GM, Lyft set out self-driving car partnership, $500 million investment
General Motors Inc (GM.N) and Lyft Inc on Monday set out plans to develop an on-demand network of self-driving cars as the U.S. No. 1 automaker announced it would put $500 million into the ride-sharing service's latest $1 billion fund-raising round.
The Detroit-Silicon Valley crossover deal comes as automakers are working out how to respond to the rush of technology companies such as Apple, Alphabet and Uber - Lyft's biggest rival - to control cars of the future and likely reshape the global automotive industry.
The two companies said the partnership, which includes one of GM's largest investments in another company, stemmed from the shared view that self-driving cars will first reach consumers as part of a ride-sharing service, rather than vehicles owned by drivers.
"We think our business and personal mobility will change more in the next five years than the last 50," GM President Dan Ammann said in an interview with Reuters.
The partnership will tap into GM's work on driverless cars and Lyft's software matching drivers and passengers and calculating routes, to create a network of cars that would operate themselves and be available on demand.
The two companies did not set out a timeline for this on-demand network, but said they would immediately offer Lyft drivers short-term rentals of GM cars.
The GM-Lyft announcement came as Toyota Motor Corp (7203.T) and Ford Motor Co (F.N) announced they would adopt the same software to link smartphone apps to vehicle dashboard screens.
Toyota and Ford, two of the world's biggest automakers, invited rival car companies to join them to counter the push by Apple, Alphabet and others into self-driving cars, or what the industry calls autonomous vehicles.
Major automakers are trying to prevent Silicon Valley from dominating the future of autonomous driving and ride-sharing, and are also investing as a way to see whether Lyft and Uber are on the way to making money, said Matthew Stover, automotive analyst with Susquehanna Financial Group.
"The only way to understand the implications and viability of this business model (Lyft and Uber) is to become an investor," said Stover.
Last month, Ford Chief Executive Mark Fields said the No. 2 U.S. automaker would explore the ride-hailing business with a fleet of specially designed Transit vans at its Dearborn, Michigan campus.
GM CEO Mary Barra last fall said that while Apple and Google - now called Alphabet - are pushing to dominate dashboard displays with their software, automakers "have the platform" of the vehicle itself.
GM's Ammann, who will join Lyft's board as a part of the deal, said both companies had a "really common view of the future." Lyft President John Zimmer said the "culture and vision are very alike" in both GM and Lyft.
Lyft said the latest fundraising round included Kingdom Holding Co, the investment firm of Saudi billionaire Prince Alwaleed bin Talal, which invested $100 million.
Other investors included Janus Capital Management, Japanese online retailer Rakuten Inc (4755.T), Chinese ride-hailing service Didi Kuaidi and Chinese Internet company Alibaba Group Holding Ltd (BABA.N).
Kingdom and Alwaleed are major investors in U.S. tech companies. Together they own more than 5 percent of Twitter Inc (TWTR.N).
Lyft said the latest funding round valued it at $5.5 billion, cementing its status as one of Silicon Valley's much-prized 'unicorns,' or companies worth more than $1 billion without going public. Lyft does not publicly disclose its financial performance, but media reports have suggested it is not profitable, like many tech startups.
Lyft is locked in a fundraising race with rival ride-hailing app Uber Technologies Inc [UBER.UL]. Lyft said it has raised a total of $2 billion since August 2013. Uber is reportedly in the midst of a $2.1 billion funding round that would value it as high as $64.6 billion.
Closing Market Summary: Indices Begin the Year Lower
The stock market ended its first session of 2016 broadly lower, following opening selling pressure that wouldn't ease until the last half hour of trading. The S&P 500 (-1.5%) finished ahead of the Dow Jones Industrial Average (-1.6%) and the Nasdaq (-2.1%), but the benchmark index fell below its 100-day moving average (2024). The major averages stumbled into the open after overseas concerns in China and the Middle East weighed down futures.
The selloff in futures began with weak economic data concerning manufacturing growth in China. Overnight, December's Caixin Manufacturing PMI was reported in at 48.2 versus an expected 48.9. This miss lead to heavy selling in the Shanghai Composite that eventually pushed the index lower by 6.9% before triggering a halt to trading under its circuit breaker provisions.
In the Middle East, Saudi Arabia suspended diplomatic relations with Iran following a protester-started fire at the Saudi Arabian embassy in Tehran. This unrest followed the execution of a Shiite cleric by the Saudi Arabian government over the weekend. The initial news caused an increase interest in oil, but the commodity was unable to maintain today's advance and WTI crude ended its pit session down 0.8% at $36.76/bbl.
