. I'm probably going to have four months in a row, and if something happens in between, I'll think about it. Otherwise I'll enjoy the time off."

Come to think of it, in this "market", that may be the smartest thing to do.

>>> What to look at today -30th of May 2017

Asian indices are mixed as thin trading persists for the 2nd day of Dragon Boat Festival day, with Shanghai, Taiwan, and Hong Kong all joining US markets for holiday break. Korea's Kospi is seeing some profit taking from recent record highs, Australia is marginally higher, while Nikkei225 is dragged down by USD/JPY retreat below 111. Modest risk-off is playing out in FX space going into key US PCE inflation data and China manufacturing PMIs this week, both of which have shown underwhelming prints over the past 2 months. EUR/USD is also under pressure, falling for the 4th straight session to 1.1120. Dovish remarks from ECB head Draghi justifying the current easy stance were compounded by escalating standoff between Greece and negotiations, as German press reported Athens may opt out of next payment without a debt deal. GBP/USD was also down slightly to fall below $1.28, with another poll showing Labour gaining on Conservatives heading into elections in just 10 days. Japan jobless rate remains at 23-year low 2.8%, though household spending continues to falter with its 14th consecutive month of decline. Recall the latest Labor Cash earnings data out of Japan saw the biggest decline in nearly 2 years, suggesting that tight labor market is not producing wage inflation. Former BOJ member Shirai notes this is largely to the structural rigidity in Japan society.

Nikkei +0.01% HAng Seng +0.24% CSI Closed Shanghai Closed

Eur$$ 1.1120 6.8312 CNY 6.8555 JPY 110.91 GBP 1.2815 CHF 0.9794 RUB 56.5684 WTI$ 49.81 +0.02%

S&P -0.06% EuroStoxx -0.14% Dax -0.13% FTSE -0.21% SMI -0.24%

Macro :
- Portuguese PM Plans Common Platform for Banks: Handelsblatt
- The Fed Is Going to Hike. That’s Bullish for Bonds: Macro View
- Government Policy May Not Meet Market Expectations, Bullard Says
- Ibovespa Drops on Brazil Outlook Cut as Temer Fights to Survive
- Italian Early Elections in Fall Are More Likely, Analysts Say

Keep an eye on :
- ABI BB : AB InBev Strategy Chief Kamenetzky Buys EU4.58m Stock Off-Market
- AIR FP : Aeroflot to Order Additional 14 Airbus A350-900: Interfax
- AF FP : Hop! Air France Pilot Union Calls for July 3-8 Strike: Echos
- AKZA NA : Elliott Fails to Get Court Backing to Oust Akzo Nobel Chairman
- ARYN VX : Aryzta 3Q Revenue EU975.2m, Aryzta Says Europe Improvement to Take Longer Than Expected
- BLT LN : BHP Supports Government Changes to Allow Carbon Capture Funding
- BMW GY : BMW Expects Supplier Bosch Will Pay for Production Disruption
- EDF FP : EDF Takeover of Areva Nuclear Unit Approved by European Union
- ELIOR FP : Elior 1H Net Rises 44% to EU58m, Nicolas Wertans Named CEO of Elior France
- GLEN LN : Glencore Sent Letter to Australian Authorities on Copper Costs
- GLEN LN : Glencore Says Australia Copper Sites Under Threat on Costs: AFR
- HMB SS : H&M Chairman Has Bought Another 2.9m Shares in Company
- IAG LN : British Airways: Heathrow, Gatwick Full Schedules Resume May 30
- IIA AV : Immofinanz 1Q Net Income From Continuing Ops EU101.7m
- LIN GY : Linde Group Said to Receive ~EU1B Order From Russia: Sueddeutsche
- RYA LN : Ryanair Sees 8% Rise in 2017/18 Net Income

>>> Europe : Brokers Upgrades & Downgrades - 30th of May 2017

>>> Up
*Intesa Raised to Overweight at JPMorgan, PT EU3.20
*Meggitt Raised to Buy at AlphaValue
*ProSieben Raised to Hold at DZ Bank, PT EU36
*Uniper Raised to Hold at HSBC

>>> Down
*Bureau Veritas Cut to Hold at Kepler Cheuvreux, PT EU21.60
*Gamesa Cut to Hold at HSBC
*Nordex Cut to Reduce at HSBC
*Proximus Cut to Market Perform at Raymond James
*Systemair Cut to Neutral at Swedbank, PT SEK158
*Vestas Cut to Reduce at HSBC

>>> Initiation
*Ferrexpo New Buy at HSBC, PT 210p

>>> Call
>> Country
*U.K. STOCKS RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
>> Sector
*AUTO SECTOR CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*UTILITIES RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
*Banks – downgrade from benchmark to underweight at Deutsche Bank
*Energy – upgrade from underweight to overweight at Deutsche Bank
*Construction materials – upgrade from underweight to overweight at Deutsche Bank

