This week's biggest % gainers/losers
The following are this week's top 20 percentage gainers and top 20 percentage losers, categorized by sectors (over $300 mln market cap and 100K average daily volume).
This week's top 20 % gainersThis week's top 20 % losers
- Healthcare: MNKD (0.93 +40.71%), SCAI (44.12 +11.92%), VNDA (8.83 +7.55%)
- Materials: HMY (1.61 +24.81%), SBGL (7.78 +18.6%)
- Consumer Discretionary: BURL (48.31 +16.16%), APOL (7.63 +15.78%), FRGI (37.04 +11.97%), AAN (22.39 +10.13%), TCS (4.62 +9.48%), CATO (37.25 +9.24%), M (37.88 +8.29%), AEO (14.31 +8.08%)
- Information Technology: CRAY (33.06 +14.87%), SMCI (24.43 +11.25%), QLGC (11.85 +7.53%)
- Energy: CRR (18.51 +15.18%), OKS (27.6 +8.28%)
- Consumer Staples: CALM (49.39 +7.14%)
- Telecommunication Services: MBT (5.72 +9.58%)
- Healthcare: HALO (10.1 -31.99%), KPTI (6.54 -30.72%), LJPC (14.94 -29.53%), NK (12.45 -28.16%)
- Materials: HBM (2.03 -35.96%), AA (6.9 -30.09%), EGO (2.28 -29.85%)
- Consumer Discretionary: LL (12.15 -30.01%), GPRO (11.46 -29.22%)
- Information Technology: P (9.45 -29.53%)
- Financials: LC (7.73 -30.05%), ECPG (16.94 -29.62%)
- Energy: ECR (0.8 -47.79%), SM (11.6 -41%), TK (6.18 -37.39%), CWEI (16.44 -36.03%), CNX (4.99 -35.11%), ATW (6.07 -28.92%), MEP (6.11 -28.87%), FMSA (1.49 -28.37%)
France’s Economy Minister Emmanuel Macron On French Startups
Last week, 190 French startups came to Las Vegas for CES. Everywhere around Vegas, people were talking in French, as if French entrepreneurs were trying to take over the city. And France’s Minister of Economy, Industry and Digital Affairs Emmanuel Macron was also there, trying to make a point about French startups.
There are many reasons why so many French startups attended CES this year — I explained them in a separate article. France has some of the best engineering schools in the world, some French hardware companies have been thriving for the past few years and many entrepreneurs have realized that it’s possible to build a global company by keeping the engineering team in France.
But what about the support from the French Government? I got the chance to interview Emmanuel Macron about his vision and policies when it comes to startups. This interview was translated from French and slightly edited for clarity.
TechCrunch: You’re coming all the way from France, what’s the goal? Are you going to be a salesman for the French startups attending CES?
Emmanuel Macron: First, my goal is to showcase French startups, rally entrepreneurs and showing that French startups are coming en masse.
Second, it’s important to show a strong commitment from the Government. Why? Because the ecosystem knows very well that the Government is important in France. It’s Big Government. And these startups [pointing finger to French entrepreneurs living in the U.S.] are always wondering what’s going to happen when they work with French startups: “what is the Government thinking? What are they going to do? Are they going to change the rules?” So it’s very important to show that the Government is committed when it comes to startups.
And third, we want to attract big companies and investors when it comes to investing in the French tech ecosystem.
TC: Who are you targeting first? Foreign VCs, people working in the French tech ecosystem and looking from afar?
EM: It’s a multi-faceted audience. We are talking to French startups and the French tech ecosystem indeed. I think it’s important to highlight the specificities of this ecosystem — taking risks is important when you are an entrepreneur for example.
We need to show that France is currently changing thanks to entrepreneurship and that the world is also moving rapidly. For me, coming here is also about educating French decision makers to show that, yes, the world is changing rapidly, and French people are taking part in that change. And we need to help them — it’s critical.
The second type of audience is big American companies and American investors, indeed. We want to encourage them to work more with our startups in order to create late-stage startups targeting new markets. And we want them to invest in these startups and in France in general.
