>>> Braas Monier activist Petrus canvassed “nearly all” of top 20 shareholders o

Braas Monier activist Petrus canvassed “nearly all” of top 20 shareholders on Standard Industries offer

Petrus Advisers spoke to nearly all of Braas Monier’s (ETR:BMS) top 20 investors prior to publishing a letter aimed at further quashing Standard Industries’ hostile takeover offer, Petrus partner Till Hufnagel told this news service.
Braas Monier’s management has repeatedly told shareholders to reject the EUR 25 per share offer Standard Industries made on 14 September, detailing four main reasons why the offer undervalues the company and its prospects. Its formal response is still pending.
Standard Industries has pressed ahead with the bid based on the circa-40% stake already committed to the tender via its fully-owned affiliate 40 North (29.11%) and another shareholder Monier Holdings with its 10.8% stake. It intends to combine the target with its own company Icopal.
A person familiar with the target said more than half of the 60% of shares not already tendered by Monier Holdings and 40 North are believed to be supportive of the company’s stance against the offer. If an AGM was held tomorrow, the offer would not succeed, the person suggested.
London-based activist hedge fund Petrus, which supports Braas Monier’s view, has uncovered similar sentiment among the shareholders it surveyed, Hufnagel said.
Petrus did not speak to 4.89% investor Wellington Management Group nor 40 North prior to sending the letters. But sounded out “nearly all of the top 15 to 20 shareholders with very few exceptions,” Hufnagel said. “There’s been very clear feedback that people are very unhappy with what’s been happening here.”
Petrus’ letter recommends a valuation for Braas Monier of between EUR 28.50 and EUR 31 per share. The letter was addressed to 40 North, which is an affiliate of Standard Industries.
Standard Industries and Braas Monier both declined to comment on the letter.
Aside from voicing its opposition to the low offer, Petrus wrote a second letter to Braas Monier’s management urging it to be proactive in the face of the “aggressive” approach from Standard Industries, Hufnagel said.
He believes the company is being unduly restricted from taking up M&A opportunities while fending off the bid. Hufnagel notes that the offer conditions prevent the company from entering into material transactions valued at more than EUR 50m.
“We don’t want them to sit still and wait for the outcome of the offer and lose precious time in which they normally would have created value by driving the operations,” Hufnagel said.
“We are not the management team so we won’t tell them what M&A to do… even if there are a lot of acquisitions, and we do believe there are one or two smaller ones that would be a great fit, it has to come at the right terms and they’ll have to figure that out.”
The share price reaction to the offer shows the market does not believe the deal will happen at that level, Hufnagel said. Braas Monier's stock has been trading above the offer price since the deal was announced, and closed Wednesday at EUR 26.75.
“The chances of these guys getting to their goal, which is quite clearly to dominate the company and combine with Icopal, we think it’s going to be very difficult for them.”
Standard Industries is unlikely to alter the price or terms of the offer, although it would likely comment once the company releases its official response to the offer document, a person familiar with the bidder said.
Petrus’ aggression via the letters was unwarranted, but not unexpected given its activist reputation, the person familiar with the bidder said.
Wellington recently disclosed it had sold its stake down to 4.89% from 9.89% on 11 October.

>>> Mattel highlights from earnings presentation slides (30.62 -0.09)

Mattel highlights from earnings presentation slides
  • Expect to deliver at high end of $250-300 million in two-year gross cost savings by the end of 2016
  • Gross Margin FY16 Outlook:
    • Headwinds: Unfavorable foreign exchange, Changes in mix, but expected to moderate in Q4, Labor inflation
    • Tailwinds: Funding Our Future cost savings, Incremental cost savings program, Favorable commodity trends
    • Targeting around 48.5%; FX & mix headwinds should moderate in Q4
  • Adjusted SG&A FY16 Outlook:
    • Target $55-65MM savings vs. 2015 adjusted SG&A baseline of $1.465B
    • Reflects goal to absorb the overhead from the Fuhu & Sproutling acquisitions (not in original target)
  • FY16 Financial Outlook:
    • Sales Growth: Goal is to hold net sales relatively flat in constant currency, Currency is estimated to have a 2-4% negative impact to net sales on a reported basis [Long-term objective low-to-mid single digits)
    • Gross Margin: See Above [Long-term objective ~50%)
    • Advertising: ~12% [Long-term objective 11-13%]
    • SG&A : See Above [Long-term objective 22-23%]
    • Operating Margin: Long-term objective 15-20%
    • Currency is estimated to negatively impact EPS at the low-end of the $0.30 to $0.40 range (including Brexit)

