FT Lex : ABB: Powering up

ABB: Powering up

The engineering conglomerate must avoid complacency

A capital markets day is usually a festival of granularity. Investors and analysts are bombarded with the minutiae of tax rates, depreciation curves and competitor analysis. ABB’s annual conflab could turn out rather more interesting.

The Swiss-Swedish engineering conglomerate has been urged by 5 per cent shareholder Cevian Capital to spin off its power grids division. The results of a year-long review will be presented on Tuesday. Most expect ABB will opt to retain it.
True, the market could ascribe a higher valuation to the division as a standalone entity than it does to ABB as a whole. Based on UBS estimates, ABB trades at about 11.7 times its earnings before interest, tax and amortisation. If power grids traded at say, 14 times, an extra $2.4bn of equity market value is theoretically available. The remainder of ABB’s business would be proportionately more exposed to growth segments such as robotics, where rivals such as Kuka and Fanuc are valued at higher multiples.
Cevian acknowledges that the vagaries of valuation alone are not a reason to incur separation costs it puts at $330m (plus extra annual costs of $60m). Its case rests in large part on improving cost control and margins. Power grids, which sell primarily high-voltage equipment to utilities, has the lowest margins of ABB’s four divisions. This is as much about portfolio mix as administrative flab. About three-fifths of sales come from relatively low-margin transformers and switchgear, says Morgan Stanley. Having already agreed to offload the cables part of power grids to NKT, it may offer hints as to the long-term future of transformers.
Other crowd-pleasers are also possible. It has just completed a $4bn share buyback; it could announce another. With just $1.65bn of net debt it could easily afford to. A tilt towards software and digitalisation, possibly through acquisitions, is also feasible. Or it could fall back on good old cost-cutting, extending an existing “white collar productivity” programme.
ABB’s shares have beaten the market over the past year. It may feel less need to be radical as a result. But it must also avoid complacency.

(Re/Code.net) Disney shouldn’t buy Twitter, but the fact that it thought about i

Disney shouldn’t buy Twitter, but the fact that it thought about it should terrify Big Media
If Bob Iger is worried about the future, what about everyone else?

It doesn’t seem likely that Disney will buy Twitter. And it certainly doesn’t seem like a good idea.
But I just wanted to quickly flag something: Disney CEO Bob Iger and his lieutenants have indeed debated making a bid for Jack Dorsey’s company.
While it was natural to chalk up early reports that Disney might be interested to bankers trying to drum up business, people familiar with the company say the idea was a live one last week.
That doesn’t mean it’s going to live very long, since Wall Street immediately gave it a thumbs down.

But still: The fact that it was on the table suggests that Iger thinks his company, generally considered to be one of the best-run companies in the media world, needs a transformative jolt.
Remember that this is Disney we’re talking about. The company with some of the best-loved characters and stories in the world — and that was before it bought Pixar, Marvel and Lucasfilm. The company that controls ESPN, which means it controls TV sports in the U.S. The company that can do business in China, when tech giants like Facebook and Google are stymied.
Again, it’s hard to see how Twitter solves Disney’s problems, and equally hard to see how Disney solves Twitter’s problems. So this thing should remain theoretical.

But if Disney’s worried enough about its future to ponder this kind of bet, what about the rest of Big Media?

(ZH) Apple Stock Slides As Foxconn's Smartphone Assembler Warns Of 52% Profit Dr

Apple Stock Slides As Foxconn's Smartphone Assembler Warns Of 52% Profit Drop In 2016


A lack of new "disruptive" innovation in smartphones continues to hit demand for new products leaving manufacturers to suffer the consequences. The latest evidence of the slowing growth comes from FIH Mobile, a subsidiary of Foxconn Technology, who just announced new guidance for 2016 net income which is now expected to be down 52% YoY. The company's largest clients include Chinese smartphone OEMs like Huawei Technologies and Xiaomi as well as US OEM Motorola. The subsidiary has also historically benefited from spill-over Apple volume from it's parent company, Hon Hai. Per the Company's press release, consolidated earnings are expected to collapse to below $110mm in 2016 from over $228mm in 2015.


As at the date of this announcement, the Board expects the Group’s consolidated net profit for the year ending 31 December 2016 to be less than US$110,000,000 (i.e. a decrease of at least 52% when compared with the Group’s consolidated net profit of US$228,664,000 for the year ended 31 December 2015).
The substantial earnings decline was attributed to a 24% decline in YoY revenue and lower other income including service fees and molding sales.


