Palantir’s Bulls and Bears

Goldman Sachs upgrades the recent IPO while Citi says Sell

Palantir Technologies Inc. (PLTR) builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations.

It offers Palantir Gotham, a software platform for government operatives in the defense and intelligence sectors, which enables users to identify patterns hidden deep within datasets, ranging from signals intelligence sources to reports from confidential informants, as well as facilitates the handoff between analysts and operational users, helping operators plan and execute real-world responses to threats that have been identified within the platform.

The company also provides Palantir Foundry, a platform that transforms the ways organizations operate by creating a central operating system for their data; and allows individual users to integrate and analyze the data they need in one place. 

The company took the unusual route of becoming a public company by directly listing it’s shares and bypassing the brokers. Shares came public around $9 and shot up to $45 a share before pulling back. There were a number of brokers who made comments about the shares today following the company’s earnings.

Earnings

Palantir Technologies reported 4th Quarter December 2020 earnings of $0.07 per share on revenue of $322.1 million yesterday morning. The consensus earnings estimate was $0.02 per share on revenue of $300.4 million.

The company said it expects 2021 revenue of $1.42 billion or more. The current consensus revenue estimate is $1.41 billion for the year ending December 31, 2021.

Goldman Sachs

Goldman Sachs analyst Christopher #Merwin upgraded Palantir Technologies to Buy from Neutral with a price target of $34, up from $13. Palantir reported “strong” Q4 results and its Q1 guidance called for revenue growth of 45%, while fiscal 2021 revenue guidance was for 30%-plus, Merwin tells investors in a research note. The analyst is “encouraged” to see management guide to $4B of revenue in fiscal 2025, implying a 30% annual growth from fiscal 2020. With a growing backlog of $2.8B in deal value, there is increasing visibility into the achievability of that long-term target, says Merwin.

Further, the analyst believes Palantir’s recent efforts to modularize Foundry and add channel partners like IBM “should improve product market fit” for the commercial business in the coming quarters.

Morgan Stanley

Morgan Stanley analyst Keith #Weiss raised the firm’s price target on Palantir to $19 from $17, telling investors after the company’s Q4 report that Palantir’s results in FY20 showed a big expansion of existing customers, “huge leverage” in operating margins and the seeds for future distribution capability.

However, he keeps an Underweight rating on the shares as he would like to see evidence of effective investment behind the company’s opportunity to support growth and what he views as a “lofty valuation.”

Jefferies

Jefferies analyst Brent #Thill noted that Palantir reported a top and bottom line beat in Q4 along with “robust” large deal metrics and said it is targeting $4B or more in 2025 revenues, but that the stock remains under pressure due to Thursday’s lock-up expiry and the recent run-up that saw the stock up 35% year-to-date ahead of the report.

However, he views Palantir as “a highly unique story for long-term investors” given that he thinks its growth sustainability at significant scale, and “aggressive profitability ramp,” puts the stock “in rarified air” among software companies. Thill maintains a Buy rating on the stock, which he expects to “trend to $40,” his price target on Palantir shares.

RBC Capital

RBC Capital analyst Matthew #Hedberg raised the firm’s price target on Palantir to $27 from $15 and keeps a Sector Perform rating on the shares.

The company ended 2020 with a “solid” set of Q4 results while forecasting acceleration and margin improvement in Q1, the analyst tells investors in a research note. Hedberg adds however that while he is positive on Palantir’s catalysts, he remains on the sidelines due to the stock’s “full valuation”.

Citi

Citi analyst Tyler #Radke keeps a Sell rating on Palantir Technologies with a $15 price target following the company’s Q4 results.

The results featured “solid” reported revenue upside, but came with “signs of growth drivers narrowing with new customers growth still lacking and Commercial revenue missing expectations,” Radke tells investors in a research note.

The new five-year revenue target of $4B “looks high,” but ultimately may be a non-event for the stock, says the analyst. He thinks the stock is overvalued and “could be particularly volatile” into the upcoming lockup on February 18.

Insiders

Peter Thiel, Chairman, and well connected Washington insider

Several insiders have sold shares into the lockup expiry on Thursday but Peter Thiel, Chairman of the Board, reported a 5% ownership of the stock.

PLTR last traded at $28.50.

