>>> Delhaize, Ahold Dutch CEO link seen aiding talks

DEAL REPORTER


Delhaize, Ahold Dutch CEO link seen aiding talks

The shared Dutch nationality of the Delhaize [EBR:DELB] and Royal Ahold [AMS:AH] CEOs is seen as a positive factor to facilitate merger talks, it is understood. Previous discussions had partly fallen over due to a culture clash between the companies.

Belgium-based Delhaize’s new CEO, Frans Muller, is said to have approached Netherlands-based Ahold’s Dick Boer initially for a general conversation with his Dutch counterpart. Both supermarket groups progressed general talks into renewed merger discussions on the back of good relations between the CEOs, with Delhaize said to be slightly more proactive.

Talks are still at a very early stage, it was said. Early market reaction was that the two companies could consider a merger of equals, with no premium paid to either set of shareholders. However, no discussions on price have been held so far, it is understood.

Due diligence is yet to begin, and is now the next step following top-level discussions about the possibility of a merger. Delhaize and Ahold both declined to comment on the progress of the talks.

Speculation of a merger between the two companies arose in 2006 when it was revealed that they were looking at the move. At that time, cultural differences and disagreements over deal terms led Delhaize to end discussions.

It is understood top-level management also looked into the prospect around the time Delhaize’s share price hit a near 10-year low of about EUR 26 in 2012. These did not turn into serious discussions despite a number of meetings at the CEO and chairman level, it was said.

Muller’s arrival at Delhaize in November 2013 and improving financials for both companies meant the prospect of a tie-up became more apparent, it was said. The decreasing power of Delhaize family shareholders also contributed to thinking a deal could be easier to execute.

Family members own about 20% of Delhaize. Representation on the company’s board is about to fall to one member as former Delhaize CEO Pierre-Olivier Beckers-Vieujant will step down on 28 May this year.

Union negotiations are expected to be a factor in discussions, it is understood. Delhaize sales were hit by strikes in the second half of 2014 as workers rallied against restructuring plans. Belgian and Dutch works councils must be consulted in the event of a takeover.

Cost synergies are clearly a driver of the deal rationale, it was said. Analysts have suggested the tie-up could produce up to EUR 1bn a year of savings from cost-cutting and increased buying power. Combined sales would be about EUR 50bn.

It is accepted the two companies’ trading multiples allow for the prospect of a merger of equals more than when the deal was discussed before, it is understood. But despite any way it is presented, a deal now will effectively be a takeover of Delhaize by Ahold, one banker following suggested.

Delhaize was trading at 7x EV/EBITDA on 8 May prior to renewed rumours this week of the merger, according to Dealreporter analytics. Its share price is up nearly 40% in the calendar year to date. This compares to Ahold’s 7.7x pre-rumour multiple. Movements this week have closed the gap, with Delhaize trading around 8.1x and Ahold at 8.3x.

Ahold was trading up 0.14% Wednesday at EUR 18.45, giving a market capitalisation of EUR 16.5bn. Delhaize was trading up 0.40% at EUR 84.34, giving a market cap of EUR 8.73bn.

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WSJ : BMW’s Cycle Could Help It Gain on Mercedes

BMW’s Cycle Could Help It Gain on Mercedes
German luxury car makers have introduced more updates in between major launches to reduce earnings volatility.

Aging models can put a wrinkle into the profitability of premium auto makers.

For years, manufacturers have been tweaking the way they manage product cycles to smooth out the peaks and troughs around the launches of their most popular cars. BMW, Audi and Mercedes-Benz have introduced more spin offs and updates in between major launches to reduce earnings volatility.

Audi, for example, followed its successful launch of the Q5 crossover SUV with the compact Q3 and the more spacious Q7. It plans to add a subcompact Q1 and an ultra-luxurious Q8 as well as relaunching the Q5. Research and development outsourcing and shared manufacturing platforms have helped to control costs, allowing premium auto makers to maintain operating margins of about 9%.

Despite these efforts, product cycles can still affect earnings, as the contrasting fortunes of Mercedes and BMW show.

Mercedes is considered to be at the peak of its product cycle: it is benefiting from recent launches of several higher-margin cars including its popular C-Class sedans. Its parent company, Daimler, reported a 15% sales increase in the first quarter.

In contrast, BMW is suffering owing to its relatively older lineup of more profitable models. Quarterly unit sales of its 5-Series, which accounted for 20% of total cars sold, dropped 3% year on year. Other popular models such as the X1 and the 7-Series fared even worse, with each declining by about 30%. And while defended its position as the world’s top premium car brand in the first three months of the year, sales growth for the brand was 5.4% compared with an 18% jump at Mercedes in the same period.

Nowhere are these weaknesses more apparent for BMW than in China, its largest market by sales.

The market is broadly slowing, and BMW’s performance there trails rivals. Its unit sales increased by a muted 6.5% in the first quarter, and growth for the year is expected to be half that of Mercedes, IHS says.

