WSJ : Dow, DuPont Dish on Their Pre-merger Speed Dating

Dow, DuPont Dish on Their Pre-merger Speed Dating


When Dow Chemical Chief Executive Andrew Liveris said last fall that “everyone is talking to everyone” in the agriculture sector about deals, he actually meant it.

In a sign of just how frenzied a recent round of consolidation in the industry has been, Dow and DuPont were separately holding talks about other big deals even as they raced toward their roughly $60 billion combination late last year, according to a regulatory filing.

DuPont, under both former chief executive Ellen Kullman and current leader Edward Breen, talked with Syngenta about buying all of the Swiss pesticide and seed company or merging its agricultural business with DuPont’s.

While the filing doesn’t identify Syngenta by name, instead referring to it as Company 1, the details and discussions with people close to the deal help make the identity clear. The proxy filing, part of an effort to win shareholder approval for the deal, says that unnamed company separately worked with Goldman Sachs Group on another transaction and that Ms. Kullman flew to Geneva for a meeting. The company is defined as “a large publicly-traded company in the agricultural sciences industry.”

Syngenta had been working with Goldman bankers on its rejection of an unsolicited $46 billion bid from Monsanto The Wall Street Journal has also previously reported Syngenta and DuPont engaged in talks about merging their agricultural businesses — but it wasn’t previously known DuPont had explored the possibility of buying the company outright. (Earlier this year, China National Chemical Corp. agreed to buy Syngenta for $43 billion.)

Dow’s Mr. Liveris also flew to Switzerland for a meeting with an unnamed large company to discuss merging their agricultural businesses, the filing says. (It couldn’t be confirmed that that’s a reference to Syngenta too.) While representatives of the two sides held several talks, they remained preliminary, the filing says.

Dow also held talks with a second unnamed company over a similar tie-up that didn’t end until the Journal reported that Dow and DuPont were nearing their agreement to merge on Dec. 8, the filing says.

On Dec. 1, Messrs. Breen and Liveris told their respective boards that their combination, followed by a three way split, was the best option.

But before they got there, plenty of other talks were held between both sides and various other companies, with meetings everywhere from Switzerland to Arizona, amid falling prices and stiff competition in the industry.

In late August, DuPont’s board discussed four potential transactions: acquiring “Company 1,” combining its agricultural business with Company 1, buying Dow’s agriculture business, or a merger-of-equals with Dow.

The next day, August 27, Ms. Kullman met with the chairman of Company 1 in Geneva and discussed the chances of a deal. Michel Demare is chairman of Syngenta.

On Oct. 5 amid pressure from activist investor Nelson Peltz, DuPont announced Ms. Kullman would retire and Mr. Breen would take over. He would quickly pick up her deal discussions.

Mr. Breen met with Mr. Liveris six days later. As the Journal has reported, Mr. Breen had joked he didn’t have time to find a bathroom before Mr. Liveris called.

At the end of October, Mr. Breen, keeping his options open, set up a meeting for Nov. 12 with Syngenta in New York. At the meeting, the filing says, Mr. Demare indicated a deal seemed unlikely.

Meanwhile, a second group, aptly named Company 2 and described as a “large, publicly-traded company in the chemicals industry,” had a meeting with Mr. Breen later than month in New Jersey.

The day after the Journal reported that Dow and DuPont were nearing a deal, the chairman of Company 2 called Mr. Breen to ask again about a deal. He then sent a letter asking for due diligence.

He was too late. Dow and DuPont announced their merger the next day.

The filing also shows the merger will be a nice windfall for the banks advising on it. Former Citigroup banker Michael Klein’s boutique bank will collect more than $27 million, as will Lazard and Morgan Stanley, for their roles advising Dow. Goldman and Evercore Partners are each being paid $40 million, the filing shows.

>>> US Close Dow+0.20% S&P+0.41% Nasdaq+0.29% Russell+1.06%

Closing Market Summary: Oil and Financials Lead Rally

The stock market ended its Wednesday affair on a higher note as investors focused on rate hike implications from a better-than-expected reading of the ADP National Employment Report and rising oil prices. Meanwhile, strong sector leadership from the financial group (+0.9%) helped fuel today's advance. The S&P 500 (+0.4%) managed to outperform both the Nasdaq Composite (+0.3%) and the Dow Jones Industrial Average (+0.2%).

