After Hours Summary: JNPR -7%, AA -5% following earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to news: MRO +1.1% (to sell certain non-core assets for $950 mln)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: JNPR -6.5%, AA -4.5%
Companies trading lower in after hours in reaction to news: SRC -2.7% (commences 27 mln share public offering pursuant to an effective shelf registration), REXR -2.6% (commences 9 mln common share offering; acquires a private REIT for ~$191 mln)
Six ex-SAC Capital Advisors employees have returned to their former employer, billionaire investor Steven Cohen, as portfolio managers at his new investment firm Point72 Asset Management.
Eugene Lipovetsky, Ladd Fritz, Ray Shu, Arjun Menon, Israa Al Bayaa and Stanislas de Caumont have rejoined Point72 after leaving in 2013-2014 when SAC shut down after paying a $1.8 billion fine in an insider-trading settlement with U.S. regulators.
"The interest by former employees in returning to the firm, particularly in London and Asia, reflects the strength of our franchise and the excitement on executing against the firm's mission and values," spokesman Mark Herr said on Monday.
Shu is based in Hong Kong while Menon, Al Bayaa and de Caumont are based in London. Lipovetsky and Fritz are in New York, Herr said.
Point72 Asset Management succeeded SAC Capital, Cohen's hedge fund firm.
The new firm is a family office - a private wealth advisory firm for prosperous families - that manages about $11 billion.
MergerMarket
* Allergan not seen in rush for next deal
* Shire, Endo among possible targets
Allergan (NYSE: AGN) will likely look outside the US if it wants to use its USD 40bn in cash from the pending sale of its generics division to Teva Pharmaceutical (NYSE:TEVA) for another large deal, according to sector bankers.
Last Monday’s new US Treasury rules that scuttled Allergan’s proposed mega-merger with Pfizer (NYSE:PFE) will undoubtedly make it difficult for Allergan to consider doing another inversion deal.
As a result, Allergan may evaluate previous targets if it wants a transformative deal, with specialty drug company Shire (LON:SHP) a possible revisit, the bankers said. However, Allergan is in no rush to complete its next deal, they added.
A more modest bid could be directed at Endo International (NASDAQ:ENDP), but both companies may not fit the growth profile described last week by Saunders, the bankers added. At a market valuation of USD 6.5bn, Endo would be an easy tuck-in deal for Allergan, but the long-term reimbursement prospects for Endo’s portfolio are not as strong as other targets, said a second banker.
The break of the Pfizer deal was a setback for Allergan and CEO Brent Saunders, noted one banker, and Allergan likely will steer clear of any transaction with a US-headquartered company. Had it been completed, the Pfizer merger would have represented another “home run” in the series of deals Saunders has guided over the past three years.
Allergan needs its next deal to succeed but it does not have to be as grand as previous transactions, said the same banker.
Alternatively, Bausch & Lomb, the eyecare unit of Valeant Pharmaceutical International (NYSE:VRX), where Saunders previously was CEO, is a premium asset and a possible complementary tuck-in for Allergan, Saunders said during a media interview. But it does not fit into the company's strategy of acquiring purely growth assets that will impact positively on the company's current investment grade, he added during an analyst call the same day.
On the analyst call Saunders said Bausch & Lomb was worth USD 8.7bn in 2013 when it was acquired, and did not see how it could be worth more now. One of the bankers said the pharma business within Bausch & Lomb would be a good fit for Allergan, which has a market cap of USD 96bn, but it is unlikely Valeant would sell just the pharma business.
Valeant CEO Michael Pearson, who announced last month he would step down once a successor is found, previously said that a Bausch & Lomb sale was not under consideration. Pershing Square Capital Management’s Bill Ackman, who was recently appointed to the board and whose fund has a 9% stake in Valeant, said this week that Bausch & Lomb was a core part of the company and that it was not for sale.
Allergan’s internal acquisition track record over the past nine months points toward modest-sized deals that would yield long-term value, including its deal this week with privately held Heptares. Saunders, who previously was CEO at CNS specialist Forest Laboratories, has stayed close to his experience in the strategic acquisitions completed by Allergan in the last year.
