Monthly Archives: June 2016

Chipmakers That Could Be Acquired

As chip giant Analog Devices (ADI) turns to M&A to better compete in the semi universe by agreeing to pay nearly $15 billion for Linear Technology (LLTC) , investors are looking at which other chipmakers could end up being acquired.

Analog Devices announced Tuesday afternoon that it has agreed to purchase Linear Technology for $14.8 billion, or $60 per share, in cash and stock. The combined entity will have about $5 billion in annual revenue and have an enterprise value of $30 billion.

Shares of Analog Devices were trading up around 1.4% Wednesday early afternoon to $63.78. Linear Tech was down 4% to $59.99, but the stock had shot up over 20% late Tuesday on the deal announcement.

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“Now this is an important deal,” said Jim Cramer, founder of TheStreet. “Why is it important? Because Analog, David Faber said, might have been in the sights ofTexas Instruments (TXN) , which had a monster quarter. This could have been a defensive deal. Linear is an industrial, Internet-of-things automobile play.”

The tie-up will combine two strong analog product portfolios and cultures, MKM Partners analyst Ian Ing wrote in a Wednesday note, adding that joining the Analog Devices umbrella may re-energize Linear Tech that has somewhat lacked growth.

“We see abundant opportunities for the companies to share the best practices, especially in how to sell successfully in high-volume consumer … and cost disciplines,” Ing noted.

He further explained that the purchase price represents a range of about 26 times to 28 times EPS and isn’t overly expensive especially given the $150 million in synergies the buyer is anticipating within 18 months of close.

Amid Brexit Uncertainty

The U.K.’s Lloyds Banking Group (LYG) said on Thursday it would cut another 3,000 jobs by the end of next year and close 200 branches amid expectations of a Brexit-induced slowdown.

Britain’s leading mortgage lender made the announcement as it announced a more-than-doubling of net profit to £1.86 billion ($2.6 billion) in the first half as so-called conduct provisions, reflecting Lloyds’ bill for compensation due to customers for “mis-sold”payment protection insurance and other misdemeanors, plunged. On an underlying basis profit slipped 5% to £4.16 billion. Jefferies noted that profit came in about 4% above consensus expectations.

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“Following the EU referendum the outlook for the U.K. economy is uncertain and, while the precise impact is dependent upon a number of factors, including EU negotiations and political and economic events, a deceleration of growth seems likely,” said CEO Antonio Horta Osorio in a statement.

The company kept most of its forecasts intact but said capital generation “may be somewhat lower” in the future than previously anticipated because of economic uncertainty.

Lloyds also said it would lift its run-rate cost-savings target to £1.4 billion from £1 billion by the end of next year and slash its non-branch property portfolio by 30% by the end of 2018.

“We believe an incremental £200m cost reduction target was already embedded in investor expectations, so this is incrementally positive,” noted Jefferies analyst Joseph Dickerson.

At the end of the first half, Lloyds said it had a core Tier One equity ratio of 13%.

The bank is still part-owned by the state after a credit-crisis-era bailout when the government brokered the purchase of the failing HBOS by Lloyds.

Capital Distribution Plan

CIT Group Inc.’s (CIT) shares traded up slightly early Thursday on news it beat analyst estimates slightly even though it also revealed that the Federal Reserve had privately given its capital distribution plan a “qualitative objection” over concerns around risk management.

In addition, CIT Group also disclosed that it received a negative charge from a reverse mortgage servicing unit it obtained as part of its blockbuster 2015 merger with OneWest.

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Nevertheless, CIT Group’s adjusted earnings in the second quarter per share beat analyst expectations. It had adjusted earnings of $0.80 a share when taking into account an after-tax charge of $163 million related to problems with the reverse mortgage servicing business, Financial Freedom. It acquired the unit as part of its $3.5 billion merger with OneWest in 2015. This beat an aggregate mean earnings-per-share estimate for CIT Group collected by FactSet for the quarter of $0.78 a share.

“The qualitative objections to CIT’s first [stress test] submission, with only modest buybacks allowed, is likely to weigh on the shares today,” noted Keefe Bruyette & Woods analysts in a report Thursday. “Noisy quarter with a large loss related to the legacy OneWest Financial Freedom reverse mortgage business, which was moved to discontinued operations..”

In a call with analysts Thursday, CIT Group CEO Ellen Alemany said the company is “fully cooperating” with a previously disclosed investigation being led by the U.S. Housing and Urban Development agency’s Office of Inspector General into reverse mortgages, which began shortly after the close of the OneWest acquisition last year.

Sales Edge Above Forecasts

unduhan-34Pharmaceuticals company AstraZeneca  (AZN) reported smaller-than-expected declines in quarterly revenue and earnings and said progress on the development of new products boded well for a return to growth.

Revenue fell 11% in the second-quarter to $5.6 billion after the company lost exclusivity on the Crestor anti-cholesterol statin in the U.S. in May. The figure was slightly better than consensus expectations for just under $5.5 billion of revenue, while earnings per share of 83 cents, down 31% year-on-year, compared with a forecast for 82 cents.

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AstraZeneca is pinning its hopes on a new product pipeline as it strives to lift revenue to $45 billion by 2023 from $24.7 billion in 2015. Three products on which it has is or is about to lose patent protection by the end of next year – Nexium for heartburn, Seroquel for schizophrenia , as well as Crestor, account for almost 40% of revenue.

CEO Pascal Soriot said the pipeline is progressing, and that recently introduced, and patented, drugs are doing well.

“Our growth platforms continued to advance and made up over 60% of total revenue. Importantly, our transformed pipeline is advancing quickly and delivering a rich flow of differentiated medicines, boding well for our return to growth.”

AstraZeneca’s pipeline products include benralizumab for severe asthma, which would compete against a product being developed by GlaxoSmithKline (GSK) and for which it expects to seek approval from U.S. and European regulators in the second half. They also include the Faslodex breast cancer treatment and Tagrisso for lung cancer.

Come True In Oracle Deal

Shares of NetSuite  (N) are rallying after the announcement that the company has agreed to be acquired by Oracle  (ORCL) . This comes after long-standing rumors of a possible tie-up of the two were rekindled in recent weeks, though those rumors were dismissed by many Wall Street analysts.

WHAT HAPPENED: Oracle announced this morning that it has entered into a definitive agreement to acquire NetSuite, “the very first cloud company.” The transaction is valued at $109 per share in cash, or approximately $9.3B. The transaction is expected to close this year.

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RECENT RUMORS DISMISSED: Last week, SunTrust analyst John Rizzuto told investors he did not believe Oracle would buy NetSuite after financial blog Proactive Investors reported on a possible deal, saying he saw the synergies from such acquisition as limited. Further, he questioned the blog’s credibility after it recirculated rumors of a pending deal for the third time in the previous three weeks. Rizzutto also noted that no other major news source had reported on a similar story at the time. The analyst said Oracle would be “ill-advised” to buy NetSuite. Rizzuto was not the only one doubting that an acquisition would take place. On June 13, Ross MacMillan, his peer at RBC Capital, shared a similar opinion, placing a “low to medium” probability on the deal given a mixed strategic rationale and challenges of integration. Nonetheless, MacMillan speculated that if an acquisition took place, the fair value would be $100-$110 per share as suggested by recent comparable transactions. Also on that day, in a separate note to investors, Cowen analyst J. Derrick Wood said he saw little merit to such a buyout argument, citing major product overlap, regulatory and legal risks, and little margin leverage that would be gained by Oracle in acquiring NetSuite.