Economy expanded at a moderate rate

Fed’s Beige Book says “economic activity continued to expand”



Fed’s Beige Book says economic activity continued to expand , Stockwinners


Fed’s Beige Book: “economic activity continued to expand in late January and February,” said the report.

But 10 Districts noted “slight-to-moderate” growth, with Philly and St Louis reporting flat conditions. That’s the most tepid characterization in sometime, as the more normal description has been “moderate” to “modest.”

About half of the Districts said the shutdown weighed on some sectors, including consumer spending was mixed, but in part due to “harsh winter weather and higher costs of credit.”

Manufacturing generally strengthened but “numerous” contacts worries about weaker global growth, higher costs due to tariffs, and continued trade policy uncertainty.

The service sector increased at a modest-to-moderate pace. Also, residential construction activity was steady or slightly higher in most of the U.S., but home sales were generally lower.

There was little change in the employment outlook, with employment increasing in most Districts, with “modest-to-moderate gains in a majority of Districts and steady to slightly higher employment in the rest.

Labor markets remained tight for all skill levels.

Wages continued to increase for both low- and high-skilled positions, and a majority of Districts reported increases were moderate.

And for prices, they continued to increase at a modest-to-moderate pace, “with several Districts noting faster growth for input prices than selling prices. The ability to pass on higher input costs to consumers varied by region and industry.”

The report (prepared by KC Fed with data collected on or before February 25) is consistent with the FOMC’s outlook for slower growth with tame inflation.

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Penn Virginia sold for $1.7 billion

Denbury Resources to acquire Penn Virginia in cash, stock deal valued at $1.7B

 

Penn Virginia sold for $1.7 billion, Stockwinners
Penn Virginia sold for $1.7 billion, Stockwinners

Denbury Resources (DNR) and Penn Virginia Corporation (PVAC) announced that they have entered into a definitive merger agreement pursuant to which Denbury will acquire Penn Virginia in a transaction valued at approximately $1.7B, including the assumption of debt.

The consideration to be paid to Penn Virginia shareholders will consist of 12.4 shares of Denbury common stock and $25.86 of cash for each share of Penn Virginia common stock.

Penn Virginia shareholders will be permitted to elect all cash, all stock or a mix of stock and cash, subject to proration, which will result in the aggregate issuance of approximately 191.6M Denbury shares and payment of $400M in cash.

The transaction was unanimously approved by the board of directors of each company, and Penn Virginia shareholders holding 15% of the outstanding shares signed a voting agreement to vote “for” the transaction.

Under the terms of the definitive merger agreement, shareholders of Penn Virginia will receive, subject to proration, a combination of 12.4 shares of Denbury common stock and $25.86 of cash for each share of Penn Virginia common stock, representing consideration to each Penn Virginia shareholder of $79.80 per share based on the closing price of Denbury common stock on October 26, 2018.

Penn Virginia shareholders will have the option to receive all stock or all cash, subject to proration such that the overall mix of consideration does not result in more or less than $400M in cash being paid.

The overall mix of consideration will be 68% Denbury common stock and 32% cash.

The stock portion of the consideration received by Penn Virginia’s shareholders is expected to be tax-free. Upon closing of the transaction, Denbury stockholders will own approximately 71% of the combined company, and Penn Virginia shareholders will own approximately 29%.

The transaction, which is expected to close in the first quarter of 2019, is subject to the approval of Penn Virginia shareholders and is subject to approval by Denbury’s stockholders of the issuance of common stock and an amendment to Denbury’s charter to increase its authorized shares.

The transaction is also conditioned on clearance under the Hart-Scott Rodino Act and other customary closing conditions.

The merger agreement contains a covenant that upon its closing, Denbury’s board will be expanded from eight directors to ten directors, to include two independent members of Penn Virginia’s board of directors who are mutually agreed upon by Denbury and Penn Virginia.


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Peoples Natural Gas sold for $4.28 billion

Aqua America to acquire Peoples in all-cash transaction for $4.28B

Peoples Natural Gas sold for $4.28 billion, Stockwinners
Peoples Natural Gas sold for $4.28 billion, Stockwinners

Aqua America (WTR) announced it will acquire Peoples in an all-cash transaction that reflects an enterprise value of $4.275B, which includes the assumption of approximately $1.3B of debt.