With Heptares, Allergan paid USD 125m upfront to partner with Heptares to develop small molecule agonists to treat Alzheimer’s disease. Heptares also stands to receive up to USD 665m in milestone payments. Last year, Allergan completed a bigger CNS deal when it paid USD 560m for Naurex, which owned a Phase II injectable drug to treat depression.
Allergan’s largest strategic deal was its USD 2.1bn acquisition of Kythera, an aesthetics company which complements Allergan’s BOTOX franchise. In eye care, Allergan struck two deals with private companies, buying Oculeve for USD 125m and paying USD 300m for AqueSys, which is developing ocular implants that reduce intraocular pressure (IOP) associated with glaucoma.
With the exception of Kythera, all the deals bring in products that are expected to deliver high growth to Allergan within three to five years.
Alcoa beats by $0.04, misses on revs; lowers FY16 aluminum demand growth to +5% from +6%; spin off on track for 2H
- Reports Q1 (Mar) earnings of $0.07 per share, $0.04 better than the Capital IQ Consensus of $0.03; revenues fell 15.0% year/year to $4.95 bln vs the $5.15 bln Capital IQ Consensus, including a 5.7% revenue increase related to acquisitions and organic growth, more than offset by a 20.7% revenue decline primarily from continued low alumina and aluminum prices, foreign exchange impacts and divested, curtailed or closed operations
- Arconic Segments (Value-Add) Overview
- Revenue of $3.3 billion, down 2.2% year-over-year, reflects: o 6.7% revenue increase predominantly related to acquisitions, offset by 8.3% revenue decline from metal and foreign exchange impacts and 0.6% revenue decline from divested or closed operations
- After-tax operating income of $269 million, up 8% year-over-year, adjusted EBITDA of $537 million, up 7% year-over-year, and record adjusted EBITDA margin of 16.4%.
- New Alcoa Segments (Upstream) Overview
- Third-party revenue of $1.7 billion, down 32.2% year-over-year, reflects: 4.5% revenue increase from organic growth more than offset by 26.1% revenue decline due to lower pricing and foreign exchange impacts and 10.6% revenue decline predominantly related to curtailed or closed operations
- Total revenue of $2.1 billion, after-tax operating income of $22 million, and adjusted EBITDA of $185 million
- Profitable Alumina and Primary Metals segments despite 19% price decline in the Alumina Price Index, and flat aluminum pricing, sequentially; year-over-year declines of 40 and 26%, respectively
- In 2016, Alcoa projects an ~1.1 million metric ton global aluminum deficit as 5% global aluminum demand growth (revised from 6%) outweighs 2% global aluminum supply growth (revised from 3%). In addition, the Company projects a global alumina deficit of 1.4 million metric tons.
- Aerospace +6-8% from +8-9% (market transition); Alcoa projects solid growth in all its other end markets.
- Value add segments separation on track for 2H.
Closing Market Summary: Indices Surrender Early Gains Ahead of EarningsThe stock market began the week on a lower note as the major averages sunk into negative territory in a final-hour sell off. Today's action featured an uptick in crude oil, positive sentiment from overseas, and the underperformance of the heavily-weighted health care (-0.7%) space. Today also marks the beginning of the first quarter earnings reporting period with Alcoa (AA 9.74, +0.37) kicking things off after the close. The Nasdaq Composite (-0.4%) ended its day behind the S&P 500 (-0.3%) and the Dow Jones Industrial Average (-0.1%).
The equity market gapped up to begin its day as more news regarding Italy's planned bad-bank fund boosted investor sentiment. The fund is aimed at limiting a possible contagion effect from bad loans originated by Italian banks and is expected to improve balance sheets of those banks. Separately, an extended rally in crude oil added support to the opening move higher.
However, the major averages pulled back from their opening highs as health care (-0.7%) slipped beneath its flat line and the remaining gainers pared earlier gains. Additionally, despite an uptick in WTI crude, the commodity-sensitive energy space (-0.1%) was unable to end above its flat line.
