Used Car Dealers and SubPrime Lenders to Benefit from Harvey

Analysts weigh in on Harvey impact on used car market

Hurricane Harvey Should benefit used car dealers. See Stockwinners.com

Hurricane Harvey has left a path of destruction in Texas. Commenting on the potential impact the storm will have on the used car market, Janney Capital analyst John Rowan argued that non-bank financials that cater to consumers lower in the credit bureau score spectrum are at an advantage, while his peer at Craig-Hallum sees Carvana (CVNA) as a potential prime beneficiary post-Harvey.

SUBPRIME FINANCING

Janney Capital analyst John Rowan told investors that a new report by Cox Automotive claims that up to half a million cars will be scrapped as a result of Hurricane Harvey, which if accurate would be a significant event for the used car market that could go a long way toward removing the increased wholesale supply of used vehicles and could lead to better pricing later in the year.

While some percentage of the damaged vehicles will be replaced with new ones, Rowan thinks most will be replaced with a used vehicle.

[youtube https://www.youtube.com/watch?v=U8Mm6Syb1CI?rel=0&controls=0&w=560&h=315]

Speculating on who could benefit the most in such a scenario, the analyst argued that non-bank financials that cater to consumers lower in the credit bureau score spectrum are at a “disproportionate advantage.”

The demographic data of the Houston metro area skews toward a greater concentration of un/under-banked consumers, he noted.

Companies that specialize in subprime automotive financing include Ally Financial (ALLY), America’s Car-Mart (CRMT), OneMain Holdings (OMF) and Santander Consumer (SC).

CARVANA MAY BENEFIT

In a research note of his own, Craig-Hallum analyst Steven #Dyer said that while he is cognizant of the near-term disruption in auto sales as a result of Hurricane Harvey, he expects investors will begin looking for beneficiaries from the associated replacement sales. With estimates of more than 500,000 vehicles to be scrapped, the analyst is expecting a surge in replacement sales over the coming months, which is likely to benefit automotive dealers in the associated areas impacted by Harvey.

In his universe, Dyer believes #Carvana (CVNA) could be the prime beneficiary. The company has been in the Houston market since the fourth quarter of 2015 but keeps little-to-no inventory onsite, has about 7,500 vehicles in inventory at any given time and its largest reconditioning center is just up the road in Dallas, the analyst highlighted.

Furthermore, Dyer believes the company’s proven and successful delivery and logistics strategy could allow them to benefit disproportionately from replacement sales. He reiterated a Buy rating and a $24 price target on Carvana’s shares.

COPART

Copart, Inc. (CPRT) is the leading junk car yard or used autoparts. It offers a range of services for processing and selling vehicles over the Internet through its Virtual Bidding Third Generation Internet auction-style sales technology to vehicle sellers, primarily insurance companies, as well as to banks and financial institutions, charities, car dealerships, municipalities, fleet operators, and vehicle rental companies.

PRICE ACTION

In Thursday’s trading, shares of Ally Financial, America’s Car-Mart and OneMain Holdings are all up about 1%, while Santander Consumer’s stock is slipping almost 0.5%. Shares of Carvana have gained over 4%.  Its services also comprise services to sell vehicles through CashForCars.com; and U-Pull-It service that allows buyer to remove valuable parts, and sell the remaining parts and car body.

CPRT is up 14 cents to $32.01.


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Wells Fargo Apologizes to Customers

Wells Fargo completes expanded third-party review of banking accounts

Wells Fargo outlines steps to compensate customers impacted by sales practices

Wells Fargo to close 450 branches. See Stockwinners.com Market Radar for the story.

In the coming weeks, Wells Fargo (WFC) will be taking steps to compensate its retail and small business customers who may have been harmed or impacted by unacceptable retail sales practices within the company’s retail bank.

As Wells Fargo makes things right with customers, these steps also will help the company fulfill its remediation commitments under the sales practices consent orders with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.

These steps include: Beginning communications associated with the company’s $142M class action settlement agreement covering all persons who claim that Wells Fargo opened, without their consent, a consumer or small business checking or savings account or an unsecured credit card or line of credit, and customers who enrolled in certain identity theft protection services, between May 1, 2002 and April 20.

Over the next two months, both Wells Fargo and the court-appointed claims administrator will be sending communications about how to join the class to current and former Wells Fargo customers.

Continuing to work with any customers who contact us with concerns about harm that could have been caused to their credit score by an account opened without their authorization and correcting records for these customers with the credit bureaus.

Customers who inform us of an account they did not authorize that led to increased borrowing costs due to credit-score impact will be eligible for compensation from the class action settlement. Compiling a list of customers who complained to Wells Fargo about an unauthorized account that was opened without their consent.

Those customers will be notified by both Wells Fargo and the court-appointed claims administrator and automatically enrolled in a portion of the class-action settlement. Continuing to offer free mediation services to customers if the company is unable to resolve an issue related to an unauthorized account directly with the customer.

