(ZeroHedge) This May Just Be The Start Of The Oil Price War Says IEA

This May Just Be The Start Of The Oil Price War Says IEA

Saudi Oil Minister Ali al-Naimi may be one of the most powerful individuals in the global oil industry. After all, as the top oil official in arguably the world’s most influential oil-producing country, he has enormous influence.

But for all his power, is he the most ingenious? That question arises from the release of two reports on the current state of the oil industry that look at whether or not OPEC’s strategy of forcing US shale to cut back is succeeding.

The first, issued on May 12 by OPEC, says, in essence, that Saudi Arabia’s effort to keep its own oil production at near-record highs is succeeding in wresting market share back from US producers of shale oil, also called “light, tight oil” (LTO). The second, issued a day later by the International Energy Agency (IEA), agrees, but only up to a point.

“In the supposed standoff between OPEC and U.S. light tight oil (LTO), LTO appears to have blinked,” the IEA reported. “Following months of cost cutting and a 60 percent plunge in the U.S. rig count, the relentless rise in U.S. supply seems to be finally abating.”

But the report from the Paris-based IEA, which advises 29 industrialized countries on energy policy, also pointed to a rebound in oil prices that could benefit US shale producers.

As both the OPEC and IEA reports point out, the decline in US shale oil output has somewhat reduced the oil glut and led oil prices to rally up to about $65 per barrel. And the IEA adds that this brings LTO back above the threshold where its production becomes profitable again.

But that, evidently, isn’t good enough for both domestic and foreign shale drillers in the United States, and this is where ingenuity enters the picture. “Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks,” the report said.

For example, Statoil, Norway’s huge state-owned energy company, is trying out new techniques of hydraulic fracturing, or fracking, in Texas’ Eagle Ford shale field. They include using different grades of sand to mix with water and chemicals, and drilling at varying depths, to increase oil yields.

“There’s a proverb in Norway that says necessity teaches the naked woman how to knit,” Bjorn Otto Sverdrup, a Statoil vice president, told The New York Times, during a tour of the company's shale operations in Kennedy, Texas.

Evidently this mother of invention is showing some success. Statoil may have cut the number of its rigs at Eagle Ford from three to two in 2014, but its production from the shale field is up by one-third. The new fracking method has also cut the cost of extraction from an average of $4.5 million per well to $3.5 million, in part because it’s been able to reduce drilling time from an average of 21 days to 17.

Against this backdrop, then, it’s not surprising that the IEA isn’t so sure that OPEC in general, and al-Naimi in particular, have the upper hand – yet. “It would thus be premature to suggest that OPEC has won the battle for market share,” the agency’s report said. “The battle, rather, has just started.”

NYT : Decoding the Enigma of Satoshi Nakamoto and the Birth of Bitcoin

Decoding the Enigma of Satoshi Nakamoto and the Birth of Bitcoin

It is one of the great mysteries of the digital age.

The hunt for Satoshi Nakamoto, the elusive creator of Bitcoin, has captivated even those who think the virtual currency is some sort of online Ponzi scheme. A legend has emerged from a jumble of facts: Someone using the name Satoshi Nakamoto released the software for Bitcoin in early 2009 and communicated with the nascent currency’s users via email — but never by phone or in person. Then, in 2011, just as the technology began to attract wider attention, the emails stopped. Suddenly, Satoshi was gone, but the stories grew larger.

While regulators debate the pros and cons of bitcoins, this volatile digital currency inspires the question: What makes money, money? By Channon Hodge, David Gillen, Kimberly Moy and Aaron Byrd on Publish Date November 24, 2013.
Many in the Bitcoin community told me that, in deference to the Bitcoin creator’s clear desire for privacy, they didn’t want to see the wizard unmasked. But even among those who said this, few could resist debating the clues the founder left behind. As I had these conversations with the programmers and entrepreneurs who are most deeply involved in Bitcoin, I encountered a quiet but widely held belief that much of the most convincing evidence pointed to a reclusive American man of Hungarian descent named Nick Szabo.

Mr. Szabo is nearly as much of a mystery as Satoshi. But in the course of my reporting I kept turning up new hints that drew me further into the chase, and I even stumbled into a rare encounter with Mr. Szabo at a private gathering of top Bitcoin programmers and entrepreneurs.

At that event, Mr. Szabo denied that he was Satoshi, as he has consistently in electronic communications, including in an email on Wednesday. But he acknowledged that his history left little question that he was among a small group of people who, over decades, working sometimes cooperatively and sometimes in competition, laid the foundation for Bitcoin and created many parts that later went into the virtual currency. Mr. Szabo’s most notable contribution was a Bitcoin predecessor known as bit gold that achieved many of the same goals using similar tools of advanced math and cryptography.

It may be impossible to prove Satoshi’s identity until the person or people behind Bitcoin’s curtain decide to come forward and prove ownership of Satoshi’s old electronic accounts. At this point, the creator’s identity is no longer important to Bitcoin’s future. Since Satoshi stopped contributing to the project in 2011, most of the open-source code has been rewritten by a group of programmers whose identities are known.

But Mr. Szabo’s story provides insight into often misunderstood elements of Bitcoin’s creation. The software was not a bolt out of the blue, as is sometimes assumed, but was instead built on the ideas of multiple people over several decades.

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This history is more than just a matter of curiosity. The software has come to be viewed in academic and financial circles as a significant computer science breakthrough that may reshape the way money looks and moves. Recently, banks like Goldman Sachs have taken the first steps toward embracing the technology.

Mr. Szabo himself has continued to be quietly involved in the work. In the beginning of 2014, Mr. Szabo joined Vaurum, a Bitcoin start-up based in Palo Alto, Calif., that was operating in stealth mode and that aimed to build a better Bitcoin exchange. After his arrival, Mr. Szabo helped reorient the company to take advantage of the Bitcoin software’s capability for so-called smart contracts, which enable self-executing financial transactions, according to people briefed on the company’s operations who spoke on condition of anonymity.

After Mr. Szabo led the company in a new direction, it was renamed Mirror, and it recently raised $12.5 million from several prominent venture capitalists, these people said. The company declined to comment for this article.

Mr. Szabo’s role at Vaurum has been kept a secret because of his desire for privacy, and he left in late 2014 after becoming nervous about public exposure, according to the people briefed on the company’s operations. While he was still there, though, the array of arcane skills and knowledge at his command led several colleagues to conclude that Mr. Szabo was most likely involved in the creation of Bitcoin, even if he didn’t do it all himself.

