>>> VODAFONE asset swap



Broker consensus

 

CITI

Which banana to swap for which? — The companies have operational overlap in seven Northern and Eastern European countries (Figure 3).

– Germany to Vodafone? — Relative size locally and preservation of tax assets (see Time to Ring the Liberty Bell?) point to Vodafone as the acquirer in

Germany.

– UK to Liberty? — Liberty is bigger than Vodafone in the UK and Ireland in EBITDA terms (though smaller by revenue) and its Virgin Media operation could

be instrumental in improving the profitability of Vodafone’s low margin UK mobile assets, partly by bringing its MVNO on net. Liberty also has sizeable UK tax

losses. However, Vodafone may wish to retain part of the C&W legacy assets to serve its enterprise customers. We see the largest synergy here.

– Netherlands to Liberty? — Liberty has the larger of the two’s assets in the Netherlands and the possibility of addressing synergy across the border with

Telenet in Belgium.

 

How to address an even division — This split in Northern European would advantage Liberty with Vodafone passing over £2.6bn in EBITDA (post 50% of the

synergy on our numbers - Figure 3) while Liberty hands back less than half that at £1.25bn. However to make up the difference, in our view Liberty could include its

assets in Eastern Europe and Switzerland (possible Austria too).

 

Switzerland and Eastern Europe — Liberty’s asset in Switzerland, while cable only, as a well invested fixed line player has the potential to take part in

convergence lines consolidation there in our view and also borders Vodafone’s assets in Italy and Germany. For Vodafone the Eastern European assets, while only

modest in size, could make its assets there more saleable by turning them into converged operators. In combination these would make the trade more even with

Liberty notionally providing £2.3bn in EBITDA for Vodafone’s £2.6bn, leaving matters of capital intensity and tax aside for now.

 

UBS

Focus likely to be on three key markets

Following press reports, VOD released a statement saying it is in early stage talks with LBTY over asset swaps, but is not in talks over a merger. LBTY has previously

highlighted UK, Germany and the Netherlands as the three key areas of overlap where notable synergies could be achieved.

 

VOD to swap UK/Netherlands for Germany?

Looking at the different permutations for asset swaps, we think both LBTY and VOD may be reluctant to divest of their largest units - UK and Germany respectively. One

solution could be for VOD to swap their UK consumer (50% of UK) and Dutch business for LBTY's German cable unit UnitymediaKBW. On a stand-alone basis, we value VOD

UK at £9.2bn ($13.8bn) for 100% and VOD NL at £2.7bn ($4bn). Assuming 10x annualised Q1-15 EBITDA, the implied value for LBTY DE would be £9.7bn ($14.6bn).

EC likely to review any deal

 

On regulatory clearance, the FCO in Germany could be a challenge given they would potentially view it as two-to-one consolidation in cable. However, we believe

jurisdiction for a deal involving asset swaps in three European markets would likely reside with the EC that are more likely to look at a broader definition of the market

that includes both fixed/mobile combined.

 

Valuation: PT based on SOTP/DCF

We think asset swaps could be a positive outcome for both VOD/LBTY – both companies can extract synergies and offer a converged fixed/mobile proposition

without having to pay a significant premium for the entirety of the other.Fundamentally we remain positive on VOD given upside risk to estimates from market

repair/growth in mobile data.

 

(TheDeal.com) Why Syngenta is right about the risks of Monsanto's offer


Syngenta AG on Monday rejected a sweetened takeover proposal from Monsanto Co. (MON) and criticized its suitor for not taking U.S. competition concerns raised by the prospective merger of two of the planet's largest seeds and crop protection companies seriously enough. And while antitrust experts predict a merger between the two companies could get approved, the process would probably entail a time-consuming negotiation of a complicated divestiture involving multiple buyers.

Over the weekend, St. Louis-based Monsanto added a $2 billion reverse breakup fee to its $44.3 billion offer. The breakup fee would be due Syngenta if the deal failed to win antitrust approval. Syngenta said it would need a higher offer and higher termination fee to consider merging with Monsanto. "If a transaction were to be announced and not consummated, there would be significant harm and value destruction for Syngenta and its shareholders, which requires a careful assessment of all risks and a clear path to closing, and is in no way adequately addressed by a paltry reverse regulatory break fee relative to such fees seen in transactions with comparable levels of regulatory risk," Syngenta said in a letter to Monsanto, which Syngenta make public.

Syngenta has a point about the breakup fee, which currently represents just under 5% of the offer price. That's fine for the typical merger but deals with significant antitrust risk generally carry reverse termination fees in the 7% to 10% range.

Since Monsanto first approached Syngenta last month the target has pointed to antitrust issues as a major impediment to considering a deal. Syngenta is the world leader in crop protection chemicals and No. 3 in seeds. Monsanto is the world's biggest seedmaker but needs to bulk up in chemicals to remain competitive and has offered to shed Syngenta's U.S. seed business to win regulatory approval.