This acquisition marks the creation of a new infrastructure company that will be uniquely positioned to have a powerful impact on improving the nation’s infrastructure reliability, quality of life and economic prosperity.

Peoples consists of Peoples Natural Gas Company LLC, Peoples Gas Company LLC and Delta Natural Gas Company Inc.

The multi-platform entity brings together the second-largest U.S. water utility and fifth-largest U.S. stand-alone natural gas local distribution company and will serve 1.74 million customer connections, which represent approximately 5 million people.

In 2019, the new company will have approximately $10.8 billion in assets and a projected U.S. regulated rate base of over $7.2 billion.

The transaction is not expected to have any impact on rates.

The combined enterprise will be among the largest publicly traded water utilities and natural gas local distribution companies in the U.S., uniquely positioned to meaningfully contribute to the nation’s natural gas and water infrastructure reliability.

The transaction will bring together two companies that each have more than 130 years of service and proven track records of operational efficiency, complementary service territories and strong regulatory compliance.

Aqua will acquire Peoples from infrastructure funds managed by Sausalito, California-based SteelRiver Infrastructure Partners.

The resulting company will be well positioned to grow and generate shareholder value through increased scale, a balanced portfolio and stable capital structure.


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Market higher at midday

Stocks on Wall Street were higher at midday as the S&P 500 rose above 2,800 for the first time since the middle of March.

Stocks on Wall Street were higher at midday as the S&P 500 rose above 2,800, Stockwinners
Stocks on Wall Street were higher at midday as the S&P 500 rose above 2,800, Stockwinners

The Dow has also been strong, though not much of that outperformance is due to JPMorgan (JPM) after the bank and several of its large peers kicked off earnings season with their reports this morning.

ECONOMIC EVENTS:

In the U.S., the June trade price report was mixed, with a weaker than expected 0.4% import price decline and a stronger than expected 0.3% increase in export prices.

The University of Michigan consumer sentiment survey was weaker than expected, falling 1.1 points to a 6-month low of 97.1 in the preliminary print for July. In Asia, China’s exports were strong in June, rising 11.3%, while imports fell a bit short of expectations with an increase of 14.1%.

COMPANY NEWS:

Shares of JPMorgan advanced fractionally after it started off this summer’s earnings season by reporting better than expected earnings for the second quarter. Of note, the bank’s CEO Jamie Dimon said he sees “good global economic growth, particularly in the U.S.”

Meanwhile, Wells Fargo (WFC) slipped 2% after reporting downbeat results for Q2, with the company noting in presentation slides that the third party review of customer accounts is “ongoing.”

Citi (C) shares also fell about 2% after its quarterly report, though the bank’s headline earnings for the quarter beat analysts’ estimates.

In addition, PNC Financial (PNC) reported better than expected results for the quarter and guided for third quarter net interest income to be up low-single digits…

Meanwhile, AT&T (T) was in focus after the U.S. Department of Justice said it plans to appeal the approval of the merger between AT&T and Time Warner. In an interview on CNBC this morning, AT&T CEO Randall Stephenson said that he doesn’t know exactly what the government basis will be for an appeal and that the move by the DOJ “changes nothing”.

Johnson & Johnson (JNJ) dipped about 1% after a Missouri jury awarded $4.69B to 22 women who alleged that use of J&J’s talcum powder products caused their ovarian cancer. The jury award includes $550M in compensatory damages and $4.14B in punitive damages against the company. J&J responded by saying it “intends to pursue all available appellate remedies.”

MAJOR MOVERS:

Among the noteworthy gainers was Biocept (BIOC), which surged 58% after it announced a provider agreement with Alliance Global FZ.

Also higher was Achillion (ACHN), which gained 13% after it said it began dosing in its Phase 1 trial of ACH-5548. Among the notable losers was Gogo (GOGO), which fell 11%, reversing last night’s afterhours gains following the company’s announcement of a strategic review.

Also lower was Ingredion (INGR), which dropped 11% after it announced a $125M cost savings program, provided lower than expected Q2 guidance, and cut its outlook for fiscal 2018.

INDEXES:

Near midday, the Dow was up 93.18, or 0.37%, to 25,018.07, the Nasdaq was up 13.35, or 0.17%, to 7,837.26, and the S&P 500 was up 4.74, or 0.17%, to 2,803.03.