(DBK) Equity Strategy : Sector allocation: banks to underweight, energy to overw

Sector allocation: banks to underweight, energy to overweight

* Banks – downgrade from benchmark to underweight, as fading Euro area growth momentum is set to weigh on the sector over the coming months. The Euro area composite PMI new orders index, at 55.5, is consistent with 3% Euro area GDP growth, significantly above our economists’ GDP forecast of 1.8%. If PMIs fade back to the levels consistent with our economists’ projections (at around 53), this would imply PMI momentum (i.e. the six-month change in PMIs) turning negative over the coming months. Banks are among the sectors most sensitive to swings in Euro area PMI momentum and tend to underperform when it turns negative. There is no particular valuation support, with the sector’s P/E discount at 20%, roughly in line with the long-term average. We expect PMI momentum to trough later in the year, at which point we will be looking to turn more positive on banks, especially given that our sector analysts see upside for the sector over the next 12 months (as a function of the expected interest rate normalization).
* Energy – upgrade from underweight to overweight: the sector has underperformed the market by 12% year-to-date, making it the worst performing sector so far this year. Following the recent correction, energy is around 5% cheap on our short-term fair-value model based on oil and sterling (the largest upside in four years). It also ranks as the cheapest sector on our European sector valuation scorecard. The relationship between the oil price and the USD points to near-term upside for oil, given the recent USD weakness. Lastly, oil speculative positions have fallen sharply from asix-year peak in February, pointing to a more balanced market sentiment. The key risks for the sector are the continued rebound in US shale oil production and the scope for renewed USD strength weighing on commodity prices (though we note that our FX strategists have recently reduced their projected USD upside for the rest of the year).
* Construction materials – upgrade from underweight to overweight: the sector has underperformed the market by around 9% since early December, making it the third worst performing sector over that period (after energy and food retail). The correction now seems to have gone too far, given that: (a) the sector is already priced for a slowdown in global growth momentum that is significantly harsher than the mild fade that we envisage; (b) it is discounting a sharp rise in US credit spreads, even as the actual spreads have continued to tighten; (c) the sector would benefit from a further fall in the European policy uncertainty index from still-elevated levels; and (d) the sector’s P/E relative is close to the lowest level since 2009.

>>> Asian Update

Asia Mid-Session Market Update: Japan jobless rate remains at 23-year low but household spending remains soft

***Politics***
- (UK) According to Times/Survation Poll, support for UK Conservatives at 43% vs 37% for Labour - US financial press
- (UK) Opposition Labour Party leader Corbyn: Would be open to Scotland referendum talk with SNP if Labour party wins next month's elections - UK press
- (UK) PM May reiterates prepared to walk away from Brexit talks without a deal with the EU if the agreement was not good enough – UK Press
- (BR) Brazil President Temer: No parties informed him of plan to quit coalition; Still fully capable of governing
- (GR) Greece may opt out of next payment without a debt deal - German Press

***Key economic data***
- (JP) JAPAN APR RETAIL SALES M/M: +1.4% (6-month high) V -0.2%E; RETAIL TRADE Y/Y: 3.2% (2-year high) V 2.3%E
- (JP) JAPAN APR OVERALL HOUSEHOLD SPENDING Y/Y: -1.4% V -0.9%E; 14th consecutive month of decline
- (JP) JAPAN APR JOBLESS RATE: 2.8% V 2.8%E (matches lowest rate since Jun 1994)
- (AU) AUSTRALIA APR BUILDING APPROVALS M/M: +4.4% V +3.0%E; Y/Y: -17.2% (8th consecutive decline) V -18.1%E
- (NZ) NEW ZEALAND APR BUILDING PERMITS M/M: -7.6% V -1.2% PRIOR; 2nd straight decline and biggest decline in 5 months

***Asia Session Notable Observations, Speakers and Press***
- Asian indices are mixed as thin trading persists for the 2nd day of Dragon Boat Festival day, with Shanghai, Taiwan, and Hong Kong all joining US markets for holiday break. Korea's Kospi is seeing some profit taking from recent record highs, Australia is marginally higher, while Nikkei225 is dragged down by USD/JPY retreat below 111. Modest risk-off is playing out in FX space going into key US PCE inflation data and China manufacturing PMIs this week, both of which have shown underwhelming prints over the past 2 months. EUR/USD is also under pressure, falling for the 4th straight session to 1.1120. Dovish remarks from ECB head Draghi justifying the current easy stance were compounded by escalating standoff between Greece and negotiations, as German press reported Athens may opt out of next payment without a debt deal. GBP/USD was also down slightly to fall below $1.28, with another poll showing Labour gaining on Conservatives heading into elections in just 10 days.
- Economic data were also largely mixed. Japan jobless rate remains at 23-year low 2.8%, though household spending continues to falter with its 14th consecutive month of decline. Recall the latest Labor Cash earnings data out of Japan saw the biggest decline in nearly 2 years, suggesting that tight labor market is not producing wage inflation. Former BOJ member Shirai notes this is largely to the structural rigidity in Japan society. In Australia, building approvals rose m/m after a significant decline in the prior month, however economists with Westpac said the rebound is likely to be temporary, and housing investment will still enter into material decline later this year and becoming a drag on growth.