I met Mr. Szabo, a large bearded man, in March 2014 at a Bitcoin event at the Lake Tahoe vacation home of Dan Morehead, a former Goldman Sachs executive who now runs a Bitcoin-focused investment firm, Pantera Capital. Mr. Szabo worked for Vaurum at the time. Mr. Morehead and other hedge fund executives in attendance dressed in expensive loafers and slim-cut jeans; Mr. Szabo, his bald pate encircled by a ring of salt-and-pepper hair, wore beat-up black sneakers and an untucked striped shirt.

While he kept to himself, I managed to corner him in the kitchen during the cocktail hour. He was notably reserved and deflected questions about where he lived and had worked, but he bristled when I cited what was being said about him on the Internet — including that he was a law professor at George Washington University — and the notion that he had created Bitcoin.

“Well, I will say this, in the hope of setting the record straight,” he said acidly. “I’m not Satoshi, and I’m not a college professor. In fact, I never was a college professor.”

The conversation grew less heated when I asked about the origin of the many complicated pieces of code and cryptography that went into the Bitcoin software, and about the small number of people who would have had the expertise to put them together. Mr. Szabo mentioned bit gold, saying it harnessed many of the same obscure concepts, like secure property titles and digital time stamps, that made Bitcoin possible.

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“There are a whole bunch of parallels,” he told me. “I mean, the reason people tag me is because you can go through secure property titles and bit gold — there are so many parallels between that and Bitcoin that you can’t find anywhere else.”

When I asked if he believed that Satoshi had been familiar with his work, Mr. Szabo said he understood why there was so much speculation about his own role: “All I’m saying is, there are all these parallels, and it looks funny to me, and looks funny to a lot of other people.”

Dinner began, interrupting the conversation, and I never got another chance to talk to Mr. Szabo.

When I emailed him on Wednesday, he repeated his denial: “As I’ve stated many times before, all this speculation is flattering, but wrong — I am not Satoshi.”

Many concepts central to Bitcoin were developed in an online community known as the Cypherpunks, a loosely organized group of digital privacy activists. As part of their mission, they set out to create digital money that would be as anonymous as physical cash. Mr. Szabo was a member, and in 1993, he wrote a message to fellow Cypherpunks describing the diverse motivations of attendees at a group meeting that had just taken place. Some people, he wrote, “are libertarians who want government out of our lives, others are liberals fighting the N.S.A., others find it great fun to ding people in power with cool hacks.”

Mr. Szabo had a libertarian mind-set. He was drawn to those ideas partly, he told me, because of his father, who fought the communists in Hungary in the 1950s before coming to the United States, where Mr. Szabo was born 51 years ago. Reared in Washington State, Mr. Szabo studied computer science at the University of Washington.

Several experiments in digital cash circulated on the Cypherpunk lists in the 1990s. Adam Back, a British researcher, created one called hashcash that later became a central component of Bitcoin. Another, called b money, was designed by an intensely private computer engineer named Wei Dai.

When these experiments failed to take off, many Cypherpunks lost interest. But not Mr. Szabo. He worked for six months as a consultant for a company called DigiCash, he has written on his blog. In 1998, he sent the outline for his own version of digital money, which he called bit gold, to a small group that was still pursuing the project, including Mr. Dai and Hal Finney, a programmer based in Santa Barbara, Calif., who tried to create a working version of bit gold.

The concept behind bit gold was very similar to Bitcoin: It included a digital token that was scarce, like gold, and could be sent electronically without needing to pass through a central authority like a bank.

This history points to the important role that Mr. Szabo and several others played in developing the building blocks that went into Bitcoin. When Satoshi Nakamoto’s paper describing Bitcoin appeared in the fall of 2008, it cited Mr. Back’s hashcash. The first people Satoshi emailed privately were Mr. Back and Mr. Dai, both men have said. And Mr. Finney, who recently died, helped Satoshi improve the Bitcoin software in the fall of 2008, before it was publicly released, according to emails shared with me by Mr. Finney and his family.

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It is, though, Mr. Szabo’s activity in 2008, as Bitcoin emerged into the world, that has generated much of the suspicion about his role in the project. That spring, before anyone had ever heard of Satoshi Nakamoto or Bitcoin, Mr. Szabo revived his bit gold idea on his personal blog, and in an online conversation about creating a live version of the virtual currency, he asked his readers: “Anybody want to help me code one up?”

After Bitcoin appeared, Mr. Szabo changed the date on that blog post. It then looked as though it was written after Bitcoin’s release, rather than before, archived versions of the website show.

Mr. Szabo’s writing about bit gold from that time contains many striking parallels with Satoshi’s description of Bitcoin, including similar phrasings and even common writing mannerisms. In 2014, researchers at Aston University, in England, compared the writing of several people who have been suspected to be Satoshi and found that none matched up nearly as well as Mr. Szabo’s. The similarity was “uncanny,” said Jack Grieve, the lecturer who led the effort.

When I went back and read Mr. Szabo’s online writings, it was obvious that in the year before Satoshi appeared on the scene and released Bitcoin, Mr. Szabo was again thinking seriously about digital money.

He wrote frequently, over several months, about the concepts involved in digital money, including those smart contracts, a concept so specialized that Mr. Szabo is often given credit for inventing the term. Smart contracts later showed up as an essential piece of the Bitcoin software.

Mr. Szabo’s blog explained why he was examining these issues with such passion: The global financial crisis then underway suggested to him that the monetary system was broken and in need of replacement.

“For those who love our once and future freedoms, now is the time to strike,” Mr. Szabo wrote in an item on his blog in late 2007 endorsing the libertarian Ron Paul’s bid for the presidency, in part because of Mr. Paul’s views on the financial system.

For many Bitcoin watchers, just as notable as what Mr. Szabo wrote in that period was his silence once Bitcoin appeared in October 2008. After all, the virtual currency was an experiment in everything he had been writing about for years. Unlike Mr. Dai, Mr. Finney and Mr. Back, Mr. Szabo has not released any correspondence from Satoshi from this period or acknowledged communicating with him.

Mr. Szabo first made brief mention of Bitcoin on his blog in mid-2009, and in 2011, when the currency was still struggling to gain traction, he wrote about it again at greater length, noting the similarity between bit gold and Bitcoin. He acknowledged that few people would have had the expertise and the instinct to create either of them:

“Myself, Wei Dai and Hal Finney were the only people I know of who liked the idea (or in Dai’s case his related idea) enough to pursue it to any significant extent until Nakamoto (assuming Nakamoto is not really Finney or Dai).”

That item, in May 2011, was one of the last posts Mr. Szabo made before he went on a lengthy hiatus to work, he said later, on a new concept he called temporal programming.

May 2011 was also the last time Satoshi communicated privately with other Bitcoin contributors. In an email that month to Martti Malmi, one of the earliest participants, Satoshi wrote, “I’ve moved on to other things and probably won’t be around in the future.”