Monsanto is unlikely to accomplish such a spinoff quickly, if the company's last major seed deal is any guide. The U.S. Department of Justice took nine months to review Monsanto's $1.5 billion acquisition of Delta and Pine Land Co., then the country's largest seller of cotton seed. The deal was announced in August 2006 and ultimately approved by the DOJ with a string of conditions at the end of May 2007. Those conditions included the divestiture of 43 D&PL seed lines to Syngenta.

Lisl Dunlop, a partner at Manatt, Phelps & Phillips LLP, who has represented agribusiness concerns including Bunge Ltd., said that like the DPL merger, a deal with Syngenta would present both horizontal and vertical competition concerns. It's unlikely they could be addressed by divestitures to a single buyer because such a sale to one of the handful of other players in the market -- Bayer CropScience, Dow AgroSciences LLC and DuPont -- would likely present competition concerns too. "This is a very close industry and there aren't that many significant players," she said.

Each of the five players made forays into various genetically modified crops and market some type of related pesticides and herbicides. As a result, just as it did in the D&PL deal, the Justice Department would likely insist on smaller divestitures among the major players designed to avoid new competitive overlaps. The DOJ also could force Monsanto to offer licensing deals for some of the seed strains that it is allowed to keep. All of these remedies will require lengthy negotiations between the parties.

This time around, Monsanto may find the pool of potential divestiture buyers has increased by one if the DOJ now considers China National Chemical Corp. a suitable recipient.

"The DP&L review was a long one and I think a purchase of Syngenta would be too," Dunlop said. "There's a very broad range of products and the DOJ really focuses and has a lot of concerns about the ag industry. This is going to get heavily scrutinized." Because of the complex array of competing and complimentary products, she said the DOJ may insist that upfront buyers be identified before approving the transaction, something it doesn't always require.

The wild card in the length of an antitrust review is the possibility of a sale to a financial buyer. John Taladay, co-chair of the antitrust practice at Baker Botts LLP, said Monsanto may try to sell Syngenta's U.S. seed business to a private equity firm. By selling to a single buyer with no antitrust issues the DOJ review could go pretty quickly.

"There are some overlaps that are pretty acute but they also are fairly discrete," Taladay said. "If the seed business can be spun out to one buyer the deal could be done pretty cleanly. A divisible business unit that can stand on its own is a pretty attractive acquisition package."


Read more: Why Syngenta is right about the risks of Monsanto's offer - The Deal Pipeline (SAMPLE CONTENT: NEED AN ID?) http://www.thedeal.com/content/industrials/why-syngenta-is-right-about-the-risks-of-monsantos-offer.php#ixzz3cZNW1gGV

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: ZQK -14.5%, FCEL -9.9%, BURL -7.2%, UNFI -6.9%, STV -5.9%, ONCS -5.9%, TPLM -5.7%, SB -5.4%, KANG -3.4%, MLNK -1.7%, HRB -0.8%, SAIC -0.5%

Other news: NBIX -6.1% (suspended two planned clinical studies ), NSPH -3.6% (announces a registered direct offering for $4.4 million of convertible preferred stock), DB -3.1% (offices were searched by investigators today over issues with client transactions, according to reports), ONCY -2.8% (announced it will initially focus on pursuing registration for REOLYSIN in two indications - the neoadjuvant treatment of muscle-invasive bladder cancer and the treatment of glioblastoma), CHL -2.2% (still checking), NEM -1.7% ( files for 29,000,000 share common stock offering in 424B5; to add profitable production with purchase of Cripple Creek & Victor Mine), AVID -1.5% (proposed $115 million offering of Convertible Senior Notes Due 2020), BBRY -1.5% (unfavorable commentary on Mad Money), ETSY -1.4% (Tiger Global Management disclosed 8.9% passive stake in 13G filing), AAL -1.4% (reports May traffic), HSBC -1% (provides investor update; will look to to sell its operations in Turkey and Brazil)

Analyst comments: AKAM -2.5% (downgraded to Neutral from Outperform at Macquarie), CTXS -1.4% (downgraded to Sell from Buy at Berenberg)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: MXL +5.6%, (announces revised guidance reflecting Entropic acquisition contribution), PBY +4.3%, PLAY +4.2%, CASY +3.7%, HQY +2.5%, LULU +2.2%, UEC +1.1%, HDS +1%

M&A news: AU +10.6% (Newmont Mining (NEM) last night announced it would acquire Anglo's Cripple Creek & Victor gold mine for $820 mln), VC +1.2% (completes sale of ownership interest in Halla Visteon Climate Control Corp), GM +0.9% (Fiat Chrysler execs are looking toward hedge funds to support possible General Motors (GM) merger, according to WSJ), ATML +0.8% (following late spike on Reuters report that the company hired advisor to explore options -including sale)

Select metals/mining stocks trading higher: HMY +4.5%, DRD +2.9%, GFI +1.9%, DNR +1.6%, FCX +1.2%, MT +1.1%, ABX +0.9%, GDX +0.8%, AKS +0.8%, GOLD +0.7%