TC: How is it possible to be the “Minister of startups” and the “Minister of big companies” at the same time? They often have diverging goals, and there are sometimes violent clashes…
EM: I think that’s how the economy is structured, and we won’t succeed in transforming the economy by choosing between startups and big companies — it wouldn’t make any sense. I believe that we need a clear path, and that innovation is key when it comes to GDP growth and the success of our country.
Today, this innovation is much more disruptive, global and fast. Innovation is also coming more from startups and less from big companies. And that’s why it’s not startups versus big companies. It’s more important to upgrade the economy, private investment and innovation.
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To this end, we need to explain that startups are a key element and that big companies should open themselves to startups and foster relationships, work, cooperation on multiple levels — industrial, research and development, investments and acquisitions. And we’ve talked about that a lot this morning, you can see how important it is. This is key to our startups’ success, it is also key for big companies that need to pivot.
All the big French companies in many industries have old business models — energy, transportation, tourism and more. There is a revolution going on. If they’re not part of the digital revolution — health is another industry as well — they will lose this battle. That’s why working with startups is key to their strategy. And at the same time, that’s also how we build tomorrow’s big companies.
TC: What are you really trying to say to big companies? Should they acquire startups, invest in them?
EM: They should work more with startups. Startups should win commercial and R&D contracts. Big companies should also invest in startups thanks to the recent policies when it comes to venture capital. You get generous tax exemptions when you’re a big company and you invest in a startup.
You get generous tax exemptions when you’re a big company and you invest in a startup
— Emmanuel Macron
And when it makes sense, big companies should acquire startups. M&A is an exit strategy for startups. Investors also need an exit, and seeing this possible exit makes it easier if you want to invest in startups.
And then, we need to embrace a sort of startup culture, an innovation friendly culture. That’s what we saw this morning — we need to adapt corporate culture, make big companies pay invoices more quickly. This is an example of the relationship between startups and big companies.
Startups are global and often lose money. We shouldn’t let big companies suffocate startups with late payments.
TC: Talking about the structure of the French economy, many people often criticize the labor code, especially when it comes to hiring and firing. Are you going to tackle this issue in your upcoming piece of legislation Noé [“New Economic Opportunities”]? Or is it going to be part of another law, later?
EM: For this issue, for both the digital industry and the rest of the economy, I think that we need to make many important changes.
With these changes, you can create sole-proprietor companies more easily, and you can grow as a company more easily. There are too many legal or fiscal restrictions for startups but also small French companies.
We started tackling this issue by capping compensations when you are laid off
— Emmanuel Macron
And then, I was talking about this yesterday, we should let you fail without ruining you. We started tackling this issue by capping compensations when you are laid off. And this is very important because it makes it much easier to size down. It fosters investment, it makes hiring easier and this is key to startups.
So there will be new policies going in that direction and I offered some suggestions to the President and Prime Minister. It should make innovation easier compared to the current regulatory framework, with a significant open data strategy as well.
We’re going to make it easier to innovate with multiple fiscal policies. We’re going to use France’s savings to finance innovation with new French pension funds. Becoming an entrepreneur in France will become easier, smoother and more flexible.
TC: More precisely, how are you going to redirect France’s savings and create French pension funds? [Pension funds don’t exist in France as the State manages pensions. Pension funds have been important limited partners in the U.S., investing billions of dollars into U.S.-based VC firms.]
EM: There are multiple policies. We’ve created free limited partnership companies with the law “Growth and Activity” from August 6, 2015 [the so-called “Macron law”]. It lets you invest in venture capital more easily.
Now, we need to leverage savings with life insurance products. This money could be used for capital investments, and in particular innovation investments. That policy will finance our economy to face disruption.
This could potentially create pension funds of €130 billion in total. Billions would be invested in venture capital and private equity.
— Emmanuel Macron
In order to do that, I suggested that we should change the solvency status of pension funds — moving from level 2 to level 1. The Government has the authority to change that and I’m going to suggest we do that. This could potentially create pension funds of €130 billion in total. Billions would be invested in venture capital and private equity.
And finally, I think we still need to improve our tax code.
TC: What are your favorite startups right now?
EM: There are many startups obviously. Some of them are well-known and there are small startups as well.
According to me, there’s one critical industry, and it’s the Internet of things. It’s a key market, it affects multiple industries and transforms things.