The Board understands that the overall expected substantial decrease in the Group’s expected consolidated net profit for the year ending 31 December 2016 is primarily attributable, amongst other factors, to (1) lower demand from some of the Group’s major customers as a result of customer transition thus resulting in lower sales of the Group’s products (which, to the best of the Company’s estimate as at the date of this announcement, are expected to be less than US$5,700,000,000 when compared with the sales of the Group’s products of US$7,450,992,000 for the year ended 31 December 2015), and the decline in the Group’s gross profit as a result of the decrease in sales; and (2) lower other income like service fees and molding sales from these customers.
In taking a look back at the company's 1H 2016 filings, we think we may have found a clue as to the source of the revenue "issue" with sales to American customers down 85% YoY.
And, of course, shareholders have had a bit of bumpy ride as profits continue to tumble.


And Apple shareholders are getting nervous...

    NYT : Och-Ziff May Face Consequences Beyond Fine in Bribery Case

    Och-Ziff May Face Consequences Beyond Fine in Bribery Case

    Defendants often point to the collateral consequences of a prosecution and civil enforcement action when arguing that they should not be punished too severely. The settlement by the hedge fund Och-Ziff Capital Management and its founder, Daniel S. Och, for paying bribes to obtain natural resource deals in Africa tests how much they will endure beyond the settlement’s fines and disgorged profits.
    Och-Ziff entered into a deferred prosecution agreementwith the Justice Department for dispensing millions of dollars in bribes in Libya, the Democratic Republic of Congo, Chad and Niger in violation of the Foreign Corrupt Practices Act. That law prohibits giving anything of value to a foreign official to “obtain or retain business,” and has been used recently to police Wall Street firms seeking investment opportunities overseas. The firm will pay a fine of about $213 million to the Justice Department and must avoid any violations during the three-year term of the agreement.
    Robert L. Capers, the United States attorney in Brooklyn, proclaimed that “despite knowing that bribes were being paid to senior government officials, Och-Ziff repeatedly funded corrupt transactions.” The source of those funds came at least in part from money that investors gave the firm to manage, putting them at risk when the deals soured.
    As part of the settlement, OZ Africa Management GP, a Delaware limited liability company, pleaded guilty to a charge of conspiracy to violate the overseas bribery law. That will have little direct impact on Och-Ziff because it avoided having to admit guilt while its wholly owned subsidiary can simply cease operations – if it has not done so already.
    Och-Ziff also agreed to retain a compliance monitor for three years to ensure it stays within the law and promised to strengthen its internal controls to guard against future violations. That means continuing costs for the firm as the monitor digs into its operations and makes demands that cannot be resisted, lest it appear to be uncooperative and put the settlement at risk.
    The firm agreed to pay an additional $199 million in a parallel administrative action with the Securities and Exchange Commission, which shares oversight responsibility for F.C.P.A. violations with the Justice Department. Andrew J. Ceresney, head of the enforcement division, used strong language to describe the case, pointing out that “Och-Ziff engaged in complicated, far-reaching schemes to get special access and secure significant deals and profits through corruption.”
    Despite the tough talk about corporate misconduct, the agreement followed the usual course by being made without an admission or denial of liability by Och-Ziff. In 2013, Mary Jo White, the chairwoman of the S.E.C.,announced that in certain cases, the regulator would extract an admission of wrongdoing from a defendant, such as “where a large number of investors have been harmed or the conduct was otherwise egregious.” Apparently the type of brazen bribery undertaken by Och-Ziff that resulted in criminal charges was not egregious enough to call for such an acknowledgment.
    The firm may face collateral consequences for its future funding and investment activities because of the case. Och-Ziff will have to seek a waiver from the S.E.C. from the automatic “bad actor” bar that would disqualify it from offering securities without having to go through the full disclosure process, and could be ineligible for the “well-known seasoned issuer” status that lets a company register its securities for sale more easily. The Labor Department will have to clear the firm to continue managing certain pension and retirement funds.