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Waddell & Reed sold for $1.7 billion

Macquarie to acquire Waddell & Reed for $25 per share

Waddell & Reed (WDR) announced it has entered into a merger agreement with Macquarie Asset Management, the asset management division of Macquarie Group (MQBKY), under which Macquarie would acquire all of the outstanding shares of Waddell & Reed for $25.00 per share in cash representing total consideration of $1.7B.

The transaction represents a premium of approximately 48% to the closing price of Waddell & Reed common stock on December 1, 2020, the last trading day prior to the transaction announcement, and a premium of approximately 57% to Waddell & Reed’s volume-weighted average price for the last 90 trading days.

On completion of the transaction, Macquarie has agreed to sell Waddell & Reed Financial, Inc.’s wealth management platform to LPL Financial Holdings Inc. (LPLA), a U.S. retail investment advisory firm, independent broker-dealer, and registered investment advisor custodian, and also enter into a long-term partnership with Macquarie becoming one of LPL’s top tier strategic asset management partners.

As a result of the transaction, Macquarie Asset Management’s assets under management are expected to increase to over $465B, with the combined business becoming a top 25 actively managed, long-term, open-ended U.S. mutual fund manager by assets under management, with the scale and diversification to competitively position the business to maintain and extend its high standards of service to clients and partners.

The transaction has been approved by the Boards of Directors of Waddell & Reed Financial, Inc., Macquarie Group and LPL and is expected to close in the middle of 2021, subject to regulatory approvals, Waddell & Reed Financial, Inc. stockholder approval and other customary closing conditions.

Waddell & Reed Financial, Inc. provides investment management and advisory, investment product underwriting and distribution, and shareholder services administration to mutual funds, and institutional and separately managed accounts in the United States. 

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Consolidation in digital healthcare continues!

GigCapital2 to combine with UpHealth, Cloudbreak Health in $1.35B merger

GigCapital2 (GIX) announced that it has entered into two separate definitive business combination agreements with each of UpHealth and Cloudbreak Health to form a combined entity that will create a publicly traded, global digital healthcare company.

Digital healthcare has become more prevalent during the pandemic

Upon the closing of the transaction, the combined company will be named UpHealth and will continue to be listed on the NYSE under the new ticker symbol (UPH).

Following the combination, UpHealth will be a global digital healthcare company serving an entire spectrum of healthcare needs and will be established in fast growing sectors of the digital health industry.

With its combinations, Upon closing the pending mergers and the combination with Cloudbreak, UpHealth will be organized across four capabilities at the intersection of population health management and telehealth: Integrated Care Management, Global Telehealth, Digital Pharmacy, and Tech-enabled Behavioral Health.

Following the consummation of the transactions, UpHealth will have agreements to deliver digital healthcare in more than 10 countries globally.

These various companies are expected to generate approximately $115M in revenue and over $13M of EBITDA in 2020 and following the combination, UpHealth expects to generate over $190M in revenue and $24M in EBITDA in 2021.

The business combinations were unanimously approved by the boards of directors of all parties, valuing the combined company at a combined pro forma enterprise value of approximately $1.35B.

The proposed business combinations are expected to be completed in Q1 2021, subject to, among other things, the approval by GigCapital2 stockholders, regulatory approvals, and the satisfaction or waiver of other customary closing conditions.

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Sina is taken private for $2.59B

Sina enters $2.59B ‘Going Private’ transaction with New Wave Holdings

Sina (SINA) announced that it has entered into an agreement and plan of merger with New Wave Holdings and New Wave Merger sub, a wholly owned subsidiary of parent, pursuant to which parent will acquire all of the company’s outstanding ordinary shares not currently owned by parent and its affiliates in an all-cash transaction implying an equity value of the company of approximately $2.59B for all the ordinary shares.

Sina, the Chinese social media company, is taken private

Parent is a wholly owned subsidiary of New Wave MMXV, a British Virgin Islands company controlled by Charles Chao, chairman and CEO of the company.

Pursuant to the merger agreement, at the effective time of the merger, each ordinary share issued and outstanding immediately prior to the effective time will be cancelled and cease to exist in exchange for the right to receive $43.30 in cash per ordinary share without interest, other than shares held by the chairman, New Wave and any of their respective affiliates.

The per share merger consideration represents a premium of approximately 18.1% to the closing price of the company’s ordinary shares on July 2, the last trading day prior to the company’s announcement of its receipt of the preliminary non-binding “going-private” proposal from New Wave on July 6, and premiums of approximately 23.6% and 28.6% to the volume-weighted average traded price of the company’s ordinary shares during the last one month and three months, respectively, prior to and including July 2.