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Changes to S&P MidCap 400, S&P SmallCap 600 indices

Changes to S&P MidCap 400, S&P SmallCap 600 indices

Stocks to buy, stocks to watch, upgrades, downgrades, earnings
Changes to S&P MidCap 400, S&P SmallCap 600 indices

S&P Dow Jones Indices will make the following changes to the S&P MidCap 400 and S&P SmallCap 600:

S&P SmallCap 600 constituent Boyd Gaming (BYD) will replace CalAtlantic Group (CAA) in the S&P MidCap 400, and Ring Energy (REI) will replace Boyd Gaming in the S&P SmallCap 600 effective prior to the open of trading on Tuesday, February 13.

S&P 500 constituent Lennar (LEN) is acquiring CalAtlantic Group in a deal expected to be completed on or about February 12 pending final approvals.

James River Group Holdings (JRVR) will replace Barracuda Networks (CUDA) in the S&P SmallCap 600 effective prior to the open of trading on Monday, February 12.

Thoma Bravo is acquiring Barracuda Networks in a deal expected to be completed on or about that date pending final conditions.

EVERTEC (EVTC) will replace Sucampo Pharmaceuticals (SCMP) in the S&P SmallCap 600 effective prior to the open of trading on Wednesday, February 14.

S&P 500 constituent Mallinckrodt (MNK) is acquiring Sucampo Pharmaceuticals in a deal expected to be completed on or about that date pending final conditions.


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Rockwell Automation receives $29 billion takeover offer

Emerson raises bid for Rockwell Automation to $225 per share in cash and stock

Rockwell receives $29B takeover offer. See Stockwinners.com for details
Emerson (EMR) announced that its Chairman and CEO, David Farr, has sent a letter to Rockwell Automation (ROK) President and CEO, Blake Moret, proposing to acquire all outstanding shares of Rockwell for $225 per share, consisting of $135 per share in cash and $90 per share in Emerson shares.
The total enterprise value of the transaction is approximately $29B.
Farr’s letter states in part: “Over the past several months, we have attempted to engage with you privately regarding a business combination of Emerson Electric and Rockwell Automation. We remain convinced there is compelling strategic, operational, and financial merit to bringing together our two companies – and that such a combination would benefit our respective customers, employees and shareholders…Given our continued conviction in the significant value creation opportunity this combination represents, I am sending you an enhanced proposal for Emerson to acquire Rockwell in a transaction that would provide Rockwell shareholders with immediate and long-term value that we believe is well in excess of what Rockwell could achieve on a standalone basis…The portion of the consideration to be paid in Emerson stock would result in Rockwell shareholders owning approximately 22% of the combined company, allowing them to participate in the significant value creation from synergies generated by a combination.
Based on public information only, we estimate the total capitalized value of synergies to be in excess of $6 billion, which equates to over $1.3 billion or $10 per share of additional value to Rockwell shareholders through their continuing ownership.
Including the value of synergies, Rockwell shareholders would receive $235 per share in total value, representing aggregate value creation of 36% compared to Rockwell’s undisturbed 90-day volume weighted average share price as of October 30…We and our advisors have conducted extensive analysis of the regulatory approvals that would be required in connection with the proposed transaction, and we are confident that the transaction would receive all necessary approvals in a timely manner. We do not anticipate any material antitrust or other regulatory issues that would extend the normal timetable for closing a transaction of this nature.
We strongly believe the combined company would be able to do more for our customers than either of us could do separately…Our proposal is not subject to any financing contingency. We have had in-depth discussions with J.P. Morgan, which is highly confident Emerson can finance the cash portion of the transaction with a combination of cash on our balance sheet and newly issued debt. We sincerely hope you and your Board will objectively evaluate the strategic, financial and operational benefits of this transaction and agree to meet with Emerson to negotiate a mutually beneficial transaction.”


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Vistra Energy and Dynegy merge

Vistra Energy, Dynegy to combine in tax-free, all-stock transaction 

Vistra Energy (VST), the parent company for TXU Energy and Luminant, and Dynegy (DYN) announced that their Boards of Directors have approved, and the companies have executed, a definitive merger agreement pursuant to which Dynegy will merge with and into Vistra Energy in a tax-free, all-stock transaction, creating the leading integrated power company across the key competitive power markets in the United States.

