Handelsblatt : Evonik Looking for new takeover targets

Looking for new takeover targets

The Evonik business is currently benefiting by the extremely low interest rates. The chemical giant is continuing lookout for potential acquisition objects. On sales of Bayer however one was not interested.
When asked whether Evonik'm interested in investments, the Dow andDupont have to sell in the course of their merger on antitrust grounds perhaps, Angel said, "Now that certainly all take a close look." Interest in possible sales of Bayer / Monsanto contrast does not exist. The agricultural chemicals business play almost no role in the company.

Dusseldorf chemicals group Evonik looks around for takeover objects. He keep getting analyzes in which consultants made proposals, said Evonik CEO Klaus Engel of appearing in Dusseldorf "Rheinische Post" (Saturday edition). The competition to take, China and other countries were catching up. In addition, the business with acquisitions by the extremely low interest rates will be heated. Size alone is not a goal.

Barron's : RWE’s Prospects Brighten With Innogy Spinoff

RWE’s Prospects Brighten With Innogy Spinoff
The German utility has struggled with weak energy pricing and a bill to decommission nuclear plants. Its answer: Break the company in two.


German Utility RWE will spin off its renewables, infrastructure, and retail business on Oct. 7 into a new company, Innogy, that will list on the Frankfurt Stock Exchange.


The move will allow RWE (ticker: RWE.Germany), which is selling shares representing up to 25% of Innogy, to reduce debt and fund new growth as a power-generating company. Over time, that could drive a 20% increase in RWE’s stock.
RWE isn’t the only utility moving to separate its assets to unlock value. In September, E.On (EOAN.Germany) carved out its conventional power and trading unit, Uniper (UN01.Germany), while retaining its renewables, networks, and retail businesses.
RWE generates electricity from gas, coal, nuclear, and renewable sources. It supplies 16 million customers with electricity and seven million with natural gas. Its key markets, in addition to Germany, are the United Kingdom and the Benelux countries—Belgium, the Netherlands, and Luxembourg. Last year, RWE reported revenue of 48.6 billion euros ($54.61 billion).
RWE’s outlook is still challenging, as wholesale energy prices remain under pressure and profit margins are thin. The company has been burdened by the cost of decommissioning its nuclear power plants in Germany. But its prospects are brightening with the restructuring. The company’s shares have surged 30% this year, although they are down 46% in the past five years. Shares closed on Friday at €15.34.
RWE’s American depositary receipts (RWEOY) have rebounded this year, too, but remain down 55% over five years. Each ADR, which traded on Friday at $17.22, is equivalent to one ordinary share.


In 2011, the German government pulled the plug on its nuclear-power industry, announcing it would gradually phase out existing plants. That saddled operators like Essen, Germany–based RWE with unknown but potentially huge costs for decommissioning and other liabilities.
The recent reversal of fortune for RWE’s shares has been warmly received by some investors. Barry Norris, who manages the FP Argonaut Absolute Return fund, says he “made good money on the short side” of RWE last year, but now sees it as an opportunity to profit on the upside. “Today, it represents one of the most compelling long ideas in the European universe,” he says.
Free cash flow is forecast at €735 million in 2016, up from €100 million last year, and rising to €1.04 billion in 2017.
RWE’s valuation in the near term will be largely dictated by the reception and price that Innogy, previously known as RWE International, receives when it begins trading. The Innogy flotation could raise up to €5 billion, and value the new entity at about €20 billion. In contrast, RWE has a current market value of just €9.12 billion.
Innogy’s shares, which will trade under the ticker IGY.Germany, will be priced in a range between €32 and €36. The initial public offering will be Germany’s largest in more than a decade. New York–based asset manager BlackRock (BLK) is a cornerstone investor, taking up shares worth some €940 million.

The Innogy offering is expected to be well received. In a low interest-rate environment, the new company’s regulated business can provide a good, visible yield. Innogy plans to pay out between 70% and 80% of adjusted net income as dividends.
The listing could also help RWE’s valuation. Travis Miller, director of utilities research at Morningstar, ascribes a value of €35 per share to Innogy and €18 per share to RWE on a consolidated basis, suggesting upside of almost 20%.
At the current price, the market is giving virtually no value to RWE’s power-generation business. “The important thing is for the market to realize the different economics of this business,” says Miller, adding that it doesn’t need the sun to shine or the wind to blow to generate electricity.
RWE’s books will look better with the transfer of a big chunk of its net debt to Innogy. At the end of June, RWE’s total net debt stood at €28.3 billion. Innogy’s prospectus suggests it will take on about €20 billion of that amount. Innogy will also assume at least €1 billion in provisions for nuclear decommissioning.
This year, RWE is forecast to earn €626 million, or €1.02 a share. In 2017, it could earn €678 million, or €1.16 a share.
The company suspended its dividend last year in a move to preserve cash, and it is unlikely to be reinstated this year. Nonetheless, the gloom over RWE could finally be lifting, and the shares could respond.

