(Barrons) The Merger Boom Is Far From Over

The Merger Boom Is Far From Over
Regulators scotched two major acquisitions, but that doesn’t mean corporate deal-making will slow. The key driver: excess cash.

Mergers and acquisitions have staged a post-financial-crisis comeback, as companies look to put their cash hoards to use in ways that will boost growth. Investors have encouraged the couplings by rewarding not just the acquired company but the acquirer, while regulators have cast a blind eye toward the pairing-off.

In the past two weeks, however, government opposition killed two potential mega-mergers, raising questions as to whether the laissez-faire days have passed. While renewed government interest could make M&A more risky—and force investors to be more discerning—it doesn’t mean the end of the merger boom. To the contrary, it might just be gaining steam.

It isn’t hard to see why everyone’s loving the M&A party. U.S. corporations have plenty of cash on their balance sheets, but with interest rates still low—the 10-year U.S. Treasury yielded 2.1% Friday—they’re earning almost nothing on it. Those measly rates drag down returns on capital, in effect punishing companies for not pursuing growth. While share buybacks have been a popular way to put that cash to use, acquiring another company, especially one that is a good fit, seems like a no-brainer. Hence, the reward for both buyers and sellers.

Wells Fargo’s Gina Martin Adams notes that the average company in the Standard & Poor’s 500 index involved in a transaction has outperformed the benchmark during the month after a deal announcement in each of the past three years. This year, the average M&A participant has gained about 1.4 percentage points more than the S&P 500. “Investors are rewarding companies that are pursuing growth instead of hoarding cash,” Martin Adams says.

That is unlikely to stop, despite regulatory intervention. Last week, Department of Justice opposition on antitrust grounds scuttled chip-maker Applied Materials ’ (ticker: AMAT) planned acquisition of Tokyo Electron (8035.Japan). The prior week, Comcast (CMCSA) called off its merger with Time Warner Cable (TWC), also citing DOJ opposition. Applied Materials dropped 8.4% last Monday when its plans were upended, and ended the week down 8.3% to $19.99.

To say that these rejections were a shock would be an understatement. After all, the DOJ allowed major airlines to join forces, demanding only that certain carriers dispose of some gates at airports around the country.

Does the latest action signal a newfound desire by the government to play trust buster? No, says Roy Behren, co-portfolio manager of the $5.2 billion Merger fund (MERFX). He notes that the DOJ didn’t reject the deals for political reasons, but for specific concerns with each transaction. “It doesn’t mean a sea change in how the government is looking at transactions,” he says.

Strategas Research Partners’ Dan Clifton won’t rule out the possibility, however. He’s paying special attention to mergers in which the second- and third-largest companies in an industry combine to take on the dominant player. For instance, in the oil-services arena Halliburton (HAL) is buying Baker Hughes (BHI), and will become a more formidable competitor to Schlumberger (SLB). Likewise, tobacco companies Lorillard (LO) and Reynolds American (RAI) are joining forces to better compete with Altria Group (MO). Clifton is watching both deals for clues as to what regulators are thinking. If either gets rejected, it could mean the premium awarded to acquirers’ shares shrinks or disappears altogether. “You might not see companies get as rewarded unless the deals are slam dunks,” he says.

BUT EVEN MORE active oversight won’t keep companies from joining forces. For starters, some can’t afford not to merge. Citigroup analyst Jason Bazinet notes that after the failure of the Comcast-Time Warner Cable merger, most cable companies are priced as if another deal will happen. He estimates that Time Warner Cable has $33 of M&A value in its stock price, while Charter Communications (CHTR) has $35, and Cablevision Systems (CVC) $4. The upshot: “Sellers may feel compelled to sell because, absent a sale, their equity value may fall,” he says.

Indeed, there is now chatter about a Charter-Time Warner Cable merger, which Bazinet gives 80% odds.

The abundance of cash is likely to remain the driving force. Credit Suisse strategist Andrew Garthwaite figures that the cash on corporate balance sheets and in private-equity coffers worldwide, adjusted for the use of leverage, leaves some $4.3 trillion—or 10% of global market cap—potentially available for mergers and acquisitions.

Further deal-making could provide support for the stock market, Garthwaite says. He notes that the value of M&A in the past 12 months as a percentage of market cap is still 40% below its long-term average, leaving plenty of upside for mergers. That’s good news because the stock market usually doesn’t peak until about eight months after a merger boom crests.

(Barron's) China’s Long Bull Run

China’s Long Bull Run
The booming Hong Kong stock market could push up, but not without some bumps along the way. Eight stocks and one ETF for the long term.

China’s President Xi Jinping was born in the Year of the Snake, but at heart he is China’s biggest bull. Already, China’s paramount leader has orchestrated the planet’s hottest recent bull market: Over the past year, Chinese stocks available to mainland investors have surged a staggering 119% in Shanghai and 121% in Shenzhen, with the biggest gains coming since November. The offshore stock market in Hong Kong -- open to foreigners and laden with Chinese listings as well as global companies from Prada to Samsonite -- has lagged but is starting to catch up, jumping 13% in April alone.


Investors on the Chinese mainland recently opened new stock market accounts at a rate of 4.1 million a week; that’s up from 70,000 a year ago. And many are borrowing to swell the herd. Photo: istock
The scary part: Chinese stocks are braving seven-year highs just as economic growth slows to 7% from 12% five years ago.

You’d think a monster rally egged on by great expectations of monetary easing and market reform would attract a lot of attention, and it has -- starting with the locals. With real estate stagnant and stern restrictions on investing overseas, mainlanders seem only too happy to cheer on a homegrown bull. Local investors recently opened new stock market accounts at a rate of 4.1 million a week, up from about 70,000 a year ago. Many are borrowing to swell the herd, and margin balances have surpassed 1.6 trillion yuan ($258 billion), up from 300 billion yuan 16 months ago. By mid-April, BNP Paribas estimated, more than 70% of mainland-listed stocks were commanding prices exceeding 50 times earnings, while 40% fetched more than 100 times earnings.