The resulting company is projected to have a combined market capitalization in excess of $10 billion and a combined enterprise value greater than $20 billion.

Under the terms of the agreement, Dynegy shareholders will receive 0.652 shares of Vistra Energy common stock for each share of Dynegy common stock they own, resulting in Vistra Energy and Dynegy shareholders owning approximately 79 percent and 21 percent, respectively, of the combined company.

Based on Vistra Energy’s closing share price of $20.30 on October 27, 2017 and the aforementioned exchange ratio, Dynegy shareholders would receive $13.24 per Dynegy share.

Through the all-stock transaction, both Vistra Energy and Dynegy shareholders are expected to benefit from an estimated $350 million in projected annual run-rate EBITDA value levers, additional annual free cash flow value levers of approximately $65 million, and approximately $500-600 million in projected net present value benefit from tax synergies.

The combined company is projected to achieve approximately $350 million in annual run-rate EBITDA value levers by streamlining general and administrative costs, implementing fleet-wide best-in-class operating practices, driving procurement efficiencies, and eliminating other duplicative costs.

Vistra Energy estimates the full run-rate of EBITDA value levers will be achieved in approximately 12 months of closing.

The companies anticipate closing the transaction in the second quarter of 2018.

The transaction is subject to certain regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and approval by the Federal Energy Regulatory Commission, the Federal Communications Commission, the Public Utility Commission of Texas, the New York Public Service Commission, and other customary closing conditions.

The transaction is subject to approval by the shareholders of Vistra Energy and Dynegy.

In addition, the transaction will not require any refinancing of Vistra Energy’s or Dynegy’s debt, but preserves flexibility for opportunistic refinancing at, or after, closing.

Following the close of the transaction, the combined company will be led by Curt Morgan as President and CEO. Bill Holden will serve as the CFO with Jim Burke as the COO.

The Board of Directors is expected to have a total of 11 directors consisting of the current eight members of the Vistra Energy Board and three members from Dynegy’s Board.

The Dynegy Board of Directors and Mr. Flexon have mutually agreed to extend his employment as permitted under the terms of his existing employment agreement for one year.

Mr. Flexon will continue to serve as President and CEO of Dynegy through April 30, 2019 or the date the transaction closes, whichever comes first. The combined company’s headquarters will be in Irving, Texas.

In addition, the combined entity has retail offices in Houston, Texas, Cincinnati, Ohio, and Collinsville, Illinois.


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GE Disappoints!

GE shocks with ‘unacceptable’ results, guidance cut

GE gets $15B contract from Saudi Arabia

Shares of General Electric (GE) are lower in Friday’s  trading after the company reported quarterly profit that missed consensus estimates by 20c per share.

GE also cut its outlook for fiscal 2017 as new CEO John Flannery called the results “unacceptable.”

MISS AND CUT

GE this morning reported third quarter industrial operating earnings per share of 29c excluding restructuring charges, missing analysts’ estimates of 49c.

Total revenue for the quarter was $33.47B, which beat analysts’ expectations of $32.56B.

The company said that while the majority of its business units had “solid” earnings performance, “this was offset by a decline in Power performance in a difficult market.” “This was a very challenging quarter,” CEO John Flannery said.

Looking ahead, GE cut its FY17 EPS view to $1.05-$1.10 from $1.60-$1.70, well below estimates of $1.53.

“We are focused on redefining our culture, running our businesses better, and reducing our complexity,” Flannery added.

EXECUTIVE COMMENTARY

On GE’s earnings call, Flannery said the results were “unacceptable to say the least” and that while there are many areas of strength at the company, “it’s clear we need to make some major changes.”

Flannery said GE is doing “deep dives” on all aspects of the company, adding that “everything is on the table and there have been no sacred cows.” The company has started to outline its restructuring plans, saying it plans to exit more than $20B of its businesses in the next one to two years, but noted that the dividend is a “priority.”

STRATEGY UPDATE UPCOMING

GE is planning to update its company strategy and 2018 framework on November 13. Flannery has already been cutting jobs, research operations and corporate jets and cars.

PERSONNEL CHANGES

GE has also undertaken personnel changes, including the earlier-than-expected retirement of Chairman Jeff Immelt. According to a spokeswoman, “[Immelt felt Flannery] is prepared to be chairman and CEO now and leaving GE allows him to look at opportunities outside the company.”