And we need champions that can capture that market. And that’s why I think companies like Withings and Netatmo, among others, are important. The latter has successfully raised money last year and it’s great. [Netatmo raised $32 million in November 2015.]
There’s one critical industry, and it’s the Internet of things
— Emmanuel Macron
In the same category, a company like Sigfox is a critical one because they create an infrastructure for the Internet of things [Sigfox is building a low cost, alternative cellular network for connected objects]. It is the French unicorn in this industry — we have 5 unicorns overall, and this one is key and has a lot of strategic potential. [BlaBlaCar, Criteo, Sigfox and Vente-Privee. It’s unclear who is the fifth one.]
There are many use case innovations and technical innovations in the Internet of things. Many different examples show France’s know-how with these innovations and not only tech achievements. That’s a key point for me.
Another key is also developing sharing economy startups. BlaBlaCar is a significant example in this industry.
As for young startups, there were some with us earlier today. For example, the 360 camera startup is growing rapidly [he is probably referring to Giroptic]. Their 2015 revenue was 8x compared to 2014 revenue. Among the 190 French startups here, two thirds are coming from regions other than Paris.
And at the same time, we have actors defining the startup landscape, such as Parrot or Withings. They have been around for years, have been growing nicely and are now incredible partners. That’s the French Tech, this mixed landscape of startups that shows that we are both growing and already significant on the startup scene.
Brazil Isn’t Ruling Out Petrobras Bailout
State-controlled oil company has been mired in financial troubles amid a decline in oil prices
BRASÍLIA—Brazilian President Dilma Rousseff said Friday that a government bailout for the country’s troubled state-controlled oil company can’t be ruled out.
Petróleo Brasileiro SA, or Petrobras, is mired in financial troubles amid a deep decline of global oil prices and a sprawling corruption scandal involving several of its former executives and its largest suppliers.
The government, meanwhile, is struggling with a widening budget gap, a 4% economic contraction and double-digit inflation, severely restricting its capacity to use taxpayer money to help Petrobras.
However, the government isn’t ruling out “evaluating” a bailout if oil prices remain weak, Ms. Rousseff said to reporters at the presidential palace, according to recordings made available by the administration.
A Petrobras spokeswoman didn’t immediately have a comment.
The company had a debt of more than 506 billion Brazilian reais ($124.9 billion) at the end of the third quarter. Petrobras might need help from Brazil’s Treasury if it fails to sell by the end of this year the $15 billion in assets it has targeted, a difficult goal given low oil prices and other factors.
Petrobras shares were down more than 8% in afternoon trading in New York amid a continuing slump in oil prices.
Weekly Market Update: Historically Poor Start to 2016 Extends on Global Market Turmoil
The New Year's market mayhem went from bad to worse this week. Beijing took its campaign to create volatility in the yuan FX rate to Hong Kong, creating elevated levels of paranoia regarding the economic strategy behind its big interventions. On Wednesday, the Shanghai Composite slipped below 3,000 for the first time since last August, putting the index in a technical bear market, down 20% from its December highs. The index closed the week below its August lows at 2,900, down about 6.5%. US and European equities were whipped around by the continuing chaos, with highly volatile trading seen all week, however Friday's session was the real moment of truth, as options expiration, the coming three-day weekend and a real sense of panic in markets combined to drive a massive selloff, with the DJIA and S&P500 down more than 3% a piece and the Nasdaq down more than 4% at their worst levels. On Friday, the S&P500 plunged through its August low of 1867 in mid-day trading before recovering to close above it. The 10-year UST yield tumbled nearly 18 basis points from its high of 2.175% on Monday below 2.00% before the open on Friday. Short rates fell too, when futures traders used Friday's disappointing US data to push Fed rate hike expectations out further into 2016. And behind it all, WTI and Brent crude marched in lockstep to 12-year lows below $30.
