WSJ : Vivendi’s Interest Scrambles Signals on Telecom Italia

Vivendi’s Interest Scrambles Signals on Telecom Italia

Shares in the Italian operator are up 34% this year but the company’s prospects remain murky

Telecom Italia may be riding high but that looks largely fueled by hot air.

Shares in the Italian operator are up 34% this year, the best performer among European telecom incumbents. The latest bump has come from Vivendi raising its stake to 14.9% stake from the 8.2% holding received as part-payment in a separate transaction. Telecom Italia investors may be looking to Vivendi—led by chairman Vincent Bollore—to use its influence to push for balance sheet repair by selling TIM Brazil in exchange for a stronger foothold to distribute its media content in Italy.

The logic seems debatable for both sides. Mr. Bollore has delighted Vivendi’s shareholders by selling off the French company’s telecoms assets, building a cash pile estimated by Morgan Stanley to be around €8 billion ($9 billion) by the end of this year. It isn’t really clear why he is diving back into a troubled sector.

Telecom Italia’s prospects remain murky. The highly indebted company continues to operate at a loss, with revenue dropping by 2.6% year-over-year in the first quarter and earnings before interest, taxes, depreciation and amortization falling by 7.7%. Packages bundling fiber and mobile can increase per customer revenues and reduce churn, but Telecom Italia has had to offer them at sizable discounts to win customers. The prospects for stable revenue growth look precarious at best.

Upping its stake in Telecom Italia could theoretically help Vivendi cement fixed and mobile distribution channels in Italy for its media assets, including pay television Canal Plus. But a large portion of the latter’s content is in French and English, so the appeal to an Italian audience isn’t exactly obvious. Vivendi also doesn’t need to own a stake in the company to establish a distribution partnership.

Alternatively, Vivendi could agitate for change at Telecom Italia while waiting for the Italian telecoms sector to further consolidate, with Hutchison Whampoa reportedly in talks to combine with VimpelCom’s Wind Italy. Telecom Italia’s majority-owned TIM Brazil has been a bugbear: A faltering economy is hurting sales, even as costs swell. But the idea of a sale is hardly new. Selling Brazil would leave Telecom Italia dependent on its stagnant domestic market; the most obvious combination would be with Oi, but potential regulatory resistance and the latter’s high debt levels make that look unlikely for now.

Deal hopes of one kind or another have helped lift Telecom Italia’s valuation: it is trading 40% higher than its average five year Ebitda multiple, and at 6.8 times 2015 Ebitda, its discount to major European incumbent operators has narrowed sharply, according to FactSet. That seems to factor in many “ifs” and not enough “buts”.

(BN) *GREECE'S TSIPRAS ARRIVES AT EU SUMMIT

BN 06/25 13:57 *JUNCKER COMMENTS TO REPORTERS IN BRUSSELS
BN 06/25 13:55 *JUNCKER WILL WORK FOR GREECE DEAL UNTIL LAST SECOND
BFW 06/25 13:44 *EUROGROUP MAY RECONVENE ONCE GREECE PROPOSAL RECEIVED: OFFICIAL
BN 06/25 13:43 *EUROGROUP MAY RECONVENE ONCE GREECE PROPOSAL RECEIVED: OFFICIAL
BFW 06/25 13:43 *EUROGROUP HAS BEEN ’INDEFINITELY SUSPENDED:’ EU OFFICIAL
BN 06/25 13:43 *NO GREECE AGREEMENT IN SIGHT AT EUROGROUP: EU OFFICIAL
BN 06/25 13:42 *EUROGROUP WAITS FOR GREECE TO COME BACK WITH BETTER PROPOSAL
BN 06/25 13:41 *EUROGROUP HAS BEEN 'INDEFINITELY SUSPENDED:' EU OFFICIAL
BN 06/25 13:32 *MERKEL: HAS IMPRESSION ON SOME ITEMS GREECE IS GOING BACKWARDS
BN 06/25 13:31 *MERKEL SAYS GREECE NOT THERE YET
BN 06/25 13:21 *FAYMANN: EU HAS RESPONSIBILITY TO TRY TO FIND GREEK SOLUTION
BN 06/25 13:20 *FAYMANN: WE DON'T WANT A GREXIT
BN 06/25 13:19 *FAYMANN: NEED DEBT SUSTAINABILITY FOR GREECE FOR NEXT 2-3 YRS
BN 06/25 13:16 *FAYMANN: I WILL OF COURSE LISTEN TO CAMERON
BN 06/25 13:13 *FAYMANN: IMMIGRATION WILL BE SOLVED IN EUROPE OR NO NOT AT ALL
BN 06/25 13:12 *FAYMANN SAYS HE HOPES FOR DEAL ON GREECE
BN 06/25 13:12 *FAYMANN: IMMIGRATION WILL BE SOLVED IN EUROPE, NO NOT AT ALL
BN 06/25 13:11 *AUSTRIA'S FAYMANN SPEAKS TO REPORTERS IN BRUSSEL
BN 06/25 13:10 *FAYMANN: IMMIGRATION ONLY CAN BE SOLVED TOGETHER
*GREECE'S TSIPRAS ARRIVES AT EU SUMMIT
2015-06-25 13:53:31.666 GMT

