Unisys Federal sold for $1.2 billion

SAIC to acquire Unisys Federal for $1.2B in cash

Science Applications International Corp. (SAIC) announced that it has entered into a definitive agreement to acquire Unisys Federal (UIS), in an all-cash transaction valued at $1.2B, in a highly strategic and value creating transaction, the company said.

This represents a transaction multiple of approximately 10.5x CY2020 adjusted EBITDA, adjusted for the net present value of tax assets.

SAIC buys Uinsys Federal, Stockwinners

Unisys Federal, an operating unit of Unisys (UIS), is a provider of infrastructure modernization, cloud migration, managed services, and enterprise IT-as-a-service through scalable and repeatable solutions to U.S. federal civilian agencies and the Department of Defense.

SAIC expects to fund the $1.2B cash transaction through a combination of cash on hand and incremental debt.

The transaction is expected to close by the end of SAIC’s first quarter of fiscal year 2021, ending May 1, 2020, following customary closing conditions, including HSR regulatory clearance.

Unisys Federal sold to SAIC, Stockwinners

The transaction has been unanimously approved by SAIC’s Board of Directors. The businesses will continue to operate independently until the transaction closes.

“With the addition of Unisys Federal, SAIC will be a leading provider of digital transformation services and solutions to the federal government.

This exciting opportunity advances our strategy by building on our modernization capabilities, increasing customer access, accelerating growth and enhancing shareholder value,” said SAIC CEO Nazzic Keene.

“The financial benefits of acquiring Unisys Federal are compelling, including accretion of adjusted EBITDA margins, non-GAAP earnings per share, and cash generation.”

The transaction multiple of approximately 13x LTM 9/30/19 Adjusted EBITDA represents a significant premium to Unisys’ trading multiple.

Net proceeds are largely expected to be used to pay down debt and reduce pension obligations, thereby significantly improving Unisys’ balance sheet, its U.S. pension funded status and overall financial flexibility.

The transaction was unanimously approved by the Unisys board and is expected to close in the first half of 2020, subject to customary closing conditions. Unisys’ U.S. Federal business represents more than 1,900 associates, with approximately $689 million in revenue for the LTM period ended September 30, 2019. 

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Hexcel and Woodward merge to form Woodward Hexcel

Hexcel, Woodward announce merger of equals

Woodward (WWD) and Hexcel (HXL) announced a definitive agreement to combine in an all-stock merger of equals “to create a premier integrated systems provider serving the aerospace and industrial sectors,” the companies said.

Woodward and Hexcel agree to merge, Stockwinners

Under the terms of the agreement approved by the Boards of Directors of both companies, Hexcel shareholders will receive a fixed exchange ratio of 0.625 shares of Woodward common stock for each share of Hexcel common stock, and Woodward shareholders will continue to own the same number of shares of common stock in the combined company as they do immediately prior to the closing.

Hexcel and Woodward to merge, Stockwinners

The exchange ratio is consistent with the 30-day average share prices of both companies.

Upon completion of the merger, existing Woodward shareholders will own approximately 55% and existing Hexcel shareholders will own approximately 45% of the combined company on a fully diluted basis.

In connection with the transaction, Woodward is increasing its quarterly cash dividend to 28c a share.

The merger is expected to be tax free for U.S. federal income tax purposes.

The combined company will be named Woodward Hexcel.

For each company’s respective fiscal year 2019 on a pro forma basis, the combined company is expected to generate net revenues of approximately $5.3B and EBITDA of $1.1B, or a 21% EBITDA margin.

The transaction is subject to the approval of the shareholders of both Woodward and Hexcel, as well as other customary closing conditions, including required regulatory approvals.

The parties expect the merger to close in the third calendar quarter of 2020, subject to satisfaction of these conditions.

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Epizyme’s Tazemetostat receives FDA’s okay

Epizyme says FDA advisory committee votes unanimously in favor of tazemetostat

Epizyme (EPZM) announced that the Oncologic Drugs Advisory Committee of the U.S. Food and Drug Administration voted 11 – 0 in favor of the benefit-risk profile of tazemetostat as a treatment for patients with metastatic or locally advanced epithelioid sarcoma not eligible for curative surgery.

Epizyme shares halted ahead of FDA meeting, Stockwinners

“Today’s ODAC outcome is a significant step toward addressing the critical needs of ES patients.

This is a remarkable achievement marking the culmination of years of hard work by the entire Epizyme team. If approved, we will have the opportunity to change how patients with this devastating cancer are treated.

