Fed’s Waller supports ‘significant increase’ in policy rate at next meeting
The Federal Reserve release a transcript for a speech to be delivered by Governor Christopher Waller at the 17th Annual Vienna Macroeconomics Workshop, in which he plans to state:
Christopher Waller
Christopher J. Waller took office as a member of the Board of Governors of the Federal Reserve System on December 18, 2020, to fill an unexpired term ending January 31, 2030.
Prior to his appointment at the Board, Dr. Waller served as executive vice president and director of research at the Federal Reserve Bank of St. Louis since 2009.
There are three takeaways from my speech today.
First, inflation is far too high, and it is too soon to say whether inflation is moving meaningfully and persistently downward. The Federal Open Market Committee is committed to undertake actions to bring inflation back down to our 2% target.
This is a fight we cannot, and will not, walk away from.
The second takeaway is that the fears of a recession starting in the first half of this year have faded away and the robust U.S. labor market is giving us the flexibility to be aggressive in our fight against inflation.
For that reason, I support continued increases in the FOMC’s policy rate and, based on what I know today, I support a significant increase at our next meeting on September 20 and 21 to get the policy rate to a setting that is clearly restricting demand.
The final takeaway is that I believe forward guidance is becoming less useful at this stage of the tightening cycle.
Future decisions on the size of additional rate increases and the destination for the policy rate in this cycle should be solely determined by the incoming data and their implications for economic activity, employment, and inflation.”
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
Frontier, Spirit to combine in deal that implies $25.83 per Spirit share
Spirit Airlines (SAVE) and Frontier Group Holdings (ULCC) announced a definitive merger agreement under which the companies will combine, creating America’s most competitive ultra-low fare airline.
Under the terms of the merger agreement, which has been unanimously approved by the boards of directors of both companies, Spirit equity holders will receive 1.9126 shares of Frontier plus $2.13 in cash for each existing Spirit share they own.
This implies a value of $25.83 per Spirit share at Frontier’s closing stock price of $12.39 on February 4, 2022, representing a premium of 19% over the February 4, 2022, closing price of Spirit, and a 26% premium based on the 30 trading-day volume-weighted average prices of Frontier and Spirit.
The transaction values Spirit at a fully diluted equity value of $2.9B, and a transaction value of $6.6B when accounting for the assumption of net debt and operating lease liabilities.
Upon closing of the transaction, existing Frontier equity holders will own approximately 51.5% and existing Spirit equity holders will own approximately 48.5% of the combined airline, on a fully diluted basis, providing both Frontier and Spirit equity holders with substantial upside potential.
Spirit Route Map
The Board of Directors for the new airline will be comprised of 12 directors (including the CEO), seven of whom will be named by Frontier and five of whom will be named by Spirit.
Bill Franke, CEO of the Indigo Partners, will be Chairman of the Board of the combined company.
Frontier Route Map
The merger is expected to close in the second half of 2022, subject to satisfaction of customary closing conditions, including completion of the regulatory review process and approval by Spirit stockholders.
Frontier’s controlling stockholder has approved the transaction and related issuance of shares of Frontier common stock upon signing of the merger agreement.
The combined company’s management team, branding and headquarters will be determined by a committee led by Franke prior to close.
“Our fourth quarter 2021 results came in better-than-expected, despite the negative impact from Omicron-related flight disruptions, primarily due to very strong demand over the peak December holiday period. I want to thank the entire Spirit team for their professionalism and commitment to providing excellent service to our Guests,” said Ted Christie, Spirit’s president and CEO.
Ted Christie, Spirit’s president and CEO
Spirit Airlines is up 15.9%, or $3.46 to $25.20. Frontier Group is up 14 cents to $12.81.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
AT&T, Discovery to create global DTC business through Reverse Morris Trust
AT&T (T) and Discovery (DISCA) announced a definitive agreement to combine WarnerMedia’s premium entertainment, sports and news assets with Discovery’s nonfiction and international entertainment and sports businesses to create a standalone global entertainment company.
ATT to merge it’s media assets with Discovery
Under the terms of the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, AT&T would receive $43B in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt, and AT&T’s shareholders would receive stock representing 71% of the new company; Discovery shareholders would own 29% of the new company.
The boards of both AT&T and Discovery have approved the transaction.
Discovery to merge with ATT media
Bringing together the leadership teams, content creators, and series and film libraries.
