TheChek News Flow

>>> US Clos Down+0.73% S&P+0.72% Nasdaq+0.90% Russell+1.57%

Closing Market Summary: Biotechnology Leads Stocks Higher

The stock market ended the Wednesday session on a higher note with the S&P 500 climbing 0.8% while the Nasdaq Composite (+0.9%) settled a bit ahead despite showing relative weakness in the early going.

Overall, the midweek session was very quiet, but there was some volatility present in the market as stocks surrendered their opening gains going into the afternoon, but returned into the middle of their ranges by the closing bell. It is worth noting that the pullback from opening highs occurred after the S&P 500 made a brief appearance above its 50-day moving average (1,997), which also served as resistance during afternoon action.

Similar to yesterday, commodity-sensitive energy (+1.3%) and materials (+1.3%) paced the opening move higher, but both sectors surrendered a portion of their gains as the session wore on. The energy sector was up nearly 2.5% at the start, but retreated from its high as crude oil erased its intraday gain. The energy component settled lower by 1.5% at $47.81/bbl after sliding from its intraday high in reaction to the latest Energy Information Administration's inventory report, which showed a 3.07 million barrel build.

Staying on the cyclical side, the largest sector by weight—technology (+0.4%)—underperformed throughout the day, but was able to climb off its low into the close. Large sector components like Apple (AAPL 110.67, -0.64), Alphabet (GOOGL 670.00, -1.64), and Oracle (ORCL 37.66, -0.07) lost between 0.2% and 0.6% while high-beta chipmakers outperformed, sending the PHLX Semiconductor Index higher by 1.5%.

The afternoon rebound in technology helped the Nasdaq overtake the S&P 500 while biotechnology also contributed to the late strength in the tech-heavy index. The iShares Nasdaq Biotechnology ETF (IBB 307.81, +5.90) climbed 2.0%, snapping its two-day skid, while the health care sector (+1.5%) settled in the lead.

Also of note, the consumer discretionary sector (+0.3%) struggled in the early going, but ended the day in the green despite an 18.8% plunge in the shares of Yum! Brands (YUM 67.70, -15.72) after the company reported disappointing results and guided below analyst expectations.

Unlike stocks, Treasuries spent the day in negative territory, ending the day with modest losses. Accordingly, the benchmark 10-yr yield rose three basis points to 2.07%.

Today's participation was well above average with more than 1.15 billion shares changing hands at the NYSE floor.

Economic data included Consumer Credit and MBA Mortgage Index:

The consumer credit report for August showed an increase of $16.00 billion, which was lower than the consensus estimate of $19.50 billion
The prior month's credit growth was revised down to $18.90 billion from $19.10 billion

The weekly MBA Mortgage Index surged 25.5% to follow last week's 6.7% decline

Tomorrow, weekly Initial Claims will be reported at 8:30 ET (consensus 275,000) while the September FOMC Minutes will be released at 14:00 ET.

Nasdaq Composite +1.2% YTD

S&P 500 -3.1% YTD

Dow Jones Industrial Average -5.1% YTD

Russell 2000 -4.3% YTD

>>> Chenavari Investment Managers sells passive minority stake to Neuberger Berm

Chenavari Investment Managers sells passive minority stake to Neuberger Berman's Dyal Capital

Chenavari Investment Managers, a UK-based diversified alternative asset manager, has sold a passive minority stake to Dyal Capital Partners, a private equity business within Neuberger Berman. The terms of the transaction were not disclosed.

Chenavari will continue to be led by Loic Fery, CEO & Co-CIO, and Frederic Couderc, Co-CIO. They will retain complete control over the firm's operations and investment process. Dyal's strategic minority interest will be passive with no oversight into Chenavari's governance. The vast majority of Chenavari's economic interests remain in the hands of Chenavari's existing shareholders.

Chenavari was advised by Fenchurch.

Press release:

Chenavari Investment Managers ("Chenavari") and Dyal Capital Partners ("Dyal") announced today that Dyal has acquired a passive minority interest in the controlling company of Chenavari.

Chenavari is a diversified alternative asset management group focused on credit, structured finance, real estate and private debt strategies, with approximately $5.4 billion of assets under management as of September 1, 2015. Dyal is a private equity business within Neuberger Berman, a private, independent, employee-owned investment manager with $251 billion in client assets.

Chenavari will continue to be led by Loic Fery, CEO & Co-CIO, and Frederic Couderc, Co-CIO. They will retain complete control over the firm's operations and investment process. Dyal's strategic minority interest will be passive with no oversight into Chenavari's governance. The vast majority of Chenavari's economic interests remain in the hands of Chenavari's existing shareholders.