The per share merger consideration also represents an increase of approximately 5.6% over the $41 per ordinary share initially offered in the “going-private” proposal from New Wave.

The merger consideration will be funded through a combination of certain committed term loan facilities obtained by New Wave from China Minsheng Banking and cash contribution by the chairman and New Wave.

The company’s board of directors, acting upon the unanimous recommendation of a committee of independent directors established by the board, approved the merger agreement and the merger and resolved to recommend that the company’s shareholders vote to authorize and approve the merger agreement and the merger.

The merger is currently expected to close during the Q1 of 2021 and is subject to customary closing conditions, including the approval of the merger agreement by the affirmative vote of shareholders representing at least two-thirds of the voting power of the outstanding shares of the company present and voting in person or by proxy at a meeting of the company’s shareholders.

If completed, the merger will result in the company becoming a privately held company and its ordinary shares will no longer be listed on Nasdaq.

SINA is up $2.46 to $42.65

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IMF warns of global slowdown

International Monetary Fund cuts global growth forecast

IMF cuts global growth forecast and warns that the rebound in global financial markets “appears disconnected from shifts in underlying economic prospects”.

The fund now expects global GDP to shrink -4.9% this year, from -3.0% expected in April.

For next year, the IMF sees a rebound of 5.4%, also lower than the 5.8% projected two months ago with downward revisions reflecting the deep scars from a larger than expected supply shock during lockdowns as well as a continued hit to demand from social distancing and other virus measures.

Orange color designates economic downgrades

The IMF warned that for nations struggling to control the spread of the virus a longer lockdown will also take a toll on growth.

“With the relentless spread of the pandemic, prospects of long lasting negative consequences for livelihoods, job security and inequality have grown more daunting”, according to the fund’s update to the World Economic Outlook.

Advanced economies are expected to lead the downdraft with a -8.0% rate, versus -6.1% in the prior forecast.

The outlook on the U.S. was downgraded to -8.0% from -5.9%.

The projection on the Euro Area was knocked down to -10.2% from -7.5%. The UK is also seen posting a -10.2% contraction versus -6.5% previously. Japan was revised to -5.8% from -5.2%.

Emerging market and developing economies are seen falling -3.0% versus -1.0% in the April forecast. China is expected to expand 1.0%, though down from the prior 1.2%.

The largest revision was seen with India where the prior 1.9% growth rate was revised to a -4.5% contraction. World trade volume is projected tumbling at a -11.9% pace this year, a downgrade from -11.0% previously, though is expected to bounce back to an 8.0% growth rate in 2021.

Consumer prices in Advanced economies is seen slowing to 0.3% versus the prior estimate of 0.5%, and is down from a 1.4% pace in 2019.

Several central bank officials have also tried to reign in optimism about the recovery as markets seem to run away with the recovery story.

India’s economy is expected to hit hard with Covid-19

Massive monetary and fiscal support may help to kick-start a rebound, but as ECB chief economist Lane warned today, it will take a long time to reach pre-crisis levels.

The Bank o Japan’s summary of opinion warned that a prolonged negative impact of virus developments on the economic outlook looks unavoidable. And China’s Beige Book expects a contraction for China’s economy this year. 

New York Governor Andrew Cuomo, along with Governor Phil Murphy of New Jersey and Governor Ned Lamont of Connecticut, announced a joint travel advisory.

All individuals traveling from states with significant community spread of COVID-19 into any of the three states must quarantine for 14 days, the governors announced.

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Fed pumps more money into economy

Fed says SMCCF will begin buying portfolio of corporate bonds

The Federal Reserve Board announced updates to the Secondary Market Corporate Credit Facility, or SMCCF, which will begin buying “a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers.”

The Fed added that “the SMCCF will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds.

This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity, and other criteria.

Feds crank up their printing presses

This indexing approach will complement the facility’s current purchases of exchange-traded funds.

The Primary Market and Secondary Market Corporate Credit Facilities were established with the approval of the Treasury Secretary and with $75 billion in equity provided by the Treasury Department from the CARES Act.”

The SMCCF supports market liquidity by purchasing in the secondary market corporate bonds issued by investment grade U.S. companies or certain U.S. companies that were investment grade as of March 22, 2020, as well as U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. corporate bonds.