Clearly, Red China’s bull run can give you a high like you’d get from guzzling too much Red Bull. “Mainland investors’ optimism toward the stock market is now far out of line with fundamentals,” warns Mizuho Securities’ Asian equity strategist Kengo Yoshida. The size and speed of this levitation, and pressure on the economy to live up to rising expectations, increase the likelihood of corrections of 10% or more, which could accelerate as margin traders liquidate their positions.

Now here’s the scariest part: Economists and strategists suggest that this bull market has just begun, as China begins to open its stock markets to global investors. At 4442, the Shanghai Composite Index still is 27% below its 2007 peak of 6092. This means long-term investors with horizons of more than three years may need to hold their noses and look to pullbacks to build their Chinese portfolios.

“Despite the run-up in equity markets, this is just the beginning,” says Helen Zhu, BlackRock’s head of China equities. “Structural-reform progress, rather than cyclicality in economic growth, has played a large part in driving the strong returns, and by reducing the tail risks that have been associated with China.” Chuck Clough, CEO of Clough Capital Partners in Boston, which manages several funds including one focused on China, agrees. He thinks the Chinese are just starting to buy stocks again for the first time in recent years. “China is at the beginning of a big movement from savings toward stock investing,” he says.

Because China’s rally will become more volatile, investors may want to avoid momentarily hot markets like Shenzhen, which is laden with smaller technology and nonfinancial stocks and already commands valuations near 50 times earnings. Instead, Barron’s has identified eight stocks that are still reasonable, ranging from Chinese brokerage GF Securities (ticker: 1776.Hong Kong) to Baoxin Auto Group (1293.Hong Kong), a car dealership that benefits from China’s aging fleet. Ironically, some of our picks are Chinese companies that once sought the glamour of a U.S. listing, but are now neglected as the fast money flocks east to chase China’s surge.

Make no mistake: Xi Jinping wants this surge to continue. It’s no coincidence that state-controlled media started cooing about the stock market last year just as Beijing relaxed restrictions on buying shares. “Encouraging robust market sentiment helps Beijing to achieve a number of policy objectives,” notes Joyce Poon, Asia research director at the Hong Kong research firm Gavekal Dragonomics. After all, Chinese companies looking to raise capital in recent years have had to issue bonds instead of stocks because share prices were so depressed. So a happier stock market not only increases funding for small enterprises and helps reduce China’s ballooning debt, but it also gives the Chinese another investment target besides real estate.

Critics will argue that Xi is merely swapping a bubble in real estate and debt for a new one in stocks. But a “paper” bubble of stock wealth is less malignant than a bricks-and-mortar bubble of empty homes and silent highways. Just look: The U.S. tech bubble of 2000, while painful, ultimately proved less debilitating than our 2007 housing bubble because there wasn’t a glut of physical inventory to work through.

Beijing, of course, knows how hard it can be to turn around a $9 trillion economy; controlling a stock market and its media apparatus is more easily done. Today, citizens can trade from as many as 20 brokerage accounts, up from just one. To encourage companies to raise capital in the stock market, regulators sped up initial public offerings and cleared a backlog of 600 pending new issues. In the first quarter, deal volume jumped 38% from 2014’s level.

More important, Beijing is taking big steps to liberalize mainland markets: Last November’s much-trumpeted Shanghai–Hong Kong “stock connect” scheme lets mainlanders buy eligible stocks listed in Hong Kong (commonly called H shares), while global investors can buy select mainland stocks (or A shares), up to a daily quota. This program boosted trading traffic and will spawn a similar link-up later this year, this time between Hong Kong and Shenzhen.

Enlarge Image

Xi, who consolidated power so much that he has earned the nickname “Xi DaDa” (literally “Xi the Big”), has a grand plan to establish China as a global superpower. Making the yuan more international and widely held is part of that plan, as is a thriving capital market. Xi has always said that China should pursue “the Chinese dream.” And what could be a bigger triumph than a bull market, made in China by the Communist Party, that’s the envy of capitalists the world over?

FOREIGN INVESTORS CANNOT AFFORD to ignore China, not when the U.S. bull market is maturing and the stench of disinflation wafts from Europe and Japan. Asian growth is slowing, but, at an average pace of 6.2%, DBS economists reckon it’s still enough to spawn an economy the size of Germany’s every 3½ years. China, which has cut rates twice since November, still has many tools to stimulate growth: The short-term interest rate is more than 3.3%, versus zero or negative for its trading partners.

Valuations also don’t yet inspire vertigo. Shanghai stocks fetch 22 times trailing earnings, versus 49 times in 2007. And Hong Kong’s Hang Seng Index fetches 12 times earnings, versus 20 times in 2007. China’s onshore stock market is at about 75% of its gross domestic product, still below 90% in South Korea and 150% in the U.S.

The Chinese are upbeat thanks to ample liquidity. Just as U.S. traders believe in not fighting the Fed, the Chinese swear by “don’t battle Beijing.” “So unless China’s policy makers undertake sudden tightening measures, the A-share bull run is likely to continue,” notes Chen Xingdong, BNP Paribas’ chief China economist.

Gavekal co-founder Louis-Vincent Gave believes that today’s biggest macro development isn’t oil’s collapse but China’s commitment to making the yuan more international and convertible. When that happens, the excuse for excluding China from global indexes weakens. If China’s weight in the MSCI All Country Index were to tick up from less than Spain’s (at 1.7%) to match Japan’s (10.6%), index managers will have to scurry to buy Chinese stocks. “Being short China will remain a very dangerous proposition,” Gave notes.

Already, brokerage firms are finding it hard to keep pace with this rally. For example, Mizuho on April 17 upped its end-of-June target for Shanghai to 4400 from 3400, only to see the index blow past the new mark four days later. Mizuho thinks the index could reach 5100 in the third quarter, peaking around the time of the Communist Party’s big policy meeting each autumn, before pulling back to 3300 by early 2016. “It will be the government’s job to curb the bubble,” writes Mizuho’s Yoshida, but there’s less chance of tightening with growth anemic and commodity prices weak.


Meanwhile, China has cut back its stockpiling of U.S. Treasuries and is instead spending its yuan on amassing physical assets across the globe. A booming stock market certainly will help that cause. Among the things the Chinese have already bought: the ancient Athens port of Piraeus; Smithfield Foods and, with it, hundreds of the biggest U.S. farms; and AMC Entertainment and 4,960 movie screens onto which Hollywood projects its American fantasies.