By the end of the day, eight sectors were in the red with health care (-0.7%), consumer staples (-0.7%), and telecom services (-0.6%) rounding out the leaderboard. Conversely, materials (+0.5%), and financials (+0.3%) finished with the only gains.
In the economically-sensitive financial sector (+0.3%), money center banks outperformed ahead of key earnings reports from JPMorgan Chase (JPM 58.20, +0.46), Bank of America (BAC 12.97, +0.09), and Citigroup (C 41.12., +0.65). The three are scheduled to report earnings on Wednesday, Thursday, and Friday, respectively. Separately, Goldman Sachs (GS 152.20, +1.92) gained 1.3% after the Attorney General of New York announced a $5 billion settlement with the company for deceptive practices leading up to the financial crisis.
The energy sector (-0.4%) ended its day on a lower note as WTI crude gained 1.8% ($40.47/bbl). In the space, Baker Hughes (BHI 41.74, -1.37) ended its day lower by 3.2% after Barron's issued cautious commentary on the company. Conversely, Chesapeake Energy (CHK 4.50, +0.74) gained 19.7% after having its borrowing base reaffirmed at $4 billion. The company also increased collateral under its loan amendment.
Biotechnology underperformed in the health care space (-0.7%), evidenced by the 1.7% decline in the iShares Nasdaq Biotechnology ETF (IBB 272.70, -4.65). The space pulled back along with Regeneron Pharmaceuticals (REGN 396.14, -8.80) and Valeant Pharmaceuticals (VRX 31.35, -2.32) as the two names ended with respective losses of 2.2% and 6.9%.
The U.S. Dollar Index (93.98, -0.25) ended its day lower, but managed to tick off its worst level of the day. The dollar lost 0.2% against the yen and finished at 107.91. Meanwhile, the euro/dollar pair finished at 1.1408 (+0.1%).
The Treasury complex ended its day on a flat note with the yield on the 10-yr note finishing at 1.72%.
Today's participation was above the recent average as more than 888 million shares changed hands on the NYSE floor.
There was no economic data of note released today.
Tomorrow's economic data will include Import and Export Prices for March and the Treasury Budget for March, which will be released at 8:30 ET and 14:00 ET, respectively.
Alcoa 1Q16 earnings preview
Alcoa (AA) is scheduled to report 1Q16 results April 11 after the market closes with a conference call to follow at 5 pm EDT the same day. Capital IQ consensus calls for EPS of $0.03 on revenues of $5.15 bln, compared to actual adj EPS of $0.28/share on revenue of $5.82 bln recorded in 1Q15.
Alcoa's (AA) operations consist of 5 worldwide reportable segments:
- Alumina (19.4% of FY15 sales)
- Primary metals (29.3% of FY15 sales)
- Global rolled products (24.0% of FY15 sales)
- Engineered products & solutions (20.2% of FY15 sales)
- Transportation & construction solutions (7.1% of FY15 sales)
The co emphasizes the unfavorable environment it is operating in. Strong productivity gains seen each quarter have been more than offset by lower alumina and aluminum prices. For example, in 2015 the Midwest transaction price for primary aluminum fell 28% to $657/metric ton, and the Alumina Price Index dropped 43% to $154/metric ton.
Expectations are low given the sentiment around aluminum and related base metals prices. The co has been working to cut costs and has been closing its smelter operations over the past couple of months. It is now down to one smelter operating in the U.S.
On Nov 23 2015, Elliott Management disclosed a 6.5% stake in Alcoa (AA). The driving factor behind the move was the stock's valuation, which Elliott viewed as 'dramatically undervalued'. Sentiment remains low, but it will be interesting to see if the co is able to show progress in its split and whether or not that will be enough to entice investors off the sidelines.
On Sept 28 2015, The co announced that it would be splitting the company into two. The announcement led to a 20%+ rally in the stock as investors welcomed the move. But Alcoa has since given up those gains as the overall market conditions have led to a steady bid in shares. The plan for the split is for the co to be divided up into two segments.
