TheChek News Flow

*VOLKSWAGEN CO2 EMISSIONS PROBE AFFECTS 40,000 CARS, FAZ SAYS

*VW ORIGINALLY ESTIMATED 800,000 CARS WITH INACCURATE CO2 DATA

We expect earnings to surprise on the upside in 2016 driven in large by

operating leverage and margin expansion. In this report we look at the key

drivers of this margin pick-up and some of the key beneficiaries from it.

Driver 1 – labour costs at historical lows could boost margins

Driver 2 – the fiscal drag becomes a fiscal push in 2016

Driver 3 – low producer prices point to margin expansion

--> On the sector level Construction, Autos, Transport could benefit

A Dow/DD merger would have three implications for the European names 1) For Syngenta a Dow/DD tie-up is a good thing as some investors feared Syngenta might actually try and buy the DuPont ag business. This merge would put pressure on Monsanto so to us the most likely outcome is now a revised offer from Monsanto for Syngenta. 2) For the large European names this is now time to be looking at big US deals as the US chemicals industry is heavily up for sale due to the pressure from activists. BASF would be well placed to buy assets from a Dow/DuPont tie-up as could other names (e.g Evonik). Our analysis in the sector suggests that share prices of acquiring companies tend to go up post acquisition announcements (not down) for the 180 day period following announcements. 3) In gases we see incremental pressure on Air Products and remain of the view that a break-up of this name could occur mid-term with Linde the most logical name to be involved. 4) In Europe the attention will inevitably turn to who could be taken-out now M&A is firmly back on the agenda and aside from Syngenta we would flag JMAT, Symrise, Clariant and Croda as the more vulnerable names in this space.

RTRS - Adidas CEO says to stay until end of contract in 2017

supported by a solid operational outlook. Whilst investors are focused on

the top-down risk to Consumer Staples from sector rotation out of defensive

sectors in anticipation of rising interest rates, we adopt a bottom-up

perspective and see a relatively solid outlook in the coming 12 months.

Three debates that we think will drive relative stock performance in 2016 are:

1. Can organic growth in Food/HPC improve in 2016? We believe the

market is underestimating the potential for improved top-line growth with

Emerging Markets stabilizing, ongoing investment in growth, partlymoderating

competitive pressure and easing comps.

2. Can ‘Self Help’ become a key earnings driver in 2016? We expect

intensified focus on efficiency gains, portfolio changes and M&A to drive

earnings, whereas consensus estimates seem to reflect caution. In particular,

we think margins could surprise on the upside.

3. Can current high multiples be sustained? A key concern in the market is

that with the average EU Food/HPC rel. P/E sitting on a lofty ~50% premium

vs. MSCI Europe (albeit in line with long-term multiples) having outperformed

~20% in 2015 (driven by HPC), the likely imminent increase in interest rates by

the US Fed raises the prospect of a sector rotation out of defensive stocks

affecting staples' valuations. We acknowledge this as a risk for 2016, but see

solid operational performance as supportive (e.g. in contrast to other sectors,

we saw no profit warnings in the recent 3Q results; indeed, most reported

better-than-expected results with some (e.g. Reckitt) even raising guidance).

and Beiersdorf in HPC. Our top picks are those with the most scope for 'Self

Help' to drive margins and to reinvest to support top-line growth. We also

believe the EU Food and HPC stocks will benefit from improving DM,

stabilizing EM and mix improvement, and again see Danone & Nestle in Food

and Reckitt & Beiersdorf in HPC as preferred stocks to play this improving

EM/top-line inflection theme.

According to the filing, Niel holds additional options that can only be settled in cash. Those amount to a potential stake of around 5 percent, according to Reuters calculations.

According to a source close to the matter, the filing details the options Niel already disclosed to the Italian market regulator in October and November and does not point to any additional stake building on his behalf.

Niel, founder of low-cost French telecoms group Iliad , in October emerged as a potential leading investor in Telecom Italia when regulatory filings in Italy disclosed he held positions relating to 15.14 percent of Telecom Italia's share capital.

That placed him immediately behind top shareholder Vivendi , the French media group that owns just over 20 percent of Telecom Italia.

