News Archive

Uber scrambles to head off Brazil bill regulating ride software

BRASILIA (Reuters) – Hundreds of drivers for the internet based ride-hailing firm Uber drove through Brazil’s largest cities on Monday to protest legislation that would turn them into regular taxi drivers subject to the same local licensing and taxation rules.

The chief executive of Uber Technologies Inc, Dara Khosrowshahi, arrived in Brazil to lobby against the bill that is due to be voted on by the Senate on Tuesday and which threatens the company’s business in a fast-growing foreign market.

Brazil is Uber’s third-largest market, with 17 million users, and the city of Sao Paulo sees more trips on the ride-hailing service than any other city in the world, ahead of New York and Mexico City, according to the company.

A spokesman for the company said the application as it exists could not operate under the new rules, including the use of a taxi license plate on cars owned by Uber drivers.

“The business model we have today would not longer be viable,” Uber’s executive spokesman in Brazil Fabio Sabba told Reuters.

Uber is already battling to keep operating in London after the city’s transport regulator deemed it unfit to run a taxi service and refused to renew its license.

Police said 800 Uber drivers drove through the center of Brazil’s capital Brasilia to protest the bill that many say will put them out of business. Similar protests in Sao Paulo and Rio de Janeiro snarled downtown traffic.

Uber did not organize the drivers’ protests but alerted authorities that they would happen.

“The bill will create so much bureaucracy that it prevents the 500,000 drivers in Brazil from earning income for their families,” Uber said in a statement.

Uber said it has paid 495 million reais ($150 million) in federal and municipal taxes so far this year.

The bill, which has already been approved by the lower house of Congress, would define ride hailing applications as public transport instead of private services and require drivers to get a special permit from city authorities. It would also establish additional regulations and taxes.

If the Senate votes to approve the bill, it will be up to President Michel Temer to sign or veto the legislation or parts of it.

($1 = 3.2887 reais)

Reporting by Anthony Boadle

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SoftBank, Deutsche Telekom hit wall in Sprint, T-Mobile talks: sources

(Reuters) – SoftBank Group Corp and Deutsche Telekom AG have reached an impasse in their talks to merge Sprint Corp and T-Mobile US Inc over how many shares each would hold in the combined company, people familiar with the matter told Reuters on Monday.

In a board meeting at Japan’s SoftBank on Friday, several directors expressed doubts about giving up control of Sprint in any deal, the sources said, the latest twist in on-and-off talks to unite the two U.S. wireless carriers that began earlier this summer.

According to tentative deal terms that Reuters was first to report last month, SoftBank and other Sprint shareholders would have received close to 40 percent or a little more of the combined company.

The holdup in negotiations could torpedo plans to merge Sprint and T-Mobile, controlled by Deutsche Telekom, into a single carrier with more than 130 million U.S. subscribers, behind Verizon Communications Inc and ATT Inc.

It could also damage the dealmaking credentials of SoftBank Chief Executive Masayoshi Son, who has raised close to $100 billion for his Vision Fund to invest in technology companies, and uses his image as a reliable counterparty to clinch deals.

If talks fall apart, it would be the second time an attempted merger of Sprint and T-Mobile has failed. The two companies came close to announcing a merger in 2014, but called it off at the last minute due to regulatory concerns.


Industry watchers had long expected Sprint and T-Mobile to attempt another deal, especially after a quiet period associated with a U.S. government auction of wireless airwaves concluded in April, freeing up companies in the telecom industry to discuss mergers and acquisitions.

But no deal was announced immediately following the conclusion of the restriction on merger talks, and both Sprint and T-Mobile said they were open to exploring other options. A source told Reuters in July that SoftBank was considering an acquisition offer for Charter Communications Inc in a deal where it would combine the cable company with Sprint.

Sprint is in the middle of a turnaround plan and has sought to strengthen its balance sheet by cutting costs. But industry analysts have expressed concern that the company, weighed down with total debt of $38 billion, has few financial options. Even though its customer base has expanded under CEO Marcelo Claure, growth has been driven by heavy discounting.

