(BarCap) Technip - Right deal, Wrong terms

We believe that the proposed Technip/FMC Technologies merger is strategically the right move. At least it offers the client base the option of an integrated subsea package, has the potential to save money and in the meantime, in what is not a minor blip in the offshore construction cycle, enables even more costs to be extracted. Ultimately the oil industry wants solutions not components, and technology has to be applied somewhere – the tree, the flowline, the riser or the platform. The potential new entity can apply it where best. However strategically valid, mergers are financial transactions and Technip is merging with a wellrespected, highly valued US entity, as valuation disparities are high. As such it brings 66% of combined equity and the net cash, yet gets 51% of the merged entity. Our analysis shows the deal as suboptimal to Technip holders. In addition, Technip shareholders now are subject to variances in FMC’s earnings outlook, which we feel is less robust near term than Technip’s. As such, we remove the 1% point discount rate benefit which we gave Technip in our DCF-based price target, which reduces it to EUR50/share. With limited upside potential, we downgrade to Underweight.

Same industry, same dynamics, different valuations: FMC and Technip both serve the offshore industry. Both service the same projects on the same basis, but execute in different locations with a different risk profile. Yet, FMC is trading on a 35-50% EV:EBITDA 2016-17F premium and our analysis finds it hard to understand why. 2.5:1 not 2:1 more appropriate: The proposed merger terms are clean. Two companies with the same market capitalization and Technip shareholders get 2 shares in the new company giving them 51% of the new entity. However, US versus EU valuations are different. Both we and our US colleagues use DCF-based valuations, but as with all DCFmethodologies
they are just a guide, subject to inputs. If we use similar assumptions in our Technip DCF as our US colleagues, then our previous stand-alone price target would be over EUR70, rather than EUR58, implying that an exchange ratio closer to 2.5 would be more appropriate, giving it ca10% more of the combined entity. The elephant in the room: The debate we have seen with investors centres on the offshore side of the business. However, the onshore side brings the balance sheet to support the slowdown over the coming years and is the genuine asset light component in the new mix. However, domestic US investors have been fed a diet of reimbursable orp onshore E&C, schooled against lump sum and its inclusion may be hard to swallow.

>>> Street Pre-Market Indications

ML
JD SPORTS - All going well. Talking up H1, seeing a boost from the Euros..+2%
SPORTS DIRECT - Read over from JD talking up H1. Closed at new lows 334...+2%
TUI - CEO sees record bookings in '16 as more travel to Spain, Germany..+1.5%
SAP - Senti +ve. ORCL (+2% aft hrs) post cloud rev growth +68% v +61%.....+1%
UK MINERS - Copper +0.8%, Gold -1.2%, Iron Ore fut +1.7% & RIO OZ +1.1%...+1%
HSBC - To settle household litigation by agreeing to pay $1.58bn..........+1%
SANDVIK - Sentiment positive CEO Rosengren buys 15,214 shrs on June 7th...+1%
COMMERZBANK - Plans to combine retail ops under single IT platform in 3yrs+1%
NATIONAL GRID - UK lawmakers call for split up. Govt has 60days to respondu/c
GAMESA - GE in talks with French state about acquiring Areva from Gamesa..u/c
ERICSSON - US DOJ, SEC investigating co on suspicion of corruption........-1%
REPSOL - Sinopec lodging a legal claim in connection with Talisman acq....-1%
HOCHTIEF - We DOWNGRADE to Underperform, PO €96, suggesting 13% downside..-1%

CS
Ericsson -1-2% US investigating Ericsson on suspected corruption in China
JD Sports +2% +ve trading stmnt, following record numbers annc'd in Apr
Leg Immob unch CS D/G to U/P on valuation
Merlin Prop +1-2% CS U/G to O/P on attractive pricing
Miners M/P Major commodities recovered overnight
Nat Grid +0.5% CS reit U/P - large safe haven premium
NOS +2-3% Sonaecom Sells 2.14% Stake in Nos to Zopt
Oils M/P Brent +50bps overnight, US peers continued to rally
Repsol unch El Conf talking of an arbitration claim against Repsol
Sandvik +1.5% CEO Rosengren Buys 15,214 Shares in the Company
SAP +1-2% Oracle +2.5% after hours; Oracle Sales Exceed Estimates
Shaftesbury unch CS D/G to N on valuation
Tui +1-2% Sees Record Bookings in 2016 as More Travel to Spain
William Dem unch CS D/G to U/P Oticon expectations already priced in

Shore
NAT.GRID - UK committee calls for break-up amid conflicts of interest claims+2%
UBM - completes PR Newswire disposal for £490m,to rtn £245m in special divi.+2%
WOOD GROUP - acquires assets from Enterprise Engineering,no financials.....UNCH
JD SPORTS - Says well positioned to deliver excellent H1 result.............+2%
TESCO - Agrees sale of Dobbies Garden Centres for 217m......................+2%
LOMBARD RISK - placing and open offer to raise £8.75m at 8.75p.............UNCH

>>> Wirecard CEO says much interest from strategic investors; US

Wirecard CEO says much interest from strategic investors; US acquisition possible
Wirecard, the German payment system developer, has seen much interest from strategic investors, Boersen-Zeitung reported.

