>>> US Gapping Up

Gapping up
In reaction to strong earnings/guidance: N/A.

M&A news: NKA +207.6% (to be acquired by Brookfield Infrastructure (BIP) for ~$912 mln), SPF +2.9% (Standard Pacific and Ryland Group (RYL) announce merger of equals), RYL +1.2%

Other news: AXPW +56.7% (signs a binding Letter of Intent, for a technology development and licensing program with LCB International), RDHL +29.8% (meets primary endpoint in its Phase III Study of RHB-105 to treat H. pylori Infection), AMCN +14% (to sell 75% of the equity interest in its Advertising Business for RMB 2.1 bln), NURO +8.5% (announced the full commercial launch of Quell, the company's over-the-counter chronic pain relief device), BLRX +8.4% (positive safety and efficacy results for lead oncology candidate BL-8040), BLUE +5.9% (reports reports new data from HGB-205 study), PTBI +5.9% (adds another adeno-associated virus gene therapy program to its product pipeline), WEC +4% (discloses approval for its acquisition of Integrys Energy Group (TEG) by the Minnesota Public Utilities Commission), TRIV +3.9% (FDA has approved the Ovation iX Iliac Stent Graft for the Ovation Prime Abdominal Stent Graft System), ZGNX +3.1% (Zogenix and Valeant Pharma (VRX) terminate co-promotion agreement for Migranal ), MNKD +3% (cont strength from Friday), GALE+2.1% (Phase 2 pilot study demonstrated an Overall Response Rate of 78%), CTIC +2% (reports Tosedostat in combination with low dose Cytarabine achieves primary endpoint in Phase 2 Study), GERN +1.2% (confirms orphan designation for its imetelstat for the treatment of myelofibrosis), RLD +1.1% (Jurassic World in 3D accounted for ~48% of ~$204.6 mln in domestic opening weekend), KPTI +0.8% (positive clinical data for its lead product candidate)

Analyst comments: IDRA +5.9% (initiated with a Overweight at JP Morgan), SNSS +2.3% (target raised to $5.50 at ROTH Capital), PBI +1.2% (initiated with a Buy at Ladenburg Thalmann
)

(Reuters) Ericsson decides after review can still do without big merger deals

Ericsson decides after review can still do without big merger deals

Ericsson (ERICb.ST), the world's largest maker of mobile telecoms equipment, has decided following a management review that the business can expand without pursuing major acquisitions, its chief strategy officer said in an interview.

"We have a very strong focus on core development," Rima Qureshi told Reuters.

"We believe that the best approach, and the way we will go about it from a strategic perspective, is organic," she said.

Her comments are in line with the company's long-standing policy of pursuing internal growth rather than takeovers and throws cold water on recent market speculation that Ericsson had changed its stance to look more favorably on big merger deals.

The interview followed a meeting of the Swedish company's top 250 managers earlier in June to discuss the state of the industry at which they resolved to stick to Ericsson's strategy to continue to invest in existing business, she said.

The company will also continue to make relatively small bolt-on acquisitions to complement or fill gaps in its product offering or geographic footprint, she said. Ericsson lists five such acquisitions made last year in its annual report.

Investment analysts have suggested Ericsson could buy U.S. group Juniper (JNPR.N), to expand in Internet routing, or U.S.-based Ciena, (CIEN.N), to boost its position in optical networking. It has established sales partnerships with both companies.

They say Ericsson needs to pursue a major acquisition in order to compete following Nokia's (NOK1V.HE) planned purchase of Alcatel-Lucent (ALUA.PA) which creates a rival with broader product offerings and more research and development clout that will rank as Ericsson's nearest rival in mobile network equipment.

Asked whether Ericsson would consider buying Ciena or Juniper, Qureshi again said that the company's focus was not on doing big deals.

"We make decisions (which) are strategically correct for us, not as a reaction to what our competitors are doing. And our main focus is still organic growth," she replied.

Asked whether Ericsson had held talks with either party, she declined to comment, citing a policy of not discussing such matters.

Its mainstay mobile network equipment business, where Ericsson competes with not just Nokia and Alcatel but also Chinese vendors Huawei [HWT.UL] and ZTE (000063.SZ) has seen fierce competition and falling prices in recent years as smaller suppliers have either dropped out or been forced to merge.

"The targeted areas all have strong links to the areas that are core to the company, and high degree of services, software and recurrent revenues," she said, referring to the small, 'tuck-in' acquisitions it is likely to continue to pursue.