Whoever it is, the real Satoshi Nakamoto has many good reasons for wanting to stay anonymous. Perhaps the most obvious is potential danger. Sergio Demian Lerner, an Argentine researcher, has concluded that Satoshi Nakamoto most likely collected nearly a million Bitcoins during the system’s first year. Given that each Bitcoin is now worth about $240, the stash could be worth more than $200 million. That could make Satoshi a target.

With his modest clothes and unassuming manner, Mr. Szabo could be the kind of person who could have a fortune and not spend any of it — or even throw away the keys to the bank. People who know him say he drives a car from the 1990s.

That modest outward appearance hasn’t diminished the deference toward him among Bitcoin cognoscenti. Potential employees were drawn to Vaurum when they heard that Mr. Szabo worked there, people who interviewed at the company said. They wanted to work alongside the person they suspected could be Satoshi Nakamoto — or who at least participated in Bitcoin’s invention.

>>> ITV rumoured to be in sights of Comcast - FT

ITV rumoured to be in sights of Comcast 

Shares in ITV lifted amid speculation the London-based television broadcaster could be a takeover target for Comcast of Philadelphia, Pennsylvania, the Financial Times reported. The market report said a 1.8% boost to ITV’s share price followed the takeover chatter and post-results upgrades.

UK-listed ITV has a current market capitalisation of GBP 10.547bn (USD 16.584bn); Comcast, which owns NBCUniversal, has a USD 142.267bn market cap on the Nasdaq exchange.

The original article appeared in print; page 20.

Financial Times

(NY Post) Dan Loeb’s Third Point sells entire $1B share stake in Alibaba

Dan Loeb’s Third Point sells entire $1B share stake in Alibaba

Hedge fund heavyweights dumped their stakes in Alibaba during the first quarter after the Chinese e-commerce giant disappointed investors with a revenue miss just a few months after its blockbuster initial public offering.
Dan Loeb’s Third Point sold its entire $1 billion, 10-million share stake in Alibaba, while John Paulson dumped his 1.9 million shares by the end of the first quarter, according to quarterly filings of hedge funds’ stock holdings Friday.
Jamie Dinan’s York Capital sold 2.8 million shares, and PointState Capital, run by alums of Stanley Druckenmiller’s Duquesne Capital, sold 1.2 million shares, leaving it with 20,000.
Alibaba’s stock is down 15 percent this year after the revenue miss in January sparked a brutal sell-off. Still, some hedgies — Soros Fund Management, Tiger Global Management, Viking Global Investors and Moore Capital Management — took the opportunity to boost their stakes.

Pershing Square sold almost all of its shares of Actavis, which the hedge fund acquired when the drugmaker’s cash and stock merger with botox maker Allergan was completed in March. Ackman had only $401 million worth of Actavis stock at quarter’s end — about $5 billion less than Allergan’s value at year-end. The activist was unsuccessful in convincing Allergan to merge with Valeant, so he took the Allergan winnings and plowed them into Valeant, where he had a $3.9 million stake at the end of March.
Seth Klarman’s Baupost Group took a new stake in Pioneer Natural Resources, buying 3.16 million shares to make it one of the energy company’s top holders. Stanley Druckenmiller’s Duquesne family office also took a small a stake in Pioneer.
The company’s shares have been declining in recent weeks, following a take-down presentation by David Einhorn, which called it the “mother fracker” and predicted the entire industry was headed for trouble due to lower oil prices. Pioneer is up 4 percent this year, but still down 11 percent since Einhorn trashed it.
Leon Cooperman’s Omega Advisors has sold his 383,790 shares of Apple, a small position. Although Apple is up 17 percent this year, its Apple Pay system is a competitor to one being developed by Monetise, a favorite holding of Cooperman’s.
After energy stocks and Monetise pummeled Cooperman’s portfolio last year, he’s up 5.43 percent through April.
Einhorn, whose Greenlight Capital is down 2.2 percent for the year, pared his Apple stake by more than 1 million shares and dumped more than 15 million shares of Marvell Technology, a longtime holding. He took a new 9.5 million position in GM and a small stake in Bank of New York Mellon, which is the focus of activist pressure from Mick McGuire of Marcato Capital.
Paulson also took a $800 million stake in American International Group, which was also a new holding of Andreas Halvorsen’s Viking Global Investors.

(Barron's) Barron’s Best 100 Hedge Funds: 2015 List



Barron’s Best 100 Hedge Funds: 2015 List

Indexing may be in style, but old-fashioned stockpickers rule our list.

Equities dominated Barron’s Penta top 100 hedge fund rankings for the second straight year on the back of a record-breaking bull market now well into its seventh year. Once again, Larry Robbins’ Glenview Offshore Opportunity fund claimed the No. 1 spot, with an impressive three-year annualized gain of 57%.

Even with the recent gyrations in equity markets, stockpicker Robbins is bullish.

“The market continues to show favorable conditions, including valuations that remain attractive, excessive corporate cash balances, and underlevered balance sheets,” says Robbins. What’s more, he sees corporate executives and boards more open to share repurchases, capital improvements, and acquisitions.

Two other positives: Robbins expects the economy to grow at a solid rate and sees systemic risk ratcheted down by central bank and regulatory policies.


Larry Robbins, head of our No. 1 ranking hedge fund, Glenview Offshore Photo: Roger Hagadone for Barron’s

Accordingly, he continues to find opportunities, noting that 40% of his top 20 performers last year were new to his portfolio. For example, he established a 14% stake in the country’s largest operator of animal hospitals -- VCA (ticker: WOOF). He sees the industry as defensive, and the shares cheap at 14.5 times 2015 earnings, and expects top-line expansion of 5% to 6% for the business after several years of dormant growth following the financial crisis. VCA is now in the midst of a $400 million share buyback; the company is making more acquisitions, and the stock has soared from $32 to $53 since Robbins moved in just two quarters ago.

The stellar returns of Robbins and others on our Best 100 list stand out in a year when oil prices plummeted, the U.S. dollar surged, the Federal Reserve kept bond investors on edge, and the Cold War suddenly heated up in Ukraine. Such challenges proved difficult for many funds. Many high-caliber firms didn’t qualify for our list this year, including Ray Dalio’s Bridgewater Associates, David Einhorn’s Greenlight Capital, Chase Coleman’s Tiger Global, and Paul Singer’s Elliott Management.

Another measure of the challenging environment: the closure of some venerable fund names, including Dan Arbess’ Perella Weinberg Xerion fund, which had specialized in distressed credit and special situations, and Brevan Howard’s commodity fund. Several macro funds also shut down, including Josh Berkowitz’s Woodbine Capital Advisors, Keith Anderson’s Anderson Global Macro, and Kingsguard Advisors. And Everest Capital shuttered six of its seven funds after being smacked by the Swiss franc. Industry data analyst HFR reported that in all, 864 funds closed in 2014, a slight decrease from 904 the year before.