Chief Executive Markus Braun said the business model in the past six to 12 months has led to much attention from large strategic investors, the German-language daily said.

He made these comments at a shareholder meeting, responding to a question as to whether the company may become a takeover target.

Braun declined to comment in detail on recent speculation that Wirecard may be acquired by an international rival such as China Mobile. However, he said it is not out of the question that management will engage in strategic talks.

Braun was cited as saying that Wirecard aims to become present in all significant regions of the world within the coming four years. He said that in the US, the company leadership is considering whether to pursue organic growth or make a buy.

In the latter case it would spend no more than USD 200m, and could afford this from its own resources, he said.

Wirecard CEO says much interest from strategic investors; US acquisition possible

>>> What to look at today - 17th of June 2016

Dow +0.53% S&P +0.31% Nasdaq +0.21% Russell -0.10%
US Market closed higher helped by a softer $ and rebound on health care (+0.4%), consumer discretionary (+0.4%), and financial (+0.3%) sectors. Volume were in line with average at 865mil shares. US After hours FNSR +11%, SWHC +7%, ORCL +2% following earnings/guidance; RDEN +50% on agreement to be acquired by REvlon for $14/share (closed $9.31), LOCK+4.6% on Elliott 8.8% stake. Asian equity markets have taken cue from the midday turnaround on Wall St to rally heading into the weekend. Some of the risk-off positions were unwound, as gold retreated by over $25 to $1,280 and S&P futures rose as much as 20pts above 2,070. The possibility of Japan Fin Min intervention in FX space has risen since yesterday's BOJ decision to keep its policy settings unchanged while also upgrading views on certain segments of the economy despite the downgrade in the outlook for inflation. Cabinet Office report from Japan maintained the assessment that economy is in a moderate recovery, cutting the view on corporate profits to "pausing improvement" while also noting CPI rising at a slower tempo. In China, Commerce Ministry's Shen noted research suggests that ODI is pressuring FX reserves, forcing some consideration on whether regulation of those outflows was needed. Shen added that China and US are looking to speed up investment treaty talks.

Nikkei +1.23% Hang Seng +0.58% CSI +0.65% Shanghai +0.52%

Eur$ 1.1246 CNH 6.5961 CNY 6.5874 JPY 104.36 GBP 1.4250 CHF 0.9647 RUB 65.5816 WTI$ 46.64 (+0.93%)

S&P +0.07% EuroStoxx +1.15% Dax +0.89% SMI +1.15%

Macro :
- Japan’s Pensions Bought Local Shares, Sold Bonds Last Quarter
- Yen Erases Losses as Bulls Ignore Japan’s Warning on Strength

Keep an eye on :
- ALV GY : Allianz Likely to Pursue Bolt-On M&A in Europe, Berenberg Says
- MT NA : ArcelorMittal to Divest Two French Units, Figaro Reports
- EN FP : Bouygues Telecom Confirms 98%-99% 4G Coverage Target by End 2018
- KO US : Philadelphia Hits Soft-Drink Industry With Historic Tax
- CBK GY : Commerzbank to Combine Retail Ops Under Single IT Platform: BZ
- CSGN VX : Qatar Increases Stake in Credit Suisse, SEC Filing Shows
- DL NA : Delta Lloyd Sells 30.2% Shareholding in Van Lanschot
- EDF FP : France’s RTE Unions Reject Stake Sale to Private Company: Echos
- ERICB SS : DOJ, SEC Said Probing Ericsson for Alleged Corruption: SVD
- ERF FP : Acquires laboratory service provider Bureau de Wit; Terms undisclosed
- GAM SM : Siemens Said to Give Gamesa $1b Cash in Wind Deal
- GAM SM : Gamesa board approves capital increase involving Siemens renewable energy unit - report
- HEI GY : Heidelberg to sell off Italcementi Belgian assets in July -Il Sole 24 Ore
- DEC FP : JCDecaux: Would Have to Reconsider U.K. Investments With Brexit
- KU2 GY : Germany Mulls Tougher Laws to Shield Cos From Foreign Buyers: HB
- LISN SW : Lindt Expensive and Unloved on Concern Organic Growth May Slow
- MOS US : Mosaic Enters Talks to Buy Vale’s Fertilizer Unit, Reuters Says
- ORCL US : Oracle 4Q Adj. EPS Misses Est., Revenue Beats
- ORA FP : Arcep Examines Revised Mobile Network Sharing Contracts
- RCS IM : Cairo Communication Seen Raising Offer for RCS: Repubblica
- RDEN US : Revlon to Buy Elizabeth Arden for $14/Shr in All-Cash Deal
- SAF FP : Safran to Draw Up Short List of Morpho Bids by End-June: Figaro
- SAL IM : Salini Impregilo’s Led Consortium Wins $955m Contract in Kuwait
- TUI LN : TUI Sees Record Bookings in 2016 as More Travel to Spain: RP
- VAN NA : Delta Lloyd Sells 30.2% Shareholding in Van Lanschot
- VOW3 GY : Piech, Porsche Families Not Seeking Zero-Dividend at VW: Bild
- WDI GY : Wirecard CEO says much interest from strategic investors; US acquisition possible - Boersen-Zeitung