Wells Fargo will continue to offer this service to customers who are not satisfied with any of the outcomes from the steps above.


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Mazor Robotics Higher on Medtronic Stake

Mazor Robotics jumps after entering next phase of partnership with Medtronic

Mazor Robotics Higher on Medtronic Stake. See Stockwinners.com Market RadarMazor Robotics (MZOR) announced that it has entered the next phase of its strategic partnership with Medtronic (MDT) earlier than planned and their existing agreements have been amended accordingly.

The agreements provide for the conversion of the commercial relationship between the parties, with Medtronic assuming exclusive worldwide distribution of the Mazor X system, and Medtronic making a $40M third tranche investment in Mazor.

These developments are a result of the early achievement of certain sales and marketing milestones by both companies, as well as higher than expected global market acceptance and demand for the Mazor X system.

Medtronic and Mazor originally entered into a strategic agreement in May 2016.

Medtronic will invest $40 million in Mazor Robotics’ American Depository Shares at a price of $38.46 per ADS, which represents the weighted average of the closing price of Mazor’s ADS on Nasdaq over the past 20 trading days.

This third tranche of investment in Mazor by Medtronic will bring Medtronic’s total investment in Mazor to $72 M, representing approximately 11.9% of the outstanding shares post investment and 10.6% of the fully diluted shares outstanding post investment.

[youtube https://www.youtube.com/watch?v=v6mZG8W7Qck?rel=0&controls=0&w=560&h=315]

Mazor will also issue to Medtronic warrants to purchase an additional 1.21 million Mazor ADSs at an exercise price of $44.23 per ADS. The exercise price represents a 15% premium over the per share price for the $40M equity investment. Medtronic has the right to exercise the warrants immediately in whole or in part, for cash, and they expire after 18 months.

Assuming the full exercise of the warrants, Medtronic’s investment in Mazor will reach $125M and its ownership could increase to 4.2M ADSs, or 14.2%, based on the current number of ADSs outstanding on a fully diluted basis. Closing of the $40M equity investment is expected to take place on or around September 12.

Mazor will continue to manufacture and recognize revenues for Mazor X system sales, disposable kits and service fees all of which will be sold at contractual pricing agreed with Medtronic. The contracted pricing is at a lower rate than Mazor realized through its direct sales channel.

In addition, Mazor will be entitled to certain synergy fees associated with the use of Medtronic implants in Mazor Robotics’ installed base. Moving from direct sales to a strategic distribution model is expected to immediately reduce Mazor’s annual operating expenses by approximately $13M.

Trailing 12-month operating expenses for Mazor totaled $52.7M. The proceeds from the investment will further strengthen Mazor’s balance sheet and provide the resources to continue to collaborate with Medtronic to develop innovative solutions for the spine market, as well as develop innovative solutions for other potential markets.

Mazor will continue to independently develop and market globally the Renaissance Surgical Guidance System, which was first launched in 2011. Efforts for Renaissance will be focused on certain market segments for which the Renaissance provides significant customer added value.

PRICE ACTION

Shares of Mazor Robotics (MZOR) are up 11% to $46.39 per share in midday trading. Stock has a 52-week trading range of $20.19 – $47.28.


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T-Cell Stocks in Focus after FDA Approves First Gene Therapy

FDA gives Novartis first gene therapy in U.S. with Kymriah approval

nvs

The FDA said it issued a “historic action today making the first gene therapy available in the United States, ushering in a new approach to the treatment of cancer and other serious and life-threatening diseases.”

The FDA approved #Kymriah for certain pediatric and young adult patients with a form of acute lymphoblastic leukemia (ALL).

Kymriah, a cell-based gene therapy, is approved in the United States for the treatment of patients up to 25 years of age with B-cell precursor ALL. ALL is a cancer of the bone marrow and blood, in which the body makes abnormal lymphocytes. The disease progresses quickly and is the most common childhood cancer in the U.S.

Kymriah is a genetically-modified autologous T-cell immunotherapy. Each dose of Kymriah is a customized treatment created using an individual patient’s own T-cells, a type of white blood cell known as a lymphocyte. The patient’s T-cells are collected and sent to a manufacturing center where they are genetically modified to include a new gene that contains a specific protein (a chimeric antigen receptor or CAR) that directs the T-cells to target and kill #leukemia cells that have a specific antigen (CD19) on the surface. Once the cells are modified, they are infused back into the patient to kill the cancer cells.

[youtube https://www.youtube.com/watch?v=7nCvItKbEns?rel=0&controls=0&w=560&h=315]

The agency added, “Treatment with Kymriah has the potential to cause severe side effects. It carries a boxed warning for cytokine release syndrome (CRS), which is a systemic response to the activation and proliferation of CAR T-cells causing high fever and flu-like symptoms, and for neurological events.”

The FDA granted approval of Kymriah to Novartis (NVS).