--ZOE SCHNEEWEISS

-0- Jun/25/2015 13:53 GMT

(Makor) Smith Nephew. FTC paves way for Stryker's bid? NEW PDF

Stryker (SYK) for Smith&Nephew (SN/ LN)

FTC decision paves way for merger?

PDF attached

 

We believe the time may be right to re-visit our pre event buy Smith Nephew recommendation.

 

Our note shows why Stryker is the best buyer for Smith Nephew. The merger has been rumoured for some time. Investors believe this would be a good deal for both companies (as one can see from share price reaction). Further, SN financial performance has seen them beat FY EPS estimates where Stryker’s own EPS results did not. If the market is supportive of a tie up and the target’s financial results have not deteriorated then perhaps a reason for the lack of engagement until now is execution risk- Antitrust?

 

Yesterday’s FTC divestment order in relation to Zimmer/Biomet may allow for Stryker/SN to have further clarity as to just how their own merger could go ahead. See here: https://www.ftc.gov/news-events/press-releases/2015/06/ftc-requires-medical-device-company-zimmer-holdings-inc-divest

 

One particular area of interest is Knee implants. Our note shows SN largest segment by revenue is Knees as it is also for Stryker’s Reconstructive segment.

 

The FTC order “requires Zimmer to divest to Smith & Nephew the U.S. intellectual property, manufacturing technology, and existing inventory relating to its unicondylar knee implant, and to provide transitional services to help them establish manufacturing capabilities and secure necessary FDA approvals”.

 

This means, SN becomes a stronger Knee competitor to Stryker, thus increasing the rationale for Stryker to buy SN.

 

Our note shows, that combining SN and Stryker may be seen as pro competitive by the FTC as the market which now has 2 strong Knee device providers and 2 weak providers would become a market with 3 strong Knee device players.

 

We review our SN valuations but do not increase assumptions. We think they are conservative because SN FY results showed earnings beat analyst estimates. We thus believe a bid near 1350p may get SN to the table. 20pct upside from current share price.

 

To the downside we note that SN is already trading 6pct below fair value estimates of 1185p.

Details in the PDF attached

(BN) *EUROGROUP HAS BEEN 'INDEFINITELY SUSPENDED:' EU OFFICIAL

BN 06/25 13:42 *EUROGROUP WAITS FOR GREECE TO COME BACK WITH BETTER PROPOSAL
BN 06/25 13:32 *MERKEL: HAS IMPRESSION ON SOME ITEMS GREECE IS GOING BACKWARDS
BN 06/25 13:31 *MERKEL SAYS GREECE NOT THERE YET
BN 06/25 13:21 *FAYMANN: EU HAS RESPONSIBILITY TO TRY TO FIND GREEK SOLUTION
BN 06/25 13:20 *FAYMANN: WE DON'T WANT A GREXIT
BN 06/25 13:19 *FAYMANN: NEED DEBT SUSTAINABILITY FOR GREECE FOR NEXT 2-3 YRS
BN 06/25 13:16 *FAYMANN: I WILL OF COURSE LISTEN TO CAMERON
BN 06/25 13:13 *FAYMANN: IMMIGRATION WILL BE SOLVED IN EUROPE OR NO NOT AT ALL
BN 06/25 13:12 *FAYMANN SAYS HE HOPES FOR DEAL ON GREECE
BN 06/25 13:12 *FAYMANN: IMMIGRATION WILL BE SOLVED IN EUROPE, NO NOT AT ALL
BN 06/25 13:11 *AUSTRIA'S FAYMANN SPEAKS TO REPORTERS IN BRUSSEL
BN 06/25 13:10 *FAYMANN: IMMIGRATION ONLY CAN BE SOLVED TOGETHER
*EUROGROUP HAS BEEN 'INDEFINITELY SUSPENDED:' EU OFFICIAL
2015-06-25 13:41:36.978 GMT