Our commercial-readiness is complete, and we look forward to finalizing our dialog with the FDA,” said Robert Bazemore, president and CEO of Epizyme.

Epizyme’s New Drug Application, or NDA, for tazemetostat is, an oral, first-in-class EZH2 inhibitor, for the treatment of patients with metastatic or locally advanced epithelioid sarcoma (ES) who are not eligible for curative surgery.

Epithelioid Sarcoma is a rare form of cancer, Stockwinners

The advisory committee vote will be non-binding, but FDA takes its recommendations into consideration when reviewing related applications for marketing approval.

ES is a rare and aggressive soft tissue sarcoma characterized by a loss of the INI1 protein. Patients are most commonly diagnosed as young adults, between 20 and 40 years of age, typically with no patients living past five years from diagnosis. ES becomes more aggressive after recurrence or once it has metastasized, with a typical survival of less than one year for patients with metastatic disease.

Epizyme, Inc. discovers, develops, and commercializes novel epigenetic medicines for patients with cancer and other diseases primarily in the United States.

EPZM halted at $18.19.

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Truck sales decline in November

Classes 5-8 truck orders soften in November amid trade and tariff worries

Truck sales downturn could be canary in the coal mine

There are eight classes of commercial motor vehicles in the United States, and they’re divided into three, more general categories: light-duty, medium-duty, and heavy-duty. Commercial motor vehicles or trucks that operate on U.S. highways can be classified based on their gross vehicle weight rating (GVWR).

ACT Research said in an earlier report:

“Preliminary November data show that Classes 5-8 net order volumes were uniformly soft. Combined NA Classes 5-8 intake fell 15% m/m and 38% y/y in November on a nominal basis. Preliminary North America Class 8 net order data show the industry booked 17,500 units in November, down 20% from October, while Classes 5-7 orders fell 8% m/m, to 15,300 units.

Complete industry data for November, including final order numbers, will be published by ACT Research in mid-December.

Various Classes of Vehicles, Stockwinners

ACT’s State of the Industry:

Classes 5-8 report provides a monthly look at the current production, sales, and general state of the on-road heavy and medium duty commercial vehicle markets in North America. It differentiates market indicators by Class 5, Classes 6-7 chassis and Class 8 trucks and tractors, detailing measures such as backlog, build, inventory, new orders, cancellations, net orders, and retail sales.

Additionally, Class 5 and Classes 6-7 are segmented by trucks, buses, RVs, and step van configurations, while Class 8 is segmented by trucks and tractors with and without sleeper cabs.

This report includes a six-month industry build plan, backlog timing analysis, historical data from 1996 to the present in spreadsheet format, and a ready-to-use graph package.

A first-look at preliminary net orders is also published in conjunction with this report.

“Preliminary November data show that Class 8 net orders failed to sustain October’s encouraging start to the order season,” said Tim Denoyer, ACT’s Vice President and Senior Analyst.

He continued, “The freight market downturn worsened in the past month and uncertainty surrounding trade and tariffs continue to weigh on truck buyers’ psyches. With rising pressure on carrier profits from the combined impact of lower rates and the recent, rather sudden jump in insurance premia, recent events have not developed in the industry’s favor.” Denoyer concluded,

“While private fleets continue to add capacity on the retail end, the market is increasingly heeding for-hire price signals and the stage is being set to right-size the fleet, bringing it closer to equilibrium with the work to be done.”

Historically, Dow Jones Transports have sold off prior to the rest of the market. The .djt has turned bearish as is shown above.

Publicly traded companies in the space include ArcBest (ARCB), J.B. Hunt (JBHT), Knight-Swift (KNX), Old Dominion (ODFL), Swift Transportation (SWFT), Werner (WERN), Paccar (PCAR), Navistar (NAV)and Cummins (CMI).

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Watch shares of Mirati Therapeutics

Mirati presents data from sitravatinib in combination with nivolumab trials

Mirati Therapeutics (MRTX) announced the presentation of initial data from its ongoing Phase 2 clinical trial of sitravatinib in combination with nivolumab in metastatic urothelial cancer patients with documented progression on a platinum-chemotherapy and checkpoint inhibitor.

Mirati is in focus on cancer data, Stockwinners

The data were presented in an oral presentation at the Society of Immunotherapy of Cancer 34th Annual Meeting.

Preliminary results from the ongoing Phase 1 study of neoadjuvant sitravatinib combined with nivolumab in patients with resectable squamous cell carcinoma of the oral cavity, SNOW trial, were also presented in a poster session.