As products age, car makers need to reduce inventory and sell fewer cars, or discount more heavily. Capital expenditure also rises as manufacturers develop newer models. But BMW’s predicament should begin to turn around next year after a new version of the X1 is released, followed by the new generations of 7-Series and then 5-Series.

Of course, produce cycle is just one element fueling sales. But it is one that can make it easy to buy at the top of the cycle, rather than at its nadir.

Daimler’s stock has outperformed BMW in the past year, climbing 30% against its rival’s 18%. Both are trading at about 11 times forward earnings. Yet Mercedes is in the sweet spot of its product cycle, while BMW’s is yet to kick in. When it does, that should help the latter accelerate.

WSJ : U.K. Government Seeking Adviser for RBS, Lloyds Stake Sales

U.K. Government Seeking Adviser for RBS, Lloyds Stake Sales
The U.K. government will review the sale of stakes in the two bailed out banks

LONDON—The U.K. government is seeking an adviser to lead the next stage of its effort to sell stakes in Royal Bank of Scotland Group PLC and Lloyds Banking Group PLC, people familiar with the matter said Wednesday.

The government still owns an 80% stake in RBS and a 20% stake in Lloyds following bailouts by taxpayers in 2008. U.K. Financial Investments Ltd, which manages the government’s bank stakes, appointed J.P. Morgan Chase & Co. as privatization strategy adviser in July 2013 but is now retendering for the role.

Whoever wins the job will likely help oversee one of the biggest-ever privatizations, as the government starts preparing to sell RBS shares currently worth £32.4 billion.

This month the Conservative Party won a surprise majority during the general election, paving the way for an accelerated sell down of the U.K. government’s stakes in the two bailed out banks. Earlier in the year Chancellor of the Exchequer George Osborne said that, if re-elected, the Conservatives would look to privatize RBS “as soon as possible” and would review a potential sale at the beginning of the next Parliament.

“When it comes to RBS, we have made huge progress in de-risking and restructuring the bank, bringing us close to the point at which we can start getting taxpayers’ money back,” Mr. Osborne said in a speech in January. “Early in the next Parliament we will have to make a decision on the timing of any exit program from RBS.” A decision over the review could be made in the next two or three months, according to people familiar with the matter.

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The Conservative Party also pledged to sell £4 billion of Lloyds shares via a retail offering.

A panel of 18 banks and advisory firms, including J.P. Morgan, are eligible for the job, according to UKFI documents. At the time of J.P. Morgan’s appointment two years ago, UKFI said it would be reviewed periodically and that it expected different firms to hold the role in the future.

If the Treasury does push ahead with a privatization of RBS it would likely do so at a loss. The U.K. government pumped £45.5 billion into RBS at an average price of around £5 a share. Currently RBS’s shares trade at £3.53. The bank, which is in the process of shedding assets across the world, is still undergoing heavy restructuring and is set to be hit by a series of fines for a range of misconduct issues. Any review would have to justify taxpayers taking a loss on the RBS bailout.

At Lloyds the situation is more straight forward, as the bank’s shares are trading above the price paid by the government in the bailout. UKFI has mandated an investment bank to drip feed its Lloyds shares back into the market. So far the U.K. government has sold £2.5 billion of Lloyds shares via this trading plan. Overall it has recouped more than £10 billion of its initial £20.3 billion bailout of the bank.

The U.K. Treasury declined to comment.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: PDII +16.5%, GEVO +16%, TUBE +14.6%, HDP +11.7%, SYMX +10.9%, OPWR +10.3%, BIOC +7%, RENT +6.6%, ICCC +5.7%, CARA +5.6%, NVFY +5.5%, NEWR +5.3%, NVMI +4.7%, TSEM +4.6%, VIP +4.5%, ZBRA +3%, STKL +2.8%, ICL +2.3%, HCKT +1.9%, ELOS +1.9%, SSRI +1.8%, NAII +1.5%, MNGA +1.2%,VJET +1%, PCP +1%

M&A news: WPZ +26.1% (Williams (WMB) to acquire all public equity of Williams Partners L.P.), OI +8.4% (acquires Vitro S.A.B's food and beverage business for $2.15 bln), WMB +8.4% (Williams (WMB) to acquire all public equity of Williams Partners L.P.), WX +5.9% (forms special committee of independent directors to evaluate the previously announced proposed takeover transaction), DHR +5.8% (acquires PLL; Danaher announces intention to separate into two independent, publicly traded companies), PLL +4.9% (to be acquired by Danaher (DHR) for $127.20 per share), SPKE +1.9% (announces acquisition of Oasis Energy)

Select oil/gas related names showing strength: STKL +2.8%, SDRL +2%, SD +1.3%, TOT +1.3%, BP +0.9%.