A made-in-China bull run can woo global investors if they’re prepared for bumps. Beijing has cut the reserves that banks must set aside, but hopes for a big interest-rate easing cycle may prove optimistic. Matthews Asia strategist Andy Rothman thinks Beijing is comfortable with slower growth because its economic base is now much bigger, and incomes are still expanding. Home prices surged in early 2014, leading to tough year-over-year comparisons in 2015 that should dissipate by the second half. Improving data could test the assumption that Beijing must ease aggressively, and a looming U.S. rate hike could siphon liquidity and life from China’s party.

Unlike Japan, where a wilting yen helped lift exports and the Nikkei, China seems hellbent on supporting its currency, at least through November, when the International Monetary Fund decides whether to add the yuan to a basket of key currencies that count toward official reserves. Without currency depreciation, Beijing must work harder to goose growth.

Already, there are concerns that the market is fizzier than it seems. Because Beijing controls so much of corporate China, its market’s free float -- the portion of shares available for public trading -- is just 39%; that compares with 75% in Japan and 94% at the New York Stock Exchange. Measuring margin debt against this free float, instead of total market value, shows real leverage may be as high as 8.2%, “above any historical example that we can find elsewhere,” notes Macquarie analyst Matthew Smith.

Beijing may even be the one tapping the brakes of this high-speed train. Its securities regulator recently allowed institutions to lend stocks for short selling, and barred margin financing through popular umbrella trusts. Such steps to curb the enthusiasm triggered brief selling, but in the long run may prove healthy. Yet, it makes clear that Beijing is very much the rally’s driver.

So, are there any bargains left? Barron’s has been bullish on Chinese stocks since we launched our Asia Website on Oct. 15 last year, and many of our stock picks have snagged double-digit gains, including 72% for Hong Kong Exchanges & Clearing (388.Hong Kong) and 80% for Chinese insurer Ping An (2318.Hong Kong). Disciplined traders sitting on big winnings might consider selling half of their positions to lock in gains, while using options to hedge their exposure. They might, for example, buy protective puts on relevant exchange-traded funds like the iShares China Large-Cap (FXI) or SPDR S&P China (GXC). Or replace stocks with call options to remain exposed to further rallies without risking more than the option premiums paid.

ULTIMATELY, THE BEAR CASE for China is similar to the bull case: It’s a rally propelled by policy, and it won’t stop until Xi Jinping lets it. Until then, strategists expect valuation gaps between stocks that are dual-listed on the mainland and Hong Kong to narrow, especially after Beijing let Chinese mutual funds buy Hong Kong stocks. But don’t grab just any Hong Kong ETF, since 40% of that market isn’t Chinese. A more targeted bet is the Hang Seng China Enterprises Index, which comprises Chinese companies listed in Hong Kong and trades at 10.5 times earnings. It’s tracked by ETFs including Hang Seng H-Share Index ETF (2828.Hong Kong).

Here are eight stocks that still look reasonable:

• Unlike mainland technology stocks that command 68 times what companies earned, versus 46 times historically, financial stocks are still cheap. It’s a good time to be a Chinese brokerage, and GF Securities just reported a 205% jump in first-quarter earnings. GF’s 2014 return-on-equity of 14.6% is better than its peer average of 11.4%, and stock trading at 16 times projected earnings is lower than 22 times for Citic Securities (6030.HK). GF’s Hong Kong listed H shares trade at a hefty discount to its Shenzhen-listed A shares. (See also “GF Securities Rides China’s Bull Market,” April 28.)

• Baidu is China’s Google (GOOGL) and one of its best brands, but the Nasdaq-listed shares (BIDU) are off about 20% since their November high. China’s dominant search engine just reported first-quarter revenue growth of 34%, and profits shrank slightly as Baidu spent to promote mobile services to new users in smaller cities. But worries about Baidu losing its stranglehold as search shifts from PCs to mobile devices are overblown, and shares trade at 25 times projected profits, well off its median of 45 times over the past decade. (See also “Baidu Dreams of Mobile Payoff,” April 30.)

• Falling oil prices have fooled some into thinking that Beijing is less committed to clean energy, but Earth’s biggest energy consumer has a terrible pollution problem. “Solar stocks are underappreciated right now,” says Earl Yen, a Shanghai-based managing director of CSV Capital Partners. His pick: JinkoSolar (JKS), which is off its 2014 high and trades at 8.9 times 2015 profits.

• Another Yen pick is Baoxin Auto. A major Chinese BMW dealer, Baoxin suffered slowing sales with the corruption crackdown, “but as the car population gets older and the secondary market gets bigger,” Yen says, “people will spend more on repairs and parts.” Analysts see profits growing 17% in 2016, but shares fetch just nine times 2016 earnings.

• Orient Overseas International (316.Hong Kong), a Hong Kong–listed container shipper, benefits from China’s plan to build a 21st century maritime silk road linking Chinese ports to Southeast Asia and points as far west as the Persian Gulf. Its superior technology optimizes fleet scheduling, and worries about industry overcapacity have kept the stock 30% off its 2011 peak. Shares trade below book value, and at 9.2 times 2015 earnings. (See also “Orient Overseas Should See Shiploads of Profits,” March 5.)

• Investors lunging at Internet retailers to bet on China’s middle class forget that goods ordered online must be shipped in boxes. Nine Dragons Paper Holdings (2689.Hong Kong) is China’s largest containerboard maker, and weak profits last year as China’s growth slowed shook out less committed investors. Operating margin tops 12%, but shares are cheaper and less leveraged than global peers, trading at 15 times 2015 profits. (See also “Unloved Nine Dragons is Ready for Lucky Break,” April 22.)

• China Cinda Asset Management (1359.Hong Kong) is China’s largest and only publicly listed distressed-asset manager. Rate cuts lower Cinda’s funding costs just as weak growth increases the pool of flailing properties it can browse. The stock has struggled amid concerns about its distressed-loan-book expansion, and fetches just seven times projected earnings, or 1.4 times book value. (See also “Cinda is a Good Stock for China’s Bad Debts,” March 5.)