>>> Mattel misses by $0.01, beats on revs

Mattel misses by $0.01, beats on revs

  • Reports Q3 (Sep) earnings of $0.70 per share, excluding non-recurring items, $0.02 worse than the Capital IQ Consensus of $0.71; revenues rose 0.2% year/year to $1.8 bln vs the $1.76 bln Capital IQ Consensus.
    • For the third quarter, worldwide gross sales for Mattel Girls & Boys Brands were $1.06 bln, down 5% as reported, and down 4% in constant currency, versus the prior year.
    • Third quarter worldwide gross sales for Fisher-Price Brands, which includes the Fisher-Price Core, Fisher-Price Friends and Power Wheels brands, were $661.5 mln, up 6% as reported, and up 8% in constant currency, versus the prior year.
    • Third quarter gross sales for American Girl Brands, which offers American Girl-branded products directly to consumers, were $125.5 mln, up 14% as reported, and up 15% in constant currency, versus the prior year.
    • Third quarter gross sales for Construction and Arts & Crafts Brands, which includes the MEGA BLOKS and RoseArt brands, were $118.6 mln, flat as reported, and up 6% in constant currency, versus the prior year.
  • "Our core brands continue to show improved strength and vibrancy, contributing to very encouraging and broad-based top-line momentum. And we continued to manage costs effectively, while making important investments in brand building, commercial excellence and emerging market expansion. Overall, our strategies are generating good progress on many fronts, and while we still have a critical fourth quarter to execute, we remain broadly on track to deliver on our full-year outlook."

>>> American Express beats by $0.28, reports revs in-line; raises FY16 EPS above

American Express beats by $0.28, reports revs in-line; raises FY16 EPS above consensus; reaffirms FY17 EPS guidance (61.25 +1.17)

  • Reports Q3 (Sep) earnings of $1.24 per share, excluding non-recurring items, $0.28 better than the Capital IQ Consensus of $0.96; revenues fell 5.1% year/year to $7.77 bln vs the $7.71 bln Capital IQ Consensus. Excluding the impact of Costco-related revenues in the year ago-period, adjusted revenues net of interest expense increased 5 percent, reflecting a rise in Card Member spending, along with higher net interest income and net card fees.
  • Adjusted billed business was up 7 percent, adjusted loan growth remained healthy and net card fees rose 10 percent, reflecting strong performance across our premium card portfolios.
  • Third-quarter net income was $1.1 billion, down 10 percent from $1.3 billion a year ago. The current quarter included higher spending on growth initiatives, largely reflected in marketing and promotion expenses, as well as solid progress related to company's efforts to reduce its cost base. Credit quality remained strong, and the company returned a substantial amount of capital to shareholders through share repurchases and dividends. Year-ago results included business related to the company's relationship with Costco that ended earlier this year.
  • The company's return on average equity (ROE) was 26 percent, down from 27 percent a year ago.
  • Co issues upside guidance for FY16, raises EPS to $5.90-6.00 from $5.40-5.70, excluding non-recurring items, vs. $5.60 Capital IQ Consensus Estimate.
  • Co reaffirms guidance for FY17, sees EPS of at least $5.60, excluding non-recurring items, vs. $5.55 Capital IQ Consensus Estimate.

>>> Notable post-earnings movers

Notable post-earnings movers
  • Post-earnings gainers: AXP +5.1%, URI +4.1%, MAT +3.9%, CTXS +3.1%, FTI +2.4%, TSCO +1.5%, KALU +1.1%
  • Post-earnings/guidance losers: DXPE -17.2%, SCSS -16.7%, TBI -8.5%, EBAY -7.9%, BJRI -7.5%, FMSA -4.8%, LHO -1.5%,CLB -1.4%, LRCX -1.2%

>>> Maersk Drilling paired with a Norwegian peer makes logical step in company s

Maersk Drilling paired with a Norwegian peer makes logical step in company split - Merger Market

  • Strong offshore players could acquire
  • Further division as M&A catalyst
  • Depressed oil market could discourage buyers