Feds bailout Wall Street firms

The SMCCF’s purchases of corporate bonds will create a portfolio that tracks a broad, diversified market index of U.S. corporate bonds.

The Treasury, using funds appropriated to the ESF through the CARES Act, will make an equity investment in an SPV established by the Federal Reserve for the SMCCF and the Primary Market Corporate Credit Facility.

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Several retailers grab their shopping bags and file for bankruptcy

As JC Penney’s files for bankruptcy, others line up to do the same

Retailers have long been suffering from a tough retail environment due to competition from online retailers such as Amazon, Etsy and eBay; it seems like COVID-19 fired the kill shot.

J.C. Penney

J.C. Penney announced that it has received approvals from the U.S. Bankruptcy Court for the Southern District of Texas, in Corpus Christi, TX for the “First Day” motions related to the company’s voluntary Chapter 11 petitions filed on May 15, 2020, including approval for the company to access and use its approximately $500M in cash collateral.

The 118 year old retailer files for Chapter 11 bankruptcy, Stockwinners

J.C. Penney entered into a restructuring support agreement with lenders holding approximately 70% of J.C. Penney’s first lien debt to reduce the company’s outstanding indebtedness and strengthen its financial position. J.C. Penney has approximately $500M in cash on hand as of the Chapter 11 filing date.

James Cash Penney started the company in 1902

JCP Gets Delisted

The New York Stock Exchange announced that the staff of NYSE Regulation has determined to commence proceedings to delist the common stock of J.C. Penney Company – ticker symbol JCP – from the NYSE. NYSE Regulation reached its decision that the company is no longer suitable for listing after the company’s May 15, 2020 disclosure that the company filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

Recent Retail Bankruptcies

On May 4th, J.Crew Group announced it has reached an agreement with its lenders holding approximately 71% of its Term Loan and approximately 78% of its IPCo Notes, as well as with its financial sponsors, under which the company will restructure its debt and deleverage its balance sheet, positioning J.Crew and Madewell for long-term success.

Houston-based Stage Stores Inc. filed for chapter 11 bankruptcy in Texas last week.

GNC Holdings (GNC), the nutritional supplement retailer, avoided bankruptcy by reaching a last-minute deal with creditors that allows it to avoid bankruptcy for at least 30 days but no more than 90 days under a deal announced Friday.

GNC avoids bankruptcy for 90 days

True Religion

Even before COVID-19 forced True Religion to close its 87 stores, the denim specialist’s sales were in decline and its profits were negative. After shuttering its footprint in response to the pandemic, 80% of its sales disappeared, according to the company. 

Others on the list

According to Law.com, both Macy’s (M) and Neiman Marcus have hired bankruptcy law firm Kirkland, and Wachtell. Neiman filed for Chapter 11 last week. Macy’s should be forthcoming.

Pier 1 Imports (PIR) filed for bankruptcy protection this month. It would only make sense if it’s competitors follow the same path.

Nashville-based retailer, Kirkland’s, Inc. operates as a specialty retailer of home décor in the United States. The company’s stores provide various merchandise, including holiday décor, furniture, ornamental wall décor, decorative accessories, art, textiles, mirrors, fragrance and accessories, lamps, artificial floral products, housewares, outdoor living items,

Kirkland’s has avoided Chapter 11, Stockwinners

In 2019, seventeen major retailers filed for bankruptcy. For some of them it was their second trip to the alter including Payless, Gymboree, and Charming Charlie.

Some of the retailers that filed for bankruptcy in the past 18 months. Stockwinners

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Feds inject more money into the economy

Federal Reserve to provide up to $2.3T in loans to support economy

The Federal Reserve on Thursday took additional actions to provide up to $2.3 trillion in loans to support the economy.

“Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” said Federal Reserve Board Chair Jerome Powell. “

Powell puts more money into the economy. Stockwinners

The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”

The actions the Federal Reserve is taking today to support employers of all sizes and communities across the country will: Bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program, or PPP, by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses.

Cash is infused into the economy at a record rate, Stockwinners

The PPP provides loans to small businesses so that they can keep their workers on the payroll.

The Paycheck Protection Program Liquidity Facility, or PPPLF, will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value; Ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program.

Feds put more money in PPP

The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, will provide $75 billion in equity to the facility; Increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities, or PMCCF and SMCCF, as well as the Term Asset-Backed Securities Loan Facility, or TALF.