Company Split:
One company will comprise the Alumina and Primary Metals segments and the other company will comprise the Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions segments. Alcoa is targeting to complete the separation in the second half of 2016.
The smelting and refining biz produces assets that sell into enterprises that run electric power grids. This has been the primary drag on operations as aluminum prices continue to fall. AA has been trying to offset the drop in revenue by an aggressive cost cutting plan. The legacy unit accounts for approx 50% of revenues. The other unit is the co's downstream unit that supplies components to the auto and aerospace industries. The value added side of the business has been where the growth has taken place and has helped offset some of the downside to the upstream business. This is viewed as the better of the two units as it operates in favorable sectors and is generating the majority of profits.
Co has established a governance structure led by a steering committee, a separation program office, and functional teams to separate Alcoa into two standalone companies. The separation program office is ensuring that all deliverables and deadlines will be met to make the separation effective in the second half of 2016. Alcoa is targeting a Form 10 filing with the U.S. Securities and Exchange Commission by mid-2016. We will be looking for additional details and progress on the separation on the earnings call.
A technical perspective:
Technically, the stock has been consolidating in $1 range the last few weeks, struggling with its multi-month resistance at the $10-area. During that time, it has managed to successfully clear its 200-day simple moving average for the first time in over a year, so there's the potential that its bigger picture downtrend could be nearing an end. As for how it responds to earnings, Buyers will want to see a sustainable breakout over the $10-mark going forward. Sellers will want to take out $9-support and slam the stock back below $8.
Outlook:
In 2016, Alcoa expects a global aluminum deficit of 1.2 mln metric tons and a global alumina deficit of 2.8 mln metric tons due to global curtailments. The co also projects record global aluminum demand in 2016 of 60.5 mln metric tons, up 6% over 2015. Global aluminum demand is expected to double between 2010 and 2020; so far this decade, global demand growth is tracking ahead of this projection, according to the co.
4Q15 Recap:
- Reported Q4 earnings of $0.04/share, excluding non-recurring items, $0.03 better than the Capital IQ Consensus of $0.01; rev fell 17.8% year/year to $5.25 bln vs the $5.28 bln Capital IQ Consensus
- Organic growth in aerospace and acquisitions increased rev 7%, which was more than offset by a 25% rev decline from lower alumina and aluminum prices, the impact of divested, curtailed or closed facilities, and unfavorable currency
- The Value-Add biz reported strong performance, while the upstream remained profitable despite lower alumina and aluminum prices
- Every segment delivered productivity gains
-Peers of Alcoa (AA): CENX, KALU, BLL, ACH, CSTM. CENX usually moves the most in response to movement in shares of Alcoa (AA)
-Shares of Alcoa (AA) are currently up ~4.5% at $9.80/share
Putting M&A Hopes on Hold in Europe
Telecom mergers will remain the exception rather than the rule
Another week, another obstacle to European telecom-sector consolidation. Companies that still harbor deal-making ambitions will need to think outside the national or sector box.
On Monday, Britain’s antitrust watchdog published an open letter to colleagues in the European Commission. This laid out the full extent of its opposition to a merger between CK Hutchison’s Three network and Telefónica’s U.K. arm O2. The commission is due to rule on the deal May 19, after a six-month investigation.
Hutchison has sought to allay the competition concerns of the commission’s hawkish boss, Margrethe Vestager, by offering concessions or “remedies.” These include making parts of its network permanently available to Sky, which plans to launch a mobile service later this year, and Liberty Global’s Virgin Mobile unit, which currently uses the EE network now owned by BT Group.
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But the U.K. antitrust watchdog, like the country’s telecom regulator, is against any deal that reduces the number of network owners from four to three. This rules out anything that CK Hutchison has offered or might want to offer.
The commission has the final word. But it may be politically difficult for Brussels to overrule both London regulators—particularly a few weeks before Britain votes on whether or not to stay in the European Union.