For the five sessions through Thursday, the PBoC set the yuan fixing higher, then set it slightly lower on Friday. So after pushing down the yuan last week, the PBoC has worked hard to build it right back up again this week, driving confusion and chaos in domestic and overseas markets along the way. Many analysts say that is exactly the point, with the bank creating volatility to make betting against the yuan more expensive and tamp down the flow of money heading out of the country. Beijing's efforts to monkey with the yuan over recent months have paid off, as seen in the December Chinese trade data. China's December trade surplus in both CNY and USD terms was much higher than expected. Outbound shipments priced in CNY rose +2.3% v -4.1%e, and in USD terms the decline was just -1.4% v -8.0%e. The decline in imports in both CNY and USD terms were much less than expected.
Another theater of conflict in the Chinese crisis opened up in Hong Kong this week. On Monday, short-term rates in Hong Kong (HIBOR) to borrow offshore yuan (CNH) jumped to a record 13.4% from 4% on Friday. On Tuesday, HIBOR spiked to an astonishing 66.8%, and then settled back around 8% in the latter half of the week. Traders said the PBoC - via large Chinese banks - intervened in the offshore market by selling USD/CNH, to reduce the pool of offshore yuan liquidity, in an effort to crush the yuan carry trade, punish the short CNY trade and narrow the spread between onshore and offshore yuan. The CNY/CNH spread had spiked rapidly through the first week of the New Year to a five-year high, topping out around 1.02 before PBoC action crushed the spread back below 1.00. Meanwhile, the Hong Kong Dollar sank to its lowest level against the greenback in five years.
Brent and WTI crude prices cratered in lockstep, with both contracts closing out the week below $30, for 12-year lows. With Iran weeks or even days from achieving final compliance with the International Atomic Energy Agency (IAEA) on mothballing its nuclear program, there was little prospect of support for prices any time soon. Morgan Stanley, Goldman Sachs and Citigroup all published research pieces this week asserting that the price of oil would remain in the $20 handle over the near term as a result of China's slowdown, the appreciation of the USD and the fact that drillers are not curbing production despite the oil glut. USD/CAD touched a 13-year high of 1.4550 on the continued softness in crude, with traders waiting anxiously for a possible rate cut at next week's Bank of Canada policy meeting.
Two Fed presidents - dove Evans and hawk Bullard - aired their fears about the impact of plunging oil prices on inflation. Evans said he was nervous that inflation expectations might not be well anchored, citing downward pressure from the endless decline in oil prices. Bullard echoed his comments, warning that inflation expectations were becoming worrisome. Bullard took an even stronger stance than Evans and said the Fed may no longer be able to keep looking past crude prices when assessing inflation trends. Bullard said that low crude prices are now correlated with falling inflation expectations, could hold down actual inflation levels. Friday the Fed's Dudley offered little solace to plunging markets. Dudley opined he does not see much change in the economic situation and believes core inflation remains relatively stable.
It's no secret that US manufacturing has been seeing sequential declines over recent months, and data out on Friday confirmed that the trend is not improving. The January Empire manufacturing survey from the New York Fed (the first of the regional Fed factory surveys for January) was a total disaster, which declined to its lowest level since the depths of the recession in early 2009. The new orders and production indexes each deteriorated by nearly 20 points. US industrial production dropped for the third straight month in December. Analysts note that a major part of the month's decline was due to utilities cutting output amid unusually warm weather and energy companies reducing activity in the face of falling oil prices. The November figure was revised much lower, to -0.9% from -0.6% prior.
The Bank of England kept its key interest rate at a record low of 0.5% and made no changes to its asset purchase program. Both decisions were widely expected, as the outlook for UK growth and inflation has been crushed by negative developments in the energy markets and the world economy. The MPC voted 8-1 to keep rates at 0.5% where they have stood since March 2009, but voted unanimously to keep it's QE program unchanged. "Recent volatility in financial markets has underlined the downside risks to global growth, primarily emanating from emerging markets," the central bank said in minutes from its meeting. GBP/USD saw its highs of the week around 1.4600, then skidded lower to under 1.4300 in the chaotic trading on Thursday and Friday, to a fresh six-year low.
Alcoa marked the unofficial beginning of the fourth quarter earnings season on Monday. Alcoa's earnings topped analysts' expectations, but revenue fell just short of what was expected, as some high-growth segments helped to slightly negate headwinds in its legacy business. The firm's outlook for aluminum demand growth in 2016 was +6% y/y, down slightly from its last 2015 forecast of +6.5% y/y.