The Barron’s Penta survey underscores the great disparities in recent hedge fund performance, a source of controversy to investors who pay top dollar and pushed industry assets past the $3 trillion mark by at least one tally last year. According to BarclayHedge, the average hedge fund returned 7.36% annualized over the three years ended in 2014 (our benchmark); the average for our Best 100 exceeded 21%, net of fees, about a percentage point better the average return of the Standard & Poor's 500.


Brian Gonick and Richard Mashaal, managers of No. 2 Senvest Partners Photo: Gary Spector for Barron’s

The good news for investors is that the average hedge fund management fee declined to 1.51% from 1.54% last year, while performance fees dropped to 17.8% from 18.2%, says HFR.

Like Robbins, almost half of our best performers invested in stocks. Many are great long-term investors who don’t trade frequently, and others, such as Nelson Peltz’s Trian Partners (No. 87), William Ackman’s Pershing Square (No. 54), and Robbins, use their equity stakes to lobby for corporate changes.

Our No. 2 this year is a stockpicker, Richard Mashaal of Senvest Partners, who registered an annualized gain of 44% on the strength of selections like DepoMed(DEPO), which makes pain-management drugs; videogame maker Take-Two Interactive Software (TTWO), publisher of Grand Theft Auto; and Howard Hughes(HHC), a real estate developer whose portfolio includes the South Street Seaport in New York.

Michael Masters $768 million Marlin fund claimed the third spot by focusing primarily on long equity positions, registering three-year annualized returns of 41.63%.

The fourth-place finisher was Camox. Jonathan Herbert’s fund buys small- and mid-cap European stocks, which few expected to excel when 2014 got under way. “Europe is fundamentally stronger than it’s perceived,” explains Herbert, “and its growth engines -- German, Swiss, Austrian, Northern Italian, and Scandinavian global exporters -- are not only firing on most cylinders but many are now getting an added boost from the cheaper currency.” His winners: Temenos Group (TEMN.Switzerland), a global leader in banking software, and Duerr (DUE.Germany), a major provider of auto-plant engineering and paint systems. Camox scored an annualized three-year gain of 36%.

Credit continued its strong showing with more than a quarter of the Best 100 funds’ strategies focused on debt. Brendan McAllister, co-manager of Pine River Fixed Income, No. 51, said agency-backed residential mortgage-backed securities and commercial mortgage-backed securities were clearly the highlights in his fund’s modest 6% return in 2014. This year, he sees strong potential in structured credit. And he believes that the return of volatility to fixed-income markets, which he says was lacking last year, will enhance opportunities.


Jonathan Herbert of No. 4 Camox Photo: Chris Gloag for Barron’s

So how did Barron’s Penta identify these managers? We initially screen out narrow industries and small regions, excluding funds that invest in only one sector or country, and we avoid commodity-focused funds. We will include Asian-Pacific funds, for example, but not China-centric ones. Gold or energy funds are omitted, but diversified commodity trading advisors (aka, managed futures) are considered. And to ensure that we are reporting the results of professionally run shops that offer stability and sufficient liquidity, funds must have at least $300 million and a three-year track record as of Dec. 31, 2014.

Our search starts with information provided by three major hedge fund databases: BarclayHedge, Morningstar, and eVestment, which collectively sort through thousands of funds that meet our basic requirements. We also rely on a variety of industry contacts and proprietary sources to track down funds that operate below most radar screens. Funds are then arranged by three-year performance, with each contacted to confirm accuracy of data and strategy. This year’s reporting was assisted by Contributing Editor Michael Shari and Researcher Yue Jiang.

Noteworthy repeat performers on this year’s list include Michael Hintze’s CQS, Ken Griffin’s Citadel, and Steve Kuhn’s Pine River, each of which have made the list four times; David Tepper’s Appaloosa, claimed a spot for the fifth time.

Will hedged equity funds continue their strong performance? Despite the market’s being only up fractionally through the first quarter of the year, the trend in hedge funds is continuing with equity long-bias and long-short funds up 2.64% and 2.82%, respectively. Global macro has had the quickest start, up 3.79%, nearly matching its return for all of last year. Event driven is up 2.26%; fixed-income arbitrage has climbed 2.25%.

But to thrive for the rest of the year, managers will have to navigate the challenges posed by expanding interest-rate differentials, volatile exchange rates, and continued oil shocks -- which have so far been on the downside. But that could turn on a dime.

Camox’s Herbert, in fact, has turned defensive as his net long position has collapsed from last year’s 95% to 30% during the first quarter of 2015. His long book weight hasn’t changed, but he has ratcheted up his short exposure from 35% to 80%, having loaded up with shorts of the German DAX. But longer term, he remains bullish on Europe.

Senvest has similarly altered its portfolio. It’s maintaining its gross long weight, adding Fiat Chrysler as an ongoing restructuring story, and European financials and real estate investment trusts, including the Bank of Cyprus, Irish Green REIT (GRN.Ireland), Dalata Hotel Group (DHG.Ireland), and Spanish Axia Real Estate (AXIA.Spain). But it has boosted its gross shorts from 15% to 50%, including a bet against McDonalds. “We think its best days are behind it,” explains Mashaal, “and no financial engineering can alter the fundamental trends we see.”

With all of the macro rumblings, Michael Hintze, manager of CQS Directional Opportunities fund (No. 60), expects greater return differentiation among asset classes. Keeping his cards close to his vest, he does give a nod to biotech, robotics, and cybersecurity shares. He believes that the dollar will continue its rally, and with European quantitative easing now a reality, the Continent should offer opportunity. But he urges caution for the medium term, should European leaders further defer fundamental change.

Hintze’s multi-strategy approach keeps his options open. But with the persistence of cheap money, the lack of yield except in stock dividends, plummeting energy prices helping to keep a lid on inflation, and loose central-bank monetary policy, equity managers should be poised for another very decent year.

(Barron's) Barron’s Best 100 Hedge Funds: 2015 List

Barron’s Best 100 Hedge Funds: 2015 List (Full list attached)
Indexing may be in style, but old-fashioned stockpickers rule our list.

Equities dominated Barron’s Penta top 100 hedge fund rankings for the second straight year on the back of a record-breaking bull market now well into its seventh year. Once again, Larry Robbins’ Glenview Offshore Opportunity fund claimed the No. 1 spot, with an impressive three-year annualized gain of 57%.

Even with the recent gyrations in equity markets, stockpicker Robbins is bullish.