China
- (CN) PBOC denies press report it told banks to deposit in dollars, in order to meet liquidity needs - financial press
- (CN) Templeton's Mobius: Iron ore consumption in China likely to be sustained as infrastructure buildup continues - press

Japan
- (JP) Former BOJ member Shirai: Japan has a labor shortage but labor structure is not allowing wage inflation

Australia/New Zealand
- (AU) Westpac: Monthly update on Australia building approvals was more positive than expeted, but slowdown theme remains - press
- (NZ) Moody’s: Budget highlights fiscal flexibility and shock absorption capacity

Korea
- (KR) South Korea Financial Supervisory Service (FSS): Bad debt ratio for loans by local lenders in Q1 fell 0.04pts to 1.38%, lowest since Q4 of 2012 - Korean press
- (KR) South Korea conducted drills with US B-1B strategic bomber on Monday

***Asian Equity Indices/Futures (00:00ET)***
- Nikkei -0.3%, Hang Seng closed, Shanghai Composite closed, ASX200 +0.2%, Kospi -0.5%
- Equity Futures: S&P500 flat; Nasdaq flat, Dax flat, FTSE100 -0.1%

***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.1120-1.1170; JPY 110.75-111.30; AUD 0.7415-0.7445; NZD 0.7035-0.7060
- June Gold flat at 1,268/oz; July Crude Oil +0.1% at $49.86/brl; July Copper -0.5% at $2.56/lb
- (JP) Japan MoF sells ¥1.99T v ¥2.2T indicated in 2-yr 0.1% (prior 0.1%) JGBs; Avg yield: -0.162% v -0.193% prior; bid to cover: 5.06x v 5.51x prior
- (AU) Australia MoF sells A$150M in 2.0% in 2035 bonds; bid-to-cover 2.36x
- (AU) Australia Office of Financial Management (AOFM) CEO: No plan to extend bond curve beyond 30 years - press

***Asia equities notable movers***
Australia
- Insurance Australia (IAG) +3.1%; Raised at Credit Suisse
- Sandfire Resources (SFR) +1.3%; Guides FY17 production

Japan
- Suzuki (7269) +0.5%; Apr production
- Panasonic (6752) +0.4%; To increase output at Tesla battery plant - comments from mid-term outlook
- Japan Airlines (9201) -0.5%; Cut at JPMorgan
- Toshiba (6502) -0.7%; INCJ to enter into negotiations with Western Digital regarding joint bid for chip unit - Japanese Press

TechCrunch : UK eyeing fines for social media content moderation failures

UK eyeing fines for social media content moderation failures

After the UK Prime Minister Theresa May secured a joint statement from the G7 on Friday, backing a call for social media firms to do more to combat online extremism, a Conservative minister has suggested the party is open to bringing in financial penalties or otherwise changing the law in order to encourage more action on problem content from tech companies if it’s returned to government at the UK general election on June 8.

The Guardian reports the comments by security minister, Ben Wallace, speaking to BBC Radio 4 on Sunday. Wallace’s words follow an exposé by the newspaper of Facebook’s moderation guidelines — which the minister dubbed “totally unacceptable”, citing an example of Facebook’s moderator guidance saying it’s “OK to publish abuse of under-seven-year-old children from bullying as long as it doesn’t have captions alongside”. Facebook’s rules have also been criticized by child safety charities.

The company declined to comment for this story. But Facebook has previously said it intends to make it simpler for users to report content problems, and will speed up the process for its reviewers to determine which posts violate its standards (although it has not specified how it will do this). It has also said it will make it easier for moderators to contact law enforcement “if someone needs help”.

Beyond bullying and child safety issues, concern about social media platforms being used to spread hate speech and extremist propaganda has also been rising up the agenda in Europe. Earlier this year the German cabinet backed proposals to fine social media platforms up to €50 million if they fail to promptly remove illegal hate speech — within 24 hours after a complaint has been made for “obviously criminal content”, and within seven days for other illegal content. It appears a Conservative-majority UK government would also be looking seriously at applying financial penalties to try to enforce content moderation standards on social media.

Wallace’s comments also follow a UK parliamentary committee report, published earlier this month, which criticized social media giants Facebook, YouTube and Twitter for taking a “laissez-faire approach” to moderating hate speech content. The committee also suggested the government should consider imposing fines for content moderation failures, and called for a review of existing legislation to ensure clarity about how it applies.

After chairing a counterterrorism session at the G7 on Friday, which included discussion about the role of social media in spreading extremist content, the UK’s PM May said: “We agreed a range of steps the G7 could take to strengthen its work with tech companies on this vital agenda. We want companies to develop tools to identify and remove harmful materials automatically.”

It’s unclear exactly what those steps will be — but the possibility of fines to enforce more control over platform giants is at least now on the table for some G7 nations.

For their part tech firms have said they are already using and developing tools to try to automate flagging up problem content, including seeking to leverage AI. Although given the scale and complexity of the content challenge here, there will clearly not be a quick tech fix for post-publication moderation in any near-term timeframe.

Earlier this month Facebook also said it was adding a further 3,000 staff to its content reviewer team — bringing the total number of moderators it employs globally to review content being posted by its almost two billion users to 7,500.