• As China’s largest online niche retailer of beauty products, Jumei International Holding sure has an ugly stock chart. The NYSE-listed shares (JMEI) lost two-thirds of their value last year amid exposés of third-party vendors selling counterfeit goods on its Website, and a big shift to direct sourcing and quality control hurt results. But makeovers take time, and online cosmetics sales grew 137% each year between 2010 and 2013, versus 60% for online shopping. Shares trade at 26 times 2016 profits and 3.3 times book value -- versus price/book valuations of 9.3 times for Alibaba Group Holding (BABA) and 40 times for Vipshop Holdings (VIPS), an online flash retailer of luxury goods. (See also “Jumei’s Makeover is More Than Cosmetic,” March 17.)

Barron's: Novartis Looks Much Healthier


Novartis Looks Much Healthier

Novartis’ stock has had a good run since the start of the year, lifted by the promise of its audacious restructuring plan and a generally buoyant European equities market.


While European bullishness is starting to show signs of fatigue, the Swiss pharmaceutical company still has momentum and should continue to deliver solid returns. Its recent quarterly earnings release was the first since it completed a $25 billion overhaul and surprised on the upside.
In a three-way deal reached just over a year ago, Novartis (ticker: NVS) bought GlaxoSmithKline’s (GSK.UK) oncology business for $16 billion. That boosted Novartis’s already impressive array of cancer treatments and turned it into one of the sector’s most formidable players. It expects to get around 20% of future revenue from oncology. At the same time, Novartis merged its over-the-counter consumer health activities with Glaxo’s, which also paid roughly $7 billion for its vaccines business, and sold its animal-health unit to Eli Lilly (LLY) for $5.4 billion.
That complex game of musical chairs came during a period of high-stakes mergers and acquisitions in pharmaceuticals, during which some of the biggest deals failed to get off the ground.
British drug maker AstraZeneca (AZN) fought off a roughly $120 billion takeover bid from Pfizer (PFE), while AbbVie (ABBV) dropped plans to pay $54 billion for Dublin-based rival Shire (SHPG) after the U.S. government tightened tax rules on such deals, reducing their attractiveness and effectively scuppering plans.
THE NOVARTIS DEAL WAS DIFFERENT. Rather than attempting to create a megasize, diversified business, management sought real value by fine-tuning its activities. Its recent results proved the wisdom of that strategy. Shedding assets meant net income from its core businesses fell 4% to $3.2 billion, but proceeds of the asset disposals boosted its bottom line by $13 billion.


Ernie Cecilia, chief investment officer at Bryn Mawr Trust, says his clients have owned Novartis stock for some time. He believes the company is making the right strategic moves: “One of the things I like is that it has focused its attention on innovation with a commitment to R&D that has given it a strong pipeline of products.”
This has helped Novartis become a well-capitalized, cash-generative business with a debt-to-capitalization ratio of around 25%, within Cecilia’s tolerance threshold. “Novartis also has the propensity to raise its dividend and buy back shares,” Cecilia says.
While some analysts fear the strong Swiss franc could take some shine off Novartis’s earnings, CEO Joseph Jimenez told Barron’s at Davos in January, “People have overestimated the amount of cost base we have in Switzerland.” About 12% of Novartis’ costs are denominated in Swiss francs, and Switzerland accounts for 2% of revenue.
Cecilia says that despite currency pressures, Novartis is well positioned to plug into shifting demographics of emerging markets, where a growing middle class is likely to seek out its type of health-care products. “The areas Novartis is now focusing on—heart treatments, psoriasis, oncology—fit right into that demographic,” Cecilia says.
One particular hopeful sign is a heart medication known currently as LCZ696. It’s awaiting approval from the Food and Drug Administration, and is slated to produce about $5 billion worth of sales by 2020.


Cecilia is also impressed with Novartis’s commitment to margin expansion and willingness to shed businesses that aren’t earning their keep, while cutting costs. When it announced first-quarter results, it booked savings of $650 million, of which it attributed $350 million to bulk buying.
THAT PERFORMANCE IS OWED in large part to the creation of Novartis’s business-services unit and its focus on improving profitability by harmonizing activities between divisions. “There are a lot of biotech companies that employ smart scientists but have problems managing what happens on the business side,” Cecilia says. Novartis’ business services unit is able to bring those two sides together.
Berenberg analyst Alistair Campbell calls Novartis’ results impressive, with earnings-per-share in its core business beating consensus forecasts by 12%. He says that although the company maintained full-year guidance for mid-single-digit sales and high-single-digit core operating income growth, Novartis could lift estimates in coming months. “The company rarely raises guidance at the first quarter and it remains early in the year. We think there’s a good chance guidance will be raised at the interim results if first quarter momentum continues,” he says.
He has the company at Buy with a 110 Swiss franc price target ($117.48), and he says, “We expect Tasigna, Afinitor, Jakavi, Gilenya, Cosentyx, and LCZ696 to add over $10 billion of sales to the pharmaceuticals business by 2020, comfortably offsetting patent head winds.” The stock closed at 96.65 Swiss francs on Thursday.