The preliminary data suggest that the combination of neoadjuvant sitravatinib and nivolumab is safe and active in patients with squamous cell carcinoma of the oral cavity who are candidates for resection.

Chart shows Sitravatinib in action, Stockwinners

Tumor reduction was observed in all eight patients who were eligible for evaluation, including one complete pathological response.

All patients received postoperative radiation therapy, and none required postoperative chemotherapy.

With a median follow-up of 31.4 weeks, all patients are alive with no disease recurrence to date.

In most patients, treatment with sitravatinib led to a decrease in myeloid-derived suppressor cells and a shift towards M1-type macrophages in the tumor microenvironment, supporting previous preclinical findings.

“Sitravatinib is a spectrum-selective kinase inhibitor that potently inhibits receptor tyrosine kinases, including TAM family receptors that has the potential to increase responsiveness in patients whose tumors are resistant to checkpoint inhibitors. The initial efficacy data from the Phase 2 clinical trial presented today in patients with checkpoint refractory mUC is promising and extends the clinical benefit data beyond what has already been demonstrated by sitravatinib combined with nivolumab in checkpoint refractory non-small cell lung cancer,” said Charles Baum, M.D., CEO of Mirati.

Sitravatinib offers hope for cancer patients, Stockwinners

“In addition, we are evaluating sitravatinib in patients who have progressed on checkpoint therapy, including those with NSCLC and renal cell cancer, and we continue to expand development efforts of sitravatinib through our collaboration with BeiGene in multiple indications including NSCLC, renal cell cancer, hepatocellular cancer, ovarian cancer, and gastric cancer.”

MRTX closed at $104.78.

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Feds Cut Rates on All Instruments!

Federal Reserve cuts federal funds target rate by 25 basis points

The Federal Reserve said in today’s statement, “Information received since the Federal Open Market Committee met in June indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low.

Powell, FOMC Chair, Stockwinners
Fed Chief Powell. Stockwinners.com

Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft.

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 remain low; 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.

In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain.

As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”

Long Term Rates

The Federal Reserve also said in today’s statement, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.

This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated.”

Bernanke came up with “Quantitative Easing” in 2008, Stockwinners

If you have no idea what the above paragraph means, this may help. Back in 2008, Ben Bernanke, then the Fed Chair, came up with a clever idea! Since the rates at the time where near zero. He needed a way to lower the rates, he started buying long term government bonds. The added demand for bonds caused bond prices to rise thus pushing the rates lower. In the past few quarters, the Feds have been selling these bonds, pushing prices lower, thus higher long term rates. Today’s announcement basically says Feds are ending the bond sales two months earlier, long term rates (mortgage prices) will now go lower.

Powell Comments

Federal Reserve Chair Jerome Powell said the easing was to ensure against downside risks, as he begins his press conference.

He acknowledged the shift in the policy stance since December’s pivot. Fed has seen both positive and negative developments since the June meeting, including a stronger job market, but weaker manufacturing and disappointing foreign growth, while contacts continue to cite ongoing trade uncertainties are giving companies pause.

The Committee has gradually lowered the assessments of growth and that led to the easing today. On whether a 25 bp cut will prop up inflation, he noted one has to look at the Committee’s actions over the year as it’s moved to a more accommodative stance.

The Committee is thinking of today’s action as a mid-cycle adjustment to policy, designed to provide support for the economy, ensure against downside risks, and support inflation. Chair Powell continued to appeal to downside risks and below target inflation as the main threats to the favorable outlook.

He added, the Fed will monitor the evolution of trade uncertainty, which do seem to be having significant effect on the economy. He thinks trade is a new factor that the FOMC will have to assess “in a new way.”

The chair again said it’s not appropriate to just look at the quarter point easing, but rather the evolution of the Fed’s stance from tightening to easing, with the economy picking up since the end of 2018, which suggests monetary policy is working (though he declined to take full credit for the economy’s gains).

10-year yields fall, Stockwinners
Ten year yields approach 2.00 percent, Stockwinners

Market Action

The Fed repeated it will “monitor” incoming information and will “act as appropriate to sustain the expansion,” not really suggesting the path ahead. The long end of the Treasury market is leading the way with the benchmark 10-year 4.4 bps lower to test 2.00, versus 2.023% just ahead of the announcement. The 2-year is down 1.4 bps to 1.83% versus 1.81% earlier. Hence, the curve has flattened to 17 bps from around 20 bps previously.

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