“The market continues to show favorable conditions, including valuations that remain attractive, excessive corporate cash balances, and underlevered balance sheets,” says Robbins. What’s more, he sees corporate executives and boards more open to share repurchases, capital improvements, and acquisitions.

Two other positives: Robbins expects the economy to grow at a solid rate and sees systemic risk ratcheted down by central bank and regulatory policies.


Larry Robbins, head of our No. 1 ranking hedge fund, Glenview Offshore Photo: Roger Hagadone for Barron’s
Accordingly, he continues to find opportunities, noting that 40% of his top 20 performers last year were new to his portfolio. For example, he established a 14% stake in the country’s largest operator of animal hospitals -- VCA (ticker: WOOF). He sees the industry as defensive, and the shares cheap at 14.5 times 2015 earnings, and expects top-line expansion of 5% to 6% for the business after several years of dormant growth following the financial crisis. VCA is now in the midst of a $400 million share buyback; the company is making more acquisitions, and the stock has soared from $32 to $53 since Robbins moved in just two quarters ago.

The stellar returns of Robbins and others on our Best 100 list stand out in a year when oil prices plummeted, the U.S. dollar surged, the Federal Reserve kept bond investors on edge, and the Cold War suddenly heated up in Ukraine. Such challenges proved difficult for many funds. Many high-caliber firms didn’t qualify for our list this year, including Ray Dalio’s Bridgewater Associates, David Einhorn’s Greenlight Capital, Chase Coleman’s Tiger Global, and Paul Singer’s Elliott Management.

Another measure of the challenging environment: the closure of some venerable fund names, including Dan Arbess’ Perella Weinberg Xerion fund, which had specialized in distressed credit and special situations, and Brevan Howard’s commodity fund. Several macro funds also shut down, including Josh Berkowitz’s Woodbine Capital Advisors, Keith Anderson’s Anderson Global Macro, and Kingsguard Advisors. And Everest Capital shuttered six of its seven funds after being smacked by the Swiss franc. Industry data analyst HFR reported that in all, 864 funds closed in 2014, a slight decrease from 904 the year before.

The Barron’s Penta survey underscores the great disparities in recent hedge fund performance, a source of controversy to investors who pay top dollar and pushed industry assets past the $3 trillion mark by at least one tally last year. According to BarclayHedge, the average hedge fund returned 7.36% annualized over the three years ended in 2014 (our benchmark); the average for our Best 100 exceeded 21%, net of fees, about a percentage point better the average return of the Standard & Poor's 500.


Brian Gonick and Richard Mashaal, managers of No. 2 Senvest Partners Photo: Gary Spector for Barron’s
The good news for investors is that the average hedge fund management fee declined to 1.51% from 1.54% last year, while performance fees dropped to 17.8% from 18.2%, says HFR.

Like Robbins, almost half of our best performers invested in stocks. Many are great long-term investors who don’t trade frequently, and others, such as Nelson Peltz’s Trian Partners (No. 87), William Ackman’s Pershing Square (No. 54), and Robbins, use their equity stakes to lobby for corporate changes.

Our No. 2 this year is a stockpicker, Richard Mashaal of Senvest Partners, who registered an annualized gain of 44% on the strength of selections like DepoMed (DEPO), which makes pain-management drugs; videogame maker Take-Two Interactive Software (TTWO), publisher of Grand Theft Auto; and Howard Hughes (HHC), a real estate developer whose portfolio includes the South Street Seaport in New York.

Michael Masters $768 million Marlin fund claimed the third spot by focusing primarily on long equity positions, registering three-year annualized returns of 41.63%.

The fourth-place finisher was Camox. Jonathan Herbert’s fund buys small- and mid-cap European stocks, which few expected to excel when 2014 got under way. “Europe is fundamentally stronger than it’s perceived,” explains Herbert, “and its growth engines -- German, Swiss, Austrian, Northern Italian, and Scandinavian global exporters -- are not only firing on most cylinders but many are now getting an added boost from the cheaper currency.” His winners: Temenos Group (TEMN.Switzerland), a global leader in banking software, and Duerr (DUE.Germany), a major provider of auto-plant engineering and paint systems. Camox scored an annualized three-year gain of 36%.

Credit continued its strong showing with more than a quarter of the Best 100 funds’ strategies focused on debt. Brendan McAllister, co-manager of Pine River Fixed Income, No. 51, said agency-backed residential mortgage-backed securities and commercial mortgage-backed securities were clearly the highlights in his fund’s modest 6% return in 2014. This year, he sees strong potential in structured credit. And he believes that the return of volatility to fixed-income markets, which he says was lacking last year, will enhance opportunities.


Jonathan Herbert of No. 4 Camox Photo: Chris Gloag for Barron’s
So how did Barron’s Penta identify these managers? We initially screen out narrow industries and small regions, excluding funds that invest in only one sector or country, and we avoid commodity-focused funds. We will include Asian-Pacific funds, for example, but not China-centric ones. Gold or energy funds are omitted, but diversified commodity trading advisors (aka, managed futures) are considered. And to ensure that we are reporting the results of professionally run shops that offer stability and sufficient liquidity, funds must have at least $300 million and a three-year track record as of Dec. 31, 2014.

Our search starts with information provided by three major hedge fund databases: BarclayHedge, Morningstar, and eVestment, which collectively sort through thousands of funds that meet our basic requirements. We also rely on a variety of industry contacts and proprietary sources to track down funds that operate below most radar screens. Funds are then arranged by three-year performance, with each contacted to confirm accuracy of data and strategy. This year’s reporting was assisted by Contributing Editor Michael Shari and Researcher Yue Jiang.

Noteworthy repeat performers on this year’s list include Michael Hintze’s CQS, Ken Griffin’s Citadel, and Steve Kuhn’s Pine River, each of which have made the list four times; David Tepper’s Appaloosa, claimed a spot for the fifth time.

Will hedged equity funds continue their strong performance? Despite the market’s being only up fractionally through the first quarter of the year, the trend in hedge funds is continuing with equity long-bias and long-short funds up 2.64% and 2.82%, respectively. Global macro has had the quickest start, up 3.79%, nearly matching its return for all of last year. Event driven is up 2.26%; fixed-income arbitrage has climbed 2.25%.

But to thrive for the rest of the year, managers will have to navigate the challenges posed by expanding interest-rate differentials, volatile exchange rates, and continued oil shocks -- which have so far been on the downside. But that could turn on a dime.

Camox’s Herbert, in fact, has turned defensive as his net long position has collapsed from last year’s 95% to 30% during the first quarter of 2015. His long book weight hasn’t changed, but he has ratcheted up his short exposure from 35% to 80%, having loaded up with shorts of the German DAX. But longer term, he remains bullish on Europe.