--ZOE SCHNEEWEISS

-0- Jun/25/2015 13:41 GMT

>>> US Gapping Up

Gapping up
In reaction to strong earnings/guidance: WGO +11.1%, MLHR +6.7%, (raises dividend 5%), .ACN +1.7%, CMC +0.8%

M&A news: JOEZ +30.6% (PE takeover speculation), MSO +6.3% (may have 5 other bidders looking at the company, according to NYPost)

Select EU related names showing strength: SAN +2%, ALV +1.6%, DB +1.5%, ING +1.2%, CCL +1.2%, BCS +1%, VOD +0.9%, SAP +0.8%

Select oil/gas related names showing strength: RDS.A +1.2%, TOT +1.1%, STO +1%

Other news: CBLI +97.9% (disclosed the sale of ~6.46 mln shares of common stock at $3.87 per share to a venture capital investor, raising gross proceeds of $25 mln), MACK +9.1% (Merrimack Pharma and and Baxalta Incorporated (BXLT) report that the New Drug Application for MM-398 has been accepted by the US FDA), TTHI +8.5% (modest recovery pre-mkt following yday's decline), IACI +7.1% (Board has approved the pursuit of an IPO of The Match Group), MHR +4.6% (determined to pursue the sale of 100% of its current equity ownership interest in Eureka Hunter Holdings), NBG +2.3% (cont vol surrounding Greece debt negotiations), LLY +1.8% (reports a favorable UK court ruling in its Alimta vitamin regimen patent lawsuit; also - upgraded to Buy from Neutral at BofA/Merrill), BBRY +1% (provides update on previously announced 12 mln share purchase program), DIS +0.9% (declares first half dividend of $0.66 per share; ~15% increase from prior dividend on an annualized basis), MDLZ +0.8% (favorable mention on Wednesday's Mad Money)

Analyst comments: AMBA +2.1% (target raised to $115 at Stifel), FIT +1.8% (initiated with a Outperform at Leerink Partner), FINL +1.7% (upgraded to Buy from Neutral at B. Riley & Co), MRO +1.3% (upgraded to Buy from Neutral at UBS), FEYE +1.3% (initiated with an Outperform at Wedbush), T +0.9% (upgraded to Buy from Neutral at BofA/Merrill), PFPT +0.8% (initiated with an Outperform at Wedbush)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: MEI -19.4%, BBBY -2%

M&A news: ISSI -2.3% (Cypress Semiconductor (CY) increases offer to acquire ISSI to a price of $22.60 per share, says it is its best and final offer; stock closed at $23.54), SYT -1.1% (cont vol surrounding M&A uncertainty with MON)


Other news: MCP -35.9% (files Chapter 11 bankruptcy; Will complete restructuring of $1.7 bln of debt for U.S., Canadian operations, obtains agreement for up to $225 mln in new DIP financing), CREE -7.6% (announces LED business restructuring, $500 million stock buyback authorization and fiscal year 2016 annual operating plan), SBRA -4% (prices offering of 5,900,000 shares of common stock; expected to result in gross proceeds to Sabra of ~$149 mln), SEMI -3.1% (prices offering of 15,935,828 ordinary shares on behalf of selling shareholders at $18.25 per share ), ALDR -2.1% ( announces an offering of $200 mln in common stock ), EYES -1.4% (appoints Will McGuire as President and CEO effective August 18, 2015),IPXL -0.8% ( announces a private offering of $500 mln in convertible senior notes due 2022 )

Analyst comments: WRLD -19% (downgraded to Mkt Perform from Outperform at FBR Capital; tgt lowered to $73 from $98), TNK -2.7% ( downgraded to Sell from Neutral at UBS), CHK -1.5% (downgraded to Sell from Neutral at UBS), NFLX -0.9% (downgraded to Neutral from Buy at Citigroup), AMZN -0.7% (downgraded to Hold from Buy at Evercore ISI ), CTL -0.6% (downgraded to Neutral from Overweight at JP Morgan), MUR -0.5% (downgraded to Sell from Neutral at UBS)