Volkswagen financial headroom alleviates need for immediate disposals – bankers
* Scale of liability may substantially increase
* Non-core asset sales could protect from medium-term downgrade
* Power engineering business, PGA Motors among potential disposal candidates
Volkswagen [ETR:VOW3] has enough balance sheet flexibility to alleviate the need for any immediate disposals in the aftermath of the emissions scandal in the US, said several sector bankers.
The German automaker has sufficient headroom to shield itself from the impact of fines and liabilities in the near term, the bankers said.
Volkswagen has so far set aside EUR 6.5bn to cover the cost of the fault identified, but this provision only covers product recalls in the US.
US sales represent less than 5% of the 11m diesel cars sold globally by Volkswagen that contain the device used to cheat emissions tests, a US-based banker said. The US’s Environmental Protection Agency could fine the company up to USD 18bn, and other liabilities in the US and other countries could follow.
Volkswagen had EUR 17.5bn in cash and equivalents and EUR 15bn of securities, as of 30 June. It also has EUR 56bn of undrawn medium term notes among other undrawn lending reserve. Together with a net debt/EBITDA ratio of 4.3x, which is in line with industry peers, it has room to borrow, if required.
Volkswagen’s credit rating has been put on negative watch by S&P, Fitch and Moody’s, due to the emissions crisis. Although the agencies believe that the company metrics could absorb the immediate impact of the emissions scandal, they have concerns that Volkswagen’s brand image and reputation could be undermined, potentially affecting its revenues and EBITDA.
Since news of the emissions scandal broke, Volkswagen shares have fallen from EUR 162.4 to around EUR 99.92 by midday trading on Monday, valuing the automaker at EUR 49.8bn. On Friday Volkswagen appointed Porsche's head, Matthias Müller, as CEO to replace Martin Winterkorn, who resigned after the crisis emerged. On Friday, Germany’s transport minister said that cars produced in the country may contain the same problem as in the US.
Volkswagen declined to comment for this story.
Volkswagen’s future would be less predictable if its liabilities become much bigger. The size and scope of the impacts it might face are difficult to predict, three bankers said. If the cost of covering the liability reaches unexpected levels, the company may turn to the sale of non-core assets as a way to avoid being downgraded by credit rating agencies, a Germany-based banker said.
Other than the long-mooted listing of its Trucks & Buses business, Volkswagen’s power engineering business, a division in MAN SE that manufactures large-bore diesel engines for marine and stationary applications, could be sold, the Germany-based banker said. The business reported sales of EUR 3.7bn and EUR 278m in operating profits in 2014. The likes of UK-based Rolls-Royce [LON:RR] and Japan-based Mistui [TYO:8031], as well as private equity firms, would be likely bidders, the banker said.
Another candidate is PGA Motors, a car dealership business with operations in France, the Netherlands, Belgium and China that sells multi-brands, the banker said. The business is owned by Porsche Holding Salzburg, a subsidiary of Volkswagen.
The cash raised by the disposal of any of these businesses would be north of EUR 1bn, the banker said. But the expectations over the size of Volkswagen’s liabilities should be put in perspective and compared to other cases in the industry, a second US-based banker said. General Motors' [NYSE:GM] problems with a faulty ignition switch, which led to the deaths of 124 people, has cost it a criminal penalty of USD 900m and around USD 600m more for settling lawsuits, besides an estimated USD 4.1bn in recall costs.
Volkswagen's cheating on emissions testing has not been directly responsible for the killing of people and therefore should be settled for less than the GM case, the banker said. And the impact on Volkswagen’s credibility with consumers should be smaller than what GM suffered, this banker added.
Politically, the US government is unlikely to push for anything that could bankrupt a company from its strongest NATO ally, the banker said. The German government would not let it happen either, so fines in the US should end up being established at a value that Volkswagen will be able to manage, the banker added.
The impacts of the scandal should also have limited implications on bigger M&A moves, such a potential deal with rival Fiat-Chrysler [BIT:F], four bankers said. Fiat-Chrysler’s Chief Executive, Sergio Marchionne, has been pushing for consolidation in the sector, with GM as his preferred target. His preference should not change due to the current situation, although if Volkswagen is to incur a significant drop in sales in the next two years, it could become a target of a hostile offer from Marchionne, a second Germany-based banker said.