Qureshi said mergers among telecom equipment makers is only one of several factors to consider. Consolidation is taking place among mobile network and cable service operators, as well as suppliers of network management and billing systems.

"We have a strategic direction we believe in," she said, adding, "We are aligned in the areas that we want to grow."

>>> ABB M&A likely to focus on bolt-ons as attention turns to split, dividend

Deal Reporter

ABB M&A likely to focus on bolt-ons as attention turns to split, dividend 

• Robotics division seen as high priority for M&A to add to Gomtec buy
• De-merger rumours resurface after Cevian becomes second biggest owner
• Potential for dividend or buybacks increase – bankers, analysts


ABB [VTX:ABB] is likely to favour small, bolt-on transactions over large M&A in the near future as attention turns to a possible break up, bankers and analysts said. M&A activity could be led by the Robotics division of ABB’s automation arm as the company seeks to hold off competition, they said.

The entrance of Swedish shareholder Cevian is being watched for signs the activist could persuade the automation and power group to de-merge into two units focused on automation and energy transmission, or continue to raise its dividend, the bankers and analysts said.

Cevian has been active in influencing splits, sales and disposal processes of the large corporates it invests in rather than large acquisitions, with ABB unlikely to be an exception, a banker following the situation said. This indicates ABB’s relatively humble acquisition programme is not likely to change, he said.

Cevian became ABB’s second largest shareholder when it notified it holds a 3.1% stake as of 27 May, behind Swedish investment firm Investor’s 9.3%. Cevian could feel ABB is fundamentally undervalued due to the drag of a conglomerate discount, the banker said. Cevian declined to comment.

Separating the units could be attractive to investors, but management has quashed similar rumours before, one of the analysts said. Rather, management could respond by pushing for ABB to continue raising its dividend and pursuing bolt-on M&A.

ABB can easily afford to continue its dividend policy while stepping up M&A, a second analyst suggested. Recent divestments have freed up cash, he noted. ABB reported USD 2.9bn free cash flow in FY14.

ABB has for some years been committed to an extensive share buy-back programme and communicated during its last financial results that it would raise its dividend again. ABB increased dividends from FY05 CHF 0.12 per share to FY14 CHF 0.72, giving a compound annual growth rate of 22%.

Shareholders do not seem to be putting pressure on ABB to engage in large-scale acquisitions, the analysts and a banker close to the company said. Importantly, there are few large strategic targets that would provide enough synergies to compensate for costs and risks, the analysts said.

Should ABB raise its low gearing from 0.3x EBITDA to 1x EBITDA or just above, it could free up about USD 5bn of cash towards acquisitions in the next twelve months, the analysts and banker close said. ABB's current gearing is low compared to listed peers like Atlas Copco [STO:ATCO] (0.5x) and Scheider Electric [EPA:SU] (1.3x), according Dealreporter analytics.

ABB is already present in the US, where the strong currency could mean any activity on that side of the Atlantic would be untimely, the first analyst said. Instead, small bolt-on acquisitions for certain divisions will allow ABB to gain their hands-on skills and niche products, the analysts said.

Recent acquisitions have included Dutch liquid flow measurement company Spirit IT in 2014, and French software company Newron in 2013. ABB’s most recent transaction was the purchase of German collaborative robotics company Gomtec. Transaction values were not disclosed.

ABB would likely have considered acquiring Masternaut, the European telematics company specialising in fleet and workforce management, a source familiar with Masternaut said. Masternaut was eventually acquired by Summit Partners and FleetCor Technologies [NYSE:FLT].

Robotics deemed high priority

ABB is likely to continue pushing the growth of its Robotics division within the automation unit of the group, the bankers and analysts said. Management is actively looking for value-added targets for Robotics, the banker close said, adding this is an area of “absolute priority” for ABB.

ABB acquired Gomtec in April. Similar acquisitions would be strategic to keep ahead of competition, the analysts said. The target universe is complex and made up of several small start-ups at which developments and intellectual property (IP) are in their infancy, the banker close said.

Gomtec complements ABB’s portfolio of human-robot collaborative automation technologies that already include YuMi, the world’s first truly collaborative dual-arm industrial robot designed to expand automation for small-parts assembly.

ABB formally introduced YuMi last month at the Hannover Messe in Germany. Gomtec develops mechatronic systems combining mechanical, electrical, telecommunications, control and computer engineering.