WHAT TO NOTE

On Monday, Gilead Sciences (GILD) and Kite Pharma (KITE) announced that the companies have entered into a definitive agreement pursuant to which Gilead will acquire Kite for $180.00 per share in cash.

Kite Pharma’s lead product candidate is KTE-C19, a chimeric antigen receptor (CAR)-based therapy that is in Phase 2 clinical trials for patients with relapsed or refractory aggressive diffuse large B cell lymphoma, primary mediastinal B cell lymphoma, and transformed follicular lymphoma. This is similar to what Novartis received approval for but for adults.

[youtube https://www.youtube.com/watch?v=qOusvjjc_Q0?rel=0&controls=0&w=560&h=315]

Other stocks in this space include Juno Therapeutics (JUNO), Novartis, and Gilead (GILD) since it now owns Kite Pharma (KITE).

NOVARTIS   STATEMENT

Kymriah will be manufactured for each individual patient using their own cells at the Novartis Morris Plains, New Jersey facility.

Novartis also announced what it calls “a novel collaboration” with the United States Centers for Medicare and Medicaid Services “focused on improving efficiencies in current regulatory requirements in order to deliver value-based care and ensure access for this specific patient population.”

This approach is intended to include indication-based pricing for medicines and supports payments for a medicine, such as Kymriah for its initial indication, based on the clinical outcomes achieved, which would eliminate inefficiencies from the healthcare system. Other value-based approaches related to future indications for Kymriah and CAR-T cell therapies are under discussion. Furthermore, Novartis is collaborating with CMS to make an outcomes-based approach available to allow for payment only when pediatric and young adult ALL patients respond to Kymriah by the end of the first month.

Future potential indications would be reviewed for the most relevant outcomes-based approach.

STICKER  SHOCK

Bloomberg reports that Novartis sets price of Kymriah at $475,000 per treatment.


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Otonomy Collapses Following its Drug Failure

Otonomy to immediately suspend all development activities for OTIVIDEX

Otonomy seen rallying up to 95% on positive Meniere's disease data. See Stockwinners.com Market Radar to learn more

Otonomy (OTIC) announced results for its AVERTS-1 Phase 3 clinical trial of OTIVIDEX in patients with Meniere’s disease. The #AVERTS-1 trial was a 16-week, prospective, randomized, double-blind, placebo-controlled trial that enrolled a total of 165 patients with unilateral Meniere’s disease in the United States.

The clinical trial missed its primary endpoint which was the count of definitive vertigo days by Poisson Regression analysis. Patients in both the OTIVIDEX and placebo groups showed similar reductions in the number and severity of vertigo episodes during the three month observation period.

OTIVIDEX patients reported a 58% reduction from baseline in vertigo frequency in Month 3 vs. 55% for placebo patients.

“We are greatly disappointed by these results, and surprised by both the higher placebo response and lower OTIVIDEX improvement than observed in our previous trials.

I would like to thank the many patients and investigators who participated in our Meniere’s clinical program,” said David Weber, Ph.D., president and CEO of Otonomy.

“Based on these results, we are immediately suspending all development activities for OTIVIDEX including the ongoing AVERTS-2 trial.

In addition, the company is undertaking a review of its product pipeline and commercial efforts to identify opportunities to extend its cash runway and build shareholder value.”

As of June 30, 2017, the company held cash, cash equivalents, and short-term investments totaling $150.5M with prior non-GAAP operating expense guidance of $80M-85M for 2017.

The company is withdrawing the spending guidance for the year pending the above-mentioned review.

Note that on August 15th, JPMorgan analyst Anupam Rama gave the drug a 70% chance of approval, and a $28 target price on the stock. OTIC closed at $20.80, last traded at $4.50.


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Medicines Co. Jumps on FDA Approval of Vabomere

The Medicines Co. announces FDA approval of VABOMERE

VABOMERE indicated for the treatment of adult patients with complicated urinary tract infections

Medicines Co. Jumps on FDA Approval of Vabomere. See Stockwinners.com Market Radar

The Medicines Company (MDCO) announced that the U.S. Food and Drug Administration has approved VABOMERE for injection for the treatment of adult patients with complicated urinary tract infections, including pyelonephritis, caused by designated susceptible Enterobacteriaceae – Escherichia coli, Klebsiella pneumoniae and Enterobacter cloacae species complex.

VABOMERE was granted priority review and approval as a Qualified Infectious Disease Product in accordance with the Generating Antibiotics Incentives Now Act, which made VABOMERE eligible for the FDA’s fast-track program, and approval now secures a five-year regulatory extension of exclusivity under the Hatch-Waxman Act, which means that patent coverage and exclusivity in the United States are expected to extend into 2031.

The FDA approval of VABOMERE was supported by TANGO-1, a Phase III, multi-center, randomized, double-blind, double-dummy study to evaluate the efficacy, safety and tolerability of VABOMERE compared to piperacillin-tazobactam in the treatment of cUTI, including acute pyelonephritis, in adults.