The market reacted with barely a shrug, reflecting that investors already feared the worst.
And the issue isn’t confined to the U.K. Hopes of consolidation in the French market have also been thwarted this month, though not by regulators. Orange, the network controlled by the French state, and smaller rival Bouygues Telecom failed to agree on terms of a much-discussed merger that would have reduced the number of French operators from four to three. Bouygues wanted a larger stake in Orange than the French state was willing to cede.
Even in the U.S., such consolidation has proven difficult. Regulators signaled they would block a merger of Sprint and Deutsche Telekom’s T-Mobile US. That in turn has put considerable margin pressure on all wireless companies as T-Mobile has spurred a fierce price battle.
In Europe, companies now need to think beyond intra-national combinations. Moving into neighboring services looks fair game after the U.K. antitrust body cleared the merger of BT Group’s fixed-line network and mobile operator EE earlier this year without remedies. The major prize here remains the merger of Vodafone with Liberty Global’s European cable assets.
Moving into neighboring countries is the final frontier. Telecom Italia is the obvious target as the weakest of Western Europe’s former state monopolies and with a dominant French shareholder in the form of media group Vivendi.
But the Orange-Bouygues saga shows how attached some European states remain to fostering national champions. Political talk of broadband as a strategic priority suggests this won’t change.
Investors hoping consolidation will reduce competition pressures won’t get relief: European telecom mergers will remain the exception rather than the rule.
What's going on at Gate Group?
Power struggle Gate Group: Who is the HNA Group from China? What's happening now? How do the owners? The answers.
Since weeks rages at gategroup a dispute between the Board and two major shareholders. Today before trading barged the message that the airline catering company to be sold to China.
gategroup
- What's going on at Gate Group?
- What are the hedge funds against the listing of HNA Group?
- How did the stock price of gategroup reacted to the news?
- What are the next steps?
- Should Gate Group after the acquisition on the stock exchange remain?
- How important is the acquisition of the Swiss location of gategroup?
- What makes Gategroup exactly?
- How is the airline catering company today?
- To whom it concerns with the HNA Group, which wants to take over Gate Group?
- Where's HNA else involved?
- What other Swiss companies were recently acquired by Chinese companies?
1/11
What's going on at Gate Group?
The flight catering company stands for weeks because of a power struggle between the Board and major shareholders in the headlines. The two hedge funds RBR Capital Advisors and Advisors Cologny demanded a new composition of the Board and in particular the resignation of President Andreas Schmid. In a set up for her campaign Web site namedSavegategroup.com they give powerful gas. Eagerly look shareholders and Gate Group lace the General counter of this Thursday, where a showdown between the parties is expected. This morning is now the message barged that Bordverpfleger to be sold to the Chinese HNA Group.
The two hedge funds RBR Capital Advisors and Advisors Cologny exert a website public pressure on the gate Group Management Board.
2/11
What are the hedge funds against the listing of HNA Group?
RBR Capital Advisors rejects the offer of 53 Swiss francs per share. The price was far too deep to RBR-founder Rudolf Bohli let quote from the Reuters news agency. The fair prices would be at 100 francs, so Bohli. RBR Capital Advisors holds together with Cologny Advisors 11.3 percent of gategroup shares.
It raises the question whether it is possible the two funds to convince the rest of the shareholders of a negative attitude. On Thursday, the gate Group owners will be able to vote on the offer from China.
Analysts at Vontobel and Zürcher Kantonalbank evaluate the offer positively. "We would accept the offer," it says in a commentary by Vontobel. "We expect that the deal will come through," it says at ZKB, where the analysts write of a "handsome" offer.
3/11
How did the stock price of gategroup reacted to the news?
Course of gategroup shares over 1 year compared to the SPI. (Source: www.cash.ch)
For IPO, the share of gategroup is immediately rocketed by 17.7 percent to CHF 51.90. The Chinese industrial conglomerate HNA Group has 53 francs in cash per gate Group share. What an assumption of 1.4 billion Swiss francs equivalent to the entire company. The paid price represents a premium of 38 percent over the volume-weighted average price of the last 60 days.
