>>> Coca-Cola is next target of Anheuser-Busch InBev’s Lemann

Coca-Cola is next target of Anheuser-Busch InBev’s Lemann - report (translated)

Atlanta-based Coca-Cola (NYSE: KO), the world’s largest soft drinks bottler, is the next target of Brazilian billionaire Jorge Paulo Lemann, who controls Belgium-based Anheuser-Busch InBev after the acquisition of SABMiller, IstoE Dinheiro reported in its cover story this weekend. The Sao Paulo-based Portuguese-language business weekly reported that Coca-Cola is the next target of Lemann, without giving a source.

"We would adore to acquire Coca-Cola," Lemann has told close friends, IstoE Dinheiro reported without identifying the people who supposedly cited the investor. Lemann said he could manage Coca-Cola with only 200 people though Coke now has more than 500 executives only in its headquarters in Atlanta, the Portuguese-language business magazine reported, citing the unidentified friends of Lemann.

Lemann is a little closer to his biggest dream of acquiring Coca-Cola after Anheuser-Busch InBev reached an agreement to buy SABMiller, IstoE Dinheiro reported. Anheuser-Busch InBev agreed to pay USD 104.2bn for SABMiller, or a total of USD 122bn including assumed debt, according to the report, which had no statement from Lemann, who maintains a home in Switzerland.

Anheuser-Busch InBev, the world’s largest brewery, controls Cia. de Bebidas das Americas (Bovespa: AMBV3), or AmBev, which has more than two-third’s of the Brazilian beer market, as reported.

Lemann, with his Brazilian partners Marcel Telles and Carlos Alberto Sicupira, through the investment fund 3G Capital Partners, is making acquisitions of global dimensions, regardless of the economic scenario, according to IstoE Dinheiro.

3G Capital Partners converts crises into opportunities, said Andrew Flint, a consultant at Swiss investment bank UBS in New York, IstoE Dinheiro reported. 3G Capital Partners controls Anheuser-Busch InBev.

This publication earlier has reported that Lemann may wish to bid for Coke, though the cover story report in IstoE Dinheiro this weekend may be the most extensive and emphatic report on the possibility.

IstoE Dinheiro

WSJ : EDF Could Announce Hinkley Point Nuclear Decision Soon, Says CEO

EDF Could Announce Hinkley Point Nuclear Decision Soon, Says CEO http://on.wsj.com/1Xd4XlK
Nuclear reactor would represent first in U.K. in over a generation

PARIS— Electricite de France SA may announce in the coming days an agreement with its Chinese partners to build two nuclear reactors in the U.K., the first in the country in over a generation, the French utility’s chief executive said Sunday.

The U.K. authorities have granted EDF and its partners, China General Nuclear Corp. and China National Nuclear Corp., a license to build two nuclear reactors worth £16 billion ($24.7 billion) in Hinkley Point, southern England. EDF still had to make a final investment decision for the project to proceed. The company had initially said it expected to make the decision by late 2012.

“If everything goes well, we may announce a major event, the first construction of a nuclear power plant in Europe since Fukushima,” EDF Chief Executive Jean-Bernard Levy said in an interview with French radio Europe1. The decision may be made public as soon as Tuesday or Wednesday, when Chinese President Xi Jinping is due to visit the U.K., Mr. Levy said.

Such a decision would represent a big boost for the nuclear industry, which has seen its ambitions in Western Europe crimped by high costs and safety concerns after the Fukushima nuclear disaster in Japan in 2011.

The U.K. government guaranteed EDF and its Chinese partners an electricity price of £92.50 a megawatt hour, around twice the current wholesale power price, for 35 years for the first reactor when it is up and running.

Advertisement

That means that if the wholesale price is below £92.50, EDF will receive the difference.

Hinkley Point has already been delayed a number of times since the development was first proposed. The company said it aimed to generate electricity from the new plant by the end of 2017. Meanwhile, construction costs have risen and natural gas and electricity prices have weakened.