>>> Ira Sohn Conference: Monday Presentation Schedule


Ira Sohn Conference: Monday Presentation Schedule

The Sohn Conference is set to take place this next Monday-Tuesday in New York, NY and will give a variety of investment managers the opportunity to speak about their view on markets, positions, etc.... A breakdown of the Monday speaker list is detailed below, with associated, notable stocks and notes listed for each manager. Stocks listed have a positional relationship to the speaker and may be subject to commentary: (Please see criteria and commentary below the following list)
  • David Einhorn (Greenlight Capital) - 
    • Is Long MU (14.54%), AAPL (12.67%), SUNE (6.47%) and CNX (5.96%) 
    • Is Short RAI (Unknown) 
    • Recently Added AER (1.93%), CBI (1.64%), GM (Unknown)
    • Note: Positions sourced directly from Greenlight's Shareholder Letter
  • Barry Rosenstein (Jana Partners) - 
    • Is Long PETM (6.86%), HTZ (7.56%) and QCOM (3.99%) 
    • Is Short XLE (6.89%) and SPY (4.46%) 
    • Recently Added NCR (3.05%) 
    • Note: Most recent headlines include positions in QCOM and HTZ
  • Keith Meister (Corvex Management) - 
    • Is Long WMB (22.98%), ARCP (0.89%)
    • Is Short XLE (6.89%)
    • Recently Added SIG (8.9%)
    • Note: Media speculation today implied that Corvex has taken a recent top-5 shareholder stake in YUM. These reports are presently unconfirmed and speculative
  • Leon Cooperman (Glenview Capital Management) - 
    • Is Long ATLS (3.03%), SHPG (1.68%), ASPS (1.27%) and GILD (0.96%)
    • Note: Each listed position above has been the topic of direct/peripheral discussion in recent months
  • Larry Robbins (Glenview Capital Management) - 
    • Is Long CYH (3.26%), RLGY (1.39%), WOOF (3.12%), FNF (0.36%)
    • Note: Each stock listed above was recently included in a media piece as being one of Robbins' "top new ideas"
  • Mala Gaonkar (Lone Pine Capital) -
    • Is Long ADK (228%), PCLN (91%), FB (56%) and MA (32%)
    • Note: % represent the fund's Q/Q change from Q3 to Q4 (not % of portfolio) and is included to show recent fund capital flow
  • Jeff Gundlach (DoubleLine Capital) - 
    • Notes: Provides regular macro-economic commentary in media pieces, and runs a fixed income fund. Has been known to make interest rate predictions that can affect a variety of markets.
  • David Tepper (Appaloosa Management) -
    • Long GM (12.65%) and TX (1.14%)
    • Note: TX was one of only two (excluding GM warrants) of Appaloosa's Q/Q increased equity positions from Q3 to Q4
  • Bill Ackman (Pershing Square Capital Management) - 
    • Is Long ZTS (11.15%) and VRX (Unknown) 
    • Is Short HLF 
    • Note: VRX was disclosed as a new position this past quarter, and its weight in the portfolio is not yet known. Also, speculation about another short, in addition to HLF, within the portfolio is intriguing. The existence or identity of such a short is unknown yet however.

  1. (% in quotations, refer to the percentage of a manager's portfolio that a given stock represents- as of end 4Q15. Lone Pine Capital being the exception)
  2. The use of an (Unkown) denotes a new position since Q4 disclosure or other factor that does not allow for reliable portfolio calculation
  3. Positions for inclusion were determined using several criteria. Notably, sizeable positions (+5%) with either recent media mention/inclusion or a substantive Q/Q increase were targeted for analysis. 
    • Positions that are notably smaller than 5% were included based upon recent media focus or for outlying Q/Q increases. 
  4. Positions listed for each manager above, do not represent the entirety or proportionality of their respective fund's composition. 

(BN) Monsanto-Syngenta Mega-Merger Would Drive More Deals: Real M&A


Monsanto-Syngenta Mega-Merger Would Drive More Deals: Real M&A
2015-05-01 22:18:34.292 GMT


(For a Real M&A column news alert: {SALT REALMNA <GO>}.)

By Brooke Sutherland
(Bloomberg) -- A combination of Monsanto Co. and Syngenta
AG would set the stage for even more mergers and acquisitions.
Monsanto has approached Syngenta about a takeover that
would create a giant in the market for seeds and crop chemicals
with more than $30 billion in revenue. Getting a deal approved
by regulators won’t be easy -- and may not happen at all. To
address antitrust issues and help its case, Monsanto has planned
for a deal to include a sale of parts of the combined business,
a person familiar with the matter has said.
The biggest concerns may be tied to what would be an
unprecedented market share in soybeans and corn seeds for the
combined company. Syngenta’s operations in those areas would
appeal to a range of buyers from Dow Chemical Co. to BASF SE and
Bayer AG, said Colin Isaac of Atlantic Equities LLP. Even
private-equity firms could look.
Syngenta’s “seed businesses would be pretty easy to sell
for good multiples,” Isaac, a London-based analyst, said in a
phone interview. “People are always looking to buy share.”
DuPont Co. could also be a buyer of any assets that are
divested, said Bill Selesky, an analyst at Argus Research Co.

Dupont-Dow

There is another possibility: At Dow, activist investor Dan
Loeb once pushed for a breakup, and Chief Executive Officer
Andrew Liveris has suggested the company is open to divesting
its agriculture unit. Monsanto becoming a much stronger
competitor could be a catalyst for the $60 billion company to
more seriously consider taking that step, said James Sheehan of
SunTrust Banks Inc. That segment would be prime pickings for
DuPont and its Pioneer seed business, he said.
“That’s the deal that I’ve always expected to happen,”
Isaac of Atlantic Equities said in a phone interview. “It’s
attractive for Pioneer and it’s attractive for Dow in terms of
focusing their portfolio on the chemicals business and raising a
lot of cash.”
If Dow doesn’t want to sell directly to DuPont, both
companies could combine their agriculture businesses in a
separate entity, Argus’ Selesky said.

For Related News and Information:
Monsanto Still Has Heart Set on Biggest Chemical Deal: Real M&A
No Monsanto, No Problem for Syngenta on Path to Deal: Real M&A
Dow Chemical Breakup Is Better Than Status Quo: Real M&A
DuPont’s $5 Billion Gain Undercuts Peltz Breakup Plan: Real M&A
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>

To contact the reporter on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman

>>> Weekly Market Update: Markets Unwind into May

Weekly Market Update: Markets Unwind into May


Global equities felt the pull of gravity this week as indices in Asia, Europe, and the US came off recent all-time highs. Meanwhile, in a development that caught investors' attention, European and US sovereign bonds sold off hard on a confluence of factors. Talks between Greece and its creditors continued at a frustratingly slow pace. The first reading on US Q1 GDP was quite disappointing. The Fed acknowledged the weak first quarter by downgrading the economic conditions commentary in the FOMC policy statement, but continued to attribute the slow growth to transitory factors. Despite oil prices continuing to rebound, the BOJ reigned in its inflation outlook, pushing back the timing of achieving 2% inflation until early 2016. Speculation about more extraordinary Chinese stimulus that helped fuel recent rallies couldn't stem the selling this week. For the week, the DJIA slipped 0.3%, the S&P500 fell 0.5% and the Nasdaq lost 1.7%.