Today's selling was paced by financials (-2.1%), health care (-1.9%), consumer discretionary (-1.8%), materials (-1.7%), and technology (-1.6%) while energy (-0.2%), utilities (-0.3%), and telecom services (-0.5%) outperformed
The financial sector showed relative weakness from the start of the trading session with large cap-components JPMorgan Chase (JPM 63.62, -1.97) and Wells Fargo (WFC 52.91, -1.45) each outpacing the losses in the broader sector with declines of 3.0% and 2.7% respectively.
Elsewhere, the top-weighted technology sector ended in line with the S&P 500 even though Apple (AAPL 105.35, +0.09) was able to rebound off its session low (102.00), ending higher by 0.1%. In other tech names, Alphabet (GOOGL 759.44, -18.57) was also able to pull off of its low, trimming its loss to 2.4%, while high-beta chipmakers outperformed the broader sector for most of the day. The PHLX Semiconductor Index ended the session lower by 1.1%.
In the consumer discretionary space, Amazon (AMZN 636.98, -38.91) ended its day near its low following a downgrade at Monness Crespi & Hardt from Buy to Netural. The downgraded cited continued strength in the company but a possibly better entry point to enter or expand a position in the company.
Today's selloff invited above average participation with more than a billion shares changing hands at the NYSE floor.
Meanwhile in Treasuries, the benchmark note spent the bulk of its day on its high before retreating. The yield on the 10-yr fell three basis points to 2.24%.
It was a relatively quiet day on the economic front with data being limited to the December ISM Index and Construction Spending:
- The ISM Index for December declined to 48.2 from 48.6 (consensus 49.0)
- Construction spending decreased to -0.4% month-over-month growth in November (consensus 0.8%).
- This release was lower than expected and included a revision from 1.0% to 0.3% month-over-month growth in October.
Investors will not receive any economic data of note tomorrow.
- Russell 2000 -2.3% YTD
- Nasdaq -2.1% YTD
- Dow Jones -1.6% YTD
- S&P 500 -1.5% YTD
FT : Deflate stock market and allow China’s fortunes to swell
China should celebrate the collapse of its stock market. That was not the instinct of officials last summer when the Shanghai Composite index lost close to one-third of its value in four short weeks.
Back then, Beijing launched investigations into what it called “malicious short selling” and spent $200bn to prop up falling equity prices. But give the Communist party its due. When one trick stops working, officials are not shy to admit it.
The Shanghai Composite fell 7 per cent on Monday; further falls are likely. Yet we are unlikely to see more of the heavy handed intervention to which officials resorted in 2015. This is not because Beijing does not have the means to prop up the index, but rather because officials have come to believe it desirable for high stock market valuations to be unwound. Large sections of the public are beginning to agree with them.
The most salutary moments in Chinese politics often involve such sharp reversals. It was, after all, the realisation that four decades of central planning had produced only backwardness and starvation that led Beijing to abandon Soviet-style governance in the 1980s.
Since then the country has pursued an industrial policy that has transformed China from an impoverished agrarian backwater into a manufacturing powerhouse that is one of the world’s largest economies. It is a formidable turnround — even if it has consumed vast resources, polluted the environment and yielded less of an improvement in living standards than might have been expected.
In recent years that strategy, too, became untenable, as corporate debts piled up and financial returns diminished. In the meantime, a growing number of local governments were troubled by unsustainable debts.
Things came to a head in 2014 when, with none of the theoretical spinning that usually accompanies a major change of policy in Beijing, officials began to see what they could do to pump up the stock market. The idea was to stimulate the economy without the huge burden of public spending that would come attached to a programme of fiscal stimulus.
The trouble with this approach is that the public foots the bill, not via the tax system, but through the more insidious form of redistribution that occurs when an investor buys shares at a price that has temporarily been inflated by official action. From the beginning, this policy was on questionable moral ground. It was becoming increasingly perilous, too, because the faster the stocks rose, the harder they could fall.
Even after yesterday’s sharp fall, the Shanghai stock market index is more than 40 per cent higher than it was for two years before prices began to take off in late 2014. Shares are likely to fall further. That will be painful for investors. But, outside the financial markets at least, it need not lead to drama.
Realising this, President Xi Jinping is again changing course and has begun touting the virtues of supply-side reform. This looks like a sure sign that Beijing has had its fill of stock market tinkering and is turning instead to a watered-down version of Reaganomics.