>>> Europe : Brokers Upgrades & Downgrades - 17th of June 2016

>>> Up
*IMPERIAL BRANDS RAISED TO SECTORPERFORM VS UNDERPERFORM AT RBC
*MERLIN PROPERTIES RAISED TO OUTPERFORM AT CREDIT SUISSE
*NORMA GROUP RAISED TO BUY VS HOLD AT BERENBERG
*PHILIP MORRIS RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
*SONOVA RAISED TO HOLD VS REDUCE AT HSBC
*UNITED INTERNET RAISED TO NEUTRAL AT CITI

>>> Down
*GAM HOLDING CUT TO UNDERPERFORM AT RBC CAPITAL
*HUGO BOSS CUT TO NEUTRAL VS OUTPERFORM AT MAINFIRST
*LEG CUT TO UNDERPERFORM VS NEUTRAL AT CREDIT SUISSE
*SHAFTESBURY CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE
*TECHNIP CUT TO UNDERWEIGHT VS EQUAL WEIGHT AT BARCLAYS
*WILLIAM DEMANT CUT TO UNDERPERFORM VS NEUTRAL AT CREDIT SUISSE

>>> PT Change


>>> Initiation
*AUTOLIV RATED NEW HOLD AT BERENBERG, PT $109
*HELLA RATED NEW BUY AT BERENBERG, PT EU40
*HUGO BOSS RATED NEW BUY AT BERENBERG, PT EU65
*MERCK KGAA RATED NEW BUY AT BANKHAUS LAMPE, PT EU102
*MONOGRAM RESIDENTIAL RATED NEW OUTPERFORM AT AT BMO CAPITAL
*OCADO RATED NEW SELL AT SOCGEN, PT 193P
*PARETO BANK RATED NEW BUY AT DNB
*SPIE RATED NEW NEUTRAL AT ODDO

>>> Call

>>> US After Hours Summary: FNSR +11%, SWHC +7%, ORCL +2% following ea


After Hours Summary: FNSR +11%, SWHC +7%, ORCL +2% following earnings/guidance; RDEN +50% on agreement to be acquired

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: FNSR +10.9%, SWHC +7%, MGM +3.4%, ORCL +2.2%

Companies trading higher in after hours in reaction to news: RDEN +49.7% (to be acquired by Revlon for $14.00 per share in all-cash transaction - closed at $9.31/share), PRTK +27.1% (Phase 3 registration study comparing omadacycline to linezolid in the treatment of acute bacterial skin and skin structure infections met the FDA-specified primary efficacy endpoint of early clinical response), LOCK +4.6% (Elliott Associates discloses 8.8% active stake, has initiated dialogue with management on opportunities to enhance shareholder value)

After Hours Losers:

Companies trading lower in after hours in reaction to news: RARE -3.8% (Chief Medical Officer Sunil Agarwal resigns, effective Aug 18, to pursue other opportunities)

>>> Asian Update

Asian Mid-session Market Update: Japan officials reluctant to adopt more aggressive stance on FX volatility


***Economic Data***
- (NZ) NEW ZEALAND JUNE ANZ CONSUMER CONFIDENCE INDEX: 118.9 V 116.2 PRIOR; M/M: +2.3% (biggest increase in 5 months) V -3.2% PRIOR
- (NZ) NEW ZEALAND MAY MANUFACTURING PMI: 57.1 v 56.6 PRIOR; 4-month high
- (SG) SINGAPORE MAY ELECTRONIC EXPORTS Y/Y: -6.0% V -1.4%E; NON-OIL DOMESTIC EXPORTS M/M: 16.8% V 2.0%E; Y/Y: 11.6% V -1.6%E
- (CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE TARGET UNCHANGED AT 3.50%; AS EXPECTED

***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 +1.7%, S&P/ASX +0.2%, Kospi +0.4%, Shanghai Composite +0.7%, Hang Seng +0.8%, Sep S&P500 +0.1% at 2,072