Before the opening bell, investors digested the February ADP Employment Change report, which indicated an increase of 214,000 over the past month (consensus 190,000). This above-consensus reading added to the recent slew of positive data that may lend itself to rationalizing a potential rate hike sooner than the market currently expects. Additionally, this report precedes the more influential Employment Situation Report, which will be released on Friday.

Separately, the Department of Energy's weekly inventory report showed a larger-than-expected crude inventory build (10.4 million barrel build; est 3.6 million). Despite the bearish reading oil managed to rise sharply after the report before ending its day off its best level. WTI crude ended its pit session higher by 0.5% at $34.57/bbl.

The positive move in oil helped the commodity-sensitive energy space (+2.5%) top the leaderboard as telecom services (+1.1%) and the financial sector (+0.9%) followed. Meanwhile, heavyweights health care (+0.2%) and technology (+0.2%) ended their day off their lows.

In the energy space, independent oil and gas names managed to top the leaderboard. On that note, Anadarko Petroleum (APC 42.65, +2.54) managed to climb 6.3% while ConocoPhillips (COP 36.49, +2.03) advanced 5.9%. Dow component Exxon Mobil (XOM 82.70, +1.42) gained 1.8% after the company stated, at its analyst meeting, that it could fund new capital projects as well as maintain its dividend.

Economically-sensitive financials (+0.9%) likely benefited from potential increases in their earnings prospects as the fed fund futures market estimates the likelihood of a rate increase at the FOMC's December meeting at 63.0%. Meanwhile, the sector continues to rebound from a difficult start to the year. On that note, Citigroup (C 42.22, +0.95) and Bank of America (BAC 13.41, +0.27) climbed a respective 2.3% and 2.1% today, but remain down 18.4% and 20.3%, respectively, for the year.

The health care space (+0.2%) ended above its flat line as biotechnology outperformed. The iShares Nasdaq Biotechnology ETF (IBB 268.12, +2.85) gained 1.1%.

The Federal Reserve released its March Beige Book, which described overall economic activity across the twelve Fed Districts as expanding at a "modest" or "moderate" pace. Consumer spending increased in the majority of districts while manufacturing activity was described as flat for the most part. With regard to wages and inflation, the Beige Book described price levels as rising slightly while wage growth was described as ranging from "flat" to "strong".

The Treasury complex traded narrowly lower throughout today's session. The yield on the 10-yr note ended higher by one basis point at 1.84%.

Meanwhile, the U.S. Dollar Index (98.18, -0.17) tumbled as the dollar/yen pair ended the day lower by 0.6% at 113.39.

Today's participation fell in-line with the recent average with more than 1.065 billion shares changing hands at the NYSE floor. 

Today's economic data included the weekly MBA Index, the February ADP Employment Change report, and the Fed's Beige Book for March:

  • The weekly MBA Mortgage Index showed a seasonally adjusted decrease of 4.8% in mortgage applications. 
  • The ADP National Employment Report showed a 214,000 increase in February (consensus 190,000) while the January reading was revised lower to 193,000 from 205,000.
    • The ADP reading precedes Friday's more influential government Employment Report, which is expected to show a 190K increase in Nonfarm Payrolls, greater than last month's 151K increase.

Tomorrow's economic data will include the 7:30 ET release of the Challenger Job Cuts report for February. Meanwhile, weekly initial claims (consensus 270k), Q4 Productivity (consensus -3.3%), and Unit Labor Cost data (consensus +4.7%) will be released at 8:30 ET. Finally, January Factory Orders (consensus +2.0%) and ISM Services (consensus +53.1) will cross the wires at 10:00 ET. 