The new policy has two major elements. The first involves making it easier for business to operate by eliminating tedious bureaucracy. The second entails giving the private sector a bigger role in public works projects, which in the past have been dominated by notoriously corrupt state-controlled firms.
These are good ideas as far as they go. But the government is showing no sense of urgency, and even if it did, such limited measures are not nearly enough. Tax cuts and privatisation should also be on the agenda.
Still, as the Chinese have discovered on their long journey to prosperity, when you are hungry, half a loaf is better than none.
Tax fraud trial begins in France of art-dealer dynasty
One of France’s biggest tax fraud trials began on Monday as members of the Wildenstein art-dealer dynasty faced charges of concealing fortunes from authorities for years.
Investigating judges claim Guy Wildenstein, the Franco-American heir to his family’s estate, along with his deceased brother Alec, hid the bulk of the inherited fortune in funds stretching across multiple tax havens, including the Bahamas and Cayman Islands.
Guy Wildenstein, 70, faces up to 10 years in prison if found guilty, as well as fines in back taxes of more than €550m.
The case is the latest twist to hit a family long-identified with New York’s fine art world, and one that was until recently more associated with respected academic texts on impressionist artists than with public rows over divorces and inheritance.
The two brothers came into the inheritance following the death in 2001 of their father, the art dealer and collector Daniel Wildenstein, who was a French citizen.
Guy Wildenstein took over running the family’s art business, which includes the Wildenstein & Company gallery in Manhattan, while Alec, who died in 2008, ran the dynasty’s horse-racing and breeding business.
The family fortune includes works by artists such as Jean-Honoré Fragonard, as well as a stable of thoroughbred racehorses and a real estate portfolio. The Wildenstein luxury ranch in Kenya also provided the backdrop for parts of the Academy award-winning film Out of Africa.
French prosecutors began an investigation six years ago after Guy and Alec’s stepmother lodged a complaint over their handling of the inheritance. In 2011, Liouba Stoupakova, Alec’s second wife, then raised complaints of her own.
Ms Stoupakova is also on trial together with Alec Wildenstein’s son, also called Alec, two notaries and a lawyer, who are accused of committing or aiding tax fraud or money laundering.
All the defendants deny wrongdoing.
Several years earlier, the elder Alec Wildenstein’s public and noisy divorce from Jocelyne Périsse, known for her extreme cosmetic surgery, had helped attract attention to the Wildenstein dynasty and its wealth.
The year after Daniel’s death, Alec and Guy declared the value of their inheritance to be €40.9m — even though a Vanity Fair profile of the family claimed that Daniel’s wealth was more than $5bn.
In an interview with Paris Match, Guy Wildenstein declared that he was aware that his father had used trusts but was unaware of the details. He described himself at the time as “neither a tax nor a financial specialist”.
He also claimed that French law at the time did not oblige people to declare estate held in the trusts. The trial is expected to last a month.
http://recode.net/2016/01/04/frances-atos-nears-4-billion-deal-to-buy-dells-perot-systems-unit/
France’s Atos Nears $4 Billion Deal to Buy Dell’s Perot Systems Unit
Computing giant Dell is nearing the end of the process to sell its Perot Systems IT outsourcing services unit in a deal that is expected to exceed $4 billion, sources briefed on the process told Re/code.
Atos, a French IT outsourcing firm with offices in Purchase, N.Y., and Arlington, Texas, is the leading bidder and has offered between $4.2 billion and $4.3 billion for Perot, sources said.
Tata Consultancy Services (TCS), the technology consulting and services arm of of India’s Tata Group, the 147-year old industrial conglomerate, re-engaged Dell in talks late last week and may have made an offer, but walked away from the table today, sources said. TCS ended an earlier round of talks with Dell to buy Perot in mid-December. Dell had hoped to sell the unit for closer to $5 billion.
Two other companies approached by Dell as part of the sale process — New Jersey-based Cognizant Technology Solutions and Japan’s NTT Data — are said to be out of the running. Sources said the situation remains fluid and could still change.
Dell first started shopping the business late last year, before it announced its plan to acquire storage giant EMC. Proceeds from the sale could help Dell pay down some of the $50 billion in debt it has proposed to raise to buy out EMC. Dell and its co-owner, the private equity firm Silver Lake, offered a combination of cash and tracking shares to buy out EMC in a deal valued at $67 billion when it was announced on Oct. 12.
Sources say Dell is hoping to raise as much as $10 billion from the sale of assets it considers no longer core to its business. Among the other assets on the table for a possible sale is Quest Software, which it acquired in 2012. It also filed to take its computer security subsidiary, Secureworks, public in an IPO later this year.