[youtube https://www.youtube.com/watch?v=448BfrF69nM?rel=0&controls=0&showinfo=0&w=560&h=315]

The trial enrolled 550 adult patients who were randomized 1:1 to receive VABOMERE as a three-hour IV infusion every eight hours, or piperacillin 4g – tazobactam 500mg as a 30-minute IV infusion every eight hours, each for up to 10 days.

We expect that VABOMERE will be available in Q4.

The FDA approval of VABOMERE triggered a $40M milestone payment obligation to the former securityholders of Rempex Pharmaceuticals, which we acquired in December 2013.


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Uber to name Expedia’s CEO as its new Boss

Expedia shares falls on reports Khosrowshahi will be offered Uber CEO position

Uber’s new CEO, Khosrowshahi comes with $200M price tag. See Stockwinners.com Market Radar for details.
Uber’s new CEO, Dara Khosrowshahi, is an Iranian immigrant.

Shares of Expedia (EXPE) fell on Monday after reports that CEO Dara Khosrowshahi is expected to be offered the position of Uber CEO. Today, Khosrowshahi confirmed he plans to accept the top job at the ride-hailing company.  Khosrowshahi, 48, is on the threshold of becoming one of the world’s most prominent CEOs.

WHAT’S NEW

Expedia CEO Dara Khosrowshahi will be offered the CEO role at Uber, Recode reported this past weekend, citing sources. According to Kara Swisher, Khosrowshahi was the “truce” choice for Uber’s board, which has been facing infighting between ousted CEO Travis Kalanick and Benchmark, one of its major investors.

GE's Immelt May Become Uber CEO. See Stockwinners.com for more details

A COOL $200 MILLION

According to Bloomberg, Khosrowshahi, who spent 12 years as the CEO of Expedia, held unvested stock options in that company worth $184.4 million as of Friday’s close in New York. Companies (Uber) typically grant replacement awards to executives who must forfeit unvested equity when they leave before their employment terms have expired.

The ride-hailing company will likely also grant #Khosrowshahi additional compensation, such as an annual salary and stock awards that vest over several years to ensure he remains on the job. That could push his total price tag north of $200 million.

As a private company, Uber doesn’t have to divulge any pay information about its employees, but a few hints have leaked in the past months mostly due to a lawsuit with Google. Court documents show that Uber awarded 5.31 million shares, worth roughly $250 million, to Anthony Levandowski, a self-driving car engineer the company poached from Google last year.

WHAT’S NOTABLE

According to the #Recode report, former GE (GE) CEO Jeff Immelt withdrew his name from contention when it was clear he would not win the job. #Immelt said in a tweet, “I have decided not to pursue a leadership position at Uber. I have immense respect for the company & founders – Travis, Garrett and Ryan.”

The report also said HP Enterprise (HPE) CEO Meg Whitman had the upper hand in the race for Uber’s CEO role, but “also wanted a number of things — including less involvement by ousted Uber CEO Travis #Kalanick and more board control — that became too problematic for the directors.”

Whitman was again considered for the top position over the weekend, CNBC’s David #Faber reported. Last week, #Whitman reiterated her statement that she would not be Uber’s next CEO, telling The Wall Street Journal that “nothing has changed” since her July 27 tweets, when she stated “I am not going anywhere” and “Uber’s CEO will not be Meg Whitman.”

DILLER  COMMENTS

On August 28, Expedia Chairman and Senior Executive Barry #Diller circulated the following email to Expedia, Inc. employees: “As you probably know by now, Dara #Khosrowshahi has been asked to lead Uber. Nothing has been yet finalized, but having extensively discussed this with Dara I believe it is his intention to accept. I also know the struggle he has been having out of both his abiding enthusiasm for Expedia’s future as well as his loyalty to all of us. I know Dara would like to communicate now with all of you but I’ve asked him not to until this is fully resolved. If #Dara does leave us, it will be to my great regret but also my blessing – he’s devoted 12 great years to building this Company and if this is what he wants for his next adventure it will be with my best wishes. I say that because he deserves nothing less and I say that also because he will leave behind a tremendously talented corps of executives… We both will be back in touch very soon.”

[youtube https://www.youtube.com/watch?v=uGwgk8VvcAk?rel=0&controls=0&showinfo=0&w=560&h=315]

ANALYST REACTION

SunTrust analyst Naved Khan said that the departure of Khosrowshani from Expedia would be “negative” because the CEO has played a role in Expedia’s success. However, #Khan added that the impact on #Expedia’s business would be “minimal,” given what he calls the company’s “deep and seasoned executive bench,” along with the autonomy of its business units. The analyst kept a $190 price target and a Buy rating on shares.

Cowen analyst Kevin #Kopelman had similar views, calling the move a “clear win” for the executive and for Uber and a “major loss” for Expedia. While he expects Expedia shares will likely suffer a selloff on the news, he said Expedia has a strong bench and believes the company is “in good hands” with Mark Okerstrom, who has been CFO and EVP of Operations since 2011. Kopelman has a $170 price target and an Outperform rating on Expedia shares.