The new company is projected for 2023 revenue of approximately $52B, adjusted EBITDA of approximately $14B, and free cash flow conversion rate of approximately 60%.
The transaction is expected to create at least $3B in expected cost synergies annually for the new company.
The new company will compete globally in the direct-to-consumer business bringing content to DTC subscribers across its portfolio, including HBO Max and the recently launched discovery+.
The transaction will combine WarnerMedia’s content library of IP with Discovery’s global footprint, local-language content and regional expertise across more than 200 countries and territories.
The companies announced that Discovery president and CEO David Zaslav will lead the proposed new company with a management team and operational and creative leadership from both companies.
Discovery’s current multiple classes of shares will be consolidated to a single class with one vote per share.
The new company’s board will consist of 13 members, seven initially appointed by AT&T, including the chairperson of the board; Discovery will initially appoint six members, including CEO David Zaslav.
The combination will be executed through a Reverse Morris Trust, under which WarnerMedia will be spun or split off to AT&T’s shareholders via dividend or through an exchange offer or a combination of both and simultaneously combined with Discovery.
The transaction is expected to be tax-free to AT&T and AT&T’s shareholders. In connection with the spin-off or split-off of WarnerMedia, AT&T will receive $43B in a combination of cash, debt securities and WarnerMedia’s retention of certain debt.
David Zaslav to head the new company
The new company expects to maintain investment grade rating and utilize the significant cash flow of the combined company to rapidly de-lever to approximately 3.0x within 24 months, and to target a new, longer term gross leverage target of 2.5x-3.0x.
WarnerMedia has secured fully committed financing for the purposes of funding the distribution.
The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals.
No vote is required by AT&T shareholders. Agreements are in place with John Malone and Advance to vote in favor of the transaction.
Elliott Management
Elliott Investment Management released a statement on behalf of Managing Partner Jesse Cohn and Portfolio Manager Marc Steinberg regarding AT&T’s plan to merge media assets with Discovery:
Elliott is a major shareholder in ATT
“It has been a transformational year at AT&T year since John Stankey took over as CEO, and today’s announcement represents another impressive step in the Company’s recent evolution.
AT&T has now executed on its promise to streamline operations and re-focus on its core businesses, all while improving operational execution, enhancing its financial position and advancing its corporate governance. As investors, Elliott supports AT&T in its efforts to best position the company for future success.”
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
Aphria (APHA) and Tilray (TLRY) announced that they have entered into a definitive agreement to combine their businesses and create the world’s largest global cannabis company based on pro forma revenue.
Aphria merges with Tilray
The deal is pursuant to a plan of arrangement under the Business Corporations Act and the implied pro forma equity value of the combined company is approximately $3.9B, based on the share price of Aphria and Tilray at the close of market on December 15.
Following the completion of the arrangement, the combined company will have principal offices in the United States, Canada, Portugal and Germany, and it will operate under the Tilray corporate name with shares trading on Nasdaq under ticker symbol (TLRY).
Tilray merges with Aphria
The combined company will have a complete portfolio of branded Cannabis 2.0 products in Canada.
In the United States, the combined company will have a consumer packaged goods presence and infrastructure with two strategic pillars, including SweetWater Brewing and Manitoba Harvest.
Under the terms of the Arrangement, the shareholders of Aphria will receive 0.8381 shares of Tilray for each Aphria common share, while holders of Tilray shares will continue to hold their Tilray shares with no adjustment to their holdings.
Upon the completion of the arrangement, Aphria Shareholders will own approximately 62% of the outstanding Tilray Shares on a fully diluted basis, resulting in a reverse acquisition of Tilray, representing a premium of 23% based on the share price at market close on December 15 to Tilray shareholders.
On a pro forma basis for the last twelve months reported by each company, the combined company would have had revenue of $685M.
Upon completion of the arrangement, Aphria’s current chairman and CEO, Irwin Simon, will lead the combined company as chairman and CEO.
The board of directors will consist of nine members, seven of which, including Simon, are current Aphria directors and two of which will be from Tilray, including Brendan Kennedy, and one of which is to be designated.
The combined company will have pro forma revenue of $685M for the last twelve months reported by each company, the highest in the global cannabis industry.
In Canada, the combination of Aphria and Tilray will create the leading adult-use cannabis company with gross revenue of C$296M in the adult-use market for the twelve months reported by each company.