(Barron's) Love Ferrari, Buy Fiat Chrysler

Love Ferrari, Buy Fiat Chrysler
One of the best ways to play the soon-to-be spun off sports-car maker is to buy shares in parent Fiat. And that means you can ride the global auto maker’s stock as well.

If you went car shopping for a Ferrari and came home with a Chrysler, you might feel cheated. But as far as the shares are concerned, buying Fiat Chrysler Automobiles is a pretty solid substitute for the Italian sports-car maker.

Fiat Chrysler (ticker: FCA.Italy and FCAU on Nasdaq), which is spinning off most of Ferrari to its shareholders, is the best way for investors to get exposure to the iconic car maker. With only a small portion of shares up for grabs and demand reportedly outstripping supply by 10-fold, in the near term it may be the only way.

FCA’s shares have run up 46% in 2015, but still are reasonably priced. In fact, FCA could more than double from its current level by the end of 2016.

While Ferrari produces thoroughbred vehicles, FCA is a less glamorous but efficient work horse. For now, Ferrari will hog the headlines. Shares in the auto maker, the most successful in the history of Formula 1 motor racing, are expected to begin trading in New York Oct. 21 under the symbol RACE.

FCA owns 90% of Ferrari, while Piero Ferrari, son of the late founder, Enzo Ferrari, owns 10%. FCA plans to sell up to 10% of Ferrari in the initial public offering, with the rest distributed to FCA shareholders at the start of 2016. FCA is offering 9% of Ferrari, or 17,175,000 shares, and underwriters could buy another 1%. At the top end of the expected $48 to $52 price range, the listing would raise close to $1 billion, valuing Ferrari at $9.8 billion. That is some $3 billion more than Morningstar’s sum-of-the-parts calculation and would add another five to six euros ($5.68 to $6.82) to its fair value estimate of €20 for FCA.

FCA closed in Milan Friday at €14.27, or 10 times projected 2016 earnings.

Ferrari is more a luxury-goods company than a car maker. Its products are in short supply—it sold 7,225 cars last year—with customers waiting up to two years for some models; the appreciation for limited-edition Ferraris has outperformed the S&P 500; and the business is recession-proof, with sales accelerating throughout the financial crisis.

Last year, Ferrari had earnings before interest and taxes of €389 million on €2.76 billion in revenue. Output is tightly controlled, but the company is cranking up production, targeting 9,000 deliveries annually by 2019—a level that would preserve exclusivity, while probably boosting earnings before interest and taxes to about $1 billion.

Ferrari’s shares could double over the next four years, and FCA would benefit greatly, too. Its €8 billion net industrial debt could shrink by at least €1.6 billion following the Ferrari spinoff. In the second quarter of 2015, Fiat Chrysler’s profit margins in the North American Free Trade Agreement region jumped to 7.7% from 4.9% a year earlier. That should give investors more faith in FCA’s five-year business plan, which includes making inroads in the premium sector with Maserati and Alfa Romeo, and turning Jeep into a global brand.

Fiat Chrysler sales are projected at €116 billion in 2016 and €110 billion in 2015, versus €96 billion last year. Earnings per share are forecast to rise to €1.38 this year and €1.88 in 2016, up from €0.89 last year.

Steven Wood, founder of GreenWood Investors, is a longtime FCA shareholder. Excluding Ferrari, he estimates FCA’s fair value at the end of next year at over €30 a share. “FCA remains quality misunderstood,” he observes.

WSJ : Diebold in Talks to Buy German ATM Maker Wincor for Nearly $2 Billion

Diebold in Talks to Buy German ATM Maker Wincor for Nearly $2 Billion
Deal could enable increased investments into digital services

FRANKFURT—U.S. automated teller machine maker Diebold Inc. is in talks to buy Wincor Nixdorf AG in a deal that would value the German company at more than €1.7 billion ($1.9 billion), Wincor said Saturday.

Diebold and Wincor—the industry’s No. 2 and No. 3 companies by revenue, respectively—entered into a nonbinding agreement on the key parameters of a cash-and-share deal valuing Wincor at €52.50 a share on Sept. 24, the German company said.