Si la grande majorité des financiers se tournent volontiers vers le private equity, Serge Weinberg joue les "contrariants". Il vient de créer un fonds destiné à investir dans des entreprises françaises moyennes cotées, dans une optique de long terme.
A l’heure où les professionnels de la finance se tournent résolument vers le private equity et le financement de projets via différentes solutions de désintermédiation, Serge Weinberg a décidé d’être contrariant. Alors que
Weinberg Capital Partners fête cette année ses 10 ans, la société de gestion vient de créer un fonds dédié à la prise de participations cotées. Estimant que cette classe d’actifs est toujours délaissée et surtout qu’elle recèle de belles histoires qui méritent attention, celui qui a notamment dirigé PPR devenu Kering veut maintenant accompagner, dans la durée, des entreprises moyennes en mal de financement pour monnayer des projets de développement ou régler des problèmes de succession. Ce fonds, dénommé Nobel, pourra ainsi aussi bien intervenir dans le cadre d’augmentations de capital réservées que de reclassements de la part de familles ou d’investisseurs institutionnels. «Cela faisait un petit moment que nous avions repéré de belles opportunités. Mais nous n’avions pas l’instrument adéquat pour cela. C’est maintenant chose faite», souligne Serge Weinberg, interrogé par WanSquare.
Les avantages d’un tel outil sont multiples : d’abord il permet de prendre pied dans des cibles sans payer de prime à l’entrée. Ensuite, contrairement aux fonds de private equity, il n’y a aucun effet de levier et les durées de détention peuvent varier en fonction des dossiers, donnant une grande souplesse de gestion.
ABI-SAB: Older ... Budweiser?
We have transplanted the assumptions we used in our 'quick and dirty' analysis of ABI
acquiring SABMiller into a DCF calculation and come to a similar conclusion: it could
afford £42 per share (6% more than our previous estimate). Above this, we believe value
destruction would set in. We wonder if the fact that its approach has been made public will
make it harder for ABI's management to maintain financial discipline, if it has heightened
investors' and analysts' concerns around the company's 'go it alone' revenue growth
strategy.
This note is one for hard-core valuation nerds (maybe 'enthusiasts' would be politer). We have pulled
together a DCF model for the acquisition of SABMiller by ABI, notwithstanding a comprehensive lack of
incremental information from either company. There were a number of reasons for this.
• It is theoretically the most robust method to value any investment, even if there are practical
difficulties in its application; (acute sensitivity to discount and terminal growth rate assumptions being
the obvious ones).
• In light of the inherently complex nature of SABMiller's financial reporting - largely a function of the
significant role played by associates and JVs - we found it a useful way of clarifying the interaction
between moving parts of the P&L and cash flow.
• It forced us to consider issues not picked up by our initial P&L multiple approach, notably working
capital (a US$2bn opportunity, we estimate) and capital expenditure.
Gapping down
In reaction to disappointing earnings/guidance: CALM -5.4%, HST -3.1%, MTN -0.5%
M&A news: VOD -3% (Vodafone PLC announces that discussions with Liberty Global (LBTYA) regarding a possible exchange of selected assets have terminated)
Select EU financial names showing weakness: NBG -4.1%, ING -3%, DB -2.8%, BCS -2.5%, HSBC -2.1%, CS -2%
Select metals/mining stocks trading lower: MT -6.3%, BBL -4.7%, RIO -4.3%, IAG -4.2%, AUY -4%, AUY -4%, SSRI -4%, BHP -3.8%, FCX -3.8%, SLW -3.5%, X -3.2%, AEM -3%, ABX -3%, PAAS -2.9%, GG -2.8%, SLV -2.4%, NEM -2.4%, AKS -2.2%, GLD -1.2%, GOLD -0.8%
Select oil/gas related names showing early weakness: SDRL -3.4%, STO -2.4%, TOT -1.9%, BP -1.8%