The combination of Aphria and Tilray is expected to deliver approximately C$100M of annual pre-tax cost synergies within 24 months of the completion of the transaction.
The combined company expects to achieve cost synergies in the key areas of cultivation and production, cannabis and product purchasing, sales and marketing and corporate expenses.
Under the terms of the agreement, the arrangement will be carried out by way of a court approved plan of arrangement under the Business Corporations Act and will require the approval of at least two-thirds of the votes cast by the Aphria Shareholders at a special meeting.
Approval of a majority of the votes cast by Tilray stockholders will be required to, among other things contemplated by the Agreement, authorize the issuance of Tilray shares to Aphria shareholders pursuant to the Arrangement. Following completion of the Arrangement, Aphria will become a wholly-owned subsidiary of Tilray, with Aphria shareholders owning approximately 62% of Tilray.
The arrangement is expected to close in the second quarter of calendar year 2021 following the receipt of such regulatory approvals, as well as court approval of the Arrangement.
Each of Aphria’s and Tilray’s respective directors and officers and certain principal Tilray Stockholders have entered into voting support agreements agreeing to vote their Aphria Shares or Tilray Shares, as applicable, in favor of the resolutions put before them pursuant to the agreement.
Note that this merger probably was forced on the companies by market forces. Covid-19 pandemic has hurt cannabis industry similar to restaurants and movie theaters. APHA is up 5 cents to $8.18. TLRY is up $1.51 to $9.38. TLRY shares have an all time high of $300.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
S&P Global (SPGI) and IHS Markit (INFO) announced they have entered into a definitive merger agreement to combine in an all-stock transaction which values IHS Markit at an enterprise value of $44B, including $4.8B of net debt.
Under the terms of the merger agreement, which has been unanimously approved by the boards of both companies, each share of IHS Markit common stock will be exchanged for a fixed ratio of 0.2838 shares of S&P Global common stock.
Upon completion of the transaction, current S&P Global shareholders will own approximately 67.75% of the combined company on a fully diluted basis, while IHS Markit shareholders will own approximately 32.25%.
Serving a global customer base across financial information and services, ratings, indices, commodities and energy, and transportation and engineering, the pro forma company will provide differentiated solutions to the workflows of many companies.
Combined, the two companies will provide solutions across data, platforms, benchmarks and analytics in ESG, climate and energy transition.
The pro forma company will have 76% recurring revenue and expects to realize 6.5%-8% annual organic revenue growth in 2022 and 2023, balanced across major industry segments.
The combined company will target 200 basis points of annual EBITA margin expansion.
The transaction is expected to be accretive to earnings by the end of the second full year post-closing.
The combined company expects to deliver annual run-rate cost synergies of approximately $480M, with approximately $390M of those expected by the end of the second year post-closing, and $350M in run-rate revenue synergies for an expected total run-rate EBITA impact of approximately $680M by the end of the fifth full year after closing.
The combined company expects to generate annual free cash flow exceeding $5B by 2023, with a targeted dividend payout ratio of 20%-30% of adjusted diluted EPS and a targeted total capital return of at least 85% of free cash flow between dividends and share repurchases.
Both companies expect to maintain their current dividend policies until the close of the transaction.
Following closing, the company will be headquartered in New York with a presence in key global markets across North America, Latin America, EMEA and Asia Pacific.
The leadership team will comprise senior leaders from both organizations.
Ewout Steenbergen, executive VP and CFO of S&P Global, will serve as CFO of the combined company.
Ewout Steenbergen will serve as CFO of the new company
The transaction is expected to close in the second half of 2021, subject to, among other things, the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, other antitrust and regulatory approvals, and other customary closing conditions.
The transaction requires the approval of shareholders of both S&P Global and IHS Markit and is not subject to any financing conditions.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
AOC flags ‘material risks’ to Palantir investors in SEC letter
Palantir Technologies Inc. (PLTR) builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations.
Palantir finally becomes a public company
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.
Shares soared 34% on Wednesday on their debut.
In a newly released letter, New York Representative Alexandria Ocasio-Cortez issued words of warning to the SEC over Palantir’s efforts to take the company public, cautioning the regulatory body over details the progressive congresswoman says were “omitted” in the company’s disclosures, TechCrunch’s Taylor Hatmaker reports.