Such a deal would enable both companies to sharpen their focus on the growing digital-payments segment and move away from ATMs, for which prices are declining. By joining forces, they could boost investment into the development of software and IT services, which is costly.

A deal would also boost Diebold’s European presence, having previously concentrated on North America.

Diebold, led by former Hewlett-Packard Co. executive Andy W. Mattes, is in the midst of a cost-cutting drive, with revenue having stagnated over the past eight years. It is aiming to cut annual costs by $200 million, while investing $100 million into electronic security, software and IT services through 2017.

Advertisement

Wincor is in a similar position. After issuing a profit warning in April, the company said it would cut its ATM-making capacity amid declining revenue, while boosting revenue from its software and IT services activities, which currently account for 59% of sales.

“The trend towards digitization embraced by both banks and retailers has added to the momentum of change, with software and high-end service solutions playing a prominent role and opening up opportunities for growth at Wincor Nixdorf,” Wincor Chief Executive Eckard Heidloff said in April.

The rise of mobile payments has raised questions over the future of cash usage and the ATM-making industry. “The market seems to be afraid of structural challenges from cashless payments,” UBS analyst Sven Weier said earlier this month.

Nevertheless, Diebold said recently that it expects cash usage to continue to grow 3% a year through 2020.

Mr. Weier even sees a silver lining on the horizon for Wincor, referring to “pent-up demand in Western European banking, as the installed ATM base is over 10 years old, [coinciding] with the need to spend on branch transformation,” he wrote. He added that demand for Wincor’s checkout machines for retailers, a very sluggish business recently, may rise as UBS expects European retailers to increase investments in the near term.

Such a transaction is still subject to material conditions and analyses, in particular the completion of mutual due diligences, Wincor said.

Credit Suisse and J.P. Morgan are advising Diebold, while Goldman Sachs is advising Wincor.

FT : Hedge fund performance fees decline sharply

Hedge fund performance fees decline sharply

The income hedge funds receive from performance fees has fallen drastically this year, dropping more in the first half of 2015 than in the previous seven years combined.
The fear is the drop in performance fees, coupled with weak returns across the hedge fund industry, could force both new and established funds into closure.

According to Eurekahedge, the data provider, new hedge funds are charging average performance fees of 14.7 per cent, a sharp drop on the 17.1 per cent typically charged in 2014.
Several high-profile hedge funds, including Fortress’s $2bn macro fund and Renaissance Technology’s $1bn computer-driven fund, have already been wound down this year after delivering poor returns to investors.
Jean Keller, chief executive of Argos, the Swiss hedge fund company, said: “The firms that cannot generate returns and demonstrate true investment talent will disappear. The fact that, overall, the industry has not delivered this year and more generally since 2008 will be an enormous challenge.”
Preqin, the data provider, last week predicted this would be the worst year for performance across the hedge fund industry since 2011 as managers struggle to respond to uncertainty over Chinese monetary policy and US interest rate rises.
Mohammad Hassan, senior analyst at Eurekahedge, said: “With increasing competition in the industry, regulatory costs and the current market uncertainty, lower fees could lead to an early demise for otherwise good hedge fund investment models.
“If things deteriorate then you could see closures spike over the next year. Smaller funds will be more at risk, given their business model places a larger reliance on performance fees.”
The drop in performance fees has been sharpest among the popular long/short equity category of hedge funds, according Eurekahedge.
The data provider added that the emergence of mainstream funds offering hedge fund-like strategies has contributed to the decline in performance fees, which have hovered between 17 and 18 per cent since 2009, after falling from 18.8 per cent in 2007.
Troy Gayeski, a partner at SkyBridge, the US fund of hedge funds company, expects more fee reductions in light of weak returns across the industry this year.
“2011 was the watershed year when high-quality managers in attractive strategies began to offer meaningful fee discounts. The trend to lower fees has been firmly in place since then, but this year’s performance will further accelerate that trend,” he said.
Fixed management fees have climbed over the past four years, from 1.6 per cent in 2011 to 1.7 per cent today, but that only matches the average management fee level in 2007.
David Walker, director of European institutional research at Cerulli Associates, the research firm, agreed that smaller hedge funds are particularly at risk.
He said: “A 2.5 per cent average loss by mid-October means many managers will be relying on their [management] fee to finance their operations and pay their staff. This will be painful for smaller hedge funds whose assets alone struggle to generate significant fees.”
However, Michaël Malquarti, co-fund manager at Altin, the Anglo-Swiss fund of hedge funds company, welcomed the reduction in fees. “Launching a hedge fund is always a risky business and will always remain so. It might just be a bit tougher to get rich very quickly, which is not a bad thing.”