Other news: VSTM -53.3% (discontinues Command study of VS-6063 for the treatment of malignant pleural mesothelioma), YGE -9.5% (still checking), BLPH -4.8% (light volume, cont strength), RDS.A -1.7% (to caese Alaska exploration)
Analyst comments: QRVO -4% (downgraded to Sector Perf at Pac Crest), MB -2.8% (downgraded to Equal Wt at Morgan Stanley
)
In reaction to disappointing earnings/guidance: CALM -5.4%, HST -3.1%, MTN -0.5%
M&A news: VOD -3% (Vodafone PLC announces that discussions with Liberty Global (LBTYA) regarding a possible exchange of selected assets have terminated)
Select EU financial names showing weakness: NBG -4.1%, ING -3%, DB -2.8%, BCS -2.5%, HSBC -2.1%, CS -2%
Select metals/mining stocks trading lower: MT -6.3%, BBL -4.7%, RIO -4.3%, IAG -4.2%, AUY -4%, AUY -4%, SSRI -4%, BHP -3.8%, FCX -3.8%, SLW -3.5%, X -3.2%, AEM -3%, ABX -3%, PAAS -2.9%, GG -2.8%, SLV -2.4%, NEM -2.4%, AKS -2.2%, GLD -1.2%, GOLD -0.8%
Select oil/gas related names showing early weakness: SDRL -3.4%, STO -2.4%, TOT -1.9%, BP -1.8%
Other news: VSTM -53.3% (discontinues Command study of VS-6063 for the treatment of malignant pleural mesothelioma), YGE -9.5% (still checking), BLPH -4.8% (light volume, cont strength), RDS.A -1.7% (to caese Alaska exploration)
Analyst comments: QRVO -4% (downgraded to Sector Perf at Pac Crest), MB -2.8% (downgraded to Equal Wt at Morgan Stanley
)
Gapping up
In reaction to strong earnings/guidance: N/A.
M&A news: MEG +21.9% (Nexstar (NXST) hostile bid for Media General (MEG) complicates MEG-MDP merger), ATML +6.6% (Cypress Semi (CY) is considering offer to acquire ATML, according to Reuters), AA +4.3% (to separate into two independent, publicly-traded companies), SLH +1.3% (IHS (IHS) to make offer to acquire SLH, according to Reuters)
Other news: OGXI +17.3% (presents additional Phase 3 SYNERGY data), BLDP +16.2% (secures $17 mln contract to deploy ~300 fuel cell buses in China), GALE +6.1% (presents data from the GALE-301 Phase 2a portion of the Phase 1/2a clinical trial), RDY +5.4% (launches esomeprazole magnesium delayed-release capsules), NVO +3.7% (FDA approved the new drug application for Tresiba), HRTX +1.2% (announces oral presentation of data from completed Phase 3 MAGIC Study for SUSTOL), GLPG +0.9% (seeing modest rebound following Friday's declines)
Analyst comments: NTRA +2.2% (upgraded to Outperf at Wedbush), BSX +1% (upgraded to Buy at Needham), VRTX +1% (upgraded to Buy at Argus
)
In reaction to strong earnings/guidance: N/A.
M&A news: MEG +21.9% (Nexstar (NXST) hostile bid for Media General (MEG) complicates MEG-MDP merger), ATML +6.6% (Cypress Semi (CY) is considering offer to acquire ATML, according to Reuters), AA +4.3% (to separate into two independent, publicly-traded companies), SLH +1.3% (IHS (IHS) to make offer to acquire SLH, according to Reuters)
Other news: OGXI +17.3% (presents additional Phase 3 SYNERGY data), BLDP +16.2% (secures $17 mln contract to deploy ~300 fuel cell buses in China), GALE +6.1% (presents data from the GALE-301 Phase 2a portion of the Phase 1/2a clinical trial), RDY +5.4% (launches esomeprazole magnesium delayed-release capsules), NVO +3.7% (FDA approved the new drug application for Tresiba), HRTX +1.2% (announces oral presentation of data from completed Phase 3 MAGIC Study for SUSTOL), GLPG +0.9% (seeing modest rebound following Friday's declines)
Analyst comments: NTRA +2.2% (upgraded to Outperf at Wedbush), BSX +1% (upgraded to Buy at Needham), VRTX +1% (upgraded to Buy at Argus
)
SABMiller amends board committees as girds for takeover offer - RTRS
28-SEP-2015 13:48:19
LONDON, Sept 28 (Reuters) - SABMiller SAB.L announced changes to the makeup of certain board committees on Monday, as the brewer girds for a possible takeover offer from its larger rival Anheuser-Busch InBev ABI.BR.
The maker of beers such as Peroni and Grolsh said its chairman, Jan du Plessis, and an independent director, Trevor Manuel, were appointed to the board's corporate accountability and risk assurance committee.