Mr. Fery said: "We anticipate that this strategic relationship with the Dyal team will strengthen Chenavari's ability to provide institutional investors with leading investment solutions across tradable credit, structured finance and private debt."

"We are thrilled to be partnering with such an experienced team, who have for years been industry leaders," Michael Rees, Managing Director of Dyal Capital Partners, said. "Chenavari is in our opinion very well positioned to benefit from the opportunity set related to European banks' deleveraging, around investment strategies in credit and private debt markets. We look forward to a long-term relationship of continued success."

The terms of the transaction were not disclosed.

>>> Elon Musk accidentally spills the beans on an unannounced Tesla car

Elon Musk accidentally spills the beans on an unannounced Tesla car

Tesla’s long-term strategy for electric car domination may be grander than we previously realized. While Tesla’s plan to roll out a mass produced and affordable electric car — dubbed the Model 3 — is already widely known, Elon Musk a few days back may have inadvertently spilled the beans on another car Tesla is planning to develop — the Model Y.

Responding to a question about whether or not the highly anticipated Model 3 might include a crossover vehicle with the same type of Falcon Wing doors that come on the Model X, Musk responded: “there will be a Model 3 and a Model Y. One of the two will.”

Though the tweets were ultimately deleted, a few folks managed to take screenshots of the digital evidence beforehand.

Interestingly enough, this isn’t the first time we’ve heard rumblings of a Model 3 crossover being discussed. About one year ago, Tesla VP of Engineering Chris Porritt said that the Model 3 will represent a vehicle platform that may include a number of offshoots.

Tesla has revealed that its new BMW 3 Series rival, the Tesla Model 3, will spawn a number of derivatives that could include an SUV and an estate in order to attract a broader spread of customers.

What’s more, the following slide, taken from a presentation delivered by Tesla CTO JB Straubel also points to the Model 3 spawning a crossover vehicle.

tesla model y crossover

And now, seemingly, the crossover vehicle has been confirmed by none other than Musk himself. As for what we might expect to see in a Model Y, it stands to reason that it will come in the form of a smaller version of the recently released Model X.

If the Model Y comes to fruition, Musk will have achieved his goal of creating a ‘sexy’ lineup of cars, what with the Model S, Model 3, Model X, and the Model Y. Note that the Model 3 logo will be depicted via three horizontal bars (≡), resulting in Models S≡XY. Famously, Musk wanted to call the Model 3 the Model e but was unable to due to Ford owning the trademark.

>>> Volkswagen America CEO Horn’s Testimony Posted on Cmte Website

{http://docs.house.gov/meetings/IF/IF02/20151008/104046/HHRG-114-IF02-Wstate-HornM-20151008.pdf}

FT ; SABMiller’s Jan du Plessis faces tough task on AB InBev bid

SABMiller’s Jan du Plessis faces tough task on AB InBev bid

Chairman must balance the divergent views of his group’s two key investors

Jan du Plessis, chairman of SABMiller, only needed a few hours on Wednesday to turn down a £65bn offer for the brewer from Anheuser-Busch InBev, the Belgian-Brazilian producer of Budweiser beer.

AB InBev may be larger and famously acquisitive, but Mr du Plessis says the part-cash, part-shares offer “very substantially undervalues” a group he believes is the “crown jewel of the global brewing industry”.

Mr du Plessis reasons that SABMiller’s unique position as the largest brewer in Africa should be worth more.

Carlos Brito, chief executive of AB InBev, shares Mr du Plessis’s view on the importance of the world’s fastest-growing continent — though of course he disagrees with him on the bid price.

“Africa is key and will play a vital role in the future of the combined company. That’s a continent with a billion consumers,” says Mr Brito. “This combination is about growth, mainly.”

Despite being the world’s largest brewer by revenues and volume, AB InBev has virtually no exposure to Africa and is grappling with a slowdown in its two main markets of North America and Brazil.

Buying SABMiller, which was founded 120 years ago as South African Breweries, could help boost AB InBev’s revenues and expand its reach. The two brewers have little overlap other than in the US and China.

But the attractions of a deal are far less clear for Mr du Plessis, who for the second time in just a year finds himself fighting off a takeover attempt by an ambitious acquirer.

Last October, in his role as chairman of Rio Tinto, Mr du Plessis confirmed that the £45bn mining group had rejected an opportunistic bid from rival Glencore — a move that looks wise in hindsight.

Now, Mr du Plessis is fending off an even bigger bid. He and the majority of the board appear to have been driven by two main considerations in rejecting the offer: price and proposed deal structure.

AB InBev’s first two private offers of £38 and £40 a share were at the bottom end of the £39-£45 a share range that analysts say AB InBev could afford to pay.

