WSJ : Hapag-Lloyd's Merger Talks With UASC 'Will Bring Summer Marriage'

LONDON--Merger talks between German container-shipping operator Hapag-Lloyd AG and Dubai-based rival United Arab Shipping Co. are progressing well, and the companies will likely combine by the end of the summer, two people involved in the matter said.
"It's a win-win situation and talks are ticking along quite well," one of the people said. "Unless there is a last-minute snag, we will have a marriage by August."
Hapag-Lloyd and UASC said in April they were in preliminary talks based on valuations that would give Hapag shareholders 72% ownership of any combined firm, and holders of UASC the rest. They are currently the world's sixth- and 10th-biggest container operators in terms of capacity, and a merged entity would be the fifth-biggest.
"The combined company will be worth around $9 billion," the second person said.
The talks come amid a wave of consolidation sweeping the container-shipping industry, which is squeezed by overcapacity, slowing global growth and plummeting freight rates. Amid those turbulent waters, a number of big companies in recent years have combined forces to cut costs and increase competitiveness.
At the same time, operators have been scrambling to form alliances, broad operational partnerships that have allowed them to cut costs without a full-blown merger or takeover.
Most of the world's top dozen operators are part of alliances, the most recent of which includes Hapag-Lloyd and was completed earlier this month. UASC and debt-ridden Korean line Hyundai Merchant Marine Co. were the only two left out of the new groupings.
Their exclusion raised questions about their ability to compete effectively in the world's most lucrative ocean trade routes.
"UASC's choice is to pump billions to build up its own fleet and network in a largely futile attempt to compete globally on its own, become a regional Middle East carrier or merge with Hapag-Lloyd and be part of the global alliance that the Germans lead," said Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting. "UASC's holders have always wanted a global presence, so the merger with Hapag-Lloyd is really the only option."
UASC is owned by the governments of Qatar, Saudi Arabia, Kuwait and the United Arab Emirates. Qatar and Saudi Arabia are the biggest holders, with stakes of 51% and 35%, respectively.
The company will hold an extraordinary shareholders meeting June 2 to decide on the merger. The first person said he expects "unanimous backing of the merger plan."
In late 2014 Hapag-Lloyd merged its container operations with Chilean carrier Compañía Sud Americana de Vapores SA. CSAV owns 31.4% of Hapag-Lloyd, with the German city of Hamburg and Kuehne Maritime GmbH, a private maritime investment company, holding around 20% each.
A merger would provide Hapag-Lloyd access to UASC's six Triple-Es, the world's biggest container ships, which have become the weapon of choice in an arms race among the world's major operators. The ships, which can cost up to $150 million each, can move more than 18,000 containers and are outfitted with efficient engines that can save on fuel.
UASC primarily operates in the Asia-to-Europe trade route, and a merger with Hapag would give it wider access to the trans-Atlantic and trans-Pacific loops.

>>> DJ Hapag-Lloyd's Merger Talks With UASC 'Will Bring Summer Marriage'

DJ Hapag-Lloyd's Merger Talks With UASC 'Will Bring Summer Marriage'
By Costas Paris
LONDON--Merger talks between German container-shipping operator Hapag-Lloyd AG and Dubai-based rival United Arab Shipping Co. are progressing well, and the companies will likely combine by the end of the summer, two people involved in the matter said.
"It's a win-win situation and talks are ticking along quite well," one of the people said. "Unless there is a last-minute snag, we will have a marriage by August."
Hapag-Lloyd and UASC said in April they were in preliminary talks based on valuations that would give Hapag shareholders 72% ownership of any combined firm, and holders of UASC the rest. They are currently the world's sixth- and 10th-biggest container operators in terms of capacity, and a merged entity would be the fifth-biggest.
"The combined company will be worth around $9 billion," the second person said.