Sprint’s junk bonds were among the hardest hit in Monday afternoon trading, according to IFR, a Thomson Reuters capital markets news service.

Claure said in August that while Sprint could sustain itself, cost savings from a transaction were significantly better than remaining a standalone entity. Analysts have estimated a deal could result in more than $30 billion in savings.

Sprint shares fell as much as 13 percent on Monday after Nikkei first reported that SoftBank was doubting the deal, and ended down 9.3 percent. T-Mobile shares ended down 5.4 percent.

Nikkei also reported that SoftBank would inform Germany’s Deutsche Telekom that it was calling off the deal talks, but sources who spoke to Reuters could not confirm this.

As of late Monday, T-Mobile still considered the negotiations with Sprint to be active, according to the sources.

Sprint, T-Mobile, Deutsche Telekom and SoftBank declined to comment.


The due diligence between T-Mobile and Sprint was almost complete as of last week, and the focus had shifted to working out a business plan for the combined company as well as an integration strategy, sources had told Reuters.

Even so, it was not clear that U.S. regulators would clear a deal between the two carriers.

Analysts have expected consolidation in the U.S. wireless industry to ease pricing pressure in the market, which could benefit ATT and Verizon, who have lost share to their smaller rivals. Cable companies Comcast Corp and Charter Communications Inc are also entering the market with wireless service on Verizon’s airwaves.

“With no merger of Sprint and T-Mobile, as well as the entrance of Comcast and Charter into wireless, we expect Verizon to have a difficult run going forward,” said Philip Cusick, an analyst at JPMorgan, in a research note. Verizon shares closed down 2.1 percent.

“Sprint as well could struggle to maintain positive subscriber momentum as cable enters, making its balance sheet look unsustainable.”

Shares in satellite television provider Dish Network Corp, which has been widely considered a potential partner for T-Mobile or Sprint because of its spectrum holdings, closed up 4 percent.

Reporting by Greg Roumeliotis in New York; Additional reporting by Liana B. Baker in San Francisco, Pamela Barbaglia in London and Anjali Athavaley in New York; Editing by Arun Koyyur and Bill Rigby

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Oreo maker Mondelez’s results beat on gains from Europe, Latin America

(Reuters) – Mondelez International Inc (MDLZ.O) beat Wall Street’s profit and revenue estimates in the third quarter as demand for its key brands such as Oreo cookies and Trident gum rose in Europe and Latin America and the company cut costs.

Shares of the world’s second largest confectionary company rose 4.9 percent to $41.20 in after-market trading on Monday.

Mondelez’s organic revenue, a measure that excludes currency fluctuations, grew 3.2 percent in Europe and 5.4 percent in Latin America in the quarter that marks the end of Irene Rosenfeld’s tenure as its chief executive officer.

The company said its performance in Europe was helped by strong chocolate sales in Germany and the U.K.

However, sales in North America, its second largest market, remains a concern for the packaged goods company.

Net revenue from North America rose 1.3 percent but lagged behind its smaller rival Hershey (HSY.N), which posted a 1.6 percent rise in sales in the region in October.

North America is the only region performing below expectations but the company is confident in improving it in the future, Rosenfeld said in the earnings call.

The company said McCain Foods CEO Dirk Van de Put will take over on Nov. 20 from Rosenfeld.

Rosenfeld’s departure comes after years of consistent decline in sales for Mondelez, which was formed from a spin-off of Kraft’s North America grocery business in 2012 – a move that she engineered.

The snack giant said on Monday it is recovering from last quarter’s cyber attack that hurt shipment volumes and has led to $100 million loss in revenue for the full year.

Total organic net revenue rose 2.8 percent in the quarter ended Sept. 30 and the recovery in shipment volumes contributed 0.6 percent to it.

Organic net revenue from its key brands, such as Cadbury Dairy Milk, Milka chocolate and Oreo cookies, rose 3.8 percent in the quarter, compared with a 2.5 percent rise, a year earlier.

The company, which is planning to cut about $3 billion in cost by 2018 end, slashed its costs by 14.3 percent to $1.33 billion in the reporting quarter.