Niel's sudden investment in Telecom Italia led to an inquiry by Italian market regulator Consob as to whether the businessman and Vivendi were acting in concert, which both sides denied.

In Tuesday's filing to the SEC, Niel details various option agreements that his holding company NJJ entered via its Rock Investment unit with either Societe Generale or Credit Suisse.

These option agreements are all of the European type and have various expiration dates between June 2016 and November 2017.

PARIS—French telecommunication companies are reviving efforts to reduce the number of mobile-phone businesses at home and expand abroad as they try to restart a wave of deal-making across Europe.

Orange SA is weighing multiple acquisition targets in France and in Europe, to build scale so the former French monopoly doesn’t itself become a target in the future, according to people familiar with the matter, who added that the exploration is still preliminary and no deal is imminent.

The potential options Orange’s advisers have proposed include Dutch company Royal KPN NV and Belgium’s Proximus Group, according to a person familiar with the deliberations. Orange is also considering deal options with the telecom unit of French industrial firm Bouygues SA or Telecom Italia SpA, the person added.

Orange wants to “swallow rather than be swallowed,” said another person close to the company.

Iliad SA, the low-cost upstart that kicked off a price war in France when it became the country’s fourth mobile operator in 2012 and slashed prices, is also looking to buy assets outside France, people familiar with the matter said. Iliad counts some 17 million fixed and mobile subscribers in France and is eager to build scale by putting its model and management team to work in another market, one of these people said.

Bloomberg earlier reported that Orange was exploring potential deals with Bouygues and Telecom Italia.

The hunt for scale comes as telecom consolidation in Europe has stalled in recent months. Still, investors’ continue to push companies to combine in the face of competition. Fast consumer adoption of communications apps and social media have made telecom executives seek size in what some frame as a race with Silicon Valley.

Telecom operators in Europe had been on a deals blitz over the past two years, with companies in the U.K., Italy, Germany and elsewhere looking to merge to share the burden of costs as revenues slide.

In France specifically, telecom executives have for two years sought to shrink the number of mobile operators, amid falling revenues caused by intense competition.

Feeling the pressure, executives like Orange CEO Stéphane Richard say the number of mobile operators must return to three from four to make their businesses profitable enough to create an incentive for investment. Orange has in recent years struggled to grow earnings and revenue in France, its biggest market, and a deal would lead to substantial cost savings, analysts say.

It isn’t the first time Bouygues’s telecom unit has been coveted by a rival since its parent company, controlled by industrialist Martin Bouygues, failed in a 2014 bid to buy France’s No. 2 mobile company by subscribers, SFR.

Bouygues held talks with both Orange and Iliad about a potential sale in the first half of 2014, but ultimately failed to agree on price. In June, it rejected a bid of €10 billion ($10.8 billion)—valuing the company at roughly twice of most estimates—from larger peer Altice SA, citing execution risk and confidence in its stand-alone strategy.

Since then, Bouygues Telecom has reported improving financial performance. In the third quarter, the telecoms division added 94,000 fixed-line phone customers and 208,000 mobile customers.

For Mr. Bouygues, who started the business some 21 years ago, the telecoms arm has a clear sentimental value, people close to him have said. This could make a deal with Orange more likely: if funded by shares, Mr. Bouygues could retain a healthy stake in Orange, and keep his hand in the industry.

Speculation about a deal involving one of the French operators has resurfaced since France completed the auction of six blocks of 700 MHz frequencies in November, raising €2.8 billion.

A potential stumbling block is the increasingly tough stance taken by the European Union on telecommunications mergers. It is also unclear whether the French antitrust watchdog would bless a reduction in the number of French operators.

“The regulatory hurdle for this type of deal would be severe, and include not only the sale of spectrum and towers, but also subscribers,” said San Dhillon, an analyst at RBC Capital Markets.

Alors que les rumeurs de rapprochement entre Orange et Bouygues agitent les marchés , les affaires continuent, notamment sur le terrain juridique. Bouygues Telecom vient d’envoyer une lettre au Premier ministre, Manuel Valls, dans laquelle il demande à être indemnisé par l’Etat à hauteur de 2,285 milliards d’euros.