New York Representative Alexandria Ocasio-Cortez
Illinois Rep. Jesus “Chuy” Garcia
“Palantir reports several pieces of information about its company – and omits others – that we believe require further disclosure and examination, as they present material risks of which potential investors should be aware and national security concerns of which the public should be aware,” Ocasio-Cortez and Illinois Rep. Jesus “Chuy” Garcia wrote.
Palantir’s chairman, Peter Thiel
Palantir’s chairman, Peter Thiel, and its work for government agencies including U.S. immigration have sparked concerns among corporate watchdogs and human rights groups including Amnesty International. The company has also drawn rebukes from governance experts who point out that Thiel will have power with little accountability because of multi-class stock that grants him outsize power in perpetuity.
PLTR closed at $9.73, up $2.48 on heavy volume of 338,584,433.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
Sun Communities to acquire Safe Harbor Marinas for $2.1B
Sun Communities (SUI) announced that it has entered into a definitive merger agreement to acquire Safe Harbor Marinas. Safe Harbor’s full operating team, led by Baxter Underwood, will run Safe Harbor as a subsidiary of the Company independently from Sun’s manufactured home and recreational vehicle community business.
Safe Harbor is the largest and most diversified marina owner and operator in the United States.
It owns and operates 101 marinas, manages five marinas on behalf of third parties and has an approximate 40,000-member network of boat owners across 22 states.
Safe Harbor’s portfolio of high quality, prime coastal market marinas generates recurring rental income from annual and seasonal leases and further diversifies Sun’s geographic and demographic footprint.
Safe Harbor has a proven ability to generate organic and external growth. The acquisition, which is expected to be accretive to 2021 Core FFO per share, will comprise approximately 15% of the Company’s pro forma total annual rental revenue.
Safe Harbor marinas located throughout the Nation
Subject to closing adjustments, the aggregate purchase price for Safe Harbor is approximately $2.11B.
At the closing, the Company will assume debt in the estimated amount of approximately $808M, issue the sellers REIT operating partnership common and preferred OP units in the estimated amount of approximately $130M, and pay the balance of the purchase price in cash.
The mix of consideration will depend on the amount of common and preferred OP units the sellers elect to receive and other factors. The actual amounts of each component of the merger consideration may be materially higher or lower than the foregoing estimates.
The transaction is subject to customary closing conditions and is expected to close in the fourth quarter 2020.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
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.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
GE (GE) announced the results of its strategic review.
GE will focus on Aviation, Power and Renewable Energy, creating a simpler, stronger, leading high-tech Industrial company.
In addition to the pending combination of its Transportation business with Wabtec, GE plans to separate GE Healthcare into a standalone company, pursue an orderly separation from BHGE (BHGE) over the next two to three years, make its corporate structure leaner and substantially reduce debt.
GE’s Board of Directors unanimously approved the plans announced today.
GE is making fundamental changes to how it will run the company.
The new GE Operating System will result in a smaller corporate headquarters focused primarily on strategy, capital allocation, talent and governance.
It will result in better execution, increased speed and is expected to generate at least $500 million in corporate savings by the end of 2020.
Under the new GE Operating System, most resources and services traditionally held at the headquarters level will be realigned to the businesses. GE is targeting an Industrial net debt-to-EBITDA ratio of less than 2.5 times and a long-term A credit rating.
GE also plans to reduce Industrial net debt by approximately $25 billion by 2020 and maintain more than $15 billion of cash on the balance sheet.
GE expects to maintain its current quarterly dividend, subject to Board approval, until GE Healthcare is established as an independent entity.
At that time, the new GE Healthcare Board of Directors will determine GE Healthcare’s dividend policy, which GE expects to reflect healthcare industry practices.
Also at that time, the GE Board expects to adjust the GE dividend with a target dividend policy in line with industrial peers. Kieran Murphy, president and CEO of GE Healthcare, will continue to lead GE Healthcare as a standalone company, maintaining the GE brand.
GE expects to generate cash from the disposition of approximately 20% of its interest in the Healthcare business and to distribute the remaining 80% to GE shareholders through a tax-free distribution.
The structure, sequence and timing of these transactions will be determined and announced at a later date, but are expected to be completed over the next 12 to 18 months.
GE Healthcare will conduct business as usual throughout this process, continuing to serve its partners and customers.
GE plans to fully separate its 62.5% interest in BHGE in an orderly manner over the next two to three years. BHGE’s full stream offering brings together equipment, services and digital solutions to help its customers be more productive-a unique and powerful value proposition in a changing market.