Net income attributable to Mondelez rose 81 percent to $992 million, or 65 cents per share, in the quarter, helped by one-time gains and taxes.[GNXOGLJSa]

Excluding items, it earned 57 cents a share and revenue rose 2.1 percent to $6.53 billion.

Analysts on average had expected the company to report a profit of 54 cents per share on revenue of $6.45 billion, according to Thomson Reuters I/B/E/S.

Reporting by Uday Sampath in Bengaluru; Editing by Arun Koyyur

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Ackman says ADP provided ‘misleading’ claims to ISS: filing

BOSTON (Reuters) – Billionaire investor William Ackman on Monday accused Automatic Data Processing Inc (ADP.O) of providing misleading and incorrect claims to Institutional Shareholder Services and asked the proxy advisory firm to reconsider its shareholder recommendations.

ISS on Wednesday issued a report to guide institutional investors in a vote next week where the hedge fund manager hopes to win three ADP board seats. The proxy adviser recommended shareholders largely vote for the company’s slate but supported Ackman’s election.

Ackman’s filing, an usual criticism of a proxy adviser by an activist, came hours after the human resources outsourcing company’s board chair John Jones said in a letter to shareholders that ADP is not underperforming and plans to improve margins and profit further.

“ADP provided non-public, inaccurate and misleading information, claims, and arguments which were relied upon by ISS,” Ackman said in a regulatory filing made with the U.S. Securities and Exchange Commission.

ADP and ISS had no immediate comment on Monday.

Ackman’s unveiled his stake of 8.3 percent, including 2 percent in common shares, in ADP in August, and has since criticized the company for what he calls sluggish earnings and inefficient operations. He plans to hold another investor webinar on Nov. 1.

“ISS accepted, and in its Report has publicly endorsed, certain misleading or incorrect factual assertions made by ADP management during its engagement with ISS,” Ackman said in the filing.

ISS said in its recommendation that shareholders should withhold their vote for ADP director Eric Fast to make room for Ackman but that the case was not “sufficiently compelling to justify replacing three directors.”

Glass Lewis and Egan-Jones last week both recommended all of Ackman’s directors.

Ackman took aim at the projection provided by ADP’s board chair on Wednesday, in which he said the company plans to improve its operating margin by 500 basis points between 2017 and 2020 and speed up its profit growth.

“This is a new and inaccurate disclosure that we believe is demonstrably false, and is intended to mislead shareholders and others about the lack of progress implied by ADP’s plan,” Ackman said in the filing.

Ackman also said that ISS failed to follow its own guidelines stating that it relies only on publicly disclosed information to reach its recommendations.

He flagged ADP’s labor productivity figures and the reference to an “upcoming release” of the Vantage 2.0 platform in the ISS report.

“The disclosure that ADP is close to releasing a Vantage 2.0 product offering for the Enterprise segment is material, even more so in the context of this proxy contest,” he said.

Reporting by Svea Herbst-Bayliss; Editing by Andrew Hay and Meredith Mazzilli

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Wall Street extends loss after report of gradual tax cuts

(Reuters) – U.S. stocks extended losses in early afternoon trading on Monday after a report that the House of Representatives was discussing “a gradual phase-in” for President Donald Trump’s corporate tax cut plans.

The schedule would have the rate reach 20 percent in 2022, the Bloomberg report said. Under the plan, the rate may be reduced from its current 35 percent rate by three percentage points a year starting in 2018.

Stocks took a hit following the report as it seemed that the administration is watering down its tax cut proposals, said Michael Antonelli, managing director of institutional sales trading at Robert W. Baird in Milwaukee.

Investors appeared to shrug off charges against Paul Manafort, a former campaign manager of President Donald Trump, and one of his affiliates – the first in connection with a probe into possible Russian meddling in the 2016 U.S. presidential election.

Earlier in the session, the Nasdaq Composite hit a record high after Apple (AAPL.O) shares jumped on research notes pointing to strong demand for the iPhone X.