These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury; and help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities.

The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.

The Main Street Lending Program will enhance support for small and mid-sized businesses that were in good financial standing before the crisis by offering 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion.

Principal and interest payments will be deferred for one year.

Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses.

Banks will retain a 5 percent share, selling the remaining 95 percent to the Main Street facility, which will purchase up to $600 billion of loans.

Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act.

Firms that have taken advantage of the PPP may also take out Main Street loans.

“The Federal Reserve and the Treasury recognize that businesses vary widely in their financing needs, particularly at this time, and, as the program is being finalized, will continue to seek input from lenders, borrowers, and other stakeholders to make sure the program supports the economy as effectively and efficiently as possible while also safeguarding taxpayer funds. Comments may be sent to the feedback form until April 16,” the central bank said.

To support further credit flow to households and businesses, the Federal Reserve will broaden the range of assets that are eligible collateral for TALF.

As detailed in an updated term sheet, TALF-eligible collateral will now include the triple-A rated tranches of both outstanding commercial mortgage-backed securities and newly issued collateralized loan obligations.

The size of the facility will remain $100 billion, and TALF will continue to support the issuance of asset-backed securities that fund a wide range of lending, including student loans, auto loans, and credit card loans.

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Central Banks flood markets with cash

  • Fed lowers federal funds target rate to 0%-0.25% on coronavirus outbreak
  • Fed, other central banks announce action to enhance U.S. dollar liquidity
  • Fed to up Treasury securities holdings by at least $500B, MBS by at least $200B
  • Expect added volatility in financial markets
Corona slowdown leads to drastic decisions, Stockwinners

The Federal Reserve said in a Sunday night statement, “The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected.

Available economic data show that the U.S. economy came into this challenging period on a strong footing. Information received since the Federal Open Market Committee met in January indicates that the labor market remained strong through February and economic activity rose at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending rose at a moderate pace, business fixed investment and exports remained weak. More recently, the energy sector has come under stress.

Global inflation from 2007-2017, Stockwinners

On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent.

Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook.

In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent.

The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2 percent objective.”


The Federal Reserve said “To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Committee will also reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.

QE 4 initiated by the Feds on a Sunday night, Stockwinners

In addition, the Open Market Desk has recently expanded its overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate,” the central bank announced.


In an extraordinary move, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank announced a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.

The Federal Reserve stated: “These central banks have agreed to lower the pricing on the standing U.S. dollar liquidity swap arrangements by 25 basis points, so that the new rate will be the U.S. dollar overnight index swap rate plus 25 basis points.

To increase the swap lines’ effectiveness in providing term liquidity, the foreign central banks with regular U.S. dollar liquidity operations have also agreed to begin offering U.S. dollars weekly in each jurisdiction with an 84-day maturity, in addition to the 1-week maturity operations currently offered. These changes will take effect with the next scheduled operations during the week of March 16.

The new pricing and maturity offerings will remain in place as long as appropriate to support the smooth functioning of U.S. dollar funding markets. The swap lines are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad.”

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Coronavirus induced slowdown is coming!

U.S. factory orders undershot estimates in January

U.S. factory orders undershot estimates in January, with declines of -0.5% for the headline and -0.1% ex-transportation, alongside a -0.1% factory inventory drop. Note that this report reflects the period prior to the spread of Covid-19 or Coronavirus.

Covid-19 spreads across the World.

The undershoot reflected declines of -0.8% for nondurable shipments and orders, and -0.2% for nondurable inventories, after downward December revisions, with a headwind for both from energy prices.

Factory Orders Slow in January

The equipment data from the durables report were revised modestly lower, alongside slight downward tweaks in the December levels for orders, shipments, and inventories.

The data still show encouraging January gains for most of the equipment data despite downward bumps, but lean shipments and inventory data, with January pull-backs for transportation and defense after December gains.

Analysts still expect a Q4 GDP growth boost to 2.2% from 2.1% but with -$1 B revisions for both factory inventories and equipment spending.

Factory orders fall in January

Analysts expect GDP growth of 2.0% in Q1, with a -5% (was -4%) Q1 contraction rate for real equipment spending after an estimated -4.8% (was -4.4%) Q4 pace. Analysts expect a -$20 B Q1 inventory subtraction that leaves a $9 B liquidation rate, with a big hit to inventories from reduced imports from China.