During Monday's Asian session, financial press sources reported that the PBoC was mulling its own brand of QE asset purchase program that would let commercial banks swap local-government bonds they hold for loans from the central bank to help stave off a potential credit crunch. The Shanghai Composite rocketed up 3% on the report, but an official denial from the PBoC tempered Chinese equity gains. Beijing has already been trying to mop up the ballooning debts of local governments under a debt exchange program, without too much success. Later in the week, PBoC Deputy Governor Yi Gang said that the RRR rate was relatively high, leaving plenty of room for another cut.

Markets appeared to be nervous ahead of Wednesday's FOMC policy announcement, in which the Fed dropped its last calendar reference for forward guidance, as expected. The central bank noted that economic growth had slowed during the winter months and household spending declined, but continued to attribute this to transitory factors. The downgraded economic language may have lessened the chances of a June rate hike but there was no indication from the Fed that next month's meeting is no longer a 'live' meeting.

The first reading of US Q1 GDP was a bust, widely missing expectations thanks to sharp declines in nonresidential fixed investment (-3.4% v 4.7% Q4 final) and exports (-7.2% v 4.5% Q4 final). Import growth slowed considerably (+1.8 % v 10.4% Q4 final). Analysts caution that assumptions on the impact of the West Coast port strike and its resolution strongly influenced the GDP reading, and hard trade data for March could lead to big revisions in the second and final GDP readings. Unlike many other forecasters, the Atlanta Fed nailed the Q1 GDP in its GDPNow model (it had long been forecasting +0.2% growth in Q1), drawing attention for its bold call. The Atlanta Fed's GDPNow model initiated its Q2 forecast this week at just +0.9%, considerably lower than BoA/Merrill Lynch's +3.5% forecast and Goldman Sachs's +3.0%.

A major rotation out of sovereign bonds began this week due to confluence of factors. Top money managers have been talking about the rich potential short position on European bonds for some time, including dethroned bond king Bill Gross, who called German bunds "the short of a lifetime." In an interview published on Tuesday, Doubleline's Gundlach speculated about a possible 100x levered short bet against the German bund. The same day, the euro zone March money supply report came in hotter than expected, with M3 growth rising more than expected to +4.6%, putting it back into the ECB's comfort zone for the first time since April 2009 (the report also said euro zone private lending returned to growth for the first time in 35 months). These factors, plus a deluge of euro-denominated corporate issuance this week and a notable imbalance between eurozone government supply (€14 billion) and redemption of existing paper (€65 billion) made for a perfect storm for bonds.

Greek PM Tsipras reshuffled his team handling bailout talks with Europe and the IMF after finance minister Varoufakis was sharply criticized for his performance in the Eurogroup negotiations last week. Deputy foreign minister Tsakalotos was tapped to replace the flamboyant Varoufakis as the main Greek negotiator. Greece's next big hurdle is coming up quickly, with another large IMF payment due on May 6th and insufficient funds available in Athens. Both sides keep saying a deal is just around the corner, with a preliminary deal possible on Sunday, May 3rd. However Eurogroup head Dijsselbloem hinted there may in fact be a "plan B" for Greece, stating that Europe is prepared for "various outcomes" in the Greek standoff.

A confusing dust-up in the Persian Gulf roiled global markets on Tuesday. Reports emerged Tuesday morning that Iran had seized a US cargo vessel, sending indices tumbling. Within an hour, a more complete picture emerged: apparently the Iranian Revolutionary Guard seized a Marshall Islands-flagged Maersk cargo ship in the Straits of Hormuz and the ship's distress call was answered by a US Navy destroyer. Energy futures were volatile on this news, contributing to the week's uptrend in crude oil - WTI nearly retook the $60 handle while Brent nearly took out $67.

Apple's outstanding second-quarter results sent the company's shares up to all-time highs around $136, although shares gave up the gains and sank to $126 through week's end. Apple's results were a parade of superlatives: profits rose more than 30% y/y, it sold 61.2 million iPhones, up 40% from the year-ago period, saw a 72% gain in the number of iPhones sold in China. Apple's cash pile rose to a record $193.5 billion (up from $178 billion last quarter), and the board expanded its share repurchase authorization to $140 billion and boosted the dividend 11%.

Three big social media names had disastrous earnings reports this week. Twitter, Yelp, and LinkedIn saw their shares decline more than 20% a piece after investors found much that disagreed with them in quarterly numbers. Twitter only added four million users, and on the earnings call, the CFO explained that an "unforeseen bug" in Twitter's integration with Apple's iOS 8 caused it to lose four million users ("half of the company's actual growth," he said). LinkedIn gave a disappointing outlook for the second quarter, weighed on by its pending purchase of online learning company Lynda.com. Yelp's revenue guidance was also a bit weak. Note that Facebook was not immune to the social slide: shares of FB were down 4% on the week.

In other earnings, Aetna, UPS, and Merck saw strong gains on very good quarterly results. UPS gained despite missing revenue targets as net income saw healthy gains and package volume growth continued at a healthy rate. Oil majors Exxon, Chevron, and Shell saw their profits cut in half on a y/y basis but still widely topped earnings expectations, thanks to strong downstream results. Conoco saw an even steeper decline in profits, and only managed to remain profitable due to a deferred tax benefit. Refiners Valero, Marathon, and Phillips 66 crushed earnings expectations thanks to cheap oil. A notable decliner was Wynn Resorts, with earnings and revenue widely missing expectations as the Macau business saw huge declines in business.

Shares of Salesforce.com spiked 16% on Wednesday on reports it had hired bankers to field takeover inquiries or possibly fend off takeover bid after receiving an approach. Speculation immediately turned to Oracle, Microsoft, and SAP, the only three firms with the heft to take on CRM's $49B valuation. In the latest biotech M&A frenzy, Mylan spurned a takeover offer from Teva, and in turn Perrigo rebuffed Mylan's latest offer. The $29 billion Applied Materials/Tokyo Electron merger was called off after regulators said the remedies proposed by the two firms were not enough to replace the competition lost. France's Cap Gemini reached a deal to buy technology consultancy iGate for $4 billion.