>>> Weekly Update

Weekly Market Update: OPEC and Deutsche Bank Keep Markets

The trading week opened with two main storylines dominating markets. All eyes were on Berlin and Algiers as the precipitously declining stock price of Germany's largest bank and growing expectations OPEC members would finally reach some sort of coordinated production agreement pushed and pulled on investors' willingness to take risk. Stocks were under pressure on reports that the German government had ruled out any state assistance for Deutsche Bank which was facing a reported $14B demand from the DOJ to settle and MBS probe. Meanwhile crude prices slipped back as it appeared OPEC still didn't have a consensus on a production freeze headed into this week's meeting. Global Treasury markets rallied as safe haven flows buoyed prices and weighed on yields.

By midweek stocks and oil prices began to stabilize as the headlines surrounding DB and OPEC improved. Shorts were caught off guard when OPEC managed to cobble together enough unity to announce a deal had been reached to cut output to 32.5-33M bpd beginning in November (from 33.2M bpd in Aug). Though much of the details still have to be ironed out, by Friday WTI crude prices reached $48 for the first time since mid-August up some 8% on the week, sparking a similar rally in the energy stocks.

DB shares on the other hand went on a wild ride after reports surfaced hedge funds had begun cutting exposure by reducing collateral with the bank's prime brokerage unit. The headline sparked panic amongst some stock holders who harkened back to the collapse of Lehman Brothers at the start of the 2008 financial crisis. By Friday morning the shares were trading below €10 on the European open. Buyers stepped in aggressively as rumors of a $5.4B settlement circulated, and shares continued to surge as European press sources seemed to affirm that figure. European markets responded in kind finishing Friday's session up 1% after being down 2%.

US equity markets finished the week on a solid note largely on the coattails of the rebound in DB shares. The safe haven flows into Treasuries from earlier in the week unwound and combined with stepped up reports of brewing technology M&A and continued signs of a receptive IPO market resulted in a 1% gain in the major indices on Friday. Dow Theorists have been quick to point out with another 2% rise in the Transports, that index is nearing September highs. For the week the DJIA gained 0.3%, the S&P500 added 0.2%, and the Nasdaq rose 0.1%.

MONDAY 9/26
(JP) BoJ Gov Kuroda: Main tool for more easing to be more cuts in negative rates
*(DE) GERMANY SEPT IFO BUSINESS CLIMATE: 109.5 (2-year high) V 106.3E; CURRENT ASSESSMENT: 114.7 V 112.9E
*(UK) AUG BBA LOANS FOR HOUSE PURCHASE: 37.0K V 37.1KE
(EU) ECB's Draghi: euro area recovery expected to continue at moderate and steady pace, but slightly less momentum than thought in June - comments to European Parliament
TWTR: Disney reportedly working with adviser to consider a bid for Twitter - press

TUESDAY 9/27
*(EU) EURO ZONE AUG M3 MONEY SUPPLY Y/Y: 5.1% V 4.9%E
(DE) German Gov Spokeman: Volkswagen and Deutsche Bank a source of concern
VOW3.DE: Exec: The total special items relating to diesel issue amounts to €17.8B and all consequences of diesel topic known so far are covered
*(US) SEPT PRELIMINARY MARKIT SERVICES PMI: 51.9 V 51.2E (highest reading since Apr)
*(US) SEPT RICHMOND FED MANUFACTURING INDEX: -8 V -2E
*(US) SEPT CONSUMER CONFIDENCE: 104.1 V 99E (highest since Aug 2007)
TPX: Guides FY16 Rev -3% to -1% y/y (implies R$3.06-3.12B v $3.23Be), cuts adj EBITDA $500-525M (prior $525-550M)
NKE: Reports Q1 $0.73 v $0.56e, R$9.06B v $8.85Be
(CN) China Q3 Beige Book: Q3 growth seen exclusively from old engines - financial press