The healthcare sector was under pressure after Merck (MRK.N) dipped 6.13 percent, setting up the stock for its biggest two-day decline, after the company said it had withdrawn an application for European use of its key cancer immunotherapy.

With the third-quarter earnings season more than half-way through, nearly 74 percent of the SP 500 companies that have reported earnings so far, have topped profit expectations, compared with 72 percent overall the past four quarters.

Investors also awaited the announcement on the nomination of the new Federal Reserve chief, expected on Thursday.

Trump is likely to pick Federal Reserve Governor Jerome Powell as the next chair of the U.S. central bank, a source familiar with the matter said on Monday.

At 12:23 p.m. ET, the Dow Jones Industrial Average .DJI was down 90.63 points, or 0.39 percent, at 23,343.56, the SP 500 .SPX was down 11.71 points, or 0.45 percent, at 2,569.36 and the Nasdaq Composite .IXIC was down 21.10 points, or 0.31 percent, at 6,680.17.

Seven of the 11 major SP indexes were lower, led by losses in healthcare .SPXHC, financials .SPSY and consumer staples .SPLRCS stocks.

Mondelez (MDLZ.O) fell 2 percent ahead of its earnings report, expected after the bell.

General Motors (GM.N) dipped 3 percent after Goldman Sachs downgraded the company’s stock to “sell” from “neutral”.

Advanced Micro Devices (AMD.O) slumped 8.15 percent after Morgan Stanley downgraded the stock to “underweight” from “equalweight”.

Declining issues outnumbered advancers on the NYSE by 1,707 to 1,146. On the Nasdaq, 1,942 issues fell and 872 advanced.

Reporting by Sruthi Shankar; Editing by Saumyadeb Chakrabarty

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Scandal-hit Kobe Steel seeks loans, shareholder offers support

TOKYO (Reuters) – Kobe Steel Ltd (5406.T) is seeking 50 billion yen ($440 million) in loans from banks, a banking source said on Monday, while a shareholder said it was ready to offer support as the company grapples with a scandal over falsified product specifications.

Japan’s third-largest steelmaker also pulled its forecast for a first annual profit in three years as it deals with the financial impact of one of Japan’s biggest corporate scandals.

Kobe Steel is losing customers and said on Friday it had a government-sanctioned seal of quality revoked on some of its products.

The steelmaker’s admission this month that it had found widespread tampering in specifications has sent companies in global supply chains scrambling to check whether the safety or performance of their products has been compromised.

While no safety issues have been identified, Kobe Steel’s parts and materials are used across the world in cars, trains, aircraft and nuclear plants.

The company, which has said it cannot fully quantify the impact on its finances from the scandal, is seeking loans from Mizuho Bank and other lenders, a banker with direct knowledge of the situation told Reuters, requesting anonymity because the discussions are not public.

The Nikkei business daily reported that Mizuho Bank, Sumitomo Mitsui Banking and Bank of Tokyo-Mitsubishi UFJ are considering loans to the steelmaker.

Kobe Steel Managing Executive Officer Kazuaki Kawahara confirmed at an earnings briefing later on Monday that the company was in loan talks with its main banks and other lenders, without providing further details.

Executive Vice President Naoto Umehara said that Kobe Steel will continue generating cash on its own to cover expenses stemming from the data falsification scandal as well as for capital investment.

He said the misconduct would likely reduce its recurring profit by 10 billion yen in the full 2017/18 financial year. The company cut its forecast for recurring profit in the year by 5 billion yen to 50 billion yen.

Umehara said the 10 billion yen covers costs for slower production, disposal of products that do not meet specifications and reduced orders as customers switch suppliers.

“We understand our customers are taking a harsh view of the data fabrication,” Umehara said. “We cannot tell how much the cost will be but expect to see more impact as time goes by.”

There are still more questions than answers, said Mitsushige Akino, executive officer at Ichiyoshi Asset Management, with unresolved issues including confirming the safety of all products and establishing what went wrong.

“The company must show how it will change,” he said.

Kobe Steel said on Thursday that 88 out of 525 affected customers had yet to confirm its products were safe in the light of widespread tampering of specifications, but that it had not received any requests for recalls.