Additionally, on October 6, GE said CFO Jeff Bornstein would leave the company on December 31 and will be succeeded by GE Transportation CEO Jamie Miller.

Bornstein said on today’s earnings call that GE was not “living up to our own standards or investor standards and the buck stops with me.”

Earlier this month, GE announced the election of Trian Fund’s Ed Garden to its board to replace Robert Lane, who is retiring. Trian’s Nelson Peltz said he had pushed to get Garden on GE’s board to “bring a fresh mindset.”

‘SHOCKING’ RESULTS

Deutsche Bank analyst John Inch called GE’s weaker than expected Q3 results this morning “shocking,” noting that the company “falls well short” of generating enough cash to pay its $8B common dividend from operations, which raises the prospects of a pending dividend cut and/or raising financial leverage to pay for the dividend. He has a Sell rating and $21 price target on GE shares.

Meanwhile, Citi analyst Andrew Kaplowitz said the earnings report indicates that the mounting challenges developing over time in the Power business now appear to be fully materializing. Kaplowitz, who has a Buy rating and $31 price target on GE, thinks shares could potentially be approaching a bottom.

PRICE ACTION

GE shares are down about 3%  at $22.72, improving quickly from their opening lows. The early drop pushes the stock’s year-to-date losses to nearly 30%. Shares have a 52-weeks trading range of $22.10 – $32.38.


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Honeywell to reorganize itself

Honeywell announces planned portfolio changes

Honeywell to reorganize itself. See Stockwinners.com for details

Honeywell (HON) announced the results of its comprehensive portfolio review, including its intention to separately spin off its Homes product portfolio and ADI global distribution business, as well as its Transportation Systems business, into two stand-alone, publicly-traded companies.

The planned separation transactions are intended to be tax-free spins to Honeywell shareowners for U.S. federal income tax purposes and are expected to be completed by the end of 2018.

“Today’s announcement marks the culmination of a rigorous portfolio review involving a detailed assessment of every Honeywell business. As part of that review, we analyzed numerous criteria, including growth outlook, financial performance, market dynamics, potential for disruption, and, most importantly, assessment of fit as a Honeywell business,” said Honeywell President and CEO Darius Adamczyk.

“The remaining Honeywell portfolio will consist of high-growth businesses in six attractive industrial end markets, each aligned to global mega trends including energy efficiency, infrastructure investment, urbanization and safety.

These businesses are best positioned to leverage Honeywell synergies from our technologies, financial and business models, and talent. Our simplified portfolio will offer multiple platforms for organic growth and margin expansion through further deployment of our world-class HOS Gold operating system and the Honeywell Sentience Platform.

Honeywell will also have multiple levers for continuing to execute an aggressive capital deployment strategy, including a vigorous and disciplined M&A program.

“The spun businesses will be better positioned to maximize shareowner value through focused strategic decision making and capital allocation tailored for their end markets,” Adamczyk said.

“At Honeywell, we will continue our track record of execution, delivering growth, margin expansion, and aggressive capital allocation for our shareowners.”

The new Homes and Global Distribution business will be a leader in the home heating, ventilation and air conditioning, or HVAC, controls and security markets, and a leading global distributor of security and fire protection products. The business is expected to have annualized revenue of approximately $4.5B, a high-yield credit rating, approximately 13,000 employees, and financial responsibility for certain Honeywell legacy liabilities.

The new Transportation Systems business will be a global leader in turbocharger technologies with best-in-class engineering capabilities for a broad range of engine types across global automobile, truck and other vehicle markets.

The business is expected to have annualized revenue of approximately $3B, a high-yield credit rating, approximately 6,500 employees and financial responsibility for Honeywell legacy automotive segment liabilities in an amount equal to our Bendix legacy asbestos liability.

The planned separations will not require a shareowner vote.

Each spin-off will be subject to finalization of the contours of the spun-off business, assurance that the separation will be tax-free to Honeywell shareowners for U.S. federal income tax purposes, finalization of the capital structure of the three corporations, the effectiveness of appropriate filings with the SEC, final approval of the Honeywell board, and other customary matters.

HON closed at $143.60.