WEDNESDAY 9/28
*(DE) GERMANY OCT GFK CONSUMER CONFIDENCE: 10.0 V 10.2E
DBK.DE: German Government reportedly working on a contingency plan; Looking at taking a stake in the bank as an option - press
*(US) AUG PRELIMINARY DURABLE GOODS ORDERS: 0.0% V -1.5%E; DURABLES EX TRANSPORTATION: -0.4% V -0.5%E
(US) Fed Chair Yellen: banking system in the US is well capitalized; loan growth is picking up and problem loans are down - testifies before House Panel
OPEC reportedly reaches deal in Algiers to limit oil production, execution of deal in Nov; agrees to limit oil production to 32.5M bpd (v 33.2M in Aug) - press
(US) Senate has sufficient votes to pass stopgap funding measure; would keep govt funded through Dec 9th - press

THURSDAY 9/29
(JP) BOJ Gov Kuroda: Will seek appropriate yield curve for 2% price target - comments from Tokyo
*(EU) EURO ZONE SEPT BUSINESS CLIMATE INDICATOR: 0.45 V 0.05E; CONSUMER CONFIDENCE (FINAL): -8.2 V -8.2E
*(CZ) CZECH CENTRAL BANK (CNB) LEAVES REPURCHASE RATE UNCHANGED AT 0.05%, AS EXPECTED
*(DE) GERMANY SEPT PRELIMINARY CPI M/M: 0.1% V 0.0%E; Y/Y: 0.7% V 0.6%E
*(US) Q2 FINAL GDP ANNUALIZED Q/Q: 1.4% V 1.3%E; PERSONAL CONSUMPTION: 4.3% V 4.4%E
*(US) Q2 FINAL GDP PRICE INDEX: 2.3% V 2.3%E; CORE PCE Q/Q: 1.8% V 1.8%E
*(US) AUG PENDING HOME SALES M/M: -2.4% V 0.0%E; Y/Y: +4.0% V +2.6%E (lowest M/M reading since Jan)
DBK.DE: Reportedly 10 hedge funds have reduced exposure to Deutsche Bank, hedge fund clients have reduced collateral on trades - press
*(MX) MEXICO CENTRAL BANK (BANXICO) RAISES OVERNIGHT RATE BY 50BPS TO 4.75%; AS EXPECTED
COST: Reports Q4 $1.77 v $1.73e, R$36.6B (total) v $36.6Be
CAT: Announces 0-4% price action on most machines; effective Jan 2017 - filing
*(CN) CHINA SEPT CAIXIN PMI MANUFACTURING: 50.1 V 50.1E; 3rd straight month of expansion

FRIDAY 9/30
*(UK) Q2 FINAL GDP Q/Q: 0.7% V 0.6%E; GDP Y/Y: 2.1% V 2.2%E
*(EU) EURO ZONE SEPT ADVANCE CPI ESTIMATE Y/Y: 0.4% V 0.4%E; CPI CORE Y/Y: 0.8% V 0.9%E
*(EU) EURO ZONE AUG UNEMPLOYMENT RATE: 10.1% V 10.0%E
*(US) AUG PERSONAL INCOME: 0.2% V 0.2%E; PERSONAL SPENDING: 0.0% V 0.1%E
*(US) AUG PCE DEFLATOR M/M: 0.1% V 0.2%E; Y/Y: 1.0% V 0.9%E
*(US) AUG PCE CORE M/M: 0.2% V 0.2%E; Y/Y: 1.7% V 1.7%E
*(US) SEPT CHICAGO PURCHASING MANAGER: 54.2 V 52.0E (4th straight above 50 reading)
*(US) SEPT FINAL MICHIGAN CONFIDENCE: 91.2 V 90.0E
DBK.DE: Reportedly nears $5.4B settlement with US officials over mortgage bonds - France press
NTNX: IPO opens for trade at $26.50. Priced 14.9M shares at $16.00

>>> US Close Dow +0.91% S&P +0.80% Nasdaq +0.81% Russell +1.12%

Closing Market Summary: Stocks Climb Amid Rebound in Financials

The stock market ended a bumpy week on a higher note with all three major averages climbing near 0.8%. The S&P 500 (+0.8%) rallied into the late afternoon, but selling during the final minutes of the session drove the index just below its 50-day moving average (2168.4), which acted as resistance throughout the month. The S&P 500 gained 0.2% for the week, but shed 0.1% for the month. The benchmark index advanced 3.3% during the third quarter, underperforming the Nasdaq (+0.8%), which climbed 9.7% in Q3 and gained 1.9% in September.

Deutsche Bank (DB 13.09, +1.61) dominated headlines for the second day in a row, but today's focus was on a rebound in the stock amid reassurances from the bank's Chief Executive Officer John Cryan. Mr. Cryan sent a letter to employees, in which he described the bank's capital position as solid, noting that liquid reserves are well above pre-crisis levels from 2007. The stock doubled its late-morning gain, ending higher by 14.0%, after AFP reported the bank's MBS settlement with the Department of Justice will be reduced to $5.4 billion from $14.0 billion. The report was not confirmed by Deutsche Bank and it is worth noting that markets in Germany will be closed on Monday in observance of Unification Day.