>>> US Close Dow+1,02% S&P+1,09% Nasdaq+1,29% Russell+0,65%

Closing Market Summary: Stocks End Down Week on Upbeat Note

The stock market ended a defensive week on an upbeat note. The S&P 500 gained 1.1% to narrow its weekly decline to 0.5% while the Nasdaq (+1.3%) outperformed slightly today, but lost 1.7% since last Friday.

The final session of the week was very quiet with the bulk of the action taking place at the open when the S&P 500 spiked above its 50-day moving average (2,090). The benchmark index spent the bulk of the day near its morning high, but punched through that level during afternoon action to complete a full retracement of Thursday's decline.

Nine of ten sectors posted gains with materials (+1.7%) ending the day and the week (+2.0%) ahead of the remaining sectors. Today, the growth-sensitive group received support from Monsanto (MON 118.42, +4.46) as the stock spiked 3.9% after Bloomberg reported the company has approached Syngenta (SYT 77.95, +10.91) about a potential takeover. Steelmakers also contributed to the sector's strength with Market Vectors Steel ETF (SLX 35.74, +0.49) climbing 1.4%.

Meanwhile, the other commodity-related sector—energy—spent the bulk of the session in the red, but turned positive during the afternoon. The sector added 0.3% today and finished the week with a 1.1% gain. Crude oil weighed on the sector in the early going, but the energy component narrowed its loss to 0.8% by the close to settle at $59.15/bbl. WTI crude recovered a portion of its decline after the latest Baker Hughes Rig Count showed that the pace of decline in active oil and gas rigs slowed to 27 from 31 observed last week.

However, crude oil could not return into the green as an uptick in the greenback weighed on the dollar-denominated commodity. To that point, the Dollar Index (95.15, +0.55) added 0.6% and registered its first advance in eight days after the previous seven sessions saw the index slide 3.6%.

Outside of energy, the financial sector (+0.8%) was the only other cyclical group that ended the day behind the broader market. Meanwhile, the top-weighted technology sector (+1.5%) outperformed even as LinkedIn (LNKD 205.21, -46.92) plunged 18.6% after its cautious guidance overshadowed a one-cent beat. However, LinkedIn's weakness was offset by most large cap names with the likes of Apple (AAPL 128.95, +3.80), Oracle (ORCL 44.37, +0.75), and Intel (INTC 33.42, +0.87) gaining between 1.7% and 3.0%.

Over on the countercyclical side, only the health care sector (+1.3%) finished the day ahead of the S&P 500 with help from biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 344.00, +10.34) spiked 3.1% after Gilead Sciences (GILD 105.03, +4.52) reported better than expected results.

Treasuries retreated throughout the day, sending the 10-yr yield higher by eight basis points to 2.11%.

Today's participation was below recent averages with roughly 720 million shares changing hands at the NYSE floor.

Economic data included Construction Spending, ISM Index, and Michigan Sentiment:

* Construction spending declined 0.6% in March after increasing an upwardly revised 0.1% (from -0.1%) in February while the consensus expected an increase of 0.4% 

* Private construction spending increased 0.3% in March after declining 0.3% in February  * Despite a rebound in the new housing starts, private residential construction declined 1.6% in March after increasing 0.2% in February 

* The ISM Manufacturing Index was unchanged and remained at 51.5 in April while the Consensus expected an increase to 51.9 

* Even though the overall index did not strengthen as the consensus expected, the key production and order readings showed improvement 

* The Production Index increased to 56.0 in April from 53.8 in March  * The New Orders Index increased to 53.5 from 51.8 

* The University of Michigan Consumer Sentiment Index was unrevised in the final April reading after sentiment rose from 93.0 in March to 95.9 in April while the consensus expected a revision up to 96.0 

* Unlike the Conference Board's Consumer Confidence Index, which declined in April, relatively higher gasoline prices and volatility in the equity markets had no adverse effects on the Consumer Sentiment Index 

Monday's data will be limited to the 10:00 ET release of the Factory Orders report for March (Briefing.com consensus 2.1%).

* Nasdaq Composite +5.7% YTD  * S&P 500 +2.4% YTD * Russell 2000 +1.9% YTD  * Dow Jones Industrial Average +1.1% YTD 

AbbVie Extends Exchange Offer to Acquire Pharmacyclics, Inc.

+------------------------------------------------------------------------------+

BFW 05/01 21:04 Abbvie Extends Exchange Offer to Buy Pharmacyclics Until May 15 BFW 05/01 21:01 *ABBVIE EXTENDS EXCHANGE OFFER TO BUY PHARMACYCLICS BN 05/01 21:00 *ABBVIE SAYS 51.5M PHARMACYCLICS SHRS TENDED AS OF MAY 1 BN 05/01 20:59 *ABBVIE EXTENDS EXCHANGE OFFER TO MAY 15 BN 05/01 20:59 *ABBVIE EXTENDS EXCHANGE OFFER TO BUY PHARMACYCLICS BN 05/01 20:59 *ABBVIE EXTENDS EXCHANGE OFFER TO BUY PHARMACYCLICS,

+------------------------------------------------------------------------------+

AbbVie Extends Exchange Offer to Acquire Pharmacyclics, Inc. 2015-05-01 20:59:10.387 GMT

AbbVie Extends Exchange Offer to Acquire Pharmacyclics, Inc.

PR Newswire

NORTH CHICAGO, Ill., May 1, 2015

NORTH CHICAGO, Ill., May 1, 2015 /PRNewswire/ -- AbbVie Inc. ("AbbVie") (NYSE / CHX / Euronext Paris / SIX: ABBV) today announced that it has extended the expiration of its exchange offer to acquire all of the outstanding shares of common stock of Pharmacyclics, Inc. to 5 p.m., New York City time, on May 15, 2015.

The depositary of the exchange offer has advised that, as of 4:00 p.m., New York City time, on May 1, 2015, a total of approximately 51,470,840 shares of Pharmacyclics common stock were validly tendered and not properly withdrawn in the exchange offer.

All other terms and conditions of the exchange offer remain unchanged.

About AbbVie Inc.

AbbVie is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company's mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world's most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries. For further information on the company and its people, portfolio and commitments, please visit www.abbvie.com. Follow @abbvie on Twitter or view careers on our Facebook or LinkedIn page.