JPMorgan analyst Doug #Anmuth believes the potential departure of Expedia CEO Dara Khosrowshahi will weigh on the company’s shares in the very near-term. The exit would come at a critical time for Expedia with its 2016 largely being spent on integrating the Orbitz and HomeAway acquisitions, Anmuth tells investors in a research note. He believes Expedia CFO and EVP of Operations Mark Okerstrom is the most likely candidate to take over as CEO. Okerstrom has been a “strong partner” to Khosrowshahi and would likely ensure a “smooth transition,” the analyst contended.

Related Blogs

 

PRICE ACTION

Expedia closed at $143.99. Shares have a 52-week trading range of $105.62 – $161.00. Shares have formed a bearish “flag” formation with a potential target of $120.


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Arc Logistics Sold for $16.50 a Share

Arc Logistics to be acquired by Zenith for $16.50 per unit in cash

Arc Logistics to be acquired by Zenith for $16.50 per unit in cash. See Stockwinners.com Market Radar

Arc Logistics (ARCX), Lightfoot Capital Partners GP, and Lightfoot Capital Partners, LP announced that they have entered into a Purchase Agreement and Plan of Merger with Zenith Energy U.S., L.P., a portfolio company of Warburg Pincus, pursuant to which Zenith will acquire Arc Logistics GP LLC, the general partner of the Partnership, and all of the outstanding common units in Arc Logistics.

Under the terms of the Merger Agreement, all Arc Logistics common unitholders, other than Lightfoot, will receive $16.50 per common unit in cash for each common unit they own, which represents a premium of approximately 15% to the Partnership’s common unit price as of August 28, 2017.

LCP LP will receive $14.50 per common unit in cash for the approximately 5.2 million common units held by it, and LCP GP will receive $94.5 million for 100% of the membership interests in Arc GP.

In connection with the Proposed Transaction, the board of Arc GP formed a conflicts committee composed of independent directors of the Arc board to review, evaluate and negotiate the Merger.

The Conflicts Committee approved the Merger Agreement and the Merger, determined that the Merger Agreement and the Merger are fair and reasonable to and in the best interests of the Partnership and the holders of common units and recommended that the Arc board and holders of common units approve the Merger Agreement and the Merger.

Following recommendation and approval from the Conflicts Committee, the Arc board unanimously approved the Merger Agreement and the Merger and is recommending that all Arc Logistics common unitholders vote in favor of the Merger Agreement and the Merger.

The completion of the Proposed Transaction is subject to a number of closing conditions, including approval by a majority of the outstanding Arc Logistics common unitholders and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Lightfoot, the owner of Arc GP and approximately 26.8% of the outstanding common units, has executed an agreement to vote in support of the Proposed Transaction.

Additionally, the Proposed Transaction is subject to the closing of the purchase by Zenith and Lightfoot from EFS Midstream Holdings LLC of certain of the interests in Arc Terminals Joliet Holdings LLC, which indirectly owns among other things a crude oil unloading facility and a 4-mile crude oil pipeline in Joliet, Illinois, and the closing of the purchase by Zenith of a 5.5% interest in Gulf LNG Holdings Group, LLC, which owns a liquefied natural gas regasification and storage facility in Pascagoula, Mississippi, from Lightfoot. T

he Proposed Transaction is not subject to a financing condition and closing is targeted at the end of the fourth quarter of 2017 or early in the first quarter of 2018.


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Advisory Board to Sell its Healthcare Business for $2.58 Billion

Advisory Board agrees to sell health care, education businesses

Stocks to Buy, Take over targets

The Advisory Board Company (ABCO) announced that it has entered into a definitive merger agreement to sell its health care business to Optum, a health services company, and a definitive purchase agreement to sell its education business to affiliates of Vista Equity Partners, an investment firm.

Stockholders of the company would receive estimated cash per share of $54.29, which includes a fixed amount of $52.65 per share and the after-tax value at closing of the company’s 7.6% stake in Evolent Health (EVH), which has been estimated as of August 28.

Total merger transaction value, including the after-tax proceeds for the sale of the education business, is approximately $2.58B.

Prior to the closing of the merger of the health care business with Optum, affiliates of Vista will acquire the company’s education business, including Royall & Company, for $1.55B, subject to customary adjustments.

Following the closing of the education transaction, the company’s health care business will merge with Optum for $1.3B, including the assumption of The Advisory Board Company’s debt.

All of the outstanding shares of common stock of the company will be converted into the right to receive $52.65 per share in cash plus an additional cash amount per share based on the after-tax value of the company’s stake in Evolent at closing.

Such additional amount will fluctuate between signing and closing. Based on the closing trading price of Evolent’s Class A common stock on August 28, stockholders would receive total cash consideration per share of approximately $54.29 in the merger, representing a premium for stockholders of approximately 50% to the closing price of the company’s common stock on the NASDAQ on January 11, which was the last trading day prior to the public disclosure of a significant minority investment in the company.