***Commodities/Fixed Income***
- Aug gold -0.9% at $1,287/oz, Jul crude oil +0.9% at $46.61/brl, Jul copper +0.9% at $2.07/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 1.7 tonnes to 902.5 tonnes; highest since Oct 2013
- (CN) PBOC SETS YUAN MID POINT AT 6.5795 V 6.5739 PRIOR
- (CN) PBoC to inject CNY40B in 7-day reverse repos; For the week, injects CNY105B v net drain of CNY175B in prior week
- (AU) Australia MoF (AOFM) sells A$1.0B in 2.75% Nov 2027 bonds; avg yield 2.1691%; bid-to-cover 2.06x

***Market Focal Points/FX***
- Asian equity markets have taken cue from the midday turnaround on Wall St to rally heading into the weekend. The inflection during the US hours was attributed to the reports of a tragic killing of a liberal Yorkshire MP Jo Cox who was vocally a Stay vote in Brexit referendum next week. Campaign events for both camps have been suspended in the wake of the murder, though markets perceive this as a factor in mobilizing the undecided to vote against the Brexit and thus lifting a cloud of protectionism and anti-integration movement in Europe. Some of the risk-off positions were unwound, as gold retreated by over $25 to $1,280 and S&P futures rose as much as 20pts above 2,070. In FX majors, USD/JPY was volatile, rising as much as 60pips to 104.80 on risk-off flows and speculation of more concrete measures curbing yen strength by the govt. GBP/USD saw a suspicious spike of some 70pips just after Tokyo open toward $1.43, but corrected about half of that move. AUD/USD and NZD/USD were up about 40pips and 30pips from Asia session lows above 0.74 and 0.7060 respectively but also reversed those flows in the afternoon hours.

- The possibility of Japan Fin Min intervention in FX space has risen since yesterday's BOJ decision to keep its policy settings unchanged while also upgrading views on certain segments of the economy despite the downgrade in the outlook for inflation. This signaled that the BOJ is either tolerant of economic headwinds or that the bar for further easing in negative rates / asset purchases is particularly high. Thus, govt commentary on FX becomes more likely to produce market impact, and today's reports of a meeting of MOF/BOJ/FSA officials spurred a 50pip move in USD/JPY to 104.80. Subsequent remarks from officials suggest that discussions toward an intervention are preliminary at best - Fin Min Aso reiterated that abrupt moves are not desirable and have been speculative recently, while currency chief Asakawa only acknowledged rising volatility in financial markets. USD/JPY retreated back to 104.20s in the afternoon session. Separately a Cabinet Office report from Japan maintained the assessment that economy is in a moderate recovery, cutting the view on corporate profits to "pausing improvement" while also noting CPI rising at a slower tempo.

- In China, Commerce Ministry's Shen noted research suggests that ODI is pressuring FX reserves, forcing some consideration on whether regulation of those outflows was needed. Shen added that China and US are looking to speed up investment treaty talks. Also of note, China-Japan tensions were magnified overnight after reports that a Chinese warship sailed into Japanese territorial waters for 1st time in over decade, prompting some tough rhetoric from Japan's foreign min Kishida. In Chinese press, a report noted a 2.8% q/q rise in equity financing in China in Q2.

***Equities***
US equities / ADRs:
- RDEN: Acquired by Revlon for $14/shr in all-cash transaction with enterprise value of ~$870M; +48.3% afterhours
- LL: Wins court lawsuit; Agrees to not resume sales of inventory of Chinese-made laminate flooring, testing to continue; +12.2% afterhours
- FNSR: Reports Q4 $0.29 v $0.25e, R$319M v $318Me; +10.2% afterhours
- SWHC: Reports Q4 $0.66 (adj) v $0.54e, R$221.1M v $215Me; +7.6% afterhours
- LOCK: Elliott Associates discloses 8.8% stake; has initiated dialogue with management and board - 13D filing; +3.9% afterhours
- MGM: Raises FY17 target adj EBITDA $400M (prior $300M); +3.3% afterhours
- ORCL: Reports Q4 $0.81 v $0.82e, R$10.6B v $10.5Be; Guides Q1 $0.56-0.60 v $0.59e (constant currency), Rev +2-5% y/y v +2%e (implies R$8.62-8.87B v $8.62Be); +2.0% afterhours

Notable movers:
- 600005.CN Wuhan Iron & Steel: Chairman: To cut 400K tons of capacity - Chinese press; +0.7%
- 1171.HK Yanzhou Coal CNY6B private placement; +4.5%
- St Barbara Ltd SBM.AU -9.3%; Evolution Mining Ltd EVN.AU -3.9% (lower gold prices)
- Sumitomo Forestry 1911.JP +3.7% (Daiwa upgrade)
- Stella International Holdings 1836.HK -10.9% (profit warning)
- AV Concept Holdings +2.8% (positive profit alert)