JPMorgan widely exceeded expectations in its fourth-quarter earnings report. Profits rose more than 5% y/y, while revenue was only up incrementally. The corporate and investment bank saw huge profit growth, however, the commercial bank and asset management unit both saw lower profits. Executives warned of rough waters ahead for the US economy. "We're not forecasting a recession - I think the US economy looks pretty good at this point," said CEO Dimon. Citigroup turned in good quarterly results, with profits up sharply y/y as the bank shakes off its legal woes, and revenue up 3% y/y, both beating expectations. Wells Fargo only just met top- and bottom-line expectations.
Shire has finally bagged Baxalta, with the latter agreeing to be acquired in a $32 billion deal valued at $45.47 in cash and stock. The deal includes an $18/shr cash component, not too far from the 40% cash portion rumored last week. Baxalta, which was spun out of Baxter International, generates a large portion of its sales from Advate, a drug for hemophilia. This is Shire's third major buy in just over a year, coming after last November's $5.9 billion Dyax buy and the acquisition of NPS Pharmaceuticals for about $5.2 billion a year ago.
Closing Market Summary: Stock Market Led Lower by Energy and Financials
The major indices hover above their worst levels of the day after an aggressive selloff through the first half. Today's session has marked a new 52-week low in the benchmark index as it has surrendered more than 52 points this session. The averages have slipped as oil concerns and poor economic data weigh on the beleaguered stock market. The Nasdaq (-3.5%) trails the S&P 500 (-3.0%) and the Dow Jones Industrial Average (-2.8%).
Overnight, WTI crude was pressured by news that the International Atomic Energy Agency may announce that Iran is in compliance with an agreement to restrict the country's nuclear program. This move is expected to help lift sanctions against the country and to lead to the re-establishment of oil trade. In response to this, WTI crude surrendered the $31.00/bbl price level overnight. This helped weigh on international indices heading into the open. Currently the energy-component is down 5.9% at $29.37/bbl.
Futures extended their losses when a slew of poor economic data was released this morning. Specifically of note, the Empire Manufacturing report fell to -19.4 in January (Briefing. com consensus -3.5) and the U.S. Retail Sales report for December showed a decline of 0.1% (Briefing.com consensus +0.1%).
On the leaderboard, financials (-4.2%), energy (-4.2%), technology (-3.6%), and materials (-2.8%) post the steepest losses. Meanwhile, in front of the pack, countercylical utilities (-1.8%), telecom services (-1.8%), consumer staples (-2.1%), and health care (-2.2%) outperform.
Looking in the financial sector, large-caps Wells Fargo (WFC 48.57, -2.07) and Citigroup (C 42.41, -2.96) underperform after both companies announced Q4 earnings this morning. Wells Fargo showed earnings and revenue in-line with consensus. Meanwhile, Citigroup reported in-line EPS with a revenue beat. The two stocks trade lower by 4.1% and 6.5%, respectively. Citigroup is likely suffering because it announced a $549 million loan loss reserve build mirroring JPMorgan Chase's (JPM 56.52, -1.67) news after their Q4 results yesterday. Both Citigroup and JPMorgan Chase have increased their loan loss reserves due to positions in their energy portfolios.
In the heavily-weighted technology space, high-beta chipmakers show relative weakness, evidenced by the 5.2% decline in the PHLX Semiconductor Index. The sub-group is showing relative weakness after constituent Intel (INTC 29.88, -2.86) reported earnings this morning. Despite reporting a beat, the stock is down 8.7%, likely due to a $200 million decline in operating income. Meanwhile, large-cap constituents Facebook (FB 94.66, -3.67), Microsoft (MSFT 50.87, -2.23), and Apple (AAPL 96.62, -2.90) have kept pace with the retreat, declining between 2.2% and 3.5%, apiece.
Heavy selling pressure in equities has pushed Treasuries to their highs. The benchmark note yield is lower by six basis points at 2.03%.
Economic data released today included December PPI, December Retail, January Empire Manufacturing Index, December Industrial Production report, November Business Inventories, and the preliminary reading of the Michigan Sentiment Index for January.