>>> Gap: Color on Quarter

Gap: Color on Quarter
--> GPS ~unchanged premarket after initially rallying ~5% in the after hours on the restructuring news
  • Stifel downgrades GPS to Hold from Buy. While co remains a well-controlled and well-managed business, the merchandising challenges facing all divisions continues to compromise results. Mgmt also announced an aggressive cost-cutting and business rationalization plan that will reduce expenses and improve profitability by closing under-performing stores. While firm applauds the move, firm recognizes that this does nothing to improve the appeal or LT success of the various Gap brands. While the shares appear inexpensive, (P/E of 8x is a discount to the company's two-year average of the out-year multiple for the co of 12x) without visibility for improvement in the fundamentals, they are challenged to recommended the shares.
  • Mizuho cuts tgt to $17 from $18 on lower estimates. They believe fashion woes amidst traffic headwinds will continue to plague all three core brands. While they remain impressed by managements' ability to cut costs, they lack visibility on the timing of competitively priced, well designed assortments. Until such performance is visible, they expect the stock to trade at a discounted multiple to the group. While they expect shares to move higher to the $18-19 range on the expectation of $275mm in expense savings, they believe weak May comps could shine light on soft topline and overall fundamentals.
  • TAG cuts tgt to $21 from $23. Earnings visibility remains challenged, as evidenced by management's withdrawal of annual guidance. They believe that promotional pressure could continue, particularly at ON and BR as the co works to improve the offerings at those brands. The actions to reduce capex and cut costs help to shore up cash flow and support margins, but the stock will likely require sustained improvement in comps across the brand portfolio to regain traction from current levels. They see upcoming catalysts as limited at this point now that the Spring season has disappointed.
  • FBR & Co cuts tgt to $22 from $27. While they view the changes as a positive, we believe a turnaround could be further out given time needed to regain the consumer and a highly competitive environment. With the recent changes, they remain on the sidelines and look for comp stabilization, increased international visibility, inflection at BR, a return to positive comps at ON, or a more attractive entry point.
  • Wedbush raises tgt to $20 from $19. Cost cuts improve EPS outlook for 2017, but fundamentals of the co's core businesses remain under pressure. 1Q's incremental information was largely centered on meaningful cost cuts, from a combination of closing doors internationally and corporate level cost saves. This shores up the outlook for 2017 EPS. However, it does not address ongoing challenges across all three of the company's core brands. They see limited opportunity for a quick fix at any of the three divisions, and believe 2016 EPS remain at risk.
  • Topeka notes that, while GPS has made progress in product efforts, particularly at Gap brand, an uncertain and volatile environment and other issues such as over-assortment, lack of key item depth and marketing, have hampered brand performance at Old Navy and Banana, leading to a tougher 2016. They believe GPS remains very disciplined on expenses and inventory, and that mgmt has a clear sense of urgency as it looks to turn things around. Given the tougher retail environment, they remain on the sidelines, looking for more visibility on 2H16.

(Jefferies) The Global Asset Fundflow Tracker - Investors Stay on the Sideline I

The Global Asset Fundflow Tracker - Investors Stay on the Sideline In Equities

Key Takeaway
Over the past week (12 - 18 May), investors stayed cautious among global equities (-US$5.7bn, broad-based geographically and by sector). Global equity funds have witnessed withdrawals for the past six weeks. In contrast, preference towards bonds remained intact. Global bond funds recorded a net inflow of US$2.8bn, the seventh straight weekly injection. While investors continued to switch out of government bonds into corporate bonds, the pace has slowed down remarkably lately. Within commodities, the US$1.5bn net inflow was once again led by buying into gold. Lastly, fairly little changes (-US$1.2bn) in overall fundflow terms within global money markets.

Global equity funds recorded their sixth consecutive weekly outflow, at a net US $5.7bn (see exhibit 1). The recent two weekly outflows appeared broad-based by region and by sector. European equities saw a net outflow of US$734mn and extended their selling streak to 12 weeks. However, the size of the most recent withdrawal has reduced significantly (the average amount of the outflow over the past 12 weeks was
US$1.9bn). UK, France and Germany witnessed more significant withdrawals. Our chief global equity strategist Sean Darby remained modestly Bearish on UK equity within global asset allocation in his recent note (see UK: Ambidextrous Drivers), citing the movement of sterling, amid the fears of Brexit, will influence 'domestic' share prices in the short-term.