Perot Systems started as an IT services company founded by the billionaire and onetime U.S. presidential candidate Ross Perot. It handles a lot of technology needs for government agencies and health care providers, including helping to process medical claims. Dell acquired it in 2009 for $3.9 billion.
A spokesman for Dell declined to comment. Representatives of Atos and TCS didn’t immediately return messages seeking comment.
Mexico Central Bank Gov Carstens: will likely only raise rates gradually; remains prepared for any crisis - radio interview
- expects uncertainty to dominate into 2016
- sees a gradual rate rise following the Fed
- Mexican intervention helped trading of the peso in 2015
Exclusive: Norfolk Southern customers lobby regulator against CP bid
CHICAGO (Reuters) - Industry groups representing major freight customers of Norfolk Southern Corp have asked the U.S. rail regulator to reject any bid for the railroad by Canadian Pacific Railway Ltd, according to letters viewed by Reuters.
The opposition from a broad array of customers to the hostile bid for the Norfolk, Virginia-based railroad could significantly harm Canadian Pacific's case if an expected lengthy proxy battle is resolved and a merger reaches the Surface Transportation Board for a review.
The Canadian company in mid-November disclosed its $28 billion offer to buy Norfolk Southern. It would be the first merger involving a U.S. railroad since the Surface Transportation Board rewrote the rules in 2001 after a wave of consolidation reduced the number of major North American railroads to seven from 35.
The proposed merger could face a tough review, and the regulator is expected to give customers even more time than in the past to air concerns at public hearings.
Norfolk Southern has rebuffed several bids from Canadian Pacific since November.
The letters have not been made public but copies were viewed by Reuters. Sent in December, they express concerns over Canadian Pacific's plans to cut costs at Norfolk Southern would hurt service levels and that a merger would lead to a continental duopoly meaning higher prices for customers.
Norfolk Southern declined to comment on the letters.
A Canadian Pacific spokesman said the company "is aware of some shipper concerns" but looks forward to discussing the benefits of its bid with all stakeholders.
The documents also include letters from representatives of several state legislatures expressing opposition to the deal.
The letters include a joint one to Canadian Pacific, with the Surface Transportation Board carbon-copied, from the heads of the Alliance of Automobile Manufacturers and the Association of Global Automakers - which between them represent large automakers and suppliers including General Motors Co and Toyota Motor Corp.
A large proportion of finished vehicles travel most of the way by train from U.S. manufacturing plants to dealerships.
"(P)revious rail mergers of this magnitude have been followed by pro-longed periods of poor service levels and higher rates," the joint letter dated Dec. 22 states. "We urge CP to abandon its merger ambitions and to focus its attentions upon enhancing its current levels of customer service."
Major rail mergers in the 1990s, such as the 1999 carve-up of Conrail between Norfolk Southern and CSX Corp resulted in short-term collapses as railroads failed to integrate their networks smoothly.
In a separate letter, Subaru Motor Co said it opposed a merger "as we believe it would limit the competitive balance" among North America's railroads.
The manufacturers' associations of Kentucky, Indiana and West Virginia also wrote to the STB, as did the Michigan Agri-Business Association and the Palmetto AgriBusiness Council (PABC), which represents farmers, banks and agricultural investors in South Carolina.
"We are justifiably concerned that Canadian Pacific’s proposal to slash resources available to the current Norfolk Southern threatens the economy of our state," Charles Higdon, chief executive of the Kentucky Association of Manufacturers, wrote to the STB on Dec. 22.
In a letter dated Dec. 8, Ernie Thrasher, CEO of Xcoal Energy & Resources, wrote he was "concerned that the short-term nature of CP's operating plan would be detrimental to the long-term requirements of the U.S. coal industry and energy sector."
In a Dec. 23 letter to the STB, the head of short line railroad holding company Watco cautioned that many in the rail industry expect the next round of mergers will be the last.
"The proposed CP-NS merger likely would result in a national duopoly, which would dramatically reduce competitive rail options for customers," Watco CEO Rick Webb wrote.
The Flash: Predictions for 2016
The Flash is an analytical summary of key corporate events concerning M&A activity that provides advisers and corporations with business development leads, investment ideas and competitive intelligence.