The company is due to file a detailed report to Japan’s industry ministry on the cheating and its measures to avoid any reoccurrence within about two weeks.

Japan’s biggest steelmaker, Nippon Steel Sumitomo Metal Corp (5401.T) said on Monday it will provide support to its smaller rival if requested. Nippon Steel has a 2.95 percent stake in Kobe Steel.

“We will consider and respond if we receive any requests from Kobe Steel for help,” Nippon Steel President Kosei Shindo told a news conference, adding that his company has not received any such request.

Kobe Steel has a 0.71 percent stake in Nippon Steel and the companies have an alliance that involves cooperating on steel supplies during shortages or maintenance of factories.

However, Kobe Steel’s Umehara said there were no plans to seek support from Nippon Steel.

Kobe Steel repaid a 20 billion yen bond that came due on Friday, a spokesman said on Monday.

But it canceled plans to pay a dividend on its first-half results. The company said it had net profit of nearly 40 billion yen in the April to September period. The results do not include any financial impact from the scandal.

Kobe Steel in July had forecast a net profit of 35 billion yen for the year to March 31, after two years of losses.

Kobe Steel shares rose 2.2 percent on Monday, while the Nikkei 225 .225 fell 0.1 percent.

Kobe Steel’s market value has slumped by about $1.5 billion since announcing in early October that it had found widespread tampering of product specifications in its aluminum and copper business. The cheating has since been found across its businesses.

Additional reporting by Sam Nussey; writing by Aaron Sheldrick; editing by Raju Gopalakrishnan and Jason Neely

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U.S. consumer spending grows at fastest pace since 2009, savings drop

WASHINGTON (Reuters) – U.S. consumer spending recorded its biggest increase in more than eight years in September, likely as households in Texas and Florida replaced flood-damaged motor vehicles, but underlying inflation remained muted.

Households, however, dipped into their savings to fund purchases last month, pushing savings to their lowest level since 2008. Against the backdrop of lackluster wage growth, the drop in savings suggests that September’s robust pace of consumer spending is probably unsustainable.

“Relying on consumer savings to move the economy forward is not going to last for long,” said Chris Rupkey, chief economist at MUFG in New York.

The Commerce Department said on Monday consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 1.0 percent last month after an unrevised 0.1 percent gain in August. The increase, which also included a boost from higher household spending on utilities, was the largest since August 2009.

Economists had forecast consumer spending increasing 0.8 percent in September. The data was included in last Friday’s third-quarter gross domestic product report, which showed consumer spending growth slowing to a 2.4 percent annualized rate after a robust 3.3 percent pace in the second quarter.

The moderation in consumption was offset by a rise in inventory investment, business spending on equipment and a drop in imports, which left the economy growing at a 3.0 percent rate in the third quarter after the April-June period’s brisk 3.1 percent pace.

U.S. financial markets were little moved by the data ahead of the Federal Reserve’s two-day policy meeting, which starts on Tuesday. Investors were also awaiting the announcement of a new Fed chief, which is expected this week.

Prices for U.S. Treasuries were trading higher, while the dollar fell against a basket of currencies. Stocks on Wall Street were largely flat.

The Commerce Department said the September data reflected the effects of Hurricanes Harvey and Irma, but said it could not quantify the total impact of the storms on consumer spending and personal income.

Consumer spending in September was buoyed by purchases of motor vehicles, probably as drivers in Texas and Florida replaced automobiles that were destroyed when Harvey and Irma slammed the states in late August and early September.

Spending on long-lasting goods like autos surged 3.2 percent last month. Outlays on services rose 0.5 percent.


Though disruptions to the supply chain as a result of the hurricanes also likely contributed to an uptick in inflation last month, underlying price pressures remained benign.

The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, edged up 0.1 percent in September. The so-called core PCE has now increased by 0.1 percent for five straight months.

The core PCE increased 1.3 percent in the 12 months through September after a similar gain in August. The core PCE has undershot the Fed’s 2 percent target for nearly 5-1/2 years.