In Asia, both mutual funds/ETFs (-US$174mn, the eighth weekly outflow) and foreign investors (-US$33mn) stayed sellers but reduced their equity selling sharply for the week.Japan witnessed foreign investors returning after two weeks of solid liquidation corresponded with the surprise announcement (no changes in policies) from the late April BOJ meeting. Furthermore, mutual fund/ETF investors appeared to have picked up their shares following sharp withdrawals in April. In Taiwan, president Tsai Ing-wen officially takes office today. Foreign investors have been significant sellers in the Taiwanese market for the past three weeks (latest: -US$852mn, past three weeks: -US $3.5bn), concerning the relationship between Taiwan and China.

US equities experienced their third weekly withdrawal, at a net US$4.8bn. Small caps, health care and the IT sectors witnessed largely selling lately. Year-todate, the health care and IT sectors have also been the two facing more sizable withdrawals among peers. The FOMC minutes released yesterday have raised consensus expectations of a June Fed rate hike quite substantially (Jefferies maintained its view rate hikes in June).
By asset class, investors have pulled out US$69bn from equities while unwound US$74bn from the money markets with bond markets attracting US$62bn injections (see RHS).

Le Monde - Fessenheim : l’Etat propose moins de 100 millions d’e


Les responsables d’EDF n’en sont pas encore revenus. « C’est sidérant », dit l’un. « Surréaliste », juge un autre. « Apocalyptique », s’étrangle un troisième. En cause, l’indemnisation proposée par l’Etat à l’entreprise pour compenser la fermeture anticipée de la centrale nucléaire de Fessenheim (Haut-Rhin).

Dans un courrier adressé début mai au PDG d’EDF, Jean-Bernard Lévy, et resté jusqu’à présent confidentiel, la ministre de l’environnement et de l’énergie, Ségolène Royal, avance pour la première fois un montant qui pourrait être versé au groupe public. En fonction des scénarios retenus, elle évoque une fourchette comprise entre 80 millions à 100 millions d’euros, indiquent quatre sources au fait du dossier.

Une somme sans commune mesure avec celles évoquées depuis que François Hollande a promis, lors de la campagne présidentielle de 2012, d’arrêter Fessenheim, la plus ancienne centrale nucléaire de France, en service depuis 1977. Dans un rapport remis à l’Assemblée nationale en septembre 2014, les députés Marc Goua (Parti socialiste) et Hervé Mariton (Les Républicains) avaient, en première analyse, estimé à 4 milliards d’euros l’indemnité possible pour d’EDF. Cette évaluation avait alors été vigoureusement contestée par Mme Royal. Il s’agissait selon elle de « calculs farfelus (...) lancés dans la nature pour essayer d’influencer des décisions ».

Le double rôle de l’Etat

Certains experts avaient ensuite mentionné une enveloppe de 2,5 milliards à 3 milliards d’euros. Celle-ci correspond à peu près à ce qu’espéraient les dirigeants d’EDF. « Ils n’avaient jamais donné de chiffre, mais tablaient sur au moins 2 milliards d’euros », estime un familier du groupe.

A 80 ou 100 millions d’euros, le montant mis sur la table par l’Etat se révèle 20 à 50 fois inférieur à ces divers chiffrages, ce qui a provoqué une certaine sidération au siège d’EDF, avenue de Wagram, à Paris. Il s’agit bien sûr d’un point de départ fixé volontairement très bas par l’Etat, qui agit ici, non comme actionnaire majoritaire d’EDF, mais en tant que puissance publique, soucieuse de ne pas creuser le déficit budgétaire. Il montre cependant que la négociation tout juste entamée avec l’Etat sera dure.

M. Lévy s’apprête à répondre à Mme Royal, pour accuser réception de la lettre et lui proposer une rencontre. Mais au-delà de ces échanges polis, « le dialogue est totalement bloqué, analyse un de ceux qui suivent les tractations. Chacun attend de voir qui lâchera du lest le premier. »

Aboutir rapidement à un accord

La décision d’arrêter, à terme, les deux réacteurs de Fessenheim, conformément aux demandes des anti-nucléaires et aux promesses de campagne, avait été annoncée dès l’arrivée de M. Hollande à l’Elysée, en 2012. Mais la date exacte de la fermeture est longtemps restée floue, de même que la question du coût financier de l’opération.