Analysts assume a -0.1% (was flat) January business inventory drop after a flat (was 0.1%) figure in December.

Earlier, we had a blog regarding slow down in truck sales was flashing an economic slowdown on the horizon. Read the blog here.

Feds Panic

Fed funds futures have continued to rally as the market prices in another 25 bps of easing at the upcoming March 17, 18 FOMC, on top of this week’s 50 bp reduction.

FOMC emergency 50bp rate cut may have hurt the market.

The market is also supported from flight from risk with declines of over 2% on Wall Street in pre-open action.

The futures are now fully priced for a 25 bps easing in two weeks, to be followed by another 25 bps at the April 28, 29 FOMC with about 75% risk, while June is now seeing about a 50-50 bet for yet one more 25 bp cut at the June 9, 10 FOMC.

Jerome Powell gives in to WH pressure and cuts rates.

That would see the policy band at 0% to 0.50%. Analysts continue believe the Fed and the markets are over-reacting and analysts doubt the economic impact of COVID-19 will be as disastrous as the market’s are pricing in.

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Morgan Stanley to acquire E-Trade for $58.74 per share

Morgan Stanley acquires E-Trade in all-stock deal valued at $13B

Morgan Stanley (MS) and E-Trade Financial (ETFC) have entered into a definitive agreement under which Morgan Stanley will acquire E-Trade in an all-stock transaction valued at approximately $13B.

Etrade sold for $13 B, Stockwinners

Under the terms of the agreement, E-Trade stockholders will receive 1.0432 Morgan Stanley shares for each E-Trade share, which represents per share consideration of $58.74 based on the closing price of Morgan Stanley.

The acquisition is subject to customary closing conditions, including regulatory approvals and approval by E-Trade shareholders, and is expected to close in the fourth quarter of 2020.

Morgan Stanley pays $13B for Etrade. Stockwinners

The transaction provides “significant upside potential” for shareholders of both Morgan Stanley and E-Trade, the company said in a statement.

“Shareholders from both companies will benefit from potential cost savings estimated at approximately $400 million from maximizing efficiencies of technology infrastructure, optimizing shared corporate services and combining the bank entities, as well as potential funding synergies of approximately $150 million from optimizing E-Trade’s approximate $56 billion of deposits,” they said.

Morgan Stanley said its “full-service, advisor-driven model coupled with E-Trade”s direct-to-consumer and digital capabilities, will allow the combined business to have best-in-class product and service offerings to support the full spectrum of wealth.”

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Legg Mason sold for $6.5B including debt assumption

Franklin Templeton to acquire Legg Mason for $50.00 per share in cash

Franklin Resources (BEN) announced that it has entered into a definitive agreement to acquire Legg Mason (LM) for $50.00 per share of common stock in an all-cash transaction.

The company will also assume approximately $2B of Legg Mason’s outstanding debt.

Franklin Templeton buys Legg Mason for $4.5B, Stockwinners

The acquisition of Legg Mason and its multiple investment affiliates, which collectively manage over $806 billion in assets as of January 31, will establish Franklin Templeton as one of the world’s largest independent, specialized global investment managers with a combined $1.5 trillion in assets under management, or AUM, across one of the broadest ranges of high-quality investment teams in the industry.

Legg Mason sold for $4.5B cash and $2B debt assumptions, Stockwinners

The combined footprint of the organization will significantly deepen Franklin Templeton’s presence in key geographies and create an expansive investment platform that is well balanced between institutional and retail client AUM.

In addition, the combined platform creates a strong separately managed account business. Trian Fund Management, L.P. and funds managed by it, which collectively own approximately 4 million shares or 4.5% of the outstanding stock of Legg Mason, have entered into a voting agreement in support of the transaction.

With this acquisition, Franklin Templeton will preserve the autonomy of Legg Mason’s affiliates, ensuring that their investment philosophies, processes and brands remain unchanged.

As with any acquisition, the pending integration of Legg Mason’s parent company into Franklin Templeton’s, including the global distribution operations at the parent company level, will take time and only commence after careful and deliberate consideration.

Following the closing of the transaction, Jenny Johnson will continue to serve as president and CEO, and Greg Johnson will continue to serve as executive chairman of the Board of Franklin Resources, Inc.

There will be no changes to the senior management teams of Legg Mason’s investment affiliates.