Senvest has similarly altered its portfolio. It’s maintaining its gross long weight, adding Fiat Chrysler as an ongoing restructuring story, and European financials and real estate investment trusts, including the Bank of Cyprus, Irish Green REIT (GRN.Ireland), Dalata Hotel Group (DHG.Ireland), and Spanish Axia Real Estate (AXIA.Spain). But it has boosted its gross shorts from 15% to 50%, including a bet against McDonalds. “We think its best days are behind it,” explains Mashaal, “and no financial engineering can alter the fundamental trends we see.”

With all of the macro rumblings, Michael Hintze, manager of CQS Directional Opportunities fund (No. 60), expects greater return differentiation among asset classes. Keeping his cards close to his vest, he does give a nod to biotech, robotics, and cybersecurity shares. He believes that the dollar will continue its rally, and with European quantitative easing now a reality, the Continent should offer opportunity. But he urges caution for the medium term, should European leaders further defer fundamental change.

Hintze’s multi-strategy approach keeps his options open. But with the persistence of cheap money, the lack of yield except in stock dividends, plummeting energy prices helping to keep a lid on inflation, and loose central-bank monetary policy, equity managers should be poised for another very decent year.

Fwd:(ZeroHedge) Greece Will Default On June 5 Without Deal, IMF Leaks

Greece Will Default On June 5 Without Deal, IMF Leaks

Another week came and went with no breakthrough in negotiations between Greece and its creditors. The IMF is now fed up and has reportedly refused to be a part of any new bailout program for Greece, after Athens drew down its SDR reserves to makes its latest payment to the Fund. That money will now need to be repaid and in a move that surely marks the new gold standard for absurd circular funding schemes, Greece will likely look to use the next tranche of IMF money to payback its IMF SDR reserve which it tapped to pay the IMF. The country’s public sector employees live in limbo, not knowing from one week to the next whether they will be paid and commuters are now subjected to a 50 second looped highlight reel of the Nazi occupation meant to rally the country behind the government’s quarter trillion euro war reparations claim (they might as well just ask for a 'gagillion') on Germany which has now become the symbol of tyranny and debt servitude for many Greek citizens. 
Given the situation, one would be inclined to think that Alexis Tsipras would be falling all over himself to cut a deal with creditors because while giving up on campaign promises to voters isn’t ideal, it’s better than going down in history as the PM who sent the country careening into a drachma death spiral, and besides, giving up on campaign promises is something most politicians do all the time (it’s a job requirement for the US presidency). Alas we were back to the now ubiquitous ‘red line’ rhetoric on Friday as Tsipras continued to employ the “tell EU officials one thing behind close doors and tell the public the exact opposite a day later” negotiating technique. Here’s more from Bloomberg:
Greece won’t cross its red lines in negotiations with international creditors just because time is pressing to close a deal, Prime Minister Alexis Tsipras said.

 

“Those who think that our red lines will fade as time goes on would do well to forget it,” Tsipras said at a conference in Athens late Friday. “I want to assure the Greek people that there’s no way the government will back down on the issue of pension and wage cuts,” he said. “A deal must be reached but it must be mutually beneficial.”
Europe is once again set to take the stalled negotiations down to the wire as it now appears the next serious round of talks will come in Riga (the site of an epic Varoufakis meltdown that saw the FinMin tweeting out melodramatic FDR quotes after he was forced to have dinner by himself while his EU counterparts attended a gala) when Tsipras will try to close a deal by the end of the month.
Tsipras will address the standoff in bailout negotiations on the sidelines of a meeting of European Union leaders to be held May 21-22 in Riga, Latvia, according to a Greek government official who asked not to be identified as the diplomacy is not public.
If a deal isn’t struck by the end of May, it is truly game over. Here’s the ECB’s Yves Mersch:
“We are in an end game in Greece where the situation is grave. This situation is not tenable. There has been an accord between Europe and Greece to go through a program. This hasn’t been the case since December last year, because the new government said it doesn’t want to have anything to do with the program. But then they can’t demand money that was attached to that program either. In the meantime, they haven’t managed to bring other measures to the table that could lead to the same goal as foreseen in the first program. Greece is convinced it can play along the line of other rules than” the other 18 euro-area members.”
Despite the obviously dire circumstances, the Syriza government still insists it will somehow scrape together cash to meet its obligations...
“Greece Will Pay Wages, Pensions, Varoufakis Tells Skai TV”
...while EU officials (who one imagines are at this point completely amazed at how obtuse the Greek government has proven to be) are left with no option but to remind Greece that Brussels is still waiting on a list of reforms…
“Dombrovskis Reminds Greece to Submit Reform List, Bild Reports”
….and at the end of the day, here is the reality (via Bloomberg)…
"Greece won’t be able to make IMF repayments, beginning with a June 5 payment, unless an agreement is reached with international partners, U.K.’s Channel 4 reports, citing a leaked IMF memo dated May 14."
*  *  *
As a reminder, here is the IMF procedure for a default and a matrix which outlines what a missed IMF payment would mean in terms of accelerated payment rights for Greece's other creditors:

(Barron's) L’Oréal CEO Jean-Paul Agon Sells Beauty to the World

L’Oréal CEO Jean-Paul Agon Sells Beauty to the World

Jean-Paul Agon, chief executive of French cosmetics and beauty giant L’Oréal, is used to smoothing out wrinkles. He’s good at handling other crises, too.
Agon was running L’Oréal’s German business in 1994 as Germany struggled with reunification. He headed Asian operations in 1997, when the Thai baht’s collapse provoked a regional economic meltdown. He took charge of L’Oréal USA in the summer of 2001, just before the Sept. 11 terrorist attacks. “It became a bit of a joke that wherever I sent him, there was going to be a crisis,” says the former CEO, Lindsay Owen-Jones, who quickly identified his flexible young protegé as a candidate for the executive suite.