FT : China third-quarter GDP: 5 things to watch (tomorrow Morning )


China’s slowing growth is denting commodity prices and roiling global economies and companies alike. Monday will offer a fresh look at just how sharp the slowdown is when the country releases third-quarter GDP data. Here are five things to watch:
Grounds for more stimulus
Premier Li Keqiang is targeting real gross domestic product growth this year of “around 7 per cent”, following actual growth of 7.3 per cent last year. Growth in the first two quarters matched the government target exactly, at least according to its own data. But economists expect the rate to dip to 6.7 per cent in the third quarter, which would be the slowest since the depths of the financial crisis. The spokesman for China’s statistics bureau said last month he believed growth as low as 6.5 per cent would still be considered within the target range. Nevertheless, if it falls below 6.7 per cent, calls for more aggressive stimulus will intensify.
GDP deflator
The GDP deflator converts nominal GDP to real GDP by stripping out inflation. Economists have long suspected that China's statistics bureau manipulates it to window-dress the closely watched and politically sensitive headline growth figure. Understating inflation serves to make real growth appear faster than it actually is. The deflator was negative in the first quarter at -0.33, implying the economy was in outright deflation but renewing doubts about its accuracy. It rose back to positive territory at 0.09 in the second quarter. Another negative reading in the third quarter would again raise questions about whether the deflator is being used to “smooth” the appearance of volatility.
Services
As China’s traditional growth engines of manufacturing and construction slow, services have emerged as the new driver. Services grew 12.1 per cent in nominal terms in the second quarter, well above 7.1 per cent nominal growth for the economy as a whole. The government is actively encouraging this transition. But services growth has been boosted by one-off factors, notably the stock market boom early this year in which securities brokerages raked in huge trading commissions. With the stock market collapse in the third quarter, growth in financial services almost certainly slowed. Analysts will be watching to see if other emerging service sectors such as healthcare, tourism and media can take up the slack.
Infrastructure
Fixed-asset investment remains the backbone of China’s economy, accounting for 44 per cent of overall output in 2014. It also drives global demand for commodities such as steel and base metals. But with the property market still mired in oversupply, investment in housing continues to contract. The government has tried to fill the gap this year by boosting spending on infrastructure such as railways and water treatment. Infrastructure investment grew at a rate of 18.4 per cent a year during the first eight months. September data will reveal how aggressively the government is pursuing stimulus through infrastructure.
Addressing data doubts
At July’s GDP data release, the spokesman for China’s National Bureau of Statistics took the unusual step of publicly addressing scepticism about China’s official numbers — specifically the deflator issue. That was followed by a column in the official People’s Daily newspaper offering a somewhat more detailed defence of the bureau’s methodology. Whether the NBS again speaks to critics at its quarterly press conference will reveal how sensitive it is about widespread scepticism.

FT : Sinosteel bond investors hope for bailout as default looms

Sinosteel bond investors hope for bailout as default looms

A major Chinese state-owned miner and steel trader is poised to default on its bonds this week, the latest test of whether Beijing is willing to impose market discipline on national champion companies.
As China’s economy heads for its slowest growth in a quarter of a century, defaults are rising, especially in industries afflicted by excess capacity and falling commodity prices.