There are a number of potential targets in the space, especially if small VC-backed companies and IP in development can be considered, the banker close said. However, as ABB is keen to achieve economies of scale and roll out significant volume, smaller targets might not be cost effective, he explained.

The few recent transactions in the space have been valued at high multiples. These include Denmark's Universal Robotics being sold to Terrapin [NASDAQ:TRTL] for 5x revenue in May. The costs and risks of M&A generally still outweigh developing robotics in-house, one of the analysts suggested.

A well-integrated target could help ABB strengthen current customer relations and gain a stronger product platform, this analyst said. Companies with robotics that are similar to YuMi, but with different sensors that can perform different activities, would be advantageous for ABB, he said.

Universal Robotics would have made a good acquisition for ABB due to good product overlap, the analyst said. According to ABI Research, Universal Robotics is the market leader in collaborative robotics, holding 71% of the market.

There has also been perennial market speculation about ABB taking over German robotics company Kuka [ETR:KU2], a second banker following the situation and the analysts said. Strategically, Kuka would fit well into ABB, this banker said. However, Kuka’s ownership structure, valuation and potential regulatory issues could keep ABB at bay, the banker and the analysts said.

Despite certain synergies in products and development but from a cost-perspective, ABB might make more profit from selling its components to Kuka rather than owning the end products, the second analyst argued.

>>> General Electric: Plan B - What If the Alstom Deal Falls Apart?

  • We received a number of follow up questions to our recent GE scenario analysis note, specifically on Alstom - what happens if it doesn't happen? This became more pressing with GE receiving the opening salvo from the EU Competition Commission on Friday.
  • We lay out 3 "Plan B" scenarios if Alstom falls through: buyback, M&A and a hybrid approach. We find lower accretion by 2018 for all 3 - ranging from 9 to 12 cents (vs. our expected 20 cents for Alstom) - no doubt a result of lower synergy assumptions.
  • GE is not backing off the deal and we expect limited remedies to result in a deal given the broader European context. We recognize the risk in Alstom as well, integration, backlog and otherwise, but we still see the upside as worth the risk.

>>> Greeks new summer Song : I will Survive...

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At first I was afraid I was petrified
Thinking I couldn't live without you by my side
And I've been spending nights
Thinking how you did me wrong
And I grew strong
And I learned how to get along
And now you're back
From outer space
And I find you here with that sad look upon your face
I should have changed that stupid lock
Oh made you leave your key
If I've known for a second you'd be back to bother me
Go on now, go walk out the door
Turn around now
You're not welcome anymore
You're the one who tried to hurt me with goodbye
Do you think I'd crumble
Did you think I'd lay down and die?
No, not I, I will survive
Long as I know how to love
I know I'll stay alive
I've got all my life to live
And all my love to give and I'll survive
I, I, I will survive
It took all my strength not to fall apart
Trying' without my mind to mend my broken heart
I spent so many nights
Feeling sorry for myself, how I cried
But now I hold my head up high
And you see me, somebody new
I'm not that lonely little person who's still in love with you
Now you come dropping in
Expecting me to be free
Now I'm saving all my lovin' for someone who's loving me
Go on now, walk out the door
Turn around now
You're not welcome anymore
You're the one who tried to hurt me with goodbye
Think I'd might crumble
Did you think I'd lay down and die?
No, not I, I will survive
Long as I know how to love
I know I'll stay alive
I've got my life to live
And all my love to give and I'll survive
I, I, I will survive
Go and go, walk out the door
Turn around now
You're not welcome anymore
You're the one who tried to hurt me with goodbye
Do you think I'd crumble
Did you think I'd lay down and die?
No, not I, I will survive
Long as I know how to love
I know I'll stay alive
I've got all my life to live
And all my love to give and I'll survive
I, I, I will survive
It took all my strength not to fall apart
Trying' without my mind to mend my broken heart
I spent so many nights
Feeling sorry for myself, how I cried
Now I hold my head up high
And you see me, somebody new
Not that lonely little person who's still in love with you
Now you come dropping in
Expecting me to be free
but I'm saving all my lovin' for someone who's loving me
Go on and go, walk out the door
Turn around now
You're not welcome anymore
You're the one who tried to hurt me with goodbye
Think I'd might crumble
Did you think I'd lay down and die?
No, not I, I will survive
Long as I know how to love
I know I'll stay alive
I've got my life to live
And all my love to give and I'll survive
I, I, I will survive
Go on and go, walk out the door
Turn around now
You're not welcome anymore
You're the one who tried to hurt me with goodbye