Agon, 58, laughs off the notion that he was unlucky. “On the contrary, it was good training,” he says in an interview at L’Oréal’s headquarters, in a former soap factory in a Paris suburb. “Challenges make you discover strengths or talents or skills that you didn’t even think you had.”
Agon’s battle scars left him especially well prepared to assume L’Oréal’s helm in 2006, on the eve of the worst financial and economic crisis since the 1930s. While most companies retrenched, L’Oréal (ticker: OR.France) continued to invest in its dozens of makeup, skin-, and hair-care brands, which range from Maybelline, Garnier, and L’Oréal in the mass-market category to prestige names such as Lancôme, Yves Saint Laurent, Giorgio Armani, and Kiehl’s. The strategy, which Agon first tried successfully during the Asian downturn, paid off handsomely, helping L’Oréal secure its position as the world’s largest beauty-products seller based on annual revenue, ahead of Unilever (UL) and Procter & Gamble (PG).
L’OREAL’S SPENDING ON research, development, and marketing also laid the foundation for rapid growth, and positioned the company to potentially double its customer base in coming years. Sales are forecast to rise almost 14% this year, to 25.6 billion euros ($29.12 billion) while earnings could climb 13%, to €3.6 billion, or €6.30 a share. Analysts are projecting earnings of €6.80 a share in 2016, on revenue of €27 billion.
In Agon’s first year on the job, L’Oréal netted €1.8 billion, on revenue of roughly €16 billion.
L’Oréal’s sales are geographically diverse, with Western Europe accounting for 36% of annual revenue; North America contributing 25%; and Asia-Pacific, 21%. The remainder comes from Eastern Europe, Latin America, Africa, and the Middle East. The company claimed 12.5% of the global market for cosmetics and beauty products in 2014.


L’Oréal Luxe, which sells prestige makeup, skin-care, and fragrance brands through department stores, is doing particularly well. It generated more than a quarter of last year’s revenue, or €6 billion.
Customers haven’t been the only beneficiaries of L’Oréal’s growth. The company’s shares, which fetched €170.15 late last week, have returned an average of 14% a year for the past decade—and 21.7% in each of the past five years, including dividends. L’Oréal pays an annual dividend of €2.70 a share, for a yield of 1.6%. At a ratio of 27 times this year’s expected earnings, the stock looks expensive, but investors have been willing to pay up for consistent performance.
L’ORÉAL WAS FOUNDED in 1909 by Eugène Schueller, a French chemist of German descent. Schueller developed hair dyes from chemical compounds and produced a range of colors that were more subtle than other dyes then available. Parisian hairstylists were persuaded to use the dyes, originally called Aureale, which evolved into L’Oréal, and Schueller hired representatives to sell them through France. Even before the outbreak of World War I, use of L’Oréal’s dyes had spread through Europe and even reached the U.S.
As more women joined the workforce after the war, they had more money to spend on beauty care, and the company flourished. But Schueller’s reputation was tarnished during World War II, when he founded and funded an extreme right-wing group that collaborated with the Nazis and supported France’s Vichy government. After the war, L’Oréal hired some of the movement’s members as executives, and Schueller’s only daughter, Liliane, married one.

Liliane Bettencourt, as she is known, inherited her father’s stake in the company on his death in 1957. L’Oréal went public in 1963, but Bettencourt retained a majority holding. In 1974, fearful that the French government might nationalize the company, she exchanged almost half of her stake for shares in Swiss foods giant Nestlé (NESN.Switzerland).


The arrangement provided a firm foundation for L’Oréal that has lasted more than 40 years. The two companies began to unwind the cross-shareholding last year when Nestlé sold an 8% stake in L’Oréal back to the French company. Nestlé’s stake currently stands at 23%, while the Bettencourt family own 33%. Liliane, 92, has no role in the company, although her daughter, son-in-law, and grandson sit on the board.
“L’Oréal’s success is linked to the excellent relationship that has always been between management and the Bettencourt family,” says Agon.
Continuity of management arguably has been as important as a stable shareholder base. Agon is only the fifth CEO in L’Oréal’s history. He says he has no plans to retire soon—his mother worked until she was 85—and that his eventual successor will be a L’Oréal insider.
The company’s mission, based on product innovation, quality, and safety, hasn’t changed much, either. “I strongly believe that I am continuing the legacy of my predecessors on the essentials, but the essentials are almost 90% of what is important,” Agon says.
The CEO sees his role as ensuring that L’Oréal adapts to a changing world. He hopes to make his mark by building a robust digital presence for the company, and promoting environmental sustainability.
Agon believes that digital technology can transform the relationship between consumers and brands, not only by offering a sales platform but also educating potential buyers about products before they go shopping. They need help understanding how to use the products, too, he says, noting that L’Oréal has responded by providing online tutorials.
Agon is equally committed to reducing L’Oréal’s carbon footprint—by 60% from 2005 levels. The company also aims, by 2020, to create new products using raw materials only from sustainable sources.
AGON GREW UP in Paris, where his father was a manager in the pharmaceuticals industry and his mother worked as an architect. An only child, he attended the prestigious École de Hautes Études Commerciales, or HEC Paris, a business school whose alumni include French President François Hollande and numerous captains of French industry. Agon studied finance, mainly to please his parents, but it didn’t interest him. “I was terribly bored,” he says. “I didn’t find it intriguing at all.”
He discovered a passion for marketing, however. “My head teacher said, ‘Jean-Paul, you are definitely very gifted [in] marketing,’ because, for every finance case, I found a marketing solution,” Agon says.
He was recruited from business school in 1978 by L’Oréal, and chose the job, in part, because of the opportunity for international travel. As a child, he had decorated his bedroom with maps of the different countries he dreamed of visiting, including Brazil, India, and China. A globe sits next to his desk in his office.
Agon’s passion for travel is well known among his colleagues. When traveling for business, he likes to visit countries for a minimum of a week to soak up the culture. Owen-Jones recalls a year in which Agon spent most of his time on the road, but used two weeks’ vacation at the end of it to take his family on a long-distance holiday. “I said, ‘What, are you crazy? Haven’t you taken enough planes already?’ ”
L’Oréal also gave Agon an opportunity to put his marketing talents to good use. The company is the world’s third-biggest spender on advertising, behind P&G and Unilever.
Sipping coffee, Agon suddenly grows animated when the subject turns to marketing beauty products. “If you do marketing for food products or detergents, it is pretty rational,” he says. “With beauty, you have some rationality, but you have a large part of emotionality. It is very cultural. It is linked to the image you have of yourself, or of the community. It is very much about imagination, intuition, taste.”
CHARLES REVSON, THE founder of Revlon (REV), called beauty products “hope in a jar.” Behind that hope is technology, a key focus of L’Oréal’s endeavors. L’Oréal spends 3.4% of annual revenue on research and development—equivalent to €760 million last year. Out of a workforce of 78,600, it employs 3,500 people in advanced research, focusing on areas such as the biology of skin and hair, and stem cells.
R&D has taken L’Oréal in some unlikely directions. In 1970, it acquired control of the French pharmaceuticals company Synthélabo to advance its research into dermatology. After several drug-industry mergers, that investment has evolved into a 9% stake in the pharmaceuticals giant Sanofi (SAN.France), a holding that is now worth more than €11 billion. L’Oréal views the investment as financial, and it could be sold if the company needs the money to pursue other opportunities. “We will be ready to use it if we need it,” Agon says.
Acquisitions have been an important part of L’Oréal’s growth story. Of the company’s 25 international brands, only the L’Oréal brand was developed in-house. The company’s acquisition strategy is simple, if not always easy to achieve. “The L’Oréal way is to acquire small businesses that can become very big,” Agon says.
Agon points to Maybelline as an example. It was a Memphis, Tenn.–based, predominantly U.S. brand with $300 million in annual sales when L’Oréal bought it in 1996. Under the L’Oréal umbrella, it has become the No. 1 cosmetics brand worldwide, with estimated sales of about €2 billion.
Agon sees strong potential for other L’Oréal brands, including Redken, in hair care; Kiehl’s, in skin care; and the makeup line Urban Decay. Brands like these could help push the company into new markets and realize Agon’s ambitious goals. L’Oréal sells six billion products a year, and had an estimated one billion customers in 2009. The CEO is aiming for two billion customers in the next 10 to 12 years.
THE FIRST BILLION were mostly in Europe and North America, with some customers in Latin America and China. The next billion, he says, will come primarily from Asia, Latin America, and Africa. Their needs will be different, and will force L’Oréal to adjust its R&D, marketing, and production. The company must adapt products from region to region to cater to different skin and hair types, climates, traditions, and beauty regimes.
“You can’t just invent a [beauty] product and sell the same product to everyone,” says Agon. “It is not like Coca-Cola. You cannot just globalize one product, one taste, one performance.”
Yet, while the breadth and scope of L’Oréal’s business have changed, Agon reckons that the company has changed little in the past half-century. “It is much bigger,” he says. “We are at a different stage of the adventure. But it is still the same adventure with the same goal, the same vision, and the same ambition.”