Other news: FCSC +25.8% ( recieves rare pediatric disease designation for FCX-007 from the FDA, to treat recessive dystrophic epidermolysis bullosa), AMCF +8.7% (announced that its previously scheduled NASDAQ listing hearing was cancelled after co pays outstanding fees; announced business updates, including entery into a non-binding letter of intent with Three Pillars PetroChem), MAGS +7.3% (recieves two new orders, worth a total of $13 mln), VRTX +7.2% (confirmed FDA Advisory Panel voted 12 to 1 to recommend approval of ORKAMBI to treat people with cystic fibrosis ages 12 and older), NBG +5.1% (optimism with Greece situation), QSR +3.2% (announces an $1.2 bln offering of first lien senior secured notes due 2022), DAL +2.7% (announces a new $5 billion share repurchase program, and a dividend increase of 50% to $0.135/share beginning in the September, 2015 quarter), NRF +2% (still checking), PPO +2% (disclosed that at a special meeting, its stockholders approved the proposal to adopt the Agreement and Plan of Merger with Asahi Kasei), AXP +1.5% (authorizes repurchase of up to 150 mln shares, announces 12% dividend increase), JBLU +1.2% (reports its preliminary traffic results for April 2015), DEO +1% (peer SAB Miller reported bte results), SNY +1% (exercised its option to an exclusive license to develop an immunotherapy for the treatment of celiac disease under the terms of an existing strategic global collaboration with Selecta Biosciences), TASR +1% (announces recent multiple orders, including up to 460 X2 Smart Weapons for the Scottsdale Police Department, received and shipped in Q2)

Analyst comments: SSE +4.7% (upgraded to Buy from Neutral at Sun Trust Rbsn Humphrey; tgt raised to $7 from $4), DRD +3.8% (upgraded to Overweight from Neutral at JP Morgan), GFI +1.9% (upgraded to Neutral from Sell at UBS), AEO +1.7% (upgraded to Outperform from Market Perform at Cowen), MSFT +1.4% (upgraded to Buy from Hold at Deutsche Bank), POWR+1.4% (upgraded to Buy at Maxim), KMB +0.9% (upgraded to Overweight from Equal Weight at Barclays)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: EZCH -23% (also EZchip's NPS-400 is currently not the plan of record for customer's Cisco (CSCO) next generation line cards), VSLR -8.2%, EXAR -6.9%, NLST -6.7%, INFU -4.7%, ELMD -4.2%, LMNS -3.1%, GDDY -2.7%, PRSS -2.6%, M -2.5%, VUZI -2.1%, AEG -2%, RL -0.9%


Other news: OREX -10.6% (Takeda is now claiming breach of contract; provides statement on termination of the light study and updates on Contrave collaboration with Takeda Pharmaceuticals), SBLK -7.2% (announces $150.0 million public offering of common shares), LAND -5.6% (announced that it plans to sell ~1.1 mln shares of common stock ), CRDS -4.1% (announced a planned rights offering of common stock, to common and preferred shareholders; size not disclosed), RICE -3.7% (prices 6,000,000 shares of its common stock owned by NGP Rice Holdings at $24.20 per share of common stock), AES -1.6% (announced a 60 mln share secondary common stock offering, by selling stockholder Terrific Investment Corporation), PGH -1.3% ( confirms the filing of a preliminary base shelf prospectus for up to $1 bln in securities )

Analyst comments: VALE -0.9% (downgraded to Neutral from Outperform at Macquarie
)

>>> Polo Ralph Lauren beats by $0.10, reports revs in-line; authorized an additi

--> RL -3.15% Pre Mrket

Polo Ralph Lauren beats by $0.10, reports revs in-line; authorized an additional $500 mln stock repurchase

Reports Q4 (Mar) earnings of $1.41 per share, $0.10 better than the Capital IQ Consensus Estimate of $1.31; total net revenues rose 1.0% year/year to $1.89 bln vs the $1.88 bln consensus. Excluding foreign currency impacts, EPS was $1.69 in the fourth quarter.
  • The Company's Board of Directors authorized an additional $500 mln stock repurchase program permitting the Company to purchase shares of Class A Common Stock, subject to market conditions.
  • Outlook: The Company currently expects consolidated net revenues for Fiscal 2016 to increase by mid-single digits in constant currency (cons +0.1%) Based on current exchange rates, foreign currency will have an approximate 450 basis point negative impact on Fiscal 2016 revenue growth. Operating margin for Fiscal 2016 is currently expected to be 180-230 basis points below the prior year's level due to negative foreign currency effects.
  • In the first quarter of Fiscal 2016, the Company expects consolidated net revenues to be flat in constant currency (cons +0.4%), as retail segment growth is offset by a decline in wholesale revenue which is impacted by our customers' receipt plans due to an earlier Easter this year. Based on current exchange rates, foreign currency will have an approximate 600 basis point negative impact on revenue growth in the first quarter of Fiscal 2016.