China last month announced a plan to raise efficiency at state groups, which dominate backbone sectors of the economy such as energy, telecommunications and heavy industry but lag behind privately owned rivals in profitability. But the plan focuses mainly on strengthening SOEs rather than shuttering or privatising those that underperform.
Sinosteel, one of an elite club of 112 state groups directly owned by the central government, sent a letter to investors last week warning that its subsidiary lacked the funds to repay principal and interest on Rmb2bn ($315m) in bonds sold in 2010 due on Tuesday.
“The company’s business has stagnated and cash flow has dried up at headquarters and a portion of subsidiary enterprises,” said the letter, a copy of which circulated on social media on Friday.
Sinosteel was not available for comment. A person who answered the phone at Sinosteel refused to transfer calls to the company’s media relations department.
Sinosteel imports iron ore for many of the country’s steel mills. It originated as a simple trading company but expanded aggressively in recent years, buying into both domestic steel mills and mining projects from Africa to Australia. Falling prices for steel and iron ore amid a slowdown in Chinese construction activity has hurt business.
China’s leadership is reluctant to tolerate public defaults due to fears about financial instability. Sinosteel investors are hoping that the government or another state entity will step in with a last-minute bailout. Last month state-owned heavy machinery producer China National Erzhong Group narrowly averted default when its parent company said it would buy outstanding bonds from investors.
“The company has lost debt repayment ability. It can only rely on external support,” Jiang Chao, Haitong Securities bond analyst, wrote last week.
While bailouts prevent short-term instability, analysts warn that they promote moral hazard and misallocation of capital. Investors who believe that the government will not permit defaults have less incentive to examine company fundamentals when choosing bonds.
Chaori Solar became China’s first domestic bond default in March 2014 when it missed a Rmb90m interest payment. But later that year Chaori bondholders were bailed out when a state-owned bad-loan bank, Great Wall Asset Management, stepped in.
In April, Baoding Tianwei Group, which makes power transformers, defaulted on Rmb86m in bond interest, becoming the first state-owned company to default when it missed a Rmb86m interest payment. But local media reported days later that China Construction Bank, which underwrote Tianwei’s bonds, had provided a loan to allow bondholders to be repaid.

FT : Will the US ever raise interest rates again? http://on.ft.com/1Xd3N9O

Will the US ever raise interest rates again? http://on.ft.com/1Xd3N9O
Or, perhaps a more sensible question, will this be the first economic cycle — recovery followed by recession — in modern times where the US does not increase rates?

These may seem like odd questions, given the large number of leading strategists forecasting a rise in December.
But with a stream of disappointing data and the slowing Chinese economy hanging over markets, the Federal Reserve could hold fire at the end of the year as they did in September because of persisting worries over global growth and confidence.
In such a situation, the danger increases that the Fed waits too long and runs out of time to raise rates as economic recovery turns into recession, when monetary tightening would be out of the question and loosening through another round of quantitative easing would be back on the agenda instead.
At that point, the world economy would be on the precipice of disaster as the US, which has not raised rates for a decade, looks sure to follow Japan, where rates have not increased for more than two decades, down the road towards deflation and stagnation.
So, how seriously should we take this “nightmare” scenario?
First, it is an extreme or worst-case scenario and far from the most likely. But it is a possibility as markets keep pushing back rate rise expectations. They are now pricing them in for June. What the markets think matters because this is where the money is riding. A forecast is free, a market position is not.
Second, economic data has disappointed, not just in the US but in the UK too, the other industrialised economy where rate-rise expectations have been pushed back.
An activity heat map created by John Wraith, rates strategist at UBS, the bank, has turned decidedly cool. Purchasing manager surveys, manufacturing numbers and employment data have all come in lower than expectations in recent weeks.
Some key statistics, such as US non-farm payrolls, are more than one standard deviation below 12-month moving averages. In layman’s terms, this means they are significantly lower than where the Fed would like them to be before tightening policy.
Third, fund manager surveys show investors pushing back expectations of rate rises as worries over recession increase. This month’s Bank of America Merrill Lynch survey reported that 47 per cent of investors think the Fed will raise rates in 2015, down from 58 per cent in September, when fund managers warned of looming recession. A Citigroup report said a global recession in 2016 had become the most likely scenario.
Fourth, some of the most accurate forecasters in the bond markets are implicitly pointing to US rates remaining near to zero next year. Steven Major, global head of fixed income research at HSBC, the bank, expects US Treasury 10-year yields to end 2016 at 1.5 per cent, half a percentage point lower than today.
Mr Major has a strong record. He was one of the few strategists to correctly predict that US 10-year Treasuries would end 2014 at 2.1 per cent, when a large number of analysts were forecasting levels above 3 per cent.
If Mr Major is correct again, it suggests the next rate rise may not be until at least 2017 when the US recovery, assuming it lasts that long, will be in its seventh year. Data back to 1850 shows that a recovery rarely lasts longer than seven years.
Of course, data could strengthen to make a December rate rise more likely. Even without an improving backdrop, the Fed could still opt to tighten. Significantly, the house view of both UBS and HSBC is for a December rate increase.
But investors should prepare for the worst, however unlikely that may be. With billions of dollars in the markets riding on the decisions of the Fed, it would be foolish not to.