Denmark-based Maersk Drilling could combine with a Norwegian drilling peer as a consequence of its parent company’s restructuring process, two sector bankers and two sector lawyers said.
On 22 September, A.P. Moller-Maersk [CPH:MAERSK] confirmed it will divide its business into two divisions - transport and logistics, and energy. The energy division will comprise Maersk Drilling, Maersk Oil, Maersk Supply Service and Maersk Tankers. New investments into its Maersk Drilling, Maersk Supply Services, and Maersk Tankers businesses will be limited, while Maersk Oil will focus on selected basins through M&A.
It could make sense for Maersk Drilling to enter into a partnership with a Norwegian offshore drilling peer engaged in refinancing, and together combine these into a Norwegian holding company that would be recapitalised, the first sector lawyer said.
In previous report by this news service, it was argued that Maersk Oil, which sits alongside Maersk Drilling within the energy division, would be a more attractive M&A target without its attachment to the drilling business.
“Name me one other integrated E&P and oilfield services company,” the first sector banker said. “There is none. The last wasEni [BIT:ENI] and Saipem [BIT:SPM]. Statoil [STO:STLO] had some rigs but everyone has now discarded that model for a reason.”
Norwegian magnates on the prowl
A.P. Moller-Maersk’s restructuring will likely pique the interest of Norwegian offshore companies and there is a notion that some may have already started talking to the parties involved, the first of the bankers said.
There are three or four Norwegian companies that are in a position to take advantage of the downturn in oil prices and pick up assets cheaply, and some of this is related to the Maersk situation, the first banker added.
A typical valuation metric in the offshore drilling sector is around 5x EBITDA, but the uncertainty in the sector would depress this metric and the amount of debt that would be transferred is unknown, an analyst following the company said, giving Maersk Drilling a likely DKK 40bn (USD 5.9bn) enterprise value. In 2015, Maersk Drilling generated USD 732m in underlying profit and USD 751m in operating profit, according to its annual report.
Kristain Siem, who is the majority owner of Siem Offshore and Subsea 7 [STO:SUBCO], John Fredriksen of the Fredriksen Group and Geveran Holdings, and Kjell Inge Røkke - the majority owner of the Aker Group – are some of the more logical players with capital available to consider taking on Maersk Drilling, the first banker said.
The offshore drilling sector is on thin ice financially and many companies are forced to take defensive measures, yet these have a more proactive approach and strong balance sheets, the first banker said.
If the likes of Subsea 7 and Aker successfully restructure in this downturn, they will be in very strong positions for when the market picks up, the third sector lawyer said. Maersk Drilling will be left behind if it does nothing.
Others including Solstad, Rem and Aker, are already engaging in all share mergers, so a move to merge Maersk Drilling would not be out of the blue, a third sector banker said added.
Solstad Offshore signed a merger agreement with Rem Offshore and Solship Invest in September. The result of the merger will be Aker Group becoming the largest shareholder in the combined Solstad group with 24% of the shareholding.
Elsewhere, Farstad Shipping, a Norwegian offshore services provider, was planning to negotiate a refinancing with Aker but the decision was blocked by the company's creditors, according to press reports. These creditors, which included DnB, Danske Bank and Nordea, mandated PJT Partners to look at other options.
Overcapacity issues linger
Although the market is in a downturn, combining with a rival would reduce the competition and place Maersk in a more liquid position to sell out later in a recovering market, the third banker said.
The issue is whether this would be doubling up on the problem of overcapacity in the offshore drilling market, the third banker said. If someone was to actually buy Maersk Drilling this would not be the best time, the first and a fourth sector bankers and a second analyst following Maersk said.
Maersk Drilling is comparatively a successful company and is ambitious, the third lawyer said, despite the strategy laid out in the split.
What Maersk Group thinks about the future of Maersk Drilling and what Maersk Drilling thinks about its own growth are two different stories and this may influence decisions taken with the unit, the third lawyer added.
A.P. Moller-Maersk did not respond to requests for comment.

>>> US Close Dow+0.22% S&P+0.22% Nasdaq +0.05% Russell +0.44%

Closing Market Summary: Stocks Inch Higher with Oil and Bank Shares In Focus

The stock market ended the midweek affair on a flat note as investors responded to a fresh batch of quarterly earnings reports and a rally in crude oil futures. The Dow Jones Industrial Average (+0.2%) settled in-line with the S&P 500 (+0.2%) and slightly ahead of the Nasdaq Composite (+0.1%).

