Financial Review

M&A Boatload

Merger mania includes: Bayer/Monsanto, GE/3-D, VW/Navistar, Enbridge/Spectra, EOG/Yates, Danaher/Cepheid, Navidea/Cardinal, Avolon/CIT, Icahn/Federal-Mogul. MC gets friendly with PayPal. ISM services report stinks. Congress returns to DC. Hanjin Chapter 15. ITT goes belly up. Fox News pays up. Mylan class action. Apple does something tomorrow.


Financial Review by Sinclair Noe for 09-06-2016

DOW + 46 = 18,538
SPX + 6 = 2186
NAS + 26 = 5275
10 Y – .05 = 1.54%
OIL – .06 = 44.38
GOLD + 22.70 = 1350.40


Stocks posted modest gains but it was good enough for a record high close for the Nasdaq Composite. Also, the Russell 2000 index briefly touched a 52-week high of 1,254, and closed up fractionally just above 1,253.


We have a boatload of M&A activity:
Bayer has raised its offer for Monsanto to $127.50 a share, bringing the total value of the potential deal to over $65 billion, which would be the largest all cash takeover on record. It’s the second time Bayer has raised its bid, having started at $122 a share back in May before offering $125 in July. Any merger would still be subject to regulatory approval.  It’s also the latest in a string of deal activity in the chemical sector: ChemChina looks to buy Syngenta for about $43 billion, while Dow Chemical and DuPont are in the process of a $130 billion tie-up.


ChemChina has secured commitments from 17 lenders on a $12.7 billion loan for its purchase of Syngenta. ChemChina agreed to buy Syngenta for $43 billion earlier this year in a deal that would transform it into the world’s largest supplier of pesticides and agrochemicals. It received takeover approval from the U.S. last month, though the deal is still subject to antitrust review by regulators worldwide.


General Electric has agreed to acquire two European 3-D printing companies for a combined $1.4 billion, tapping into manufacturers’ growing demand for digital technologies. Both Arcam and SLM Solutions make machines that can print metal parts used in aircraft components such as turbines. While GE’s Aviation unit has so far been the most active in using the 3D printing technology, parts are also being designed in its Power, Oil & Gas and Healthcare units, as well as across GE’s services businesses.


Volkswagen’s trucks division announced a partnership with Navistar. VW plans to invest $256 million in Navistar at $15.76 a share — a 12% premium to Friday’s closing price — for a 16.6% stake in the company. Navistar said cost savings will come from procurement and technology collaboration, rather than job cuts.


Enbridge, Canada’s largest pipeline company, said it would buy Spectra Energy Corp in an all-stock deal valued at about $28 billion to create the largest North American energy infrastructure company. Enbridge’s biggest-ever deal comes as the company has been steadily expanding its North American pipeline network, which carries the bulk of Canadian crude oil to the United States.


EOG Resources said it would buy privately held Yates Petroleum Corp for $2.5 billion in stock and cash, acquiring acreage in the Permian Basin, one of the country’s most cost-effective oil fields.



Danaher Corp said it would buy molecular diagnostics company Cepheid in a deal valued at $4 billion, including debt, to strengthen its diagnostics business. Danaher will pay $53 per share in cash, a premium of 54 percent to Cepheid’s closing share price on Friday. Danaher develops technology for the dental, life sciences, diagnostics and environmental industries. Sunnyvale, California-based Cepheid develops molecular systems and tests for institutions to perform genetic testing for organisms and genetic diseases.


Navidea Biopharmaceuticals shares jumped as much as 76% this morning after the company said it had agreed to sell its Lymphoseek product to Cardinal Health for all current and future oncology diagnostic applications in North America. Under the deal, Navidea will receive additional payments of up to $310 million, tied to Lymphoseek sales.


Avolon Holdings, part of China’s acquisitive HNA Group is nearing a deal to buy the aircraft leasing assets of U.S. lender CIT Group for between $3 billion and $4 billion. CIT’s commercial air unit is one of the world’s top 10 lessors with about 330 aircraft.


Carl Icahn is buying out Federal-Mogul Holdings, the maker of Champion spark plugs. Icahn Enterprises already owns 82% of the company. The price of $9.25 a share is 86 percent more than Southfield, Michigan-based Federal-Mogul’s closing share price of $4.98 on Feb. 26, the day before Icahn Enterprises’ original proposal of $7. The bid was increased to $8 in June. Icahn also owns service and retail chains Pep Boys and Auto Plus.