The Board of Directors of The Advisory Board company unanimously approved the merger agreement and has recommended that the company’s stockholders adopt the merger agreement.

The merger is expected to close by the end of 2017 or in early 2018 and is contingent on the approval of the company’s stockholders. The merger is subject to the satisfaction or waiver of certain other closing conditions, including U.S. antitrust clearance and the closing of the sale of the education business.

It is not subject to a financing condition. Elliott Management has agreed to vote its shares in support of the merger at the upcoming stockholder meeting.


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Harvey’s Winners and Losers

Harvey impact seen as boon for some E&Cs, bane for others

Insurance Stocks down on Harvey. See Stockwinners.com Market Radar for details

As Harvey leaves a path of destruction in Texas, Citi analyst Andrew #Kaplowitz tells investors he sees potential impacts for Engineering & Construction names he covers, both positive and negative.

Meanwhile, his peer at Wells Fargo noted that multiple Houston area refineries have initiated shutdowns or curtailed operations, and may remain offline.

IMPACT FOR E&CS

Commenting on the potential impact of Hurricane Harvey, Citi’s #Kaplowitz noted that he sees potential impacts for his Engineering & Construction names, both positive and negative.

While it is way too early to tell how much ultimate impact the storm will have on the companies he covers, the analyst told investors he thinks there could be modest positive impacts for Jacobs Engineering (JEC), Fluor (FLR) and potentially Aecom (ACM) and for Quanta Services (PWR) and MasTec (MTZ), as E&Cs can assist with recovery and relief.

Additionally, he sees potentially negative impacts for Chicago Bridge & Iron (CBI). There are several larger projects still currently under construction on the Texas Gulf Coast and Southern Louisiana that could be significantly impacted by flooding rains, Kaplowitz pointed out, including CBI’s Cameron and Freeport LNG, and Axiall/Lotte Cracker, and Fluor’s CP Chem Ethylene Cracker and Sasol’s Cracker.

Nonetheless, the analyst acknowledged that forecasting any negative impact on these projects would be “highly speculative” at this point.

[youtube https://www.youtube.com/watch?v=iaqLVm-bEZs?rel=0&controls=0&showinfo=0&w=560&h=315]

ROOFING and BUILDING SUPPLY STOCKS

One primary beneficiary of any natural disaster of this magnitude would be supplier of products that are needed to rebuild. Here are a list of such companies:

  • Beacon Roofing (BECN): The company is a maker of roof shingles
  • Home Depot (HD)
  • Lowes (LOW)
  • Lumber Liquidator (LL)
  • United Rentals (URI)
  • Waste Management (WM)
  • Republic Industries  (RSG)

IMPACT FOR REFINERS

Significant portions of U.S. refining capacity are offline following Category 4 Hurricane Harvey’s landfall on the middle Texas Coast and epic flooding in the Houston area, Wells Fargo’s Roger Read noted.

The analyst told investors that the majority of the refining units from Corpus Christi to Houston, Texas are offline and will remain so for much if not all of the coming week.

With approximately 25% of Gulf Coast refining capacity offline the impact of Hurricane Harvey is on par with prior major hurricane impacts on the Gulf Coast, he contended, adding that disruptions to normal activities may persist, crack spreads are likely to remain elevated and refining equities are likely to respond positively.

Nonetheless, Read noted that it is unclear if the flooding has damaged the refining units. Including condensate splitters, the analyst estimates 2.5-3.0 million barrels per day of refining capacity is offline, which represents just over one-quarter of Gulf Coast capacity and about 15% of U.S. refining capacity. Publicly traded companies in the refining space include Delek US (DK), HollyFrontier (HFC), Marathon Petroleum (MPC), Phillips 66 (PSX), Tesoro (TSO), Valero (VLO) and Western Refining (WNR).

PRICE ACTION

Fluor and Aecom are fractionally up in late morning trading, Quanta Services has gained almost 2%, and MasTec and CBI have risen about 1%. HollyFrontier has jumped almost 7%, while Marathon Petroleum and Philips 66 are up 1% and Valero has gained about 2%.


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Insurance Stocks down on Harvey

Property & Casualty insurers under pressure in Harvey aftermath

Insurance Stocks down on Harvey. See Stockwinners.com Market Radar for details

Hurricane Harvey made landfall late Friday night as a Category 4 storm, with sustained winds of 130mph. The storm was the first Category 4 hurricane to hit the continental U.S. in over a decade.

Winds slowed throughout the day Saturday, with Harvey becoming a tropical storm by afternoon.

Commenting on what Harvey will mean for Property & Casualty insurers, #JPMorgan analyst Sarah #DeWitt told investors that this could result in up to $20B of insured losses, while her peer at Deutsche Bank argued that Harvey is likely less severe for insurers than feared.