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JANA stays firm against Rice Energy purchase

Jana: EQT investors should vote against ‘overpriced’ Rice Energy acquisition

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In a letter to EQT’s (EQT) board, Jana Partners says “As you know, JANA Partners believes that EQT Corporation shareholders should vote against the overpriced and dilutive acquisition of Rice Energy (RICE) and that EQT should immediately commit to a separation through a spinoff of its midstream business.

As set forth in Exhibit A, EQT has published a map of the combined EQT/Rice land holdings that appear to show vast tracts of contiguous acreage which can be efficiently drilled by the combined company, and thus would produce the 1,200 wells with 12,000 foot laterals in Washington and Greene counties that are the linchpin of EQT’s rationale for the transaction.

Exhibit B, however, shows that EQT’s map is blatantly deceptive. With the help of a leading petroleum engineering firm with extensive experience in the Appalachian basin and experienced industry operators, and using publicly available information, we have magnified EQT’s map and it is obvious that many of the tracts which appear contiguous never actually touch.

This means that for EQT to fulfill its promises with respect to longer drilling laterals, three things would need to be true: EQT would need to have access to the hundreds of plots of land between EQT and Rice drilling areas.

However, this would require an unquantified and likely very large expenditure of time and capital in addition to the $8.2 billion EQT proposes to pay for Rice, and in any event is highly unlikely given that, as shown in Exhibit C, these properties are largely controlled by other operators. If these lots were readily accessible, presumably EQT or Rice would have already purchased or leased them.This additional required acreage would need to be undrilled.

However, our work shows that hundreds of wells have already been drilled in the adjacent acreage.

The lots already controlled by EQT and Rice that abut the additional required acreage would need to not have any wells already drilled by EQT or Rice along the abutting borders.

However, Exhibit D makes clear that this is not the case. In short, an accurate analysis of the undeveloped combined EQT and Rice acreage cannot support anything close to the 1,200 well locations that EQT management says can be drilled to 12,000 foot lateral lengths.

There simply is not the real estate to support management’s claims.

We are presenting our latest findings in detail because we think every Board member should see for themselves the distance between the transaction they have attempted to sell to shareholders and reality, and ask themselves whether they think they have complied with their fiduciary duty in evaluating this proposed acquisition and presenting it to shareholders.

We also believe that the Board’s insistence on putting the Rice transaction to a shareholder vote before announcing how it intends to address the company’s persistent sum of the parts discount, in fact even before it begins consideration of this issue, is completely inexcusable.

The Board is in effect asking shareholders to overlook EQT’s history of value-destroying acquisitions and foot-dragging on addressing its undervaluation and trust that the Board will make the right decision for shareholders after winning approval to acquire Rice.

If it was not clear before, we think it is crystal clear now that the Board has not earned that trust. he case for opposing the Rice acquisition, demanding immediate action to address EQT’s persistent sum of the parts discount, and evaluating significant Board change at EQT is stronger than ever.”

In June, 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. That is about $27 per share.

EQT closed at $65.36. RICE closed at $29.03.


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Silver Spring Sold for $830 million

Itron to acquire Silver Spring  Networks for $16.25 per share in cash, or approx. $830M

 

Itron to acquire Silver Spring for $16.25 per share in cash. See Stockwinners.com for details

Itron, Inc. (ITRI) and Silver Spring Networks (SSNI) announced that they have signed a definitive agreement for Itron to acquire all outstanding shares of Silver Spring for $16.25 per share in cash.

The transaction is valued at approximately $830M, net of $118M of Silver Spring’s cash.

This represents a premium of 25% to Silver Spring’s closing share price on Sept. 15, 2017, the last trading day prior to the announcement of the transaction.

The transaction has been unanimously approved by the boards of directors of both companies.

Itron anticipates approximately $50M in annualized cost synergies to be substantially realized within three years of completing the transaction by optimizing combined operations and expenses.

The acquisition is expected to have a positive impact on Itron’s long-term growth rate, be accretive to gross margin in the first year after completing the transaction and be accretive to non-GAAP EPS and adjusted EBITDA in the second year, excluding one-time, transaction-related costs and including stock-based compensation costs that Silver Spring currently excludes from its reported non-GAAP results.

Itron plans to finance the transaction using a combination of cash and approximately $750 million in incremental new debt.

Fully committed financing has been provided by Wells Fargo. The transaction is expected to close in late 2017 or early 2018 and is subject to customary closing conditions, including regulatory approval and the approval of Silver Spring’s stockholders.