  • Russell 2000 -6.3% YTD
  • Nasdaq -6.1% YTD
  • Dow Jones -3.0% YTD
  • S&P 500 -2.8% YTD

>>> US Gapping Up

Gapping up
In reaction to strong earnings/guidance: EVDY +25.5%, FOR +18.9%, GWRE +10.8%, ANF +9%, NPTN +8.7%, CHUY +6.7%, DAR +6.7%, BV +3.2%, ROST +1.8%, BOBE +1.4%, (light volume), AVGR +0.5%, (also received 510(k) clearance from the FDA for an enhanced version of its Pantheris lumivascular atherectomy system)

M&A news: CKP +27% (to be acquired by CCL Industries for $10.15/share in cash, or ~$443 mln), JMI +18% (to be acquired by ARMOUR Residential REIT (ARR) for ~$7.14 per share)

Select EU financial related names showing strength: SAN +2.9%, PUK +2.4%, RIO +2.4%, DB +2.1%, BBVA +1.8%, ING +1.7%


Other news: EYEG +12.6% (receives an additional development milestone from Valeant (VRX) for the development and commercialization of the Company's EGP-437 combination product in the field of uveitis), REXX +12.1% (announces a new $175 mln joint exploration & development agreement in the Moraine East & Warrior North Operated Areas ), PRKR +10.1% (light volume; Parkervision files a petition with the Supreme Court requesting a review of the decision of the US Court of Appeals for the Federal Circuit in ParkerVision v. Qualcomm ), OCN +8.1% (cont vol pre-mkt), ZNGA +7.4% (appoints Frank Gibeau as CEO effective March 7; Co-founder & current CEO Mark Pincus will serve as Executive Chairman ), CVO +6.8% (light volume; announces five-year engagement with National Register Publishing), AWK +4.9% (American Water Works to replace CONSOL Energy in the S&P 500), CSX +3.1% (reports that CSX rejected a takeover approach from Canadian Pacific in January), CRC +2.3% (following 50%+ move higher), JD +1.7% (cont momentum, Shanghai +4% overnight), BABA +1.7% (cont momentum, Shanghai +4% overnight), BMRN +1.6% (granted orphan drug designation by the FDA for BMN 270 for the treatment of patients with hemophilia A), MOMO +1.2% (Shanghai +4% overnight)

Analyst comments: HABT +3.1% (upgraded to Outperform from Market Perform at Cowen), MELI +0.9% (upgraded to Hold from Reduce at HSBC Securities), AMZN +0.8% (initiated with an Outperform at BMO)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: BGFV -15.3%, (also increases quarterly cash dividend by 25% to $0.125/share ), GBSN -14.7%, (also files for 85 mln share common stock offering by certain selling stockholders upon the conversion of senior secured convertible notes issued in the note financing), NWPX -9.9%, (light volume), ICAD -7.4%, (ticking lower), MON -5.1%, LOGI -2.8%, TIVO -2.6%, SQM -1.5%, EPIQ -1.2%, (light volume), VEEV -1.1%, PPL -0.9%, TPUB -0.9%, ASNA -0.6%

M&A news: BUD -2.1% (to sell SABMiller's (SBMRY) 49% interest in China Resources Snow Breweries to China Resources Beer for $1.6 bln)

Select oil/gas related names showing early weakness: SDRL -5.2%, WTI -3.7%, TOT -1.5%, RDS.A -0.9%

Other news: WFT -5.5% (upsizes and prices 100 mln ordinary shares at $5.65 per share; offering upsized from 80 mln prior), COT -5.2% (Cott prices 11.1 mln common shares at $11.80/share on a bought deal basis), CHK -4.7% (Chesapeake Energy former CEO Aubrey McClendon indicted on conspiracy charges, according to Bloomberg; issues statement following Indictment of former CEO Aubrey McClendon, says 'does not expect to face criminal prosecution or fines relating to this matter'), CNX -3.6% (American Water Works to replace CONSOL Energy in the S&P 500), SRCL -2.1% ( files to delay its 10-K), FRT -1.9% (prices public offering of 1 mln shares of common stock at $150/share), GLPG -1.3% (Galapagos NV receives transparency notice from Johnson & Johnson (JNJ), J&J holding's fall below 5% threshold)