The rebound in Deutsche Bank boosted sentiment in the financial sector (+1.4%), which narrowed its September loss to 2.9%, but still ended the month well behind the other ten sectors. Friday's sector-wide rally did not stop Wells Fargo (WFC 44.55, +0.18) from ending in the red as the stock set a fresh low for the year (44.10). The stock spent the entire month in a sharp decline, falling 12.5%, amid fallout from the discovery of more than two million illegally-opened credit card and deposit accounts.

The financial sector was followed by energy (+1.3%), which locked in a market-leading 3.0% gain for the month. The growth-sensitive sector outpaced crude oil, which climbed 0.8% to $48.11/bbl. The energy component gained 7.6% in September, but slipped 0.5% for the quarter.

Consumer staples (+1.0%) and health care (+1.0%) also spent the day among the leaders while other defensively-oriented sectors like utilities (-0.7%), telecom services (-0.3%), and real estate (-0.5%) lagged.

Elsewhere, the top-weighted technology sector (+0.6%) finished in the middle of the pack, masking relative strength among chipmakers as interest surrounding Qualcomm's (QCOM 68.50, +1.05) rumored acquisition of NXP Semiconductor (NXPI 102.02, +5.89) grew. NXP Semiconductor surged nearly 25.0% after Thursday's Wall Street Journal report brought the potential acquisition to light. The PHLX Semiconductor index advanced 1.6% on Friday.

Today's rally in stocks lured some money out of the Treasury market, sending the 10-yr yield higher by four basis points to 1.60%.

Quarter-end flows resulted in increased participation as more than 1.2 billion shares changed hands at the NYSE floor.

Economic data included Personal Income, Personal Spending, Core PCE Prices, Chicago PMI, and Michigan Sentiment:

  • Personal income increased 0.2% month-over-month in August, as expected, while personal spending was unchanged (consensus +0.2%). Real personal spending ("real PCE"), though, was down 0.1%
    • The decline in real PCE will weigh on Q3 GDP growth forecasts and leave the market in a confused state on the timing of the next rate hike since real PCE was weak in August while the inflation measures trended up
  • The MNI Chicago Business Barometer jumped to 54.2 in September (consensus 52.0) from 51.5 in August. In the same period a year ago, the barometer stood at 47.8
  • The final reading for the September Index of Consumer Sentiment checked in at 91.2. That was above the consensus estimate of 90.0 and up from the final reading of 89.8 for August

Monday's economic data will include the 10:00 ET release of August Construction Spending (consensus 0.2%) and September ISM Index (consensus 50.4) while auto and truck sales for September will be reported throughout the day.

  • Russell 2000 +10.2% YTD
  • Nasdaq Composite +6.1% YTD
  • S&P 500 +6.1% YTD
  • Dow Jones Industrial Average +5.1% YTD

>>> US Gapping Up

Gapping up
In reaction to strong earnings/guidance: AEHR +7.4%, COST +1.9%, MKC +1.8%

M&A news:
  • NXPI +3% (Hearing Jefferies out premarket suggesting co could garner $136-172 per share in a takeout)
  • NVFY +1.2% (to sell NOVA BVI and its subsidiaries for $8.5 mln to Kuka Design)
Select metals/mining stocks trading higher: AU +1.7%, GOLD +1.6%, AUY +1.6%, SSRI +1.5%, SLV +1.3%

Other news:
  • AUPH +14.8% (announces that voclosporin achieves primary and all pre-specified secondary endpoints in Phase IIb AURA-LV study for Lupus Nephritis )
  • MENT +5.3% ( Elliot Mgmt discloses 8.1% active stake -- has communicated with management and Board about a broad range of operational and strategic matters)
  • OZM +5.1% (confirms reaching settlements w/ the DOJ and the SEC; will pay a total penalty of $412 mln; entered into a securities purchase agreement with certain executive managing directors)
  • CEMP +4.3% (light volume - announces interim results showing anti-NASH effects in the first six nonalcoholic steatohepatitis patients dosed with solithromycin in a Phase 2 study)
  • CATB +3.5% (Deerfield Mgmt (James Flynn) increases passive stake)
  • AA +2% (approves proposed separation; separation is scheduled to become effective before the opening of the market on November 1, 2016)
  • IBN +2% (rebounding from yesterday's selloff)
  • HLIT +1.2% (Comcast confirms 6.6% passive stake -- the cos entered into a warrant agreement this week)
Analyst comments:
  • ECA +2.5% (upgraded to Buy from Neutral at Citigroup)
  • SKX +2.2% (upgraded to Positive from Neutral at Susquehanna)
  • WMT +1% (initiated with a Overweight at KeyBanc Capital Mkts)
  • NKTR +0.9% (resumed with a Buy at Brean Capital)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: CAMP -15.3%