Depuis, la situation a commencé à se clarifier. Tout en jugeant que Fessenheim est une centrale sûre, qui pourrait encore tourner des années, EDF a accepté de fermer son site alsacien, lorsque le réacteur EPR en construction à Flamanville (Manche) sera mis en service. La loi sur la transition énergétique, qui plafonne à 63 200 mégawatts la production d’électricité nucléaire française, sera ainsi respectée. Compte tenu du retard du chantier de Flamanville, l’ouverture de cette centrale et l’arrêt de Fessenheim devraient avoir lieu vers la fin de 2018, selon EDF.

Les discussions financières, elles, ont débuté il y a quelques semaines seulement, à partir du moment où Mme Royal a désigné un négociateur, Jean-Michel Malerba, déjà délégué interministériel à la fermeture de Fessenheim. L’objectif de l’Etat est d’aboutir rapidement à un accord, qui sera ensuite soumis au comité d’entreprise et au conseil d’administration d’EDF. Puis, l’entreprise devra déposer une demande formelle d’abrogation de l’autorisation d’exploiter Fessenheim. Cette étape, initialement attendue par Mme Royal d’ici à la fin de juin, est désormais envisagée par EDF pour le mois de décembre

Aux yeux de M. Lévy, le préjudice d’EDF dans cette affaire est « indiscutable », comme il l’a affirmé lors d’une audition au Sénat le 27 avril. L’entreprise se trouve victime d’une « privation d’un outil nucléaire qui fonctionne bien, et devait être utilisé encore pendant des années », a-t-il expliqué. L’Autorité de sûreté nucléaire a en effet émis, en 2011 et 2012, des avis favorables à l’exploitation des deux réacteurs pendant au moins dix ans, et EDF a investi pour moderniser les installations. Dans ce type de cas, il est logique de prétendre à une indemnisation, comme l’a reconnu le conseil constitutionnel, dans sa décision du 13 août 2015.

Un bras de fer commence

Les pouvoirs publics insistent, eux, sur tous les facteurs justifiant une indemnité minime. Le préjudice ? Il n’est peut-être pas si important que cela. L’exploitation de Fessenheim pendant des années n’avait rien d’acquis, et nécessitait encore des investissements, soulignent certains. Autre élément à prendre en compte : la chute récente des prix de l’électricité sur le marché européen, un mouvement jugé durable par les analystes, en raison des surcapacités de production.

Cette baisse des prix réduit d’autant les recettes attendues par une centrale comme Fessenheim, donc le manque à gagner en cas d’arrêt anticipé. Les pouvoirs publics mettent aussi en avant les contacts pris par l’Etat auprès d’investisseurs susceptibles d’aider à la reconversion du site, et donc de réduire le coût de la fermeture pour EDF.

« Malgré tout, le gouvernement va devoir beaucoup argumenter pour expliquer un montant aussi dérisoire, qui complique encore notre difficile équation financière », s’exclame un cadre d’EDF.

Le bras de fer sera suivi de très près par les actionnaires minoritaires d’EDF, qui ont déjà vu leurs actions perdre 60 % de leur valeur en cinq ans, mais aussi par les partenaires industriels du groupe à Fessenheim. Un tiers de la centrale appartient à l’allemand EnBW et aux suisses Alpiq, Axpo et BKW, qui ont participé à son financement et utilisent l’électricité produite sur place. Eux aussi espèrent être indemnisés correctement.