Global headquarters will remain in San Mateo, CA and the combined firm will operate as Franklin Templeton.

The all-cash consideration of $4.5 billion will be funded from the Company’s existing balance sheet cash.

Franklin Templeton will also assume approximately $2 billion in Legg Mason’s outstanding debt.

Upon closing of the transaction, Franklin Templeton expects to maintain a robust balance sheet and considerable financial flexibility with pro forma gross debt of approximately $2.7 billion with remaining cash and investments of approximately $5.3 billion.

This transaction is designed to preserve the Company’s financial strength and stability with modest leverage, significant liquidity and strong cash flow to provide ongoing flexibility to invest in further growth and innovation.

This transaction is expected to generate upper twenties percentage GAAP EPS accretion in Fiscal 2021 (based on street consensus earnings estimates for each company), excluding one-time charges, non-recurring and acquisition related expenses.

While cost synergies have not been a strategic driver of the transaction, there are opportunities to realize efficiencies through parent company rationalization and global distribution optimization.

These are expected to result in approximately $200 million in annual cost savings, net of significant growth investments Franklin Templeton expects to make in the combined business and in addition to Legg Mason’s previously announced cost savings.

The majority of these savings are expected to be realized within a year, following the close of the transaction, with the remaining synergies being realized over the next one to two years.

The transaction has been unanimously approved by the boards of Franklin Resources, Inc. and Legg Mason, Inc.

This transaction is subject to customary closing conditions, including receipt of applicable regulatory approvals and approval by Legg Mason’s shareholders, and is expected to close no later than the third calendar quarter of 2020.

LM closed at $40.72. BEN closed at $24.36.

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FGL Holdings sold for $2.7B

FGL Holdings to be acquired by Fidelity National for $12.50 per share

FGL Holdings (FG) announced that the company has entered into a merger agreement pursuant to which Fidelity National Financial (FNF) will acquire F&G for $12.50 per share, representing an equity value of approximately $2.7B.

The transaction was approved by a Special Committee of F&G Directors, a Special Committee of FNF Directors and the FNF board.

FGL sold for $2.7 billion, Stockwinners

Under the terms of the merger agreement, holders of F&G’s ordinary shares (other than FNF and its subsidiaries) may elect to receive either $12.50 per share in cash or 0.2558 of a share of FNF common stock for each ordinary share of F&G they own.

FGL Holdings sells individual life insurance products and annuities in the United States. The company offers deferred annuities, including fixed indexed annuity contracts and fixed rate annuity contracts; immediate annuities; and life insurance products. It also provides reinsurance on asset intensive, long duration life, and annuity liabilities, such as fixed, deferred and payout annuities, long-term care, group long-term disability, and cash value life insurance. 

This is subject to an election and proration mechanism such that the aggregate consideration paid to such holders of F&G’s ordinary shares will consist of approximately 60% cash and 40% FNF common stock. Upon closing of the transaction, F&G shareholders will own approximately 7% of the outstanding shares of FNF common stock.

FNF pays $2.7B for FGL Holdings, Stockwinners

This represents a premium of 28% to F&G’s 60-day volume-weighted average price and a premium of 17% to F&G’s all-time high closing stock price following its combination with CF Corp. of $10.70 prior to February 6, when the media reported a potential transaction.

FNF currently owns 7.9% of F&G’s outstanding ordinary shares and all of F&G’s Series B Preferred shares, and, in connection with and immediately prior to the closing of the proposed acquisition, will acquire all outstanding F&G Series A preferred shares, with a face value of approximately $321 million as of December 31, 2019. Including the assumption of F&G’s $550 million of senior notes due 2025, FNF’s pro forma debt to total capital is expected to be approximately 26% at the close of the transaction.

The transaction is expected to close in the second or third quarter of 2020, subject to the satisfaction of customary closing conditions, including the receipt of regulatory clearances and approval by F&G shareholders.

Following the close of the transaction, F&G will operate as a subsidiary of FNF. F&G is expected to remain headquartered in Des Moines, Iowa, and will continue to be led by Chris Blunt and F&G’s current management team.

The terms of the merger agreement provide that F&G will be permitted, with the assistance of its legal and financial advisors, to actively solicit alternative acquisition proposals from third parties during a 40-day “go-shop” period from the date of the merger agreement until Wednesday, March 18, 2020.