Select oil/gas related names showing early weakness:
  • SDRL -4.8%, SDPI -4.7%, TOT -1.7%, WLL -1.2%, COP -1%, RIG -0.8%, BT -0.7%, PBR -0.6%
Other news:
  • THLD -61.8% ( to discontinue investment in its Tarloxotinib Program after interim data; implementing workforce reduction)
  • MIRN -17.1% (Mirna Therapeutics Investigational New Drug for MRX34 has been placed on full clinical hold)
  • DCTH -13% ( intends to offer shares of its common stock and warrants to purchase shares of common stock in an underwritten public offering)
  • ABUS -10.8% (reports interim results from the first two cohorts of the ongoing ARB-1467 Phase II multi-dose clinical trial in chronically infected HBV patients)
  • VNRX -8.5% ( announces proposed public offering of common stock)
  • CNO -3.9% (terminating reinsurance agreements with Beechwood Reand; will suspend its share repurchase program for the rest of 2016)
  • STAY -3.6% (prices secondary offering and repurchase of paired shares; paired shares sold at $14.25 per share)
  • ABR -2.9% (to offer $75 mln convertible senior notes due 2019 in an underwritten public offering)
  • IRT -2.6% (prices public offering of 25 mln shares of common stock at $9.00 per share for total gross proceeds of $225.0 mln)
  • SNE -2.2% (Nikkei down 1.5% overnight)
Analyst comments: CORE -0.9% (downgraded to Hold at Jefferies)

(Citi) European Portfolio Strategist : Challenging Consensus: Is EM the Road-Map

Challenging Consensus: Is EM the Road-Map for Europe?

* From value trap to value trade — EM equities have been a 5-year bear trade, driven by slowing growth and high levels of macro risk (China, commodities, US$, deficits). Valuation did not provide support; a classic "value trap". But, EM equities have enjoyed a resurgence YTD. Markus Rosgen, Citi's EM Equity Strategist, remains positive and we raised EM to Overweight in our global regional allocation in February. EM equities have moved from "value trap" to "value trade" as risks have fallen and growth prospects have improved.

* Falling risks — There have been four key EM risks over the last five years: 1) China, 2) commodities, 3) US$, and 4) deficits. We see signs of greater stability in both commodity and US$ markets. Current account deficits have also reversed across EM; in aggregate, from big deficit to small surplus over the last 2-3 years. China remains a risk with slowing growth and rising private sector debt, but authorities have shown that they still have tools to manage risks. Overall, the risk environment across EM has improved.

* Improving growth — We also see an improving growth backdrop for EM after five years of GDP and EPS downgrades and disappointments. Citi economists expect 2017 to be the first year of "positive GDP growth delta" in over five years driven by Russia and Brazil. We agree. EM is the first region to see EPS stabilise in the last 3 years above 0%, instead of falling from c10% to 0%. EM EPS growth expectations for 2016E have stablised around 6-7%.

* Returns, re-rating, leadership — A falling risk and improving growth mix has been positive for EM equities this year, which have returned c11% YTD and have also been re-rated. Better performance has been accompanied by new leadership, ie Brazil, Russia, risk, value, commodities, Financials. Previous winners have become laggards and sources of funds for this new leadership group.

* Does Europe follow EM's lead? — We think that EM's experience will echo across Europe over the next 12-18 months with reducing risk and improving growth. Reducing risk could come from: 1) unrealised political risk, eg Renzi still in power, no Le Pen government, 2) improving external environment, eg move from "mixed" to "synchronised" global GDP growth (in US$ terms), 3) further strengthening, restructuring, consolidation in European banks. Unless PMIs in Europe and the US fall to the mid-40s or unless there is a big EPS recession in a single (and big) European sector, we think it is likely that EPS growth in 17E is able to reach 5-10%.

* Challenging the consensus — This outlook presents a challenge to many investors in Europe and around the world. A combination of central bank actions and high levels of macro, including political, risk has reduced most financial market participants to "data dependent" status. We see our base case as plausible, reasonable and likely. The implications for European Equities (upside risk) and leadership reversal is not how many investors are positioned. We stick to five conclusions: 

1) Overweight EM, 2) Overweight commodities, 3) don't Underweight Banks, 4) Overweight de-equitisation, 5) hedge political risk.