IMF: Greek Payments on European Loans Must Be Deferred to 2040

IMF: Greek Payments on European Loans Must Be Deferred to 2040

Principal and interest payments on all European loans to Greece should be deferred until at least 2040, IMF says in draft debt sustainability assessment document obtained by Bloomberg News.
  • IMF proposes extension of the grace period on repayments of EFSF loans to Greece by up to 17 years, ESM loans by up to 6 years, and GLF loans by 20 years
  • Maturity of all European loans should be extended to 2080
  • Interest rate on EFSF/ESM loans to Greece should be fixed at a maximum level of 1.5% at least until 2045
    • For the bilateral GLF loans extended to Greece under first bailout, the spread over Euribor 50 bp should be eliminated
  • Without proposed relief measures, Greece’s public debt will rise to 293.8%/GDP by 2060 under baseline assumptions
    • Baseline scenario assumes Greece will achieve and maintain a primary budget surplus of 1.5%/GDP, privatization proceeds of EU5b to 2030
    • Given the high level of NPLs and weak quality of capital, additional bank capital needs of up to EU20b are projected to emerge, which could be covered from the unused bank buffer in the ESM program

(MS) Asset Managers - Most funds struggle despite flat market and low position t

Most funds struggle despite flat market and low position turnover

ETF outflows decelerated for a 2nd consecutive week, driven by strong US bond ETF inflows which offset weak flows from US & EM focused equity ETFs. Conversely, LT MF outflows accelerated w/w driven by worse outflows from domestic equity funds and more muted domestic taxable bond inflows.

Executive summary: Long-term mutual fund flows accelerated w/w, according to the latest data from EPFR Global. Domestic equity funds were the primary driver of the LT MF outflows, as outflows from large and small-cap growth funds accelerated. International equity fund flows were positive, driven by strong inflows to EM funds, offset by outflows from Global DM funds. On the fixed income side, domestic taxable funds inflows decelerated for a 2nd
consecutive week from the last 3 weeks elevated levels, driven by worse inflows to intermediate term funds, despite HY fund flows inflecting positive. International taxable funds inflected positive after 3 weeks of outflows, driven by inflows to both EM and Global DM funds. Muni funds posted their 27th consecutive week of inflows while balanced funds saw a second straight week of outflows. Money market funds generated positive flows. ETF outflows improved w/w as bond ETF inflows accelerated posting largest inflows in 10 weeks, which offset elevated US & EM equity ETF outflows.

Mutual fund flows by product: Net long-term outflows from (in orde Domestic equity and balanced; offset by inflows into international equity, international taxable fixed income, domestic taxable fixed income and muni
funds. Money market funds posted net inflows.

ETF flows: Outflows overall in the latest week (with inflows YTD), with outflows from equity ETFs and inflows to bond ETFs.

(GS) Hedge Fund Trend Monitor : Most funds struggle despite flat market and low

Most funds struggle despite flat market and low position turnover

Hedge funds continue to face challenges in 2016. The 6% YTD decline of the most popular long positions has contributed to the -4% average return of equity long/short funds. Our hedge fund VIP list (ticker: GSTHHVIP) has lagged S&P 500 by 13 pp since August 2015, matching its 2008 record underperformance. However, the most concentrated stocks (GSTHHFHI) are on pace to outperform by more than 400 bp for the fifth year in a row (5% vs. 1%). We analyze holdings of 841 funds with $1.9 trillion of gross equity positions ($1.2 trillion long and $664 billion short) at the start of 2Q.

New VIPs hold promise for lagging hedge funds
The 14 new constituents of our Hedge Fund VIP list of most popular long positions have posted an average YTD return of 2% compared with 1% for the S&P 500 and -9% for the average stock leaving the basket. Historically, new first-time VIPs have outperformed the S&P 500 by 2 pp and 3 pp on average in the 3-month and 12-month periods following inclusion. Five of the 14 new constituents are first-time VIPs: HOT, BXLT, NWL, TAP, NXST.

Funds focus on fewer investment ideas and longer horizons
The trends of low position turnover and high portfolio density continued this quarter, with the average fund’s top 10 positions accounting for 68% of its portfolio, the highest on record. Largest position turnover was just 15%.

Funds shift away from Health Care toward commodity sectors
Hedge funds raised allocations to the Energy and Materials sectors while lowering allocations to Health Care, Industrials, and defensive, high yield sectors. Funds have the largest net sector exposure to Info Tech, at 21%.