The latest, public proposal is £42.15 in cash per share but it includes a shares alternative that makes the price average out to about £40 a share. That is “some way below what we would regard as a knockout bid”, says James Edwardes Jones, analyst at RBC Capital Markets.

Mr du Plessis also has to balance the divergent views of the two dominant SABMiller shareholders as well as look after the interests of smaller shareholders.

AB InBev appears to have structured the deal primarily with the interests of the two big shareholders in mind.

Both Altria, the US tobacco group, and Bevco, the investment vehicle of Colombia’s Santo Domingo family, would have to pay potentially hefty capital gains tax bills if they opt for cash. Taking shares in an enlarged group would allow them to avoid these taxes.

The share portion being offered by AB InBev equates to 41 per cent of SABMiller shares — almost the exact equivalent to the 42 per cent that the two big shareholders hold.

AB InBev’s Mr Brito says “the partial share alternative was designed with and for them, and we hope to have their support”.

Altria, which holds 27 per cent of SABMiller, said on Wednesday it was ready to accept the deal. But Bevco, which has a 14 per cent stake, rejected it.

The Santo Domingo group has not gone public with its reasons, but analysts said they were likely to be linked to price.

For Mr du Plessis, there is an additional wrinkle. Right now, the cash offer is worth more than the shares offer.

But if the board agrees a deal and then AB InBev’s share price rises, the shares option could turn out to be the better deal.

In that case it would look as if the SABMiller board had recommended a deal more favourable to Altria and Bevco than to the smaller shareholders.

Indeed, the discount between the value of the share offer and cash offer narrowed during the day once shares in AB InBev rose on the news of the terms.

Yet Mr du Plessis’ options are limited.

SABMiller could hold out for a higher offer. But Philip Gorham, analyst at Morningstar, said AB InBev was unlikely to be able to offer that much more. While the larger group has a long history of cost-cutting and extracting value from acquisitions, this particular deal may not yield as many synergies.

“The offer on the table from AB InBev is likely close to a final offer. We believe it represents good value for SABMiller shareholders,” he says.

Much depends on the position of the Santo Domingo family. As Mr Brito says: “There’s no transaction without them.”

FT : Ex-Goldman trader keeps oil loans flowing

A former senior trader at Goldman Sachs has linked with AllianceBernstein to lend billions of dollars to US oil and gas producers, offsetting a trend towards scarcer financing for the energy sector.

The availability of credit is a crucial variable for forecasting oil output after the recent price collapse. If drillers cannot borrow, it will hasten the decline in production and help bring a glutted market into balance.

While there are signs money is tighter, the partnership announced on Wednesday by AllianceBernstein, the asset manager, and HudsonField, a recently formed energy merchant, shows investors are willing to finance some oil and gas companies.

“We genuinely believe there are many proficient operators who can produce economically, even in this price environment,” said Ben Freeman, HudsonField’s founder and chief executive who was Goldman’s global head of oil derivatives trading.

AllianceBernstein has raised $2bn to lend mainly to middle-market oil and gas companies. HudsonField will identify operators in shale basins such as the Eagle Ford and Permian of Texas and the Utica and Marcellus of the north-east, Mr Freeman said.

HudsonField’s other businesses will consist of trading physical oil and gas and offering hedges such as fixed price contracts to producers. Its senior management includes former executives from Goldman, Trafigura, the trading house, and Buckeye Partners, an energy transport group. Its name comes from its two office locations: in New York on the Hudson river and in Houston near Texas oilfields.

Brent Humphries, president of AB Private Credit Investors, said in a statement that HudsonField would “serve as a significant origination source for middle-market energy loans and investments. Their expertise in oil and gas risk management and hedging will further serve as a benefit to borrowers that seek to actively manage their exposure to oil and gas prices.”

Mr Freeman said banks had partially cut back on lending to energy companies due to rules enacted after the financial crisis. Several Wall Street banks have also shut or curtailed their commodities businesses, leaving fewer counterparties for producers wishing to hedge their output.

Loans from the new fund could cover drilling programmes, well refurbishments and paying down existing debt, the latter a potentially significant need as smaller companies’ oil and gas reserves undergo a twice-yearly revaluation by banks.

West Texas Intermediate crude was about $49 a barrel early on Wednesday, down by more than half from mid-2014. In the year to June, 83 cents of every dollar of operating cash at US onshore producers was devoted to debt repayment, according to the Energy Information Administration.

Analysts at Goldman warned in a note last month that “if investor capital is available to accommodate producers continuing to outspend cash flow, the slowdown in US production will take place too late or not at all, forcing oil markets to clear as they historically have, through a collapse to production costs once the surplus breaches logistical and storage capacity”.