Analyst comments: JOY -2.8% (downgraded to Sell form Hold at Axiom Capital), CVGW -2.3% (downgraded to Neutral from Buy at DA Davidson)

(BI) Germany could be Europe's next big problem

This is as good as it gets for Germany and Europe. 

http://uk.businessinsider.com/germany-is-the-new-piig-2016-2

Previously, it was the debt of the eurozone's peripheral countries that was of concern to the markets.
But in an interview with Business Insider, Geopolitical Futures founder George Friedman proclaimed that Europe now has a much bigger problem: Germany.
And at the heart of the looming issue for Germany and Europe is the Italian banking system.
"[Problems in Italian banks are] going to spill over into the Netherlands, it's going to spill over into Germany," Friedman said. "Germany is the new PIIG. Germany depends on exports and its markets are drying up."
The PIIGS economies — Portugal, Italy, Ireland, Greece, and Spain — were the main concerns during the European debt crisis of 2011 and 2012. And with those crises seemingly having passed and Europe moving back towards a path to economic stability, Germany has been a big winner with its economy as strong as its been since re-unification and an unemployment rate down to 4.5%.
Germany has, however, been running a structural trade surplus underpinned by a weak euro with its trade surplus hitting a record $23.9 billion in June. And Friedman thinks Germany's export well is about to run dry.
Trading Economics


Friedman believes that the problems in the Italian banking system are going to take Germany — the strongest economy in the eurozone — down with it.
Data released in late-2015 showed non-performing loans at Italian banks totaled €300 billion, 17.3% of outstanding loans.
That is a massive number considering the average for the euro zone is 6.8%, and Germany's NPL's are at just 2.3%.
Andy Kiersz / Business Insider


According to Friedman, this is a big deal because Italy is the 4th largest economy in Europe and the 8th largest economy in the world. Italy's home to the largest banking system in Eastern Europe and there's a lot of inter-connectivity in play.
For example, Germany's largest bank, Deutsche Bank, has an enormous amount of exposure to Italy, and so does the rest of Europe. Ultimately Friedman thinks it will be Germany that has to save Italy.
And that will cost a lot of money.
"It's not the PIIGS one should worry about," Friedman said. "Germany hasn’t even begun falling yet. And when Germany falls, and it will, that’s when the panic begins to set in."
Deutsche Bank

FT : Rouhani brings hope that this time it might be different in Iran

Rouhani brings hope that this time it might be different in Iran

The coalition should be better placed to enact the economic reforms the country desperately needs

Euphoria in Tehran as supporters of centrist President Hassan Rouhani give hardline theocrats a thumping at the polls. Enthusiasm abroad at the appetising prospect of President Rouhani of Iran, the architect of last year’s nuclear deal with the major international powers, prising open a hitherto isolated market of 80m people. But have we not been here before?

In May 1997, Mohammad Khatami, a reformist former culture minister forced out of office in 1992 for “permissiveness”, was elected president with 70 per cent of the vote on a nearly 90 per cent turnout — an avalanche the ruling elites did not see coming. With popular adulation on tap, President Khatami promised a freer society and accountable government under the rule of law. Within a year he tried opening a “dialogue of civilisations” with the US, tempting then President Bill Clinton with a Nixon-to-China moment. But it all ended in tears.



The hardliners regrouped easily around their strongholds in the judiciary, the Islamic Revolutionary Guard Corps (IRGC), the appointed Guardian Council that oversees parliament and, above all, Ayatollah Ali Khamenei, the Supreme Leader. Mr Khatami was unable to stop parliament impeaching his allies. Politically diminished, his May 2003 offer to President George W Bush of a “grand bargain” with the US was spurned, paving the way for the election of Mahmoud Ahmadi-Nejad, his mercurial and messianic successor.

When the reformists next raised their heads, in protest at the rigged re-election of Mr Ahmadi-Nejad in 2009, their Green Movement was put down without mercy. So what has changed, now that Mr Rouhani’s impressive showing in Friday’s elections has rekindled hope once more?