The soft core PCE readings are likely to intensify the inflation debate among Fed officials.

Some policymakers believe the low inflation readings are the result of transitory factors like one-off reductions in the costs of mobile phone services, and expect price pressure to rise as the labor market tightens. Others, however, worry that the factors behind tame inflation could prove more persistent.

The U.S. central bank is unlikely to raise interest rates this week, but is expected to do so in December. It has raised rates twice this year.

When adjusted for inflation, consumer spending increased 0.6 percent in September after slipping 0.1 percent in August. While that put consumer spending on a higher growth trajectory heading into the fourth quarter, the pace is unlikely to be maintained.

Personal income rose 0.4 percent last month after increasing 0.2 percent in August. Income at the disposal of households after inflation was flat after slipping 0.1 percent in August.

With spending outpacing income, savings fell to $441.9 billion in September, the lowest level since August 2008, from $521.4 billion in the prior month. The saving rate dropped five-tenths of a percentage point to 3.1 percent, the lowest level since December 2007.

“The low savings rate is expected to be a larger constraint on consumer spending in the months ahead and could lead to higher delinquency rates for some categories of consumer credit if real income growth continues to lag,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

Reporting by Lucia Mutikani; Editing by Paul Simao

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New Akzo Nobel boss pursues $30 billion deal with Axalta

AMSTERDAM/FRANKFURT (Reuters) – Dutch paints maker Akzo Nobel, seeking to recover after rejecting a takeover offer and issuing two profit warnings, is discussing a merger with smaller U.S. rival Axalta Coating Systems Ltd to create a $30 billion company.

Akzo, the maker of Dulux paint, said on Monday it was in “constructive talks” about a “merger of equals” in what would be the first major deal by Chief Executive Thierry Vanlancker, who took over in July after Akzo spurned a 26 billion euro ($30.2 billion) offer from U.S. rival PPG Industries.

Reuters reported on Friday that Akzo had approached Axalta about a possible merger, sending Axalta’s shares 17 percent higher. Warren Buffett’s Berkshire Hathaway is the largest Axalta investor with a stake of just under 10 percent.

“This seems a classic attack-is-the-best-defense strategy,” said a fund manager at one of Akzo’s top-10 investors who asked not to be named.

“Akzo overpromised after defending their own company and started to fail to deliver in Q3, so (they) need to do something transformational,” he added.

At 19.5 billion euros ($22.7 billion), Akzo’s market value is close to three times that of Axalta at $8.1 billion at Friday’s closing price of $33.15.

Even after the planned sale of its chemicals divisions, valued at 8-10 billion euros, the Dutch group would tower over its prospective partner, suggesting a lead role that typically results in a premium being offered to the junior partner.

Akzo said plans to divest the chemicals unit remained on track and a “vast majority” of net proceeds from the deal would be returned to shareholders.

Axalta’s coatings for new vehicles could fill a gap in Akzo’s portfolio, which caters to various other industries including manufacturing, marine and construction, analysts have said.


The relatively fragmented global paints and coatings industry has seen a frenzy of deal activity, as buyers seek scale to squeeze their raw materials bill to further bolster already attractive margins.

PPG’s aborted move for Akzo followed BASF deals last year, selling its industrial coatings business to Akzo and buying Albemarle’s surface-treatment unit Chemetall for $3.2 billion to focus on automotive coatings.

Before that, Sherwin-Williams snatched up rival U.S. paint company Valspar in an all-cash deal valued at about $9.3 billion.

The mooted combination would make Akzo the second-largest coatings player with a 12 percent market share, ahead of PPG but trailing an enlarged Sherwin Williams, analysts at brokerage Raymond James said.

Vanlancker has been forced to cut targets made in the heat of the takeover battle twice in the space of six weeks, blaming disruption caused by hurricane Harvey, rising raw materials costs and “headwinds” at its marine coatings business.

Akzo shares were 0.5 percent higher at 77.89 euros at 1120 GMT, well below a figure of around 96 euros proposed by PPG.


