>>> US Close Dow-1.92% S&P-2.57% Nasdaq-3.04% Russell-2.875

Closing Summary: Global Growth Concerns and Biotech Weakness Sideswipe Equity Market

The new week got off to a very poor start for the major indices, which experienced steady selling pressure from the opening bell in a trend-down day.  Global growth concerns were at the heart of Monday's pullback along with another dastardly performance by the biotechnology sector.

The growth concerns were triggered anew by a caustic research note on the business prospects for commodity producer Glencore (GLCNF 1.07, -0.41), an 8.8% year-over-year decline in China's industrial profits, a disappointing 1.4% monthly decline in pending U.S. home sales for August, and a declaration from International Monetary Fund (IMF) head Christine Lagarde that the IMF's forecasts for global growth of 3.3% this year and 3.8% next year are no longer realistic due principally to the weakness in emerging markets.

These factors, and an allegation from famed investor Carl Icahn that there could be another financial catastrophe looming with the persistence of the Federal Reserve's policy rate near the zero bound, cast a pall on investor sentiment that hung over the capital markets all day.

To that end, oil (-2.7% to $44.47 per barrel) and other commodity prices got knocked back noticeably, high-yield bond prices continued to weaken, cyclical sectors like the energy (-3.6%), materials (-3.2%), and consumer discretionary (-2.9%) sectors were among the hardest hit areas, and Treasuries rallied in a flight-to-safety bid.

In turn, investors sought downside protection, evidenced by the 17% surge in the CBOE Volatility Index (VIX 27.58, +3.96), and generally shied away from buying much of anything in the equity market.

All ten sectors finished lower.  The health care sector (-3.8%) fared the worst as price control concerns continued to percolate on the back of reports that lawmakers in Washington are working to get a subpoena to obtain documents from Valeant Pharmaceuticals (VRX 166.50, -32.97) that discuss big price increases for two heart drugs.

That news compounded the recent selling pressure in the biotech group, which had to contend with the double whammy of valuation concerns.  The iShares Nasdaq Biotechnology ETF (IBB 290.61, -19.63) dropped 6.3% and is now down 27.5% from its July high.

The weakness in the biotech space took a heavy toll on the Nasdaq Composite (-3.0%) and Russell 2000 (-2.9%).  Separately, the weight of large losses in market darlings Facebook (FB 89.21, -3.56), Amazon.com (AMZN 504.06, -20.19), Netflix (NFLX 99.47, -2.77), and Google (GOOG 594.89, -17.08) -- the so-called "FANG" stocks -- took a big bite out of the Nasdaq and the broader market.

Today's negative disposition was cemented in the fact that Apple (AAPL 112.44, -2.27) couldn't escape the selling pressure even though it announced record sales of more than 13 million units of its iPhone 6s and iPhone 6s Plus just three days after launch.

The Personal Income and Spending report for August was decent, showing a 0.3% increase in income (consensus +0.4%) and a 0.4% jump in spending ( +0.3%) on top of modest upward revisions to July's data for both series.  The report also revealed subdued inflation pressures, which were painted by a miniscule 0.3% year-over-year increase in the Personal Consumption Expenditures Price Index (PCE) and a modest 1.3% year-over-year increase excluding food and energy.

The latter news also helped underpin the Treasury market and particularly the back end of the curve.  The 10-yr note yield dropped seven basis points to 2.09%.

There were two Fed officials who gave speeches today during market hours -- New York Fed President Dudley and Chicago Fed President Evans.  Both men are voting members on the 2015 Federal Open Market Committee, yet their somewhat opposing views failed to alter today's downtrend.  To wit, stocks traded lower after both presentations in which Mr. Dudley said he thinks the Fed should be able to raise rates before the end of the year and Mr. Evans said a later liftoff would create better positioning for economic challenges.

The major indices closed just off their worst levels of the day on heavy volume.  Reflecting the entrenched negative bias, decliners led advancers by nearly a 9-to-1 margin at the NYSE and a nearly 6-to-1 margin at the Nasdaq.

>>> Allergan - Guides H2 $6.25-6.65 (no comparable ests), Rev above $8B (no comp

Guides H2 $6.25-6.65 (no comparable ests), Rev above $8B (no comparable ests); cites adjustments due to divestiture to Teva 
- H2 EBIT seen at $3.8-4.0B
- The transaction with Teva is expected to close in the first quarter of 2016. 
Following the close of the divestiture of the Generics business to Teva, New Allergan expects to have a powerful financial profile to drive continued long-term growth:
10% branded revenue growth
Non-GAAP gross margins of 77% to 79% with additional long-term expansion anticipated
Non-GAAP SG&A as a percentage of revenue between 21-24%, declining within that range over time
Non-GAAP tax rate of ~15%

>>> Volkswagen financial headroom alleviates need for immediate disposals – bank

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.

Wansquare : Serge Weinberg joue la carte du coté

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.

Le ticket d’entrée moyen devrait être compris entre 10 et 12 millions d’euros, l’enveloppe global de Nobel devant totaliser 120 millions d’euros. A ce jour, les deux tiers de cette somme ont déjà été collectés auprès d’investisseurs institutionnels mais aussi de grandes familles soucieuses d’investir dans le coté. Le moment est d’ailleurs propice après le coup de grisou de cet été. Le fonds sera piloté par Philippe de Verdalle, pour qui Nobel a la volonté de s’inscrire comme un fonds de long terme à l’écoute, non pas des cycles boursiers, mais industriels.

(RBC) ABI-SAB: Older ... Budweiser?

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.

>>> US Gapping down

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
)

>>> US Gapping up

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
)