The broader market inched higher at the start of the session as better-than-expected quarterly results from members of the energy (+1.4%) and financial (+0.8%) sectors helped boost risk appetite in the broader market.

Commercial banking name U.S. Bancorp (USB 43.58, +0.57) helped rally the industry group after reporting a bottom-line beat and estimating that net interest income will increase next quarter. Morgan Stanley (MS 32.93, +0.61) finished higher by 1.9% after beating top- and bottom-line estimates for the quarter. Meanwhile, oilfield service name Halliburton (HAL 49.07, +2.00) rallied 4.3% after topping earnings estimates and noting that rig count activity has been picking up.

Equity indices extended their gains after the opening hour as investors assessed the latest inventory data from the Department of Energy. The EIA reported that crude oil stockpiles declined by 5.24 million barrels (consensus: +2.70 million) while gasoline stockpiles rose by 2.46 million barrels (consensus: -1.31 million). The energy component jumped on the news, settling higher by 2.6% ($51.59/bbl; +$1.30).

The benchmark index gained lockstep with crude oil, briefly clearing technical resistance near the 2144 price level. However, the S&P 500 moved lower in the final hour as participants eyed potentially market-moving events out of the US and Europe. On that note, the European Central Bank will hold its October policy meeting tomorrow morning. 

Eight sectors ended in positive territory with energy (+1.4%), financials (+0.8%), materials (+0.7%), and consumer discretionary (+0.5%) leading the pack.  

The economically-sensitive financial sector (+0.8%) outperformed as participants eyed above-consensus quarterly results and largely positive economic data. Dow component American Express (AXP 61.25, +1.17) finished at the top of the price-weighted average ahead of this evening's quarterly report. The broader financial sector extended its October gain to 1.7%, leading the remaining sectors over that period. 

In the consumer discretionary sector (+0.5%), Netflix (NFLX 121.87, +3.08) extended its post-earnings winning streak, spiking 22.1% since reporting upbeat quarterly results on Monday evening. Tesla Motors (TSLA 203.56, +4.46) was also making waves after CEO Elon Musk confirmed that a product announcement will take place at 20:00 ET.

Chipmakers finished behind the broader technology sector (UNCH) as the PHLX Semiconductor Index slipped 0.5%. Intel (INTC 35.51, -2.24) weighed on the group after issuing disappointing fourth-quarter revenue and gross margin guidance. However, the company did beat top- and bottom-line estimates for the quarter. Shares of Intel finished lower by 5.9%. 

Health care equipment names lagged in the health care space (-0.3%) with Intuitive Surgical (ISRG 681.58, -40.15) declining 5.6%. The downturn came despite the company reporting better-than-expected quarterly results. Separately, Abbott Labs (ABT 40.01, -1.16) declined 2.8% as some weakness in its nutrition sales masked largely in-line quarterly results. 

Treasuries finished on a flat note as yields finished little changed across the curve. The yield on the 2-yr note settled at 0.80% while the yield on the benchmark 10-yr note finished at 1.74%.

Today's trading volume fell below the average of 858 million as 778 million shares changed hands at the NYSE floor. 

Today's economic data included the weekly MBA Mortgage Index and Housing Starts/Building Permits for September: 

  • The MBA Mortgage Index indicated that mortgage applications rose 0.6% in the week ending October 15. This followed a 6.0% decrease in the prior week.
  • Housing starts declined 9.0% in September to a seasonally adjusted annual rate of 1.047 million units (consensus 1.168 million) while permits -- a leading indicator -- increased 6.3% to a seasonally adjusted annual rate of 1.225 million (consensus 1.164 million).

Thursday's economic data will include the 8:30 ET release of weekly initial claims (consensus 249k) and the Philadelphia Fed Survey for October (consensus 5.5). Separately, the September Existing Home Sales Report (consensus 5.30 million) and September Leading Indicators (consensus 0.2%) will be released at 10:00 ET. 

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  • S&P 500: +4.9% YTD
  • Nasdaq Composite: +4.8% YTD
  • Dow Jones: +4.5% YTD