FT : Diageo focuses operations with £515m assets sale to Heineken

Diageo has entered into a three-part asset swap with Heineken that will give the Dutch brewer global distribution rights to Red Stripe beer, but boost the London-listed drinks group’s presence in Africa.

Heineken is paying $780.5m (£515m) to Diageo as part of the deal, which comes as Ivan Menezes, chief executive of the UK company, continues to clean up its sprawling global operations and sell off assets that are considered peripheral.

Diageo is selling its 57.87 per cent shareholding in Desnoes & Geddes (D & G), a company listed on the Jamaican Stock Exchange and which owns the Red Strip brand, to Heineken. Heineken already had a 15.5 per cent stake in D & G.

Following the deal with Diageo, the Dutch brewer will launch a mandatory offer for the remaining shares in the Jamaican group — representing 26.7 per cent of D & G’s total issued share capital — raising the possibility that it could be taken private.

In addition, Diageo will swallow Heineken’s 20 per cent stake in Guinness Ghana Breweries, and Heineken will buy Diageo’s 49.99 per cent holding in GAPL, the owner of a drinks company listed in Malaysia.

Heineken and Diageo’s chief executives both emphasised the benefits of bringing more focus to their respective businesses. Jean-François van Boxmeer, chief executive at Heineken, said: “Having greater commercial control in the important regions of southeast Asia and the Caribbean will allow us to maximise the strong potential of our brands in these growth markets.”

As a result of the deal, Diageo’s shareholding in Guinness Ghana Breweries will rise to 72.42 per cent, while Heineken will have full ownership of GAPL and 73.32 per cent of D & G. Jamaican regulations mean Heineken will be required to make a further offer for all remaining shares in D & G.

Diageo forecast the deal will make it a profit of approximately £440m after tax, and said it will use the money to reduce its debts. Paolo Leschiutta, vice-president at Moody’s, said the debt reduction and greater control of its Ghanaian business will make the move advantageous for Diageo.

For Heineken, meanwhile, Mr Leschiutta said: “The benefits from greater control on its Jamaican, Malaysian and Singapore businesses will be offset by a minor negative impact on its credit metrics as the transaction is likely to be largely funded with debt.” He added, however, that Heineken’s Baa1 credit rating is not under threat.

Diageo has been trimming its assets to focus on core brands in an attempt to reverse three years of falling sales. In July, the group sold the Gleneagles hotel and golf resort in Scotland to hotel developer Ennismore, and cancelled a joint venture with Heineken in South Africa three years ahead of schedule.

The two companies will continue to have long-term distribution agreements in Malaysia, Singapore, Jamaica and Ghana, and another joint venture in Sierra Leone. A spokesman for Diageo said the company still has “a very good working relationship with Heineken”.

Centerview Partners advised Diageo on the asset-swap. Heineken was advised by Nomura.

FT : Ofcom worried UK telecoms mergers risk undermining competition

Ofcom worried UK telecoms mergers risk undermining competition

The British communications regulator has expressed alarm at the number of mergers in the telecoms sector, saying they risk undermining competition and forcing up prices for consumers.

In a reshaping of the British telecoms market, more than £20bn of mergers and acquisitions are under discussion, with BT set to acquire EE, the UK’s largest mobile group, and Three to merge with O2.

“If the current merger wave continues, there are risks to consumers and businesses who have enjoyed one of the most competitive markets of recent years,” Sharon White, Ofcom chief executive, said in a speech.

Ofcom is also concerned about evidence suggesting that landline and broadband prices have already been rising in the UK, she added.

In her clearest remarks on competition policy since taking over at Ofcom at the start of the year, Ms White argued against further telecoms consolidation, saying there was “no relationship [with higher] investment”. Four mobile operators were a “competitive number” for the UK market.

Ms White highlighted a range of reasons why mobile users in Britain could be worse off with fewer alternatives to choose. Her words are likely to worry executives in the sector as they head into negotiations with competition authorities in the UK and Brussels.

Similar deals in Europe have been cleared, although recent comments by the European antitrust authorities have also suggested a hardening of attitudes against deals because of worries over the impact on consumers.

Executives argue that these deals lead to scale that helps them invest in better networks. But Ms White said there was “evidence that consumers may be paying the price of mergers” elsewhere in Europe. BT may also have an incentive to favour EE over other mobile operators in providing network services, she said.

In her speech, she said she was concerned the UK could end up with “more concentrated markets that led to higher prices and reduced choice for consumers, without the promised boost to investment and innovation”.

“This is an urgent question. Once competition slips away, it is hard to re-establish especially in telecoms where barriers to entry for new firms are high.”