The separation will provide BHGE with enhanced agility and the ability to focus on leading in the oil and gas industry.
Shares of the former DJIA component closed at $12.75.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
Caterpillar (CAT) is scheduled to report results of its third fiscal quarter before the market opens on Tuesday, October 24, with a conference call scheduled for 11:00 am ET.
What to watch for
1. GUIDANCE:
On July 25, Caterpillar reported results for its fiscal second quarter and raised its forecast for fiscal 2017. The company said it expected earnings per share, excluding-costs, to be about $5.00, up from the prior view of $3.75, against analyst expectations of $4.32 at that time.
The company also raised its FY17 revenue guidance to $42B-$44B from $38B-$41B, against analyst consensus of $40.54B at that time. For FY17, Caterpillar said it expected profit per share of about $3.50 at the midpoint of the sales and revenues outlook range, or adjusted profit per share of about $5.00. The previous outlook for 2017 profit was about $2.10 per share at the midpoint of the sales and revenues outlook, or adjusted profit per share of about $3.75. The company now expects to incur about $1.2B of restructuring costs in 2017. The outlook does not include potential mark-to-market gains or losses related to pension and other post-employment benefit plans.
2. RETAIL MACHINES SALES
On August 18, Caterpillar reported retail machines sales in the three months ending in July were up 12%. For reference, retail sales of machines were up 7% in the period ending in June and up 8% in the period ending in May.
The company reported world Resources Industries sales up 8% in the July-end period, compared to a June period decline of 1%.
Construction Industries world sales were up 13% in the July-end period, better than the 10% increase in the June-end period. Total Energy & Transportation Retail Sales were down 2% in the July-end period, worse than the 1% increase seen in the June period.
On September 21, Caterpillar reported retail machines sales in the three months ending in August were up 11%. For reference, retail sales of machines were up 12% in the period ending in August and up 7% in the period ending in June.
The company reported world Resources Industries sales up 5% in the August-end period, compared to a July period increase of 8%. Construction Industries world sales were up 12% in the August-end period, a tick worse than the 13% increase in the July-end period. Total Energy & Transportation Retail Sales were down 3% in the August-end period, worse than the 2% decrease seen in the July period.
On October 23, the company reported retail machines sales in the three months ending in September were up 13%. For reference, retail sales of machines were up 11% in the period ending in the prior month and up 12% in the period ending in July.
The company reported world Resources Industries sales up 8% in the September-end period, compared to a August period increase of 5%.
Construction Industries world sales were up 15% in the September-end period, better than the 12% increase in the prior period. Total Energy & Transportation Retail Sales were up 5% in the September-end period, better than the 3% decrease seen in the prior three-month period.
3. MANAGEMENT CHANGES
On August 1, Caterpillar announced that Chief Financial Officer Brad Halverson will retire in early 2018. The company added that it will launch a global, external search to fill the CFO position and Halverson’s decision to continue working into early 2018 helps to ensure a smooth transition for the CFO position.
On August 10, the company’s board appointed former U.S. senator Kelly Ayotte to the board and will be a member of the Public Policy & Governance Committee of the board. Senator Ayotte’s appointment was effective on that date.
On August 11, the company appointed Suzette Long as the company’s general counsel and corporate secretary. The group she will lead includes Caterpillar’s Legal Services Division and Global Government & Corporate Affairs Division.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
JPMorgan (JPM) and Citigroup (C) are scheduled to report quarterly results on October 12, while Wells Fargo (WFC) is scheduled to report on October 13.
What to watch for:
1. OUTLOOK:
During its last earnings call, JPMorgan said it sees 2017 average core loan growth of about 8%, 2017 net interest income up over $4B year over year, 2017 adjusted expense of about $58B, and 2017 net charge-offs of about $5B.
On September 12, JPMorgan’s Dimon added that trading revenue should be down about 20% in Q3.
Meanwhile, back in July, Citi said it was “on track” to increase return on capital and that it expects continued year over year revenue growth in retail banking, excluding mortgage, as well as modest organic growth in cards.
Meanwhile, mortgage should continue to be a headwind in Q3, the company noted. Later in the month, Citi CEO Michael Corbat said he sees earnings per share approaching $9.00 in 2020.
During Wells Fargo last earnings call, the bank said it is targeting $2B expense reduction by year-end 2018.