F&G may terminate the merger agreement to enter into a superior proposal with specified bidders identified in this period for a termination fee of $39.97M, subject to the terms and conditions of the merger agreement.

There is no guarantee that the “go-shop” process will result in any alternative acquisition proposal or that any alternative acquisition proposal will be identified at any time, or approved or completed.

F&G does not intend to disclose developments with respect to the “go-shop” process unless and until F&G’s Special Committee and/or F&G’s board makes a determination requiring further disclosure.

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FSB Bancorp sold for $17.80 per share

Evans Bancorp to acquire FSB for $17.80 per share, in accretive transaction

Evans Bancorp (EVBN) and FSB Bancorp (FSBC), jointly announced the execution of a definitive merger agreement whereby Evans will acquire FSB for $17.80 per share for total consideration of approximately $34.7M.

FSB sold for $34.8M, Stockwinners

The transaction is proposed to be comprised of 50% stock and 50% cash. Unanimously approved by the Boards of Directors of each company, the transaction is expected to close in the second quarter of 2020, subject to the satisfaction of customary closing conditions, including regulatory approval and FSB stockholder approval.

An investor presentation summarizing the transaction is available at www.evansbancorp.com.

Evans buys FSB for $17.80 per share, Stockwinners

Under the terms of the merger agreement, FSB stockholders will have the right to receive at their election either 0.4394 shares of Evans common stock or $17.80 in cash for each share of FSB common stock, subject to possible adjustment and 50/50 proration.

This transaction will qualify as a tax-free reorganization for those FSB stockholders who receive Evans common stock in the transaction. The merger consideration represents an 8% premium to FSB’s tangible book value as of September 30, 2019, and a 5.9% premium to FSB’s closing share price on December 18, 2019.

Evans’ management expects this transaction will be 4.7% accretive to 2021 earnings with tangible book value earn back of approximately 3.5 years.

Based on information as of September 30, 2019, the combined company will have 20 financial centers with approximately $1.8 billion in total assets, $1.5 billion in total deposits and $1.5 billion in total loans.

Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approvals and the approval of FSB stockholders.

Under the terms of the merger agreement, at closing of the transaction, FSB and its wholly owned bank subsidiary, Fairport Savings Bank, will be merged with and into Evans Bancorp and its subsidiary bank, Evans Bank.

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Liberty Property Trust sold for about $61 per share

Prologis to acquire Liberty Property for $12.6B

Prologis (PLD) and Liberty Property Trust (LPT) announced that the two companies have entered into a definitive merger agreement by which Prologis will acquire Liberty in an all-stock transaction, valued at approximately $12.6B, including the assumption of debt.

Prologis buys Liberty Property Trust, Stockwinners

The board of Prologis and the board of trustees of Liberty have each unanimously approved the transaction.

Warehouses and logistics facilities — Liberty’s specialty — have become a hot part of the real estate market as more shopping moves online and demand for the space increases. 

The acquisition gives Prologis a portfolio of 107 million square feet of logistics properties that’s owned or managed, as well as buildings under construction and land for future development. It also includes 4.9 million square feet of office space.

Prologis plans to dispose of approximately $3.5B of assets on a pro rata share basis. This includes $2.8B of non-strategic logistics properties and $700M of office properties.

This transaction is anticipated to create immediate cost synergies of approximately $120M from corporate general and administrative cost savings, operating leverage, lower interest expense and lease adjustments.

Initially, this transaction is expected to increase annual core funds from operations per share by 10c-12c. Upon stabilization of the acquired development assets, completion of the planned non-strategic asset sales and redeployment of the related proceeds, annual stabilized core FFO per share is forecasted to increase by an additional 4c per share for a total of 14c-16c.

Liberty holds mostly class A properties, Stockwinners

Further, there are future synergies with the potential to generate approximately $60M in annual savings, including $10M from revenue synergies and $50M from incremental development value creation.

“Liberty’s logistics assets are highly complementary to our U.S. portfolio, and this acquisition increases our holdings and growth potential in several key markets,” Prologis Chairman and Chief Executive Hamid R. Moghadam said in the statement.

Under the terms of the agreement, Liberty shareholders will receive 0.675x of a Prologis share for each Liberty share they own.

The transaction, which is currently expected to close in Q1 of 2020, is subject to the approval of Liberty shareholders and other customary closing conditions.

Liberty shares have risen 21% this year, compared with the 55% jump in Prologis shares. 

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