- The Producer Price Index report for December produced a 0.2% decline
- The downtick in the final demand index was due to a 0.7% decline in prices for final demand goods.
- The index for final demand services ticked up 0.1%.
- On a year-over-year basis, the index for final demand is down 1.0%, which is the eleventh consecutive 12-month decline.
- Core PPI is up 0.3%. core PPI, which excludes food and energy, increased 0.1%.
- December Retail Sales report decreased 0.1% (consensus +0.1%) while sales ex-auto also decreased 0.1% (consensus 0.3%).
- Total sales for 2015 were up 2.1% from 2014 while Q4 sales rose 1.8% year-over-year.
- Empire Manufacturing Survey for January registered a reading of -19.4, which was below the prior month's revised reading of -6.2 (from -4.6) (consensus -3.5)
- Industrial production declined 0.4% in December with a revised 0.9% decline (from -0.6%) in November. (consensus -0.2%)
- That was the fifth consecutive monthly decline
- Total industrial production in December was down 1.8% below the December 2014 level.
- Total industry capacity utilization dipped to 76.5% (consensus 76.9%) from a revised 76.9% (from 77.0%) in November.
- Rates were down for all major industry groups, led by utilities, which fell to 73.2% from 74.8%.
- Total business inventories were down 0.2% in November following a downwardly revised 0.1% decrease (from 0.0%) in October. (consensus unchanged)
- Retailer inventories increased 0.2% in November on top of a 0.1% increase in October.
- The inventory-to-sales ratio was unchanged at 1.38; this is up from the same period a year ago when the ratio stood at 1.32.
- The preliminary reading for the University of Michigan Index of Consumer Sentiment for January was 93.3 (consensus, which was at 92.6.)
- This was up from the final December reading of 92.6
- The improvement stemmed from a better Consumer Expectations component, which increased to 85.7 from 82.7.
- The increase in expectations outweighed a drop in the Current Economic Conditions Index, which decreased to 105.1 from 108.1.
Fed's Williams says economy still needs help from low rates; reiterates need for gradual and not abrupt rate hikes; moves remain data dependent
Liberty Global slowing growth may facilitate Vodafone talks
* Slowing Liberty growth may aid valuation parity and premium negotiations
*Malone needs to be convinced of Vodafone growth - bankers
*Liberty debt and differing philosophies remain a hurdle
Deal talks between Vodafone [LON:VOD] and Liberty Global [NASDAQ:LBTYA] could be facilitated by the latter’s declining growth rate and valuation, bankers and a top Vodafone minority investor said.
Not enough has changed since asset swap talks were terminated in late September, to significantly facilitate another attempt at reaching agreement, the bankers believed. Valuations appear to have narrowed but not enough of a parity has been reached, they argued.
As it stands, Liberty Global’s price expectations are not in line with Vodafone’s, a source familiar with the situation said. When you have valuations that are rich already, it is difficult to justify a 30%-40% premium for either party, a second source familiar said.
But Liberty Global’s growth is believed to have peaked and is now slowing, analysts pointed out. Should this continue, the parties will reach the valuation balance needed to get a deal done quicker than if relying only on Vodafone’s continued growth, the said.
Short-term dips in Liberty Global’s share price will not encourage a deal, bankers said, referring to a downgrade by Morgan Stanley on 11 January. Liberty’s share price has fallen from USD 37.09 before the downgrade to around USD 34.79.
But one Vodafone analyst, taking a forward-looking approach, estimated Liberty Global would eventually be trading at 8x and Vodafone at 7x EV/EBITDA, based on the companies’ own projections. A second analyst said the previous four-point gap between the two companies’ multiples was gradually narrowing and there was currently only about a three-point gap between the two.
Liberty Global and Vodafone are currently trading at 9.9x EV/EBITDA and 7.34x EV/EBITDA on a trailing 12-month basis, respectively. This compares to Liberty at 11.6x and Vodafone at 7.46x on 4 June, the day before the companies confirmed they were in asset swap talks.
Vodafone would likely pay for Liberty Global using a significant share portion, leaving chairman John Malone with a large minority stake, bankers and the investor pointed out. Malone would be more receptive to the idea of holding a stake in Vodafone as a result of the UK group’s growth prospects, bankers said. A significant share portion would reduce premium expectations due to the greater upside seen in being part of the combination, the first banker and investor said.