4/11
What are the next steps?
The general meeting will take place as planned this Thursday. As from 27 May, gategroup Shareholders can tender their securities of HNA Group. If 67 percent of the shares on June 23, are transferred to HNA by the end of the Offer Period and no objections from authorities such as the Takeover exist, the deal can be completed. The detailed offer prospectus will be published on 11 May, the HNA Group.
5/11
Should Gate Group after the acquisition on the stock exchange remain?
No, in this month's release of gategroup is that HNA intend to delist the company after the acquisition, and to settle as independently managed company in the HNA Group.
6/11
How important is the acquisition of the Swiss location of gategroup?
Andreas Schmid, yet until 2017 Chairman of the Board of gategroup. (Keystone)
Provisional no. The headquarters in Kloten to be retained, as should be left in the office, the existing management, as in the gate Group announcement means. As the development under the new owners continues, will nevertheless be difficult to assess, since after the departure of the stock market, the gate Group must publish annual reports.
7/11
What makes Gategroup exactly?
Gategroup is an airline catering company, that specializes in the stores and all the logistics that entails. The Group's roots lie in the Swissair. The former national airline started from 1992 to pass the flight catering under the name Gate Gourmet as a subsidiary. In the course of the Swissair bankruptcy Gate Gourmet in 2002 went to the US private equity firm Texas Pacific Group. Then began a long period of restructuring, which resulted in the IPO renamed Gate Group Company of 2009.
Looking At Catering: When gategroup subsidiary Gate Gourmet prepared tens of thousands of meals daily. (Keystone)
8/11
How is the airline catering company today?
The Gate Group has a turnover of around 3 billion per year. In the last fiscal year, the Group took a loss of 63.4 million Swiss francs. As a reason for the red result restructuring costs, provisions and exchange losses were mentioned. The company is in the midst of a rebuilding phase. Through the so-called Gateway 2020 is to be saved at a cost of 20 million. 2012 already wrote Gategroup a loss. And through a deep crisis was the company in 2011, when then-CEO Guy Dubois had to resign. He was personally in league with an employee that branched CHF 22 million from the company.
9/11
To whom it concerns with the HNA Group, which wants to take over Gate Group?
HNA Group belongs among others, the Hainan Airlines. (Keystone)
The Chinese HNA Group is a multi-layered network of investments and subsidiaries. The group is divided into five main sections: Aviation (Aviation) Holdings (real estate, retail trade), Capital (financial services, investment banking), tourism (especially hotels), Logistics (logistics companies, freight, shipbuilding).
The conglomerate was founded in 1993, now keeps company with a value of 88 billion Swiss francs, including 11 Listed Companies. The 180,000 employees worldwide generated sales of 26.5 billion Swiss francs.
10/11
Where's HNA else involved?
Boarding stairs of the service company Swissport at the airport in Zurich. (Keystone)
In Switzerland, the HNA Group last year noticed by the acquisition of Swissport. How Gategroup a former Swissair company. Expressed interest HNA also at Kuoni. Spectacular Deals in other countries included the acquisition of the aircraft leasing company Avolon $ 2.5 billion last September or purchase one of the largest IT distribution companies Ingram Micro for 6 billion dollars in February.
11/11
What other Swiss companies were recently acquired by Chinese companies?
ChemChina President Ren Jianxin and Syngenta President Michel Demare. (Keystone)
Several times in the past shorter investors from China have struck in Switzerland. Prominent examples are the acquisitions of watch companies Eterna and Corum by Hainan 2011. A year later Saurer went from OC Oerlikon to the Jinsheng Group. Also in 2012 bought the holding company Baoshida Swissmetal. In Chinese-owned have become the bottle manufacturer Sigg and sports marketing agency Infront. The by far biggest deal made by Chinese investors is the announced acquisition of Syngenta by ChemChina. The Chinese want to pay 43.7 billion francs for the agrochemical company.