Additionally, the bank plans to close about 450 branches in 2017-2018, and expects to increase Q3 dividend to 39c per share.
Last month, Wells Fargo said it sees net interest income up low to mid-single digits in 2017, with loan growth in Q3 expected to be impacted by continued decline in auto loans, run off of the junior lien mortgage portfolio, and a slower and more competitive commercial and CRE lending environment.
2. VALUATION, LACK OF CATALYSTS:
Back in July, #Berenberg analyst James Chappell downgraded Wells Fargo to Sell saying the bank’s competitive advantages have been eroded. Wells has become “too big to differentiate itself” from wider market trends and deliver the expected growth, Chappell contended.
A few days later, BMO Capital analyst James Fotheringham cut his rating for Citi to Market Perform based on valuation and lack of catalysts.
Last month, JPMorgan also saw a rating change, with Deutsche Bank analyst Matt O’Connor downgrading the stock to Hold as he sees net interest income growth slowing and credit costs inching up as the Fed raises short rates and the yield curve flattens.
Further meaningful outperformance of JPMorgan shares will be harder amid increased competition within investment banking and trading as well as slowing loan growth, he contended. 3.
UPSIDE POTENTIAL
Late July, Andrew Bary wrote on Barron’s that Citi could rise by 50%, or hit $100, saying he sees upside ahead as it offers a low valuation and what could be the highest earnings growth rate among its peers in upcoming years.
Two weeks later, Wells Fargo analyst Mike Mayo resumed coverage of Citi with an Outperform rating, calling it his top pick in Large-Cap U.S. Banks. Mayo expects the stock to double in four-to-five years.
Meanwhile, Citi analyst Keith Horowitz argued that now is the time to buy Wells Fargo, telling investors Wells Fargo’s business improved, not broken. The company’s issue is an “aggressive sales culture encouraged the wrong behavior leading to strong account generation,” which had an immaterial impact to earnings, Horowitz added. 4.
WELLS TO REMEDIATE CUSTOMERS
On July 28, Wells Fargo announced a plan to remediate auto loan customers of Wells Fargo Dealers Services who may have been financially harmed due to issues related to auto Collateral Protection Insurance policies.
This month, the bank also announced plans to reach out to all home lending customers who paid fees for mortgage rate lock extensions requested from September 16, 2013, through February 28, 2017, and to refund customers who believe they should not have paid those fees.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
Genesis Energy agrees to acquire Tronox Alkali Business for $1.33B in cash
Genesis Energy (GEL) announced that it has entered into a stock purchase agreement with a subsidiary of Tronox (TROX) to acquire all of Tronox’s trona and trona-based exploring, mining, processing, producing, marketing and selling business for approximately $1.33B in cash.
The Alkali Business is the world’s largest producer of natural soda ash, also known as sodium carbonate, a basic building block for a number of ubiquitous products, including flat glass, container glass, dry detergent and a variety of chemicals and other industrial products.
The Alkali Business produces approximately four million tons of natural soda ash per year, representing approximately 28% of all the natural soda ash produced in the world and, based on current production rates, has an estimated reserve life remaining of over 100 years.
Having been in continuous operations for almost 70 years, it sells its products to a broad, industry-diverse and worldwide customer base, including numerous long-term relationships.
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The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
General Cable to review strategic alternatives, potential sale
The Company reports preliminary Q2 revenues of approximately $923M
General Cable (BGC) has announced that its Board of Directors has initiated a review of strategic alternatives to maximize shareholder value, including a potential sale of the company.
General Cable has engaged #JPMorgan Securities as financial advisor and Sullivan & Cromwell as legal advisor to assist in the process.
There can be no assurance that the Board’s strategic review will result in any transaction, or any assurance as to its outcome or timing. The company does not intend to disclose or comment on developments related to its review unless and until the Board has approved a specific transaction or otherwise determined that further disclosure is appropriate.
Separately, the company reported preliminary Q2 revenues of approximately $923M for North America, Europe and Latin America, one estimate $922.75M. Reported Q2 reported operating loss and adjusted operating income of approximately ($23M) and $32M, respectively.
The expected reported operating loss primarily reflects a one-time non-cash charge of approximately $36M related to the sale of General Cable’s investment in Algeria, consistent with the company’s previously announced divestiture program.
Additionally, as of June 30, General Cable maintained availability of approximately $360M under its $700M asset-based revolving credit facility.