Management structure could also alleviate the need for a substantial premium, the second source familiar said. If either CEO steps down, the deal would be seen as a takeover, with a requirement for a takeover premium. If Malone were to become Chairman, this would be addressed, the source said.
Dilution and Malone’s influence on the management board are not big concerns, despite the cultural differences between the two companies, the investor added.
But Malone still needs convincing this is the right outcome for his company, bankers said.
The first banker referred to statements made by Malone when he owned a stake in AT&T. Malone became a significant minority shareholder in AT&T after selling the US telco his cable company, Tele-Communications. Malone was critical of AT&T’s then-chairman and the telco’s disappointing performance at the time. The banker pointed out that Malone would be extra cautious in deciding to become a large minority shareholder in a telco again.
Both Malone and investors need more evidence of Vodafone’s growth before talks can move to a high-level stage, the bankers said.
Vodafone’s full-year results (for the year ending 31 March 2016), usually published in May, need to show continued top-line growth and further proof of returns from Project Spring, its network-investment programme, for the company to be in a strong negotiating position, the first two bankers said.
When presenting its first-half results in November, Vodafone said its full-year results may beat its initial forecast. Investors will also be looking for guidance on the next financial year, the Vodafone investor said.
Vodafone executives are not discussing a merger or acquisition, it was said. The parties and bankers continue to think about ways in which a deal can get done but a solution is seen as complex and potentially far off, it was added. Reports that a GBP 140bn merger is imminent are inaccurate, it was said.
Vodafone’s communications with shareholders have not hinted at an imminent deal, the investor said, adding he would be surprised if a deal was announced this quarter. “Time is on Vodafone’s side,” the investor said.
Liberty Global’s debt level continues to be potentially problematic in reaching agreement, the bankers and sources said. Its gross leverage is 5x, according to its Q3 2015 results, published in November. A balance would need to be found to do a deal, the investor agreed.
The fundamental difference in the two companies’ philosophies is a bigger issue, the second source said. Liberty likes leverage, Vodafone is the opposite, the source said, adding that Liberty likes share buybacks while Vodafone likes dividends.
Vodafone would look to de-lever Liberty post-merger or acquisition, which could put its dividends policy at risk, the first banker said. Figuring out a capital structure that works for both is therefore still seen as difficult, it was said. However, threats to dividend will only concern certain types of investor, the investor pointed out.
BT-EE Deal Clears Way For Creative Orange Accounting
Orange wants its proposed takeover of Bouygues Telecom judged in Paris
BT’s deal to buy EE from Orange and Deutsche Telekom has finally been blessed by the U.K. competition regulator. That clears one hurdle in the path of Orange’s bid to consolidate the French telecoms market by buying local rival Bouygues Telecom. But the French incumbent may still have a job bypassing the hawkish European watchdog.
European Competition Commissioner Margrethe Vestager has taken a skeptical line on telecoms mergers. Citing concerns over price increases, she blocked a deal in her native Denmark and turned down a request by the U.K. competition authority to rule locally on the tie-up of O2 and Three.
Orange wants its case for the deal to be heard by the more sympathetic French competition authorities. To quality for national oversight, both companies need to make more than two-thirds of sales in France, according to European law. Bouygues qualifies. But Orange has been losing sales in its home market. Even stripping out EE, the numbers risk falling short.
Orange’s French consumer division accounted for 47% of group sales (ex-EE) in 2014, and HSBC expects the unit’s revenues to have fallen 1.1% last year. The complication is that the group also makes French sales within its business-to-business “Enterprise” division as well as its “International Carriers & Shared Services” division, which agrees deals for other telecom and media companies to use Orange’s infrastructure.
In 2014, 69% of Enterprise sales were classified as French, while the share for IC&SS was 93%. That took the French share of Orange’s business up to 64%—still below the two-thirds threshold.
Of course, how revenues are allocated geographically within Orange’s various businesses is a gray area. Orange is due to publish accounts for 2015 in February. Don't be surprised if the country’s former telecoms monopoly is looking more French than ever.