A company spokesman said the nominations were "business as usual" and followed various retirements and new appointments made earlier this year.
Independent director Lesley Knox was also appointed to the nomination committee while Javier Ferran was appointed to the remuneration committee.
SAB earlier this month said Anheuser-Busch InBev (AB InBev) had approached it about a takeover that would form a colossus producing a third of the world's beer. (Full Story)
AB InBev has until Oct. 14 to make a firm offer, under British takeover rules. Neither company has said whether an offer has been made.
CHICAGO, Sept 28 (Reuters) - Metals firm Alcoa Inc AA.N said on Monday it would split into two publicly-traded entities, acknowledging that its legacy aluminum operations and higher-value and automotive businesses were diverging and no longer compatible.
New York-based Alcoa's traditional smelting business has been hurt by a ballooning surplus of aluminum, which has caused prices to sink and deepened the industry's worst crisis in years.
At the same time, the company has bet on growth from higher-margin titanium and high-strength aluminum sales to the aerospace industry, citing a growing order book for airplane production and renewed global spending on automobiles. Airplane manufacturers have turned to lightweight titanium from aluminum and automakers to new, strong aluminum alloys instead of high-strength steel to improve performance and fuel efficiency.
Efforts by the world's third-largest producer of aluminum to address these diverging trends resulted in conflicting messages for investors, according to sources close to the company.
The split is expected to take place in the first half of 2016 and the legacy aluminum firm will retain the name Alcoa, the company said. Chief Executive Officer Klaus Kleinfeld will become CEO of the new, unnamed entity and will remain chairman of Alcoa throughout the transition period.
The company did not provide a timeline for choosing a CEO for Alcoa after the split. The division of the company does not need to be approved by shareholders, sources familiar with the matter said.
The legacy business had revenue of $13.2 billion in the 12 months ended June 30 and EBITDA of $2.8 billion, with 64 facilities and around 17,000 workers.
The new firm created by the split had revenue for the same period of $14.5 billion, with EBITDA of $2.2 billion, 43,000 workers and 157 facilities. Through a series of acquisitions, the company says it is well positioned to take advantage of growing aerospace and automotive markets in the years to come.
About 40 percent of the revenue for the new "value-added" business came from the aerospace sector – a key area targeted for growth - for that period.
While Alcoa has tried to figure out what to do with its legacy business, including selling off some of its more traditional and costly smelting facilities, it has also been investing heavily in acquisitions to bolster its aerospace and automotive operations.
Recent purchases include aerospace and defense industry-focused titanium supplier, RTI International Metals Inc, for $1.3 billion and privately-held TITAL, which makes titanium and aluminum structural castings for aircraft engines and airframes.
Falling aluminum prices led to Alcoa missing second-quarter earnings estimates and, year to date, the company's stock is down more than 42 percent. Some analysts have suggested that a split would benefit the company's aerospace and automotive business and could lead to a takeover of its traditional aluminum business.
NEW ALLOY FOR CAR MAKERS
The company has also been working to improve its own in-house technology. Last December, Alcoa unveiled a process it calls Micromill to produce high-strength aluminum alloy, targeting automakers who are seeking an alternative to heavier steel.
Micromill-made aluminum goes from molten metal to cooled, coiled metal in 20 minutes versus the 20 days it takes to roll conventional aluminum. It is 30 percent stronger than regular aluminum, and far easier to shape into more intricate forms, including inside panels for car doors or fenders.
In mid-September Alcoa announced a deal with Ford Motor Co F.N to provide multiple components for the 2016 model F-150 pickup, the best-selling U.S. vehicle since 1982, using Micromill. Alcoa has said it is in talks with eight other automakers on using Micromill technology, but has not disclosed names.
Meanwhile, a 25 percent drop in aluminum prices since last September has pushed benchmark London Metal Exchange prices to six-year lows. An unprecedented plunge this year in premiums –surcharges paid for physical delivery - to their lowest in 3-1/2 years have posed the biggest threat to producers' margins since the 2008 financial crisis.
As a result, more than 10 percent of smelting capacity outside of China, or 3.5 million tons of production, is running in the red. Alcoa Inc has closed or curtailed 170,000 tons of annual output this year as part of a review of 500,000 tons of smelting capacity announced in March.