HARVEY SEEN AS IN TOP 10 MOST COSTLY HURRICANES

In a research note to investors this morning, JPMorgan’s DeWitt noted that Harvey continues to linger and is far from over, bringing catastrophic amounts of flooding to the coast of Texas, including the Houston/Galveston area.

While it is early days and Harvey is expected to bring even more rain and flooding for another week, the analyst said her best guess at this point is the storm could result in $10B-$20B of industry insured losses, making it one of the top 10 most costly hurricanes to hit the U.S.

Further, DeWitt argued that while Harvey appears to be more of a flood event, noting that flooding is not covered under homeowner’s insurance though it is covered under commercial insurance and could result in meaningful losses for the commercial reinsurers and insurers.

The analyst listed Validus (VR), RenaissanceRe (RNR), Everest Re (RE), XL Group (XL), Arch Capital (ACGL), Travelers (TRV), Chubb (CB), Allstate (ALL) and Progressive (PGR) as the property casualty insurers with the most exposure to Texas hurricanes.

Meanwhile, Morgan Stanley analyst Kai #Pan told investors in a research note of his own that uncertainty surrounding losses from Harvey could pressure Property & Casualty carriers in the near-term.

Flood losses could dwarf wind losses, impacting commercial players more than personal, he noted, adding that Hartford Financial Services (HIG) and Travelers are top Texas commercial insurers among his coverage.

[youtube https://www.youtube.com/watch?v=2ZehFE_qozk?rel=0&controls=0&showinfo=0&w=560&h=315]

LESS SEVERE THAN FEARED

Striking between Corpus Christie and Galveston, insured loss costs are probably lower than they would be had the storm landed further south and most certainly had it tracked further north, Deutsche Bank analyst Joshua #Shanker argued.

Windspeeds were generally higher than expected, and while the storm surge reached two to three feet in some areas, the analyst noted that it was not as high as was feared.

Shanker expects losses to skew toward the residential market as opposed to the commercial markets, with homeowners’ flood losses generally not covered by private insurance.

The analyst pointed out that he believes commercial carriers like AIG (AIG) and Chubb will generally avoid significant exposure to the event, and personal insurers like Allstate and Progressive will generally be exposed to flooded automobiles.

In all cases, Harvey could best be described as an earnings event and not a balance sheet event, he contended.

PRICE ACTION

In Monday morning’s trading, shares of AIG have slipped about 1%, while Everest Re and Travelers have dropped almost 3%. Validus, RenaissanceRe, Arch Capital, Chubb, Allstate, Progressive and Hartford Financial Services have slid about 2%.


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IXYS Sold for $750 Million

Littelfuse to acquire IXYS in cash and stock transaction

IXYS Sold for $750 Million. See Stockwinners.com Market Radar for details

Littelfuse (LFUS) and IXYS (IXYS) announced that they have entered into a definitive agreement under which Littelfuse will acquire all of the outstanding shares of IXYS in a cash and stock transaction.

The transaction represents an equity value of approximately $750M and enterprise value of $655M. Under the terms of the agreement, each IXYS stockholder will be entitled to elect to receive, per IXYS share, either $23.00 in cash or 0.1265 of a share of Littelfuse common stock, subject to proration.

In total, 50% of IXYS stock will be converted into the cash election option and 50% into the stock election option.

IXYS is a global pioneer in the power semiconductor and integrated circuit markets with a focus on medium to high voltage power control semiconductors across the industrial, communications, consumer and medical markets.

IXYS has a broad customer base, serving more than 3,500 customers through its direct salesforce and global distribution partners.

IXYS reported revenues of $322M in its fiscal 2017 with an adjusted EBITDA margin of approximately 13.5%.

The transaction is expected to be immediately accretive to Littelfuse’s adjusted earnings per share and free cash flow in the first full year post transaction close, excluding any acquisition and integration related costs.

Littelfuse expects to achieve more than $30 million of annualized cost savings within the first two years after closing the transaction.

Longer term, the combination is also expected to create significant revenue synergy opportunities given the companies’ complementary offerings, as well as benefits from future tax rate reduction.

In conjunction with the definitive agreement, Dr. Nathan Zommer, IXYS founder and currently the company’s largest stockholder with approximately 21% ownership, has entered into a voting and support agreement.

Subject to the agreement’s terms and conditions, he has agreed to vote his shares in favor of the transaction.

After close of the transaction, Dr. Zommer is expected to join Littelfuse’s Board of Directors, subject to the board’s governance and approval process. His technical skills and extensive experience across the semiconductor industry will benefit the combined company with its integration efforts, innovation roadmap and revenue expansion.

The transaction is expected to close in the first calendar quarter of 2018 and is subject to the satisfaction of customary closing conditions, including regulatory approvals and approval by IXYS stockholders.

Littelfuse expects to finance the cash portion of the transaction consideration through a combination of existing cash and additional debt.


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MaxPoint Sold for $95 Million

MaxPoint to be acquired by Valassis for $13.86 per share in cash

 MaxPoint to be acquired by Valassis for $95M. See Stockwinners.com Market Radar for details

Valassis announced that it has reached a definitive agreement, through its parent company Harland Clarke Holdings, to acquire MaxPoint Interactive (MXPT).