* Not another 2015
* Bright spot in oil patch
* Angles struggle to remain aloft
* Banks keep merging
* Same with hotels
* Activists lose the easy plays
* January AGM forecast
A few of our thoughts on how the year ahead may play out in the event driven arena:
2016 will not be another record breaking year for US M&A – Uncertainty ahead of the US Presidential election in November 2016 will cause dealmakers to err on the side of caution. While Democrat Hillary Clinton leads the pack of presidential hopefuls, her election is anything but a slam dunk. The populist ground swell has been deafening with many willing to at least tell pollsters they support the movement despite a polarizing candidate (Republican Donald Trump). Then there is the small, but non-zero chance Clinton will be indicted for mishandling classified information or the obstruction of justice related to her private email cache. Clinton, who is not known for backing down from a fight, could lead a counter offensive during the campaign that could prove detrimental to healthcare deals. Tax inversions, predatory drug pricing, and soaring healthcare premiums will continue to be front and center in the lead up to the election. We would expect healthcare companies to lay off on the mega deals into 2016, while focusing on more discreet bolt-ons and asset swaps. Overall, we see companies pushing some deals into 2017 to avoid being in the cross-hairs during a nasty political battle and the possibility for change in antitrust enforcement with a Republican administration.
Energy will lead the next wave of consolidation – The one area we don’t expect to wait it out would be energy. Many companies just won’t have the luxury given their dire straits. The Saudi’s just slashed their 2016 budget and it looks like they are serious about flushing out the weak hands. Meanwhile, on the demand side, China tries to shift to a consumer economy while it digests years of overbuilding. We don’t see either of these situations changing until at least the second half of 2016, putting the commodities risk squarely on the downside. Weak companies will enter into survival mode, which will mean asset sales to shore up capital concerns or big mergers to create scale and improve operational efficiencies.
Debt ratings will play more of a role in strategic corporate decisions – With the Fed off the zero bound and the blow out in prices of the most speculative junk due to the commodities collapse, funding is no longer (relatively) free. We expect companies to work much harder at keeping their current credit ratings. This means using more stock for M&A (why not at these inflated levels?) and the curtailment of issuing debt strictly for repurchase shares. Post announcement downgrades (especially in high yield) that lead to much higher funding costs could eat up a much larger chunk of deal synergies, pushing companies to rethink risky deals. Lenders could crack down as well, helped by regulators’ increased scrutiny, and the days of covenant-lite for all could be drawing to a close. The gap between investment grade and high yield could widen even more if banks pull or not renew revolvers and other short-term financing on a downgrade to junk, severely limiting companies’ flexibility.
More regional banks explore options – Meanwhile, a continued rise in rates can’t come fast enough for many midsized lenders. This year First Niagara Financial (NASDAQ:FNFG) decided to pursue a sale in part because the Fed didn’t raise rates in September, a development that increased the prospects of continued underperformance. Comerica (NYSE:CMA), Zions Bancorporation (NASDAQ:ZION) and Citizens Financial Group (NYSE:CFG) are among the institutions with elevated asset sensitivity. All three have indicated in the past that they aren’t interested in selling, but FNFG long maintained that position until its board realized it had few other options. With regulators now regularly clearing big deals, regional banks no longer have an easy excuse for avoiding BB&T’s (NYSE:BBT) Kelly King’s call. On the flipside to FNFG, the fall’s other major bank sale, Astoria Financial (NYSE:AF), came amid worries that a rate increase would lead to losses as the former savings bank’s liabilities repriced before its assets. A few other New York City metro area thrifts like Dime Community Bancshares (NASDAQ:DCOM) are in a similar position. The AF proxy suggests it attracted interest from two other suitors in addition to buyer New York Community Bancorp (NYSE:NYCB): Investors Bancorp (NASDAQ:ISBC) and People’s United Financial (NASDAQ:PBCT). Along with the NY area, perhaps PBCT could revisit a bid for Massachusetts-based Brookline Bancorp (NASDAQ:BRKL), whose stock has hardly moved since a merger a few years ago. Another area in banking to watch is lenders that still have private equity investments from the financial crisis such as United Community Banks (NASDAQ:UCBI). If these banks prove unable to continue making acquisitions of their own, financial sponsors will likely pressure boards to put up for sale signs.