(Barron's) Deal or No Deal, Syngenta’s Worth a Bet


Deal or No Deal, Syngenta’s Worth a Bet

It isn’t too late to bet on Syngenta, despite a run-up in the share price following a $45.75 billion preliminary bid by Monsanto.


A higher, knockout blow from Monsanto would hand Syngenta shareholders a big windfall. But if that doesn’t materialize, investors in the Swiss specialty-chemicals company still can profit from its promising plan to generate savings and efficiencies.
Syngenta’s stock (ticker: SYNN.Switzerland) has jumped 22% since May 8, when the company reported it had rejected an unsolicited proposal. Syngenta said the approach undervalues its prospects and underestimates the execution risk, primarily from regulators. The proposal from Monsanto (MON) is worth 449 Swiss francs ($491) a share, with 45% in cash and the remainder in shares. It’s a good opening gambit, but a bid about 10% higher, with a larger portion of cash, might be needed to soften Syngenta’s resistance.
At Friday’s close around 400 francs, Syngenta’s shares are about 11% below the indicative price. An offer in the region of 500 francs ($547) would represent about 25% upside. Syngenta’s American depository receipts, listed under the ticker SYT, were trading above $87 in New York at midday Friday.
Deutsche Bank analysts believe a deal is likely. They argue that, for Monsanto, a transaction would be 6% accretive to earnings per share in the first year and 13% in the second, owing to potential synergies, lower Swiss corporate taxes (Syngenta’s tax rate is 16%, versus Monsanto’s 28%), and low interest rates.
ASSUMING AN OFFER PRICE of 500 Swiss francs and including 100% of potential synergies, estimated at $1 billion, or 7% of Syngenta’s sales, this would imply a multiple of 17 times forecast 2016 earnings, and a ratio of enterprise value (stock-market value, plus net debt) to next year’s earnings before interest, tax, depreciation, and amortization of 12 times. “We believe this would be acceptable” for Monsanto, Deutsche Bank analysts say.


Financials aside, logic for the deal is compelling. A merger would link Syngenta’s market-leading crop-protection products, such as herbicides, insecticides, and fungicides, and Monsanto’s dominant position in agricultural and vegetable seeds.
There is some overlap, which could stir regulators. Importantly, Syngenta’s market share in seeds is about 8%. Adding that to Monsanto’s 25% might set off alarm bells. But Monsanto could divest Syngenta’s seeds business to dispel competition worries. Bayer (BAYN.Germany) and BASF (BAS.Germany) are unlikely to mount competing bids for Syngenta, due to financing and antitrust issues, but they could be interested in its seeds business.
Syngenta, based in Basel, doesn’t break out the performance of its seeds business, but Credit Suisse estimates that its enterprise value exceeds $8 billion.
Syngenta’s recent results have been unimpressive. It reported a 6% rise in sales last year, to $15.13 billion (it reports in dollars), but its performance was hurt by a dip in crop prices caused by high production, and by unfavorable exchange rates, particularly in Russia and Ukraine. Profit was $1.62 billion, or $17.60 a share. For 2015, earnings are projected at $1.51 billion, or $16.36, on $14.41 billion of revenue. However, estimates for 2016 are much more bullish, with profit climbing to $1.8 billion, or $19.52 a share, on $15.12 billion in revenue.
That is partly due to a plan to optimize the cost structure and enhance efficiencies. Savings this year are targeted at $265 million. That figure could be $1 billion by 2018. That’s why, if the Monsanto deal fails, some investors will stick with Syngenta.


James Laing, deputy head of pan-European equities at Aberdeen Asset Management, likes Syngenta’s exposure to emerging markets, which accounts for more than half its revenue; the breadth of its portfolio; and its pipeline of exciting new products. “This bid just highlights the value embedded within it,” says Laing. (He has no target price, but says 400 francs doesn’t represent fair value.)
An investment in Syngenta could yield a bumper harvest.
AN M&A DEAL THAT COULD BE A TOUGHER to push through is the possible combination of food retailers Royal Ahold (AH.Netherlands) and Delhaize (DELB.Belgium).
The companies confirmed May 12 that they are in preliminary discussions that could lead to the creation of a grocer with 54 billion euros ($61.56 billion) in annual sales and leading positions in the Netherlands, Belgium, and the east coast of the U.S. Ahold, which owns Stop & Shop, could offer a 30% to 40% premium to Delhaize’s share price before the talks were disclosed. Delhaize operates Hannaford and Food Lion.
That translates to a takeout price of €94 and €101. Based on Delhaize’s closing price Friday of €83.58, that would represent a premium of 12.5% to 20.8%. Its ADRs (DEG) were trading above $23.
A merger seems to make sense, with analysts at Société Générale calculating potential synergies at €540 million, and value creation at €11 billion. But they caution that the most recent deals in the sector have been disappointing.
Delhaize’s stock was discussed favorably in this column last year (“Time to Put Delhaize in Your Cart,” April 7). It is up about 60% since then, but it still could have a way to go. Investors might want to make space in their shopping carts.