General Cable Corporation (BGC) develops, designs, manufactures, markets, and distributes copper, aluminum, and fiber optic wire and cable products for the energy, industrial, construction, specialty, and communications markets in North America, Europe, Latin America, and Africa/the Asia Pacific.
Price Range:
BGC last traded at $16.55. It has a 52-week trading range of $11.70 – $20.80.
The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
Snap Slides below IPO price as Morgan Stanley Warns of Instagram Threat
Shares of Snap Inc. (SNAP) are slipping after Morgan Stanley analyst Brian Nowak downgraded the stock to Equal Weight from Overweight saying that its ad product is not evolving as quickly as expected, while Facebook’s (FB) Instagram competition is increasing.
Meanwhile, his peer at Aegis argued that he now sees weaker June usage trends for Snapchat.
MOVE TO THE SIDELINES
In a research note to investors this morning, Morgan Stanley’s Nowak downgraded Snapchat’s parent Snap to Equal Weight from Overweight as he now sees its ad revenue growth being materially slower than he previously expected. The analyst acknowledged that he has been wrong about Snap’s ability to innovate and improve its ad product this year and user monetization as it works to move beyond “experimental” ad budgets into larger branded and direct response ad allocations.
Further, #Nowak also pointed out that he believes user growth trends have been modestly weaker than expected, though time spent per user has been strong.
Additionally, the analyst argued that the company faces rising competition from Instagram, which has become more aggressive in competing with Snap’s ad dollars. Citing industry conversations, Nowak noted that Instagram is giving advertisers sponsored lenses for free. The analyst also lowered his price target on Snap’s shares to $16 from $28.
WEAKER USAGE TRENDS
In a research note of his own, Aegis analyst Victor Anthony said Snap’s Daily Average User, or DAU, growth had decelerated more meaningfully than he had seen earlier in the month, according to his tracker. The analyst pointed out that he now sees weaker June usage trends and believes that Spectacles are not selling well, both of which are likely to exert downward pressure on estimates. While Anthony wonders if the hype around Spectacles has faded and could go the way of Google’s (GOOG; GOOGL) Glasses, the analyst said he understands that recent product updates are resonating with users, particularly, the Maps and World Lenses features, and that could help with engagement in the third quarter and beyond. He reiterated a Hold rating and $19 price target on Snap’s shares.
WHAT’S NOTABLE:
Shares of Snap ended yesterday’s trading day just below $17, which is where the company priced its initial public offering back in March. Snap Inc. opened trading at $24 per share on March 2, well above its pricing of $17 per share, and finished its first day of trading with an advance of about 44%, closing at $24.51.
PRICE ACTION:
In Tuesday morning trading, shares of Snapchat’s (SNAP) parent have dropped about 6% to $16.01 on heavy volume of 15 million shares.
The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
JANA pushes EQT for ‘immediate breakup’ over Rice Energy deal
JANA Partners disclosed a new 5.8% stake in EQT Corporation (EQT) in a regulatory filing that allows for activism.
Background
On June 19th, 2017, EQT Corporation (EQT) and Rice Energy (RICE) announce that they have entered into a definitive merger agreement under which EQT will acquire all of the outstanding shares of Rice common stock for total consideration of approximately $6.7B – consisting of 0.37 shares of EQT common stock and $5.30 in cash per share of Rice common stock.
Shares Undervalued
JANA says it acquired the shares because they believe the stock is “undervalued” and represents an “attractive investment opportunity.”
JANA added that it has “substantial experience analyzing and investing in the energy sector.”
JANA, with the assistance of others, intends to have discussions with EQT’s shareholders, board of directors and management regarding the voting against shareholder approval of the acquisition of Rice Energy (RICE) as well as pursuing an “immediate breakup” of the company into a separately traded E&P business and midstream business in order to realize the company’s “full value and potential strategic value.”
JANA also seeks to optimize EQT’s capital allocation and board structure.
It added, “JANA is also prepared, if necessary, to nominate individuals for election to the Issuer’s board of directors and to participate in the solicitation of proxies in support of such individuals, and has signed Nomination Agreements.”
JANA entered into nomination agreements with Edward Cohen and Daniel Herz.
Price Action
Shares of EQT Corporation are up 1% to $59.11 in Monday trading. Rice Energy (RICE) is down 6% to $25.09.
The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