Forward-Looking Statements

This news release contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include the expected structure and timetable for the transaction between AbbVie and Pharmacyclics. The statements in this release are based upon current expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include risks and uncertainties related to, among other things: failure to satisfy the conditions to consummate the offer and the merger; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the failure of the offer or the merger to close for any other reason; the amount of the costs, fees, expenses and charges related to the offer and the merger; general economic and business conditions, global economic growth and activity; industry conditions; changes in laws or regulation; and other factors beyond the companies' control as well as the risk factors and other cautionary statements described in AbbVie's and Pharmacyclics' filings with the SEC. Please refer to the Risk Factors section of AbbVie's Registration Statement on Form S-4, as filed on March 23, 2015 for a further list and description of additional business risks, uncertainties, and other factors that may affect these statements. All subsequent written and oral forward-looking statements attributable to AbbVie or Pharmacyclics or any person acting on their behalf are qualified by the cautionary statements in this section.

Important Additional Information

This press release does not constitute an offer to purchase, or a solicitation of an offer to sell, shares of common stock of Pharmacyclics, nor is it a substitute for the Registration Statement on Form S-4 and tender offer materials that AbbVie filed with the Securities and Exchange Commission ("SEC") on March 23, 2015, each as amended.

Investors and security holders of Pharmacyclics are urged to read the tender offer statement on Schedule TO, filed on March 23, 2015 (as amended, the "Schedule TO"), the Registration Statement on Form S-4, as filed on March 23, 2015 (as amended, the "Registration Statement"), and the solicitation/recommendation statement filed by Pharmacyclics on Schedule 14D-9, filed on March 23, 2015 (as amended, the "Schedule 14D-9"). The tender offer materials (including an offer to purchase, letter of transmittal and related tender offer documents), the Registration Statement and the Schedule 14D-9 contain important information which should be read carefully before any decisions are made with respect to the Offer.

In addition to the Schedule TO, the Schedule 14D-9 and the Registration Statement described above, AbbVie and Pharmacyclics file annual, quarterly and current reports, proxy statements and other information with the SEC. The Schedule TO, the Schedule 14D-9, the Registration Statement and any other relevant materials, and any other documents filed with the SEC by AbbVie or Pharmacyclics, are available without charge at the SEC's website at www.sec.gov , or from the companies' websites, at www.abbvieinvestor.com and http://www.pharmacyclics.com, respectively.

Free copies of the exchange offer materials (including the Registration Statement and the Schedule TO) are also available on AbbVie's website at www.abbvieinvestor.com and copies of the Schedule 14D-9 are available on Pharmacyclics' website http://www.pharmacyclics.com. Copies of the exchange offer materials (including the Registration Statement and the Schedule TO) may also be obtained free of charge from Georgeson Inc., the information agent for the exchange offer, by calling, toll-free, (888) 680-1528 or emailing PCYC@georgeson.com.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/abbvie-extends-exchange-offer-to-acquire-pharmacyclics-inc-300076204.html

SOURCE AbbVie Inc.

Website: http://www.abbvie.com Contact: Media, Adelle Infante, 847-938-8745, or Investors, Liz Shea, 847-935-2211

-0- May/01/2015 20:59 GMT

SAP Said to Have Held Strategy Talks With Salesforce Last Year

+------------------------------------------------------------------------------+

SAP Said to Have Held Strategy Talks With Salesforce Last Year 2015-05-01 20:00:37.980 GMT

By Aaron Ricadela and Jack Clark (Bloomberg) -- The chief executive officers of SAP SE and Salesforce.com Inc. held discussions last year about possible strategic alliances between the two companies, people with knowledge of the matter said. The talks also included a potential acquisition of Salesforce by SAP, said one of the people, who asked not to be identified because the negotiations were private. The discussions between Salesforce Chairman and CEO Marc Benioff and SAP CEO Bill McDermott began after Benioff contacted McDermott via telephone before SAP reported quarterly earnings on April 17, 2014, said the person. Chi Hea Cho, a spokeswoman for San Francisco-based Salesforce, declined to comment. Nicola Leske, a spokeswoman for Walldorf, Germany-based SAP, declined to comment. It couldn’t be determined whether there are currently any takeover discussions between the two companies. Salesforce is working with financial advisers to help it field takeover offers after being approached by a potential acquirer, Bloomberg reported Wednesday. Salesforce was prompted to work with the financial advisers by a more recent overture from a company other than SAP, another person said. A takeover of Salesforce would be the largest ever for a software company. Acquiring the company would give any buyer a lead in the market for customer relationship management software, and credibility in cloud computing. Safra Catz, co-CEO of Salesforce rival Oracle Corp., said this week that an acquisition of Salesforce by a competitor would be good for Oracle. “It’ll cause a lot of disruption in that market,” she said and declined to comment on whether Oracle was interested in the company. Growth has been slowing in Salesforce’s main customer relationship management business, forcing the company to expand into other verticals such as marketing and analytics via a combination of acquisitions and new products. Oracle, Microsoft Corp. and other rivals have done the same. Salesforce’s revenue rose 32 percent in the fiscal year through January, compared with 33 percent in the prior year, and 35 percent the year before that.

For Related News and Information: Salesforce Revenue Outlook Tops Estimates on Enterprise Push Salesforce Would Be Priciest Big Tech Deal This Decade: Real M&A Oracle Co-CEO Catz Says Rival Buying Salesforce ‘Probably Good’ Salesforce Said to Work With Bankers to Field Inquiries Salesforce relative value: CRM US <EQUITY> RVG <GO> Salesforce revenue: CRM US <EQUITY> EM SALES <GO> Salesforce deals: CRM US <EQUITY> MADL <GO> Top Technology Stories: TTOP <GO>

To contact the reporters on this story: Aaron Ricadela in Frankfurt at +49-69-92041-156 or aricadela@bloomberg.net Jack Clark in San Francisco at +1-415-617-7034 or jclark185@bloomberg.net To contact the editors responsible for this story: Jillian Ward at +1-415-617-7261 or jward56@bloomberg.net; Kenneth Wong at +49-30-70010-6215 or kwong11@bloomberg.net Reed Stevenson, Tony Robinson