MaxPoint provides an industry-leading data management platform that fuels superior display advertising and in-store campaign solutions for advertising clients.

Under the agreement, Harland Clarke Holdings, a wholly owned subsidiary of MacAndrews & Forbes Incorporated and owner of Valassis, will acquire all of the outstanding shares of MaxPoint for $13.86 per share in cash.

The transaction, which has been unanimously approved by MaxPoint’s Board of Directors, has an equity value of approximately $95M.

MaxPoint’s top 3 stockholders have signed support agreements reflecting their commitment to this transaction and intent to tender their shares in the tender offer.

The transaction will be effected through a tender offer for all of the outstanding shares of MaxPoint followed by a merger at the same price per share. The transaction is expected to close in the fourth quarter of 2017.

Upon completion of the transaction, MaxPoint will become a privately held company and MaxPoint’s outstanding shares will no longer be listed on any public market.

In light of the transaction, MaxPoint will not provide earnings guidance going forward.


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FOTIVDA approved in EU for treatment of renal cell carcinoma

AVEO Oncology’s  FOTIVDA approved in EU for treatment of renal cell carcinoma

Stockwinners.com/blog

AVEO Oncology (AVEO) announced that the European Commission has approved FOTIVDA for the treatment of adult patients with advanced renal cell carcinoma in the European Union plus Norway and Iceland.

Tivozanib is indicated for the first line treatment of adult patients with advanced RCC and for adult patients who are vascular endothelial growth factor receptor and mTOR pathway inhibitor-naive following disease progression after one prior treatment with cytokine therapy for advanced RCC.i EUSA Pharma is the European licensee for tivozanib.

Under the terms of their December 2015 agreement, EUSA Pharma has agreed to pay AVEO up to $394M in future milestone payments and research and development funding, assuming successful achievement of specified development, regulatory and commercialization objectives.

In addition, a tiered royalty will be due to AVEO ranging from a low double-digit up to mid-twenty percent on net sales of tivozanib in the agreement’s territories.

European marketing approval for tivozanib triggers a $4M research and development payment from EUSA, and AVEO will also be eligible for up to $12M in additional milestones from EUSA based on reimbursement and regulatory approvals.

In the territories licensed to EUSA, 30% of milestone and royalty payments received by AVEO, excluding research and development funding, are due to Kyowa Hakko Kirin as a sublicensing fee.

In the territories retained by AVEO, the royalty obligation to KHK ranges from the low- to mid-teens on net sales.

See our blog on this stock when AVEO was trading at $0.72. AVEO last traded at $4.17.


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Kite Pharma Sold for $11.9 Billion

Gilead to acquire Kite Pharma for $11.9B, or $180 per share in cash

Gilead to acquire Kite Pharma for $11.9B. See Stockwinners.com Market Radar for details

Gilead Sciences (GILD) and Kite Pharma (KITE) announced that the companies have entered into a definitive agreement pursuant to which Gilead will acquire Kite for $180.00 per share in cash.

The transaction, which values Kite at approximately $11.9B, was unanimously approved by both the Gilead and Kite Boards of Directors and is anticipated to close in the fourth quarter of 2017.

The transaction will provide opportunities for diversification of revenues, and is expected to be neutral to earnings by year three and accretive thereafter.

Research and development as well as the commercialization operations for Kite will remain based in Santa Monica, California, with product manufacturing remaining in El Segundo, California.

Under the terms of the merger agreement, a wholly-owned subsidiary of Gilead will promptly commence a tender offer to acquire all of the outstanding shares of Kite’s common stock at a price of $180.00 per share in cash.

Following successful completion of the tender offer, Gilead will acquire all remaining shares not tendered in the offer through a second step merger at the same price as in the tender offer.

The consummation of the tender offer is subject to various conditions, including a minimum tender of at least a majority of outstanding Kite shares on a fully diluted basis, the expiration or termination of the waiting period under the Hart Scott Rodino Antitrust Improvements Act, and other customary conditions. Gilead plans to finance the transaction with a combination of cash on hand, bank debt and senior unsecured notes.

The tender offer is not subject to a financing condition. The $180.00 per share acquisition price represents a 29 percent premium to Kite’s closing on Friday, August 25, and a 50 percent premium to the company’s 30-day volume weighted average stock price.

BofA Merrill Lynch and Lazard are acting as financial advisors to Gilead. Centerview Partners is acting as exclusive financial advisor to Kite. Jefferies LLC and Cowen and Company, LLC also provided advice to Kite.

Skadden, Arps, Slate, Meagher & Flom is serving as legal counsel to Gilead and Sullivan & Cromwell LLP and Cooley LLP are serving as legal counsel to Kite.

Watch blueBird (BLUE)  and Juno Therapeutics (JUNO) as they may move higher on the news.


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