Un montant considérable qui correspond, selon la filiale du groupe de BTP, au préjudice financier subi depuis l’arrivée de Free dans le mobile, début 2012, et la possibilité offerte à l’opérateur de louer le réseau d’Orange via un contrat d’itinérance en 2G et 3G, qui court jusqu’en janvier 2018.

Dans cette missive datée du 4 décembre, dont « Les Echos » ont pu consulter une copie, Bouygues Telecom justifie sa demande en dénonçant « l’illégalité commise ab initio par l’Arcep [le régulateur des télécoms, Ndlr], consistant à ne pas avoir encadré les conditions de mise en œuvre et d’extinction d’itinérance au jour même de son adoption ».

Pour l’opérateur, cette illégalité a été reconnue par le Conseil d’Etat qui, le 9 octobre, avait reproché au régulateur de s’être déclaré incompétent pour examiner le contrat d’itinérance entre Free et Orange . « L’Arcep a méconnu l’étendue de ses pouvoirs » et « commis une erreur de droit », avait-il considéré, répondant favorablement à une plainte de Bouygues.

Celui-ci plaide depuis plus de deux ans pour un encadrement plus strict de l’accord entre Free et Orange, avec la définition d’un calendrier d’extinction par plaques géographiques de l’itinérance, comme le recommandait l’Autorité de la concurrence dès mars 2013.

« En s’abstenant illégalement d’encadrer cette itinérance nationale [...], l’Arcep a permis le développement d’une situation concurrentielle gravement déséquilibrée au profit de Free Mobile et au détriment, principalement, de Bouygues Telecom », est-il écrit dans la lettre, signée par son pdg, Olivier Roussat.

L’opérateur a listé sept préjudices qui permettent d’arriver à ce total de 2,285 milliards d’euros. Le plus important porte sur les pertes de revenus et de marge subies depuis l’arrivée de Free Mobile, évaluées à 1,166 milliard. Ce à quoi il faut ajouter 527 millions pour la période allant au-delà de 2015.

Lire aussi :

> Orange s’intéresserait à TF1 et Bouygues Telecom, Bouygues dément

« L’entrée excessivement agressive de Free sur le marché »

L’opérateur estime en effet qu’« avec  un encadrement normal de l’itinérance », Free n’aurait pas pu pratiquer des prix aussi bas et les revenus de Bougues Telecom, qui a dû baisser ses tarifs pour s’adapter, auraient été plus élevés. Il estime aussi avoir subi une perte « anormale » de clients durant la période 2012-2015, à cause des prix bas de Free, évaluée à 206 millions.

Autre préjudice important, celui lié aux plans sociaux menés par Bouygues Telecom, conséquence directe, selon l’opérateur, de « l’entrée excessivement agressive de Free sur le marché », toujours « rendue possible par l’absence d’encadrement d’itinérance ».

Coût estimé : 309 millions. Bouygues Telecom dénonce également, sur la période, « l’élévation des coûts d’acquisitipon » de clients (20 millions), « le préjudice financier » lié à l’augmentation du coût de la dette (33 millions) et enfin « l’atteinte à l’image de marque » (24 millions).

Lire aussi :

> Les enchères pour les fréquences 4G sont bel et bien terminées

Pas de réaction de Matignon

Matignon n’a pour l’instant pas réagi à la demande de Bouygues. « Difficile d’imaginer qu’ils répondent favorablement. C’est presque autant que l’argent récolté avec la vente des fréquences », remarque un bon connaisseur du secteur. En outre, l’Arcep est dotée depuis cet été de nouveaux pouvoirs lui permettant de statuer sur les accords de partage de réseaux.

Elle doit d’ailleurs publier des lignes directrices dans les prochaines semaines sur l’encadrement de ce type de contrats. Avec cette lettre, Bouygues Telecom met un peu plus la pression sur le régulateur. En cas de rejet, il pourrait porter l’affaire devant le Tribunal administratif. Interrogé, l’opérateur n’a pas souhaité commenter le contenu de cette lettre