The balance of power within the Islamic Republic looks broadly the same. The Islamic institutions, mostly appointed and answerable to the Supreme Leader, still far outweigh the democratically elected, republican institutions accountable to the voters. The 290-member parliament, however, in which Mr Rouhani’s coalition of reformists, moderate conservatives and independents will now field a powerful bloc against the hardliners, should be better placed to enact the economic reforms required to enable the investment that Iran desperately needs.

The context in which change might unfold is also different. Iran is now bent on re-engaging with the world and rebuilding its economic strength. Its young population is fed up with being dictated to by ageing reactionaries with a fossilised ideology that keeps Iran isolated.

Another way of looking at the political line-up — rather than the dated and reductive split between reformists and hardliners — is to see a quite broad church that backs this policy, against those who opposed the nuclear deal and see any opening up as tantamount to treason. The former had the backing of the Supreme Leader on the nuclear deal, endorsed by the outgoing speaker of parliament, Ali Larijani, an influential conservative traditionally identified with the hardliners but now aligned with Mr Rouhani. Many of the latter have just been sent packing by the voters.

The political forces that want the country gradually to open up, moreover, are working to get inside the institutions that count in Iran. Friday’s elections were not just to the parliament but also to the 88-member Assembly of Experts, an arcane clerical body that now really matters — because it selects and can even “supervise” the Supreme Leader. It is probable that its eight-year term will encompass the succession to an ailing Mr Khamenei.

The Rouhani list won 15 of the 16 Tehran seats in the Assembly, sweeping aside its reactionary leadership. Top of the list, ahead of Mr Rouhani, was Akbar Hashemi Rafsanjani, another former president and the arch-fixer at the heart of Iranian realpolitik, who is floating the idea of a leadership council to replace the Supreme Leader when the time comes. Mr Rouhani is no novice either: a veteran of the Assembly, linchpin of the national security council for almost three decades, former chief nuclear negotiator and winner of nine out of 10 elections.

Although superficially he resembles Mr Khatami, his ally, Mr Rouhani is tougher, a survivor who can call on a wider array of insider support. There is another important difference between the two men. Twenty years ago, the regime feared Mr Khatami might be a Mikhail Gorbachev, who would bring down the curtain on the Iranian revolution, just as Mr Gorbachev did on the Soviet Union. In fact, the last Soviet leader was admired more abroad than at home. Mr Khatami was a mirror image: with little international echo of his vast following in Iran.

That too has changed. With the nuclear deal, an international tilt towards Iran is under way. The US and Europe, out of a mix of geopolitical pragmatism and a sense of commercial opportunity, want Iran back. Fierce battles lie ahead for Mr Rouhani, but unlike Mr Khatami, this president is in with a chance.

>>> February ADP Employment Change 214K vs 190K consensus

February ADP Employment Change 214K vs 190K consensus
  • Goods-producing employment rose by 5,000 jobs in February, just over a quarter of January's upwardly revised 19,000.
  • The construction industry added 27,000 jobs, which was slightly above January's upwardly revised 26,000.
  • Meanwhile, manufacturing lost 9,000 jobs, the second largest drop in five years.
  • Service-providing employment rose by 208,000 jobs in February, up from a downwardly revised 174,000 in January.
  • The ADP National Employment Report indicates that professional/business services contributed 59,000 jobs, up sharply from January's downwardly revised 38,000.
  • Trade/transportation/utilities grew by 20,000, down from a downwardly revised 26,000 the previous month.
  • The 8,000 new jobs added in financial activities were the least in that sector since August 2015.
Comments
  • "Large businesses showed surprisingly strong job gains in February, despite the continuation of economic trends that negatively impact big companies like turmoil in international markets and a strengthening dollar," said Ahu Yildirmaz, VP and head of the ADP Research Institute. "The gains were mostly driven by the service sector which accounted for almost all the jobs added by large businesses."
  • Mark Zandi, chief economist of Moody's Analytics, said, "Despite the turmoil in the global financial markets, the American job machine remains in high gear. Energy and manufacturing remain blemishes on the job market, but other sectors continue to add strongly to payrolls. Full-employment is fast approaching."