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FCC raises concerns about Sinclair-Tribune deal; shares skid

WASHINGTON (Reuters) – Federal Communications Commission Chairman Ajit Pai said on Monday he had “serious concerns” about Sinclair Broadcast Group Inc’s (SBGI.O) proposed $3.9 billion acquisition of Tribune Media Co (TRCO.N), a surprise move which could potentially scuttle the deal and sent shares of both companies tumbling.

FILE PHOTO: Chairman of the Federal Communications Commission Ajit Pai speaks at the Conservative Political Action Conference (CPAC) at National Harbor, Maryland, U.S., February 23, 2018. REUTERS/Joshua Roberts

Pai, a Republican, said evidence presented as part of the approval process suggested that the planned divestiture of certain television stations “would allow Sinclair to control those stations in practice, even if not in name, in violation of the law.”

Pai, whom Democrats have accused of making a string of decisions benefiting Sinclair, proposed referring the matter to an administrative law judge. The move could result in a lengthy delay and could effectively kill the deal, as in other mergers referred for administrative proceedings.

Sinclair, the top U.S. television broadcast group, said in a statement late Monday it was “shocked and disappointed” by the announcement and denied it was not in compliance with FCC rules. The company said it was “prepared to resolve any perceived issues” and looked “forward to finalizing our acquisition of Tribune Media.”

Tribune shares closed down 16.7 percent to $32.12, while Sinclair dropped 11.7 percent to $29.10.

Tribune declined to comment. Pai and Sinclair have previously denied the Democrats’ accusations. Democrats have also said the FCC’s inspector general is probing the allegations.

Sinclair, which owns 192 stations, said in May 2017 that it planned to acquire Chicago-based Tribune’s 42 TV stations in 33 markets.

In April, Sinclair said it would sell 23 TV stations to obtain the necessary regulatory approvals. It needs FCC permission to own more than one station in some markets.

Pai’s statement raising questions about whether Sinclair would continue to control some of the stations it proposes to divest followed similar questions raised in separate filings with the FCC last month by the American Civil Liberties Union and conservative news outlet Newsmax Media.

The deal has come in for sharp criticism that it would lead to significant TV station consolidation in the United States by many Democrats and by the attorneys general of three states who in a filing last month urged the FCC to reject the deal.

Sinclair, based in Hunt Valley, Maryland, has said that if the deal was approved, it would reach nearly 59 percent of the nation’s television households. Sinclair said Monday the deal “will create numerous public interest benefits and help move the broadcast industry forward at a time when it is facing unprecedented challenges.”

A majority of the FCC voted Monday to approve the draft order circulated by Pai’s office to refer the transaction for a hearing, a person briefed on the matter said.

“It’s widely recognized that when something is set for a hearing that the deal is not going to survive,” said Gigi Sohn, a top aide to former FCC Chairman Tom Wheeler.

FCC Commissioner Jessica Rosenworcel, a Democrat, said that after a string of policies “custom built” to support Sinclair, “the agency will finally take a hard look at its proposed merger with Tribune.” The draft order circulated by Pai’s office, part of which was seen by Reuters, said the deal raised an issue that “includes a potential element of misrepresentation or lack of candor” that must be resolved before the FCC gives it a go-ahead.

That could amount to “misconduct,” the order said. The Justice Department’s separate review of the merger is still ongoing, the department said Monday.

The draft order raised questions about the divestiture of stations in Dallas and Houston as well as representations made by Sinclair about the divestiture of WGN-TV in Chicago.

Sinclair responded that it denies “such allegations in the strongest possible manner” and said it has been “completely transparent about every aspect of the proposed transaction.”

Two FCC officials briefed on the matter said the language in the order made it extremely unlikely that Sinclair would be able to proceed with the merger as planned.

The order “could also (put) pressure on them to divest more stations cleanly in the open market,” said Gene Kimmelman, president of the advocacy group Public Knowledge.

Advocacy group Free Press said Sinclair forces stations to “air pro-Trump propaganda” – a charge it denies.

President Donald Trump has defended the conservative-leaning Sinclair, tweeting in April that the company was “far superior to CNN.”