FT : Economists still see Fed rate rise before year end http://on.ft.com/1Xd3uM

Economists still see Fed rate rise before year end http://on.ft.com/1Xd3uMd

A splintering of opinion at the top of the Federal Reserve has left Wall Street deeply divided, with nearly two-thirds of economists expecting the US central bank to lift rates before year end while investors and traders broadly write off the prospect, according to a Financial Times survey.
Despite a tempering in the US labour market and lacklustre economic figures reported through the first weeks of October, 65 per cent of the 46 economists polled by the FT said the central bank would increase the federal funds rate at its December meeting.

The view is in stark contrast to market expectations, which have downplayed the chance of tighter monetary policy before next year, and to recent comments from top officials at the US central bank who have cautioned against prematurely tightening monetary policy.
More than half of the economists surveyed said the Fed risked a policy mistake this year, although they split on whether the error was lifting rates too soon or too late. Several argued that weakening economic data — including disappointing retail sales, industrial production and regional manufacturing reports — and muted inflation underscored the need for the Fed to wait.
“The Fed always risks a policy error no matter what it does or doesn’t do,” Scott Brown, an economist with Raymond James, said. “However, the risks here aren’t symmetric. That is, if it hikes prematurely, if would be harder to correct course.”
None of the economists surveyed by the FT said they expected the Fed to lift rates following its next meeting on October 28, a conference not currently accompanied by a press briefing. More than 85 per cent said that the central bank will have lifted rates twice by the time it concludes its June meeting next year.
Division at the central bank has unnerved markets, and more than a dozen economists said communication was either “moderately” or “very unclear”.
Trigger-shy Fed policymakers confounded markets and flamed volatility in September, after opting to keep rates near the lowest level since the financial crisis. Many investors said the decision to wait underlined fears the global economy was slowing.

Ahead of the September decision, more than nine-in-10 economists surveyed by the FT expected the central bank would have shifted policy off its current near zero interest rate by the end of the year.
Top Fed officials have since conceded that the strength of the dollar and gyrations in financial markets have acted as the equivalent of a rate rise, warning that a further tightening by the central bank could hinder the US recovery


Sliding commodity prices, pressured by lacklustre conditions in China and across the emerging world, have also undermined confidence that inflation will return to the Fed’s stated target of 2 per cent.
Interest rate futures have broadly priced out the possibility of a rate rise before 2016, with odds first tipping above 50 per cent for the central bank’s March meeting, according to federal funds futures analysed by CME Group.
Thomas Costerg, an economist with Standard Chartered, warned that the window for the Fed to lift rates was drawing to a close as growth trends decelerated and an election approaches in 2016.
“December is the last window of opportunity to raise rates,” he said. “The Fed has to go now.”