Other news: AXN +22.3% (China FDA has issued licenses to its subsidiary to produce Tilidine Hydrochloride tablets), NAVB +17.6% ( announces 'positive' Lymphoseek comparative results in injection site pain study in breast cancer), OCLS +16.5% (receives FDA approval for its Alevicyn SG Antipruritic Spray Gel ), SAGE +15.9% (positive top-line data, from its exploratory trial of SAGE-547 to treat postpartum depression), RXII +10% (received two Notices of Allowance from the USPTO), NBG +3.2% (cont volatility surrounding Greece negotiations), GOMO +3% (Sungy Mobile enters into definitive agreement for going private transaction, for $4.90/share in cash), PGH +1.6% (reports lindbergh production exceeding capacity of 12,500 bbl/d), .

Analyst comments: AMD +2.6% (initiated with a Outperform at Northland Capital), DEO +1.8% (upgraded to Buy at Natixis Bleichroeder), DG +1.2% (upgraded to Strong Buy at Raymond James
)

>>> Diageo - Brokers Comments (Citi, JP Morgan, Berenberg, Credit Suisse, MS)




Broker consensus

 

Berenberg

According to Brazilian news weekly Veja, 3G (the Brazilian owner of ABInBev) has been studying the possibility of acquiring Diageo. Is this a possibility? Yes. Diageo ticks most of the boxes in terms of what 3G normally looks for in an acquisition target: 1) relatively stable cash flows; 2) strong established brands; 3) potential for restructuring; and 4) good exposure to the US. Also, it would further diversify its existing consumer portfolio away from beer and food. A bid could be structured in conjunction with ABInBev. Diageo is the owner of Guinness, a prized beer asset that could be of interest to ABInBev. We estimate that Guinness generated EBIT of cGBP700m in FY 2014, meaning that it could fetch a valuation of as much as GBP11bn-13bn. The other possibility is that 3G would consider breaking the group up and selling all of its brands to industry competitors if it considers the sum of the brands to be greater than the value of the total group. In order to succeed, Diageo shareholders could possibly demand that a bid comes at least in line with recent consumer transactions (ie at a 20-25% premium to the existing share price).

 

JP MORGAN

Diageo (DGE LN, N – 1,761p, PT 1,900p) (Komal Dhillon)

Attractive piecemeal value though operational headwinds remain. Upgrade to Neutral

Operational underperformance has led to a -4% YTD (versus the European beverages sector up 10%) decline in Diageo’s shares on an

absolute basis and -8% against the FTSE. There has been press speculation (Brazilian newspaper Veja) over the weekend regarding a

potential bid for Diageo by 3G Capital. Details are scarce but we believe Diageo’s beer assets, which would give ABI a foothold in Africa,

could be the main appeal. While we still see operational headwinds, we believe a piecemeal value of Diageo could be attractive and

upgrade to Neutral.

 

CREDIT SUISSE

Diageo (N, TP GBp1800.0): There has been widespread speculation in the media that 3G may be in the early stages of considerign a bid for Diageo, following an initial article by well informed Veja columnist Lauro Jardim last week. Diageo is very exposed, management credibility is low, thus, in our opinion, any bid would be well received by investors. Assuming an offer at a c30% share price premium, and gearing up to similar net debt/EBITDA ratio as Heinz was (8-9x), we estimate 3G would require -£40bn of equity to fund the transaction pre asset disposals, which could involve the beer business (£10bn) to ABI, wine (£1bn) and the 34% stake in Moet Hennessy (£3.5bn). So that's £25bn of equity post disposals. For 3G, aside from cost savings, the prize could be a higher multiple on the largest international spirits business in the world. What is Diageo's defense? Replicate 3G's strategy, instill a zero based budgeting savings program, dispose of non spirits assets. With the shares having already gone below our Target Price, and an increased speculative angle impacting the share price we raise our rating to Neutral.

 

CITI

Diageo (DGE.L) — 3G Bid Possibility Could be Catalyst for Change

and Outperformance

Western Europe | Beverages | Buy

Difficult to say whether the 3G-Diageo report is credible, but Diageo seems the sort of target 3G would consider (strong brands, cost cutting potential on 3G

standards, opportunities to unlock value, 2 years of operational underperformance). We doubt anything would happen soon, but at the very least,

we believe this will (1) increase pressure on Diageo mgt to consider actions that would restore confidence/unlock value, (2) underpin valuation. In this note we go

through 8 actions mgt could/should consider, including selling non-core assets, setting performance targets, raising BS gearing to buy back shares, reviewing

some senior management positions. IF 3G were to acquire Diageo, we think it is likely that they would sell the beer assets to ABI. In this scenario, we believe ABISAB

would be much less likely. We reiterate Buy on Diageo, but we have cut EPS 3.5% (mainly FX) and reduced target to £22 as a result.


Morgan Stanley

 reiterates Overweight rating, price target 2,200p - Firm sees underlying momentum improving in its key markets which should help narrow the 10% discount the shares trade at vs Consumer Staples