MasterCard is expanding its deal with payment processor PayPal Holdings. PayPal’s partnership follows a similar deal with MasterCard’s larger rival Visa in July. PayPal will allow users to select a credit or debit card as the default payment method and share data on transactions made through MasterCard’s tap-and-pay feature, which allows the shopper to wave a card or mobile phone over a reader to pay. As part of the deal, MasterCard will allow PayPal users to withdraw cash from their accounts using a debit card and also waive the digital wallet fee it currently charges PayPal.


Last week, the ISM’s August report on the manufacturing sector came in weak, with the index falling below the 50 mark that delineates expansion from contraction. This morning the ISM’s nonmanufacturing index fell to 51.4 in August from 55.5 in July, and while it remained above the 50 mark, it was a sharp drop and the lowest reading since 2010. The ISM reports undercut the whole theory of a second half rebound and it’s also undercutting the odds of a Fed rate hike in September. The Atlanta Fed’s GDPNow tracker pegs third quarter GDP at 3%, but the ISM report implies GDP for the quarter at about 0.5%. There is still plenty of talk that the Fed should not keep rates at emergency levels but the data makes that a tough move.



Congress returned from a seven-week recess today with only a few weeks to pass a stopgap spending bill to keep the government running before funding runs out on September 30. So, 3 weeks to come up with a budget – what could go wrong?  Lawmakers will likely clash over money to fight the Zika virus, as well as a bill to restore full lending authority to the U.S. Export-Import Bank.


The Reserve Bank of Australia held rates unchanged overnight in what was Glenn Stevens’ final meeting after 10 years as governor of the central bank. The Aussie dollar rose after the decision. On Thursday the European Central Bank is due to make its latest monetary policy decision, and expectations are low for any meaningful change in policy.


The ECB has passed the €1-trillion-euro mark for its purchases of government bonds, putting pressure on policymakers to address the scarcity of available assets when they meet in Frankfurt this week. Despite being well beyond the halfway point of the €1.7-trillion-euro program, inflation remains virtually non-existent. The latest figure from Eurostat showed euro area prices rising by 0.2% in the year to August – well below the central bank’s inflation target of just under 2%.


South Korea’s Hanjin Shipping plans to file for court protection in about 10 countries, including Canada, Germany and the U.K., this week, and later expand that to 43 jurisdictions to protect its ships from being seized by creditors. The world’s seventh-largest container operator by capacity filed for bankruptcy protection on Friday in the U.S. under Chapter 15, which deals with international insolvency matters. Hanjin’s court hearing is scheduled for today.


ITT Educational Services has shut down its for-profit technical schools, closing more than 130 campuses and leaving as many as 40,000 students stranded in one of the largest college closures in American history. ITT has been under investigation for misleading students. Last month, the feds demanded the company produce an additional $153 million in collateral, nearly double its $78 million in cash on hand, to cover possible losses that the government might incur if the company were to suddenly fail. ITT said it terminated the “overwhelming majority” of its more than 8,000 employees. Students now enrolled at the company’s technical schools will be able to cancel any federal student debt they incurred for their education if they decide against transferring their credits elsewhere. Other former students are pushing to have their debts canceled by alleging that the company defrauded them into taking out the debt by advertising false job-placement rates.


21st Century Fox said it has settled a lawsuit with former anchor Gretchen Carlson, whose allegations that former Fox News chief Roger Ailes sexually harassed her led to his exit from the company. Terms of the settlement weren’t disclosed, but it is believed the settlement is in the range of $20 million. Also it is reported that a “handful” of settlements with other women who came forward alleging harassment have also been reached.


An Ohio woman has filed a proposed class action lawsuit against Mylan Pharmaceuticals in an Ohio county court, claiming sharp price hikes for the company’s EpiPen device violated the state’s consumer protection law and amount to price gouging. Mylan has raised the US price of EpiPen from less than $100 when it acquired the product in 2007 to more than $600


Apple has a big event scheduled for tomorrow; they are expected to unveil their new iPhone 7; they will do this amid much fanfare and hoopla. The new iPhone 7 will have several new features but still be very similar to the iPhone 6, with the major exception that it will be new and shiny.


A new skyscraper in downtown Los Angeles has become the tallest building west of the Mississippi River. Construction workers on Saturday placed a 10-ton spire atop the Wilshire Grand Tower. The spire looks like scaffolding, or maybe a radio tower, but it adds 160 feet to the 73-story building, making it 1,099 feet high. The tower is 81 feet higher than the nearby US Bank Tower, which had held the tallest building record since 1989. The Wilshire Grand still has some construction work scheduled. When the $1billion building opens in early 2017, it will include an observation deck, a shopping mall, an Intercontinental Hotel, several luxurious high-altitude restaurants and office space. Really tall buildings, earthquakes – brilliant.



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