Reporting by David Shepardson and Diane Bartz; Editing by Jonathan Oatis and Leslie Adler

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Netflix shares tank after big miss on subscriber growth

(Reuters) – Netflix Inc’s subscriber growth fell short of Wall Street expectations on Monday, sending shares of the normally high-flying stock down 14 percent on fears that the company’s rapid expansion is slowing.

The streaming video pioneer added 5.2 million customers from April through June, 1 million fewer than forecasts from Thomson Reuters I/B/E/S, as it added new programming including “Lost in Space” and new episodes of Marvel’s “Jessica Jones” and “13 Reasons Why.”

“We had a strong but not stellar Q2,” Netflix said in a quarterly letter to shareholders.

Netflix said it had “over-forecasted” quarterly fluctuations in the pace of new customers. The company noted that it had underestimated subscribers for seven of the past 10 quarters.

Before the earnings report, Netflix shares had gained 109 percent, making it the second-strongest performer on the SP 500 index. In after-hours trading on Monday, Netflix shares sunk 14 percent to $343.60, eroding $24.2 billion in market capitalization and down from an earlier close of $400.48.

“Investors are devastated by Netflix’s Q2 projection that went down in dramatic flames. Now future projections are suspect and that decimates valuation,” said Eric Schiffer, chief executive officer of private equity firm Patriarch.

Wall Street had been betting that Netflix would deliver outsized growth as demand for online entertainment increases around the globe. The company is spending heavily to hook new customers, budgeting $8 billion for programming and $2 billion for marketing in 2018.

Netflix added 670,000 subscribers in the United States, well below analysts’ estimates of 1.19 million, according to Thomson Reuters I/B/E/S.

It signed up 4.47 million subscribers internationally, while analysts were expecting 4.97 million.

The overly optimistic projections were “pretty broad across multiple markets,” Chief Financial Officer David Wells said on a post-earnings webcast.

Executives voiced confidence about the long-term health of the streaming service. Chief Executive Reed Hastings said median viewing hours were growing, though he did not provide specifics.

The Netflix logo is seen on their office in Hollywood, Los Angeles, California, U.S. July 16, 2018. REUTERS/Lucy Nicholson

“The fundamentals have never been stronger,” Hastings said.

Forrester analyst James McQuivey said he believed that the quarterly results were “not a sign of softening in the business overall.”

“These are still millions of new subscribers, even if they didn’t meet the expectations that might have been set by the last two quarters, which were extraordinarily high,” he said.

Earnings per share came in at 85 cents, beating analyst forecasts of 79 cents. Total revenue rose 40.2 percent to $3.91 billion. Analysts had expected revenue of $3.94 billion.

For the current quarter, Netflix projected it would add 5 million customers. It is making a big push in India. Earlier this month, it debuted its first Indian original series, “Sacred Games,” part of a slate of new shows aimed at the vast Bollywood entertainment market.

Netflix said operating margins would be narrower than previously expected because of the rapid strengthening of the U.S. dollar, which appreciated by more than 5 percent against major trading partners’ currencies in the second quarter. While most of the company’s revenue growth comes from international markets, the vast majority of its costs remain dollar-denominated.

Hastings said the company would make adjustments to account for foreign exchange rates in order to “steadily” increase operating margins.

At the same time, Netflix faces growing competition.

Amazon.com Inc plans to add more regional content in India as it builds the Prime video service around the world. Apple Inc is pouring money into original programming, signing up A-list names including Oprah Winfrey. And ATT Inc has promised to boost investment in HBO after taking over the network in its Time Warner acquisition.

Meanwhile, cable distributors are offering smaller and cheaper bundles of channels.

In the letter to shareholders, Netflix said it expected more competition from international players including ProSiebenSat 1 Media in Germany and on-demand service Salto in France.

“Our strategy is to simply keep improving,” Netflix said.

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(GRAPHIC: Netflix subscriber additions – tmsnrt.rs/2Nm9YsK)

Reporting by Lisa Richwine in Los Angeles, Vibhuti Sharma in Bengaluru; Additional reporting by Noel Randewich in San Francisco; Editing by Anil D’Silva and Lisa Shumaker

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Fast-growing e-cigarette maker Juul