Analyst Joost van Beek of Theodoor Gilissen said that in negotiations over financial terms, Axalta would seek to take advantage of Akzo being under pressure to bulk up.

Analysts at Bernstein, in turn, stressed the strategic rationale, saying in a note the Akzo-Axalta merger “would improve scale and density in segments and countries where needed while taking out costs, most likely in the fragmented general industrial segment and in Europe”.

They forecast savings of around 250 million euros from combining operations.

Akzo would not comment on how the deal could be structured, though describing it as a merger suggests it would pay mostly with shares.

Sources familiar with the matter told Reuters on Friday that talks were at an early stage and there was no guarantee the companies would come to an agreement.

Akzo has gone through tumultuous times of late.

After PPG’s approach was fended off, a group of shareholders launched a court case seeking a vote to have Chairman Antony Burgmans removed, but lost.

Akzo’s CEO and CFO then resigned, citing health reasons, while Burgmans is due to retire next year.

PPG has indicated it is no longer interested in trying to buy Akzo. After walking away from the deal on June 1, it is barred from rebidding for Akzo until Dec. 1.

Private equity firm Carlyle Group LP, Axalta’s former owner, had considered selling the company to Akzo in 2014 before taking it public. ($1 = 0.8600 euros)

Additional reporting by Simon Jessop in London and Bart H. Meijer in Amsterdam; Editing by Louise Heavens and Keith Weir

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Apple touches record as brokerages bullish on iPhone X demand

(Reuters) – Several analysts downplayed concerns about Apple Inc’s iPhone X production issues and were bullish on demand and sales, pushing the company’s shares to a record on Monday.

The Cupertino-based company does not provide pre-order figures on iPhones, leaving investors and analysts in the dark in trying to track output through research with its suppliers, consumer surveys and other industry indicators.

But positive commentary from analysts on Monday signaled strong demand for the pricey device with pre-orders starting this past Friday.

Apple is scheduled to report quarterly results this Thursday. The company provides sales figures in its results.

Since the launch of new iPhones on Sept.12, the stock had fallen 2.5 percent until last Thursday’s close. They rebounded on Friday after Apple said pre-orders for the 10th anniversary phone were “off the charts”.

The stock climbed to $168.07 earlier in the session, adding nearly $26 billion to its market cap and inching it closer to becoming the first company with a trillion dollar valuation. Shares pared gains and were up 1.9 percent at $166.15 mid-day.

Daniel Ives, a well-known sector analyst, raised his forecast on Monday for pre-orders by 10 million, and several other analysts talked up sales over the next year.

In a note, Ives of research house GBH Insights, raised his pre-order demand expectations for the iPhone X to 50 million units from 40 million, calling the first stage of the iPhone X release a “stellar success”.

“With the official launch of iPhone X in Apple retail stores slated for this Friday, Nov. 3, we anticipate very high demand globally with limited supply of iPhone X on hand,” Ives said.

Jeffrey Kvaal from brokerage Nomura Instinet, said Apple and U.S. wireless carriers’ pushing out of delivery times for iPhone X orders to 5-6 weeks was longer than for previous phones and pointed to strong demand.

Asked by Reuters whether production bottlenecks are causing shipment delays, Tigress Financial Partners analyst Ivan Feinseth responded: “No, there’s no bottlenecks. This is a company that manages the supply chain well.”

However, Drexel Hamilton analyst Brian White, cautioned that the longer wait times for consumers ordering phones may be as much due to the component supply issues, which led Apple to delay the launch of the premium phone until November.

“Although we believe Apple is benefiting from strong demand from the iPhone X, the company is also struggling with supply constraints,” White, who has a buy rating on Apple, said.

“A sound debate around the key driver for the surging shipping lead times can be made by reasonable people. Thus we believe it was important for Apple to highlight the demand side of the equation for the iPhone X.”

Wall Street is bullish on Apple with 31 of 38 brokerages rating the stock “buy” or higher. Their median price target of $180 projects a market cap of nearly $930 billion for the iPhone maker.

Reporting by Arjun Panchadar and Munsif Vengattil in Bengaluru; Editing by Bernard Orr

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