Wall Street Breakfast: BAT Bids $47B To Buy Out Reynolds American

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by: Wall Street Breakfast
Wall Street Breakfast
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British American Tobacco has offered to acquire the 58% in Reynolds American (NYSE:RAI) it doesn't own for $47B in cash and shares. BAT's proposal is worth $56.50 a share, or 20% above Reynold's closing price of $47.17 yesterday. The deal would bring together Newport, Kent and Pall Mall cigarettes under one umbrella and create the world's largest publicly traded tobacco company. BAT's (NYSEMKT:BTI) shares rose 2.3% premarket while Reynolds American was +16.35%.

Economy

Will Japan ever escape deflation? This should come as no surprise to anyone, but Bank of Japan Governor Haruhiko Kuroda has said that the BOJ may once again push back its 2% inflation target, which currently sits somewhere in fiscal 2017. Recall that when Kuroda started his job in early 2013 and began his turbo-charged asset-purchase policy that continues to this day, he originally hoped that inflation would hit 2% by late 2014 or 2015. Almost four years later, inflation has disappeared after an initial rise.

China's house-price index dropped to 4.3% in September from 9.2% in August amid attempts by central and local governments to dampen the red-hot sector with purchasing restrictions in a number of cities as fears mount about the huge debt in China. Despite the early signs of cooling, analysts are skeptical about the government actions. "The most powerful property control is credit tightening, which we haven't seen," UBS economist Wang Tao said. "The purchase restrictions currently imposed can still be bypassed."

Stocks

Microsoft's shares climbed 5.4% premarket and topped the stock's all-time high of $59.56 after its FQ1 earnings exceeded expectations and sales of its cloud platform Azure more than doubled. EPS came in at $0.76 while revenue rose 3% to $22.3B and reversed five quarters of declines, although net profit dropped to $4.69B from $4.9B a year earlier.

Time Warner CEO Jeff Bewkes would be a willing seller to AT&T (NYSE:T), Bloomberg reports, as long he receives what he sees as a fair offer. The companies have met in recent weeks to discuss various strategies, including a possible merger. A deal makes sense, says Albert Fried analyst Rich Tullo, with 5G mobile on the way and AT&T set to benefit from Time Warner's (NYSE:TWX) content catalog.

SAP's Q3 adjusted operating profit rose 1% to €1.64B as revenue climbed 8% to €5.4B and topped forecasts of €5.3B. SAP (NYSE:SAP) obtained over 400 new customers for its flagship S/4 Hana cloud platform, with 4,100 businesses now running the suite. The German company also increased its outlook for adjusted operating profit, and cloud and software revenue. "The pipeline is more robust than it has ever been going into the fourth quarter," CEO Bill McDermott said. Shares were +1.7% premarket.

Netherlands-based cable-TV operator Altice (OTCPK:ALLVF) is exploring the idea of an IPO for its U.S. unit, Reuters reports. Altice USA, which bought Cablevision and Suddenlink Communications over the last year or so, is worth $25-30B and could look to raise almost $2B. The move would provide Altice USA with currency - money and stock - to finance further expansion, such as by acquiring midsize players in deals that would be expected to receive antitrust clearance.

Daimler's Q3 net profit climbed 8.8% to €2.595B, boosted by strong sales of the German car company's new Mercedes-Benz E-class models and sport-utility vehicles. Daimler's (OTCPK:DDAIF) revenues grew 4% to €38.6B, pretty much as expected, and volumes increased 5% to a record 754,100 units. Revenue at Mercedes-Benz Cars rose 12% to €23.3B, although truck sales slumped 19% to €7.8B as volume dropped to 97,100 from 128,500 a year earlier. Shares were -3.1% in Frankfurt at the time of writing.

Canadian aerospace and train manufacturer Bombardier (OTCQX:BDRAF, OTCQX:BDRBF) plans to deepen its job-cuts program, saying it will axe 7,500 positions, or 10% of its global workforce, over the next two years as it doubles down on its efforts to turn around its rail division. Bombardier, which announced other job losses in February, expects recurring savings of about $300M by the end of 2018 from the latest move, although it will also take restructuring charges of $225-275M starting in Q4 2016.

Ericsson's shares were -4.7% premarket after the telecom-network provider reported a Q3 net loss of 233M kronor ($26M), more than double estimates of 112M kronor. Last year the company made a profit of 3.1B kronor. Revenue last quarter dropped 14% to 51.1B kronor as Ericsson (NASDAQ:ERIC), which is without a CEO, continued to struggle with an industry slump and intense competition. "Ericsson suffers from a bloated cost base, major dysfunctions and an empty CEO seat," said Bernstein analyst Pierre Ferragu, although he added that the company's market position remains strong.

Shell has agreed to sell around 206,000 acres of non-core oil and gas properties in western Canada to Tourmaline Oil (OTCPK:TRMLF) in a cash and stock deal valued at $1.03B. The transaction is part of Shell's (RDS.A, RDS.B) global sale spree as it looks to slash its $75B of debt, a large chunk of which the company took on when it bought British peer BG Group for $50B in January.

Nice work if you can get it - Morgan Stanley (NYSE:MS) stands to collect $120M if Bayer (OTCPK:BAYRY) closes its $57B takeover of Monsanto (NYSE:MON), which would be the second-largest deal fee for a single bank on record. The payout is a bright spot in an otherwise down year for M&A activity, with global deal volume dropping 24% to $2.6T so far this year.

Thursday's Key Earnings

Verizon (NYSE:VZ) closes -2.5% after postpaid subscriber numbers disappoint
VeriSign (NASDAQ:VRSN) +7.1% AH following earnings beat
Advanced Micro Devices (NYSE:AMD) sinks 5.75% AH following weak guidance
PayPal (NASDAQ:PYPL) +4.5% AH as revenues rise 20% and top estimates
Walgreens Boots (NASDAQ:WBA) ends +5% as non-GAAP net income jumps 20%
American Airlines (NASDAQ:AAL) finishes -0.1% despite earnings beat
Dunkin' Brands (NASDAQ:DNKN) closes -3.2% after missing on revenue
Schlumberger (NYSE:SLB) flat post-market after mixed Q3

Today's Markets

In Asia, Japan -0.3% to 17185. Hong Kong closed. China +0.7% to 9831. India -0.2% to 28077.
In Europe, at midday, London +0.2%. Paris -0.1%. Frankfurt +0.1%.
Futures at 6:20, Dow -0.3%. S&P -0.3%. Nasdaq -0.1%. Crude +0.55% to $50.91. Gold -0.2% to $1265.05.
Ten-year Treasury Yield + 1bps to 1.76%.

Today's Economic Calendar

10:15 Daniel Tarullo speech
1:00 PM Baker-Hughes Rig Count

Companies reporting earnings today »