Consolidation in the hotel sector continues - Marriott International’s (NASDAQ:MAR) proposed acquisition of Starwood Hotels & Resorts Worldwide (NYSE:HOT) created the first hotel chain with over 1m rooms. We think the smaller players will now be pressed to act to create scale and take back margin from the Online Travel Agencies (OTAs). Our best guesses:
Accor (EPA:AC) merges with Hilton Worldwide Holdings (NYSE:HLT) giving Blackstone Group (NYSE:BX) an exit on its remaining shares
Shanghai Jin Jiang International Hotels Development (SHA:600754) acquires InterContinental Hotels Group (LSE:IHG) for instant access to the US market
Wyndham Worldwide (NYSE:WYN) acquires Choice Hotels International (NYSE:CHH) with plans to dominate the budget category
Hyatt Hotels (NYSE:H) does no strategic deals due to Pritzker involvement and instead is taken private
Out of left field: One of the OTAs acquires a hotel company. Priceline Group (NASDAQ:PCLN) and Expedia’s (NASDAQ:EXPE) combined market cap is around USD 82bn. The entire combined market cap of all the publicly traded hotels around the world is only a bit above USD 100bn. One of these OTAs could easily take out any of the major players, combine the loyalty programs and offer exclusive deals in an attempt at synergies.
Activists will have more impact than ever – With more and more investment flowing into passively managed index strategies, the average shareholder will continue to lose influence. Activist shareholders will be called upon to keep executives in check by pushing for more operational and strategic efficiencies. Given the success at the board level of activists in implementing changes in 2015, next year will see an increase in the number and the size of company targets.
At the same time, the best activists will need to adapt to changing conditions for continued success. After a number of wins on pushing tech companies to go private, activists struggled in 2015 to secure buyouts for bigger USD 10bn+ EV targets - see Citrix Systems (NASDAQ:CTXS), NCR (NYSE:NCR), and CDK Global (NASDAQ:CDK). With valuations still high and a much tougher financing environment, this strategy doesn’t look workable in 2016. Instead of quick cash sales, activists need to become an alternative to private equity firms by increasing their due diligence and coming up with (real) detailed operational turn around plans of their own. We saw that work in the consumer goods sector in 2015 to the point where many companies are now making proactive changes before investors get involved. With that group picked over, activists might do well to move on to the next sector in need of a revamp, energy (see above), where hard times could mean outsized influence for activists who can push firms on the hard CAPEX decisions. The REIT spin game may be shut down by the IRS, but activists could turn to pushing existing REITs trading well below NAV to unlock value via asset or wholeco sales.
Looking ahead to this spring’s AGM season, there are a few situations that could develop in 2016. Here are a few upcoming board nomination window openings to keep an eye on:
We’ve discussed the seemingly never-ending rumors of an activist targeting Twitter (NYSE:TWTR), though with shares down roughly 40% over the last year, and the director nomination window approaching, we may find out if this is indeed the year. TWTR has some fairly unfriendly corporate governance, such as a staggered board and ability to adopt a poison pill. However, unlike some of its larger tech peers, the company doesn’t have a dual-class share structure. The company’s nomination window runs from 5 February to 6 March.
Back in August, when Teradata (NYSE:TDC) was trading around USD 36 per share, this news service reported that the data warehousing company’s valuation could keep suitors away, but a drop down to USD 30 per share could attract suitors or an activist. And after reporting poor 2Q15 results shortly after, shares dropped below USD 30, and have yet to trade strongly back above that level. The window opens 30 December, and runs through 29 January. We wonder if an activist will try for some board representation.
Carlson Capital went active at Vitamin Shoppe (NYSE:VSI) back in April, but has been relatively quiet. There has been ongoing speculation that the company could look to merge with peer GNC Holdings (NYSE:GNC). Shares of the two companies had a rough 2015, with GNC down 34% YTD and VSI not far behind with a 31% decline. And with the companies having overlapping nomination windows (GNC’s runs from 23 January to 20 February, while VSI’s runs from 3 February to 5 March) could Carlson, or another activist, target the nutrition retailers for a board shakeup or merger deal?
Xerox (NYSE:XRX) has already pushed back its director nomination deadline for its 2016 AGM from 8 December to 29 January and is working with Goldman Sachs on a strategic review after Carl Icahn went active with a 7.1% stake on 23 November. With Icahn now finally finished with the Pep Boys – Manny Moe & Jack (NYSE:PBY) bidding war, he may turn his attention to XRX next, although we would expect a settlement before the deadline as opposed to a proxy fight given XRX’s actions thus far and Icahn’s relative silence on the tech name.
Activist fund performance will be subdued – Overall market valuations are quite lofty by most historical standards and will limit stock appreciation in 2016. We see an upside scenario of mid-single digit appreciation with a downside scenario in the negative 20% range. Even as activists become more influential, overall performance could be even worse than 2015 considering the current risk/reward imbalance and given that most funds are still bullish and relatively unhedged, running 80%+ net long.