    There has been some controversy within the S.E.C. about the seemingly routine grant of waivers after resolution of a criminal investigation. Commissioner Kara M. Stein dissented last year from waivers granted to banks that had settled cases over fixing the benchmark interest rate known as Libor, or the London interbank offered rate. “We have the tools, and with the tools the responsibility, to empower those at the top of these institutions to create meaningful cultural shifts, yet we refuse to use them,” Ms. Stein argued.
    Och-Ziff’s use of client funds to pay some of the bribes may give the commissioners pause in agreeing to any waivers, but in the end, it is likely that the firm will be allowed to avoid the consequences.
    The reputational impact of the case may be the greatest harm to the firm, rather than the total payment to the government of about $413 million, one of the largest penalties ever assessed for violating the F.C.P.A. The New York Times reported that investors had withdrawn more than $5.5 billion from its hedge funds this year, and settling criminal and civil cases is not going to make them any more confident in how the firm will perform.
    Despite a push by the Justice Department to hold individuals accountable for corporate violations, no one from Och-Ziff’s management has been charged at this point. Mr. Och settled with the administrative case with S.E.C., as did the firm’s chief financial officer, Joel M. Frank. The complaint goes out of its way to state that “neither Och nor Frank knew that bribes would be paid” even though they “ignored red flags and corruption risks and permitted these transactions to proceed.”
    At one point, Mr. Och rejected a recommendation by one of the firm’s lawyers that it not go forward with a transaction because of questions about one of the government officials involved the deal. Turning a blind eye to potential misconduct in the name of making a profit is the core of the F.C.P.A.’s prohibition because businesses can view any consequences from being involved in corruption as a cost of doing business.
    The S.E.C.’s administrative order did not take a hard line, however, limiting the violations for the two executives to just failing to maintain proper books and records and adequate internal controls at the firm. Mr. Och will pay $2.2 million while a penalty has not yet been assessed against Mr. Frank.Forbes estimates Mr. Och’s net worth at $2.7 billion, so his payment will not make much of a dent in his pocketbook.
    One tool the S.E.C. has to police corporate managers is the authority to seek a bar from serving as a director or officer of a public company. But that is not available for the two executives because it requires a violation of the antifraud provisions of the federal securities laws, and their settlement did not involve a claim of such misconduct. And, like the resolution for the firm, neither was required to admit to a violation, although Mr. Och did state that “this has been a deeply disappointing episode.”
    A persistent criticism has been the lack of individual accountability for corporate misconduct, especially among senior executives who are far enough removed from day-to-day decisions that proving they engaged in the actual violations, like paying a bribe, is often impossible. At Och-Ziff, executives appear to have taken the notion of willful blindness to its outer limit by approving an aggressive investment strategy in the face of explicit warnings about the risks involved.
    Yet, they still avoided the more significant consequences from their actions: no criminal charges, nor an admission to violating the securities law in a civil action.

    NYT : Nutanix I.P.O. Creates Opening for Others

    Nutanix I.P.O. Creates Opening for Others

    Nutanix, the cloud data-storage firm that made its market debut last week, has jammed open the window for initial public offerings.
    The firm’s stock popped a whopping 131 percent on its debut on Friday, for a market capitalization above $5 billion. The warm welcome that was extended to new companies in September, combined with decreased venture-capital funding, may lead others to pull the trigger. The coming presidential election means they had better hurry.
    Nutanix got lucky. A general market rally on its first day of trading – partly on the back of reduced concern about the stability of Deutsche Bank as the German lender negotiates a big settlement with American prosecutors – put the wind behind stocks. But Nutanix’s business, selling cheap and easy ways to expand data centers, is also at the center of the latest tech wave.
    Nutanix’s Opening Day

    Over all, it has proved a tricky year so far for new and risky companies to sell shares to the public. Only about half as many businesses have floated as in the same period last year, according to Renaissance Capital. To attract investors, solid firms have been priced attractively. The valuations of the networking firm Acacia Communications and the cloud voice and messaging firm Twilio both trade at more than four times where their I.P.O.s priced earlier this year. And Nutanix can claim the best first-day gain of all.
    Performances such as these have helped bring on a thaw. Sixteen companies floated last month. That is more than twice as many as in September 2015, and it is the first month this year with more I.P.O.s than last year.
    Another incentive to go public now is a tightening of purse strings at private investment firms. The amount of venture capital invested in the second quarter was down 11 percent from the same period in 2015, according to Thomson Reuters data. And it was the third-straight quarter showing a double-digit decline.
    Firms may, however, have little time to take advantage. Later in October, investors will be preoccupied with the election, which takes place on Nov. 8, and thereafter they will be trying to figure out what the new president and congressional makeup mean. Nutanix has created the opening, but it may be brief.

    >>> ECB's Mersch (Luxembourg): we are aware that non-standard policy measures ha

    ECB's Mersch (Luxembourg): we are aware that non-standard policy measures have side effects - press 
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    - low rates put pressure on banks' profitability
    - the Euro Area recovery is underway
    - have to question if a bank can't whether headwinds over a few years, if that bank have a sufficiently robust model
    - if rates are too low for too long, could challenge viability of return guarantee on bank business models
    - inflation rebound is taking longer than hoped- cutting rates further would come with increasing risks

    >>> Fed's Dudley (dove, FOMC voter): slow growth reflects constrained monetary p

    Fed's Dudley (dove, FOMC voter): slow growth reflects constrained monetary policy; monetary policy remains accommodative 
    - some economists are concerned that recession risks are rising
    - market liquidity is essential to the proper functioning of financial markets; NY Fed analysis has found little evidence of any meaningful degradation in market liquidity across key asset classes