Centerview Partners and Credit Suisse are acting as financial advisors to Itron, and Jones Day is acting as its legal advisor. #Evercore is acting as financial advisor and Fenwick & West LLP as legal advisor to Silver Spring.


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Barron’s is Bullish on Carlyle Group, Bearish on Nike

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue mentions several names:

Stockwinners offers Barron's review of Stockwinners offers stocks to buy, stocks to watch, upgrades, downgrades, earnings, Stocks to Buy On Margin

BULLISH  MENTIONS

Altaba could reward investors ‘nicely’  – Alibaba (BABA) is having a stellar year and a cheap way to play it is through Altaba (AABA), whose 15% stake in Alibaba is valued at $65B, Andrew Bary writes in this week’s edition of Barron’s. While Altaba shares are up 65% this year on Alibaba’s big gains, it trades at a 30% discount to the value of the company’s assets, the publication adds’

New Apple Watch may threaten telecoms – As the world awaits the 10th-anniversary iPhone, the real news may be buried within a redesigned Apple Watch 3, Tiernan Ray writes in this week’s edition of Barron’s. Apple (AAPL) has said that the next smartwatch will gain the ability to dial up the internet wirelessly even when not connected to an iPhone, the publication notes, adding that the new Apple Watch will probably make use of an embedded SIM. Apple already allows people using its iPad tablet to select which wireless carrier they want on a month-by-month basis, and Apple Watch will allow the same, signaling that Apple may want to take more control of the mobile subscriber, Tiernan says.

Carlyle Group may be ‘best deal’ in private equity – Carlyle Group (CG) is one of the world’s largest private-equity managers, with $170B in assets under management spread over six continents, but has had a much lower profile with investors, with its units fallen 24% over the past five years, Jack Willoughby writes in this week’s edition of Barron’s. Carlyle has finally put its hedge fund woes behind it and expects a big jump in earnings, Willoughby notes, while questioning if the stock price can double.

Texas Instruments, CVS Health worth a look for income investors.  Barron’s has looked for firms with the highest dividend-safety rankings that yield at least 2% and have market caps above $25B. The top five finishers based on those criteria were Texas Instruments (TXN), CVS Health (CVS), PNC Financial (PNC), Sysco (SYY) and Medtronic (MDT), Lawrence Strauss writes in this week’s edition of Barron’s.

BEARISH  MENTIONS

Nike could fall another 10% – As Adidas (ADDYY) picks up the pace, Nike (NKE) is losing ground in the sneaker race, and its stumbling stock could fall another 10% or more in the coming year, Jack Hough writes in this week’s edition of Barron’s. Hough argues that Nike’s problem is twofold, namely the growth of e-commerce which has rattled Nike’s retail partners, including Foot Locker (FL), and Adidas that seems to have finally figured out how to sell sneakers in the U.S.


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Harvey, August Job Report Delay Another Rate Hike

Fed funds futures rallied on the tepid employment report, Harvey damage

Harvey, August Job Report Delay Another Rate Hike. See Stockwinners.com Market Radar

Fed funds futures rallied on the tepid employment report, suggesting reduced risk for a third rate hike this year.

Indeed, implied rates have slipped to about a 25% risk for 25 bp increase, from 30% previously, and it had been hovering in the 33% range for much of August.

Note that September employment data is notoriously volatile, though with the broad-based nature of sluggishness in the report, it could take some time to recover the lost momentum.

Analysts are still bullish on growth into year-end, especially with the amount of rebuilding that will be needed in the aftermath of Hurricane Harvey (and with Hurricane Irma on the horizon).

However, it’s not clear there will be enough time between now and the December 13 FOMC decision to get the Committee on board for a tightening, especially if inflation remains tame.

AUGUST JOB REPORT

The U.S. jobs report undershot estimates with a 156k August payroll rise after 41k in downward revisions, though nearly all of the disappoint was concentrated in government, where analysts saw a 9k drop after 51k in downward bumps, and August payrolls historically underperform before upward revisions.

Analysts saw a 0.2% hours-worked decline with a workweek downtick to 34.4, and a 0.1% hourly earnings gain that left a fifth consecutive 2.5% y/y rise. The goods sector showed a 0.1% hours-worked drop despite a 70k payroll gain.

Analysts saw a 74k civilian job drop despite a 77k labor force increase that boosted the jobless rate to 4.44%, while the participation rate remained at 62.9%. Hurricane Harvey occurred after the BLS survey week and had no August payroll impact.

The disruptive effect of the hurricane may be fully offset by a rebuilding effect before the BLS survey week ending September 16, which lies a full three weeks from when the storm first struck.

HURRICANE  DAMAGE

Hurricane Harvey could be the costliest natural disaster in U.S. history with a potential price tag of $190 billion, according to a preliminary estimate from private weather firm AccuWeather.

This is equal to the combined cost of Hurricanes Katrina and Sandy, and represents a 1% economic hit to the gross national product, AccuWeather said. This is equal to a 25 bp rate hike by the Feds according to some estimates while others see that more like a 50 bp rate hike.

[youtube https://www.youtube.com/watch?v=ZZKo-159lvY?rel=0&controls=0&w=560&h=315]


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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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Hurricane Harvey to Push Gas Prices Higher

Hurricane Harvey scheduled to make landfall tonight near Corpus Christi, Texas

Refineries have shut down ahead of the storm

Hurricane Harvey to push gas prices higher. See Stockwinners.com Market Radar to read more

Hurricane Harvey is a tropical cyclone currently threatening to make landfall in Texas as a major hurricane, which would be the first storm of such intensity to strike the United States since Wilma in 2005 and the first to hit the state since Ike in 2008. The eighth named storm and third hurricane of the 2017 Atlantic hurricane season.

Currently, Hurricane Harvey is located within 10 nautical miles of 27.1°N 96.3°W, about 85 miles (140 km) east-southeast of Corpus Christi, Texas, or about 90 miles (145 km) south of Port O’Connor, Texas.

REFINERIES and OIL PRODUCTION

Forty-five percent of total U.S. petroleum refining capacity is located along the Gulf Coast. All of these refineries will shut down for safety reasons.

Oil production operations in the Gulf began shutting down Thursday in response to Hurricane Harvey. Here is what is happening so far:

  • Anadarko (APC) has removed all personnel and temporarily shut in production at their Boomvang, Gunnison, Lucius and Nansen facilities, which are located in the western portion of the Gulf.
  • ConocoPhillips (COP) has taken precaution to evacuate all non-essential personnel from our Magnolia platform in the Gulf of Mexico and they have decided to suspend drilling and completion activities in the Eagle Ford and move non-essential personnel and equipment off the drilling rigs.
  • ExxonMobil (XOM) is in the process of evacuating all personnel from their facilities expected to be in the path of the storm, which includes the Hoover platform and Galveston 209 platform. The Hoover and Galveston 209 platforms are shut-in. Their Hadrian South subsea production system in the Gulf of Mexico is also shut-in.
  • Shell (RDS) shut down production and has secured its Perdido asset and is in the process of returning all personnel working on Perdido to shore.
  • Valero (VLO) said Friday completed the process of temporarily closing two refineries in Corpus Christi and Three Rivers.

As of Friday noon, operators had been evacuated from 39 production platforms — about 5.29 percent of the manned platforms in the Gulf — along with one rig.

As part of the evacuation procedures, operators shut the sub-surface safety valves below the surface of the ocean floor, to prevent releasing oil or gas. That means 9.56 percent of the current oil production in the Gulf has been blocked off, equating to 167,231 barrels per day. In addition, 0.04 percent of the natural gas production in the Gulf has been shut down.

Houston also marks the beginning of the Colonial Pipeline, which transports more than 100 million gallons of gasoline, heating oil and aviation fuel each day to as far as the New York harbor. Power outages during Hurricanes Katrina and Rita in 2005 forced the shutdown of parts of the Colonial Pipeline for several days.

FLOODING

Hurricane Harvey’s impact on U.S. oil production could extend beyond offshore platforms and Gulf Coast refineries. Extreme flooding threatens to bring Texas shale activity to a halt, and it may take weeks, if not months, before some shale fields can bounce back.

Texas is by far the largest oil producer in the U.S., and at least part of the oil-rich Eagle Ford shale formation lies in the projected path of the storm.

Motorists across the U.S. might see a spike in gasoline prices following disruptions to offshore rigs, refineries, pipelines and terminals. Pump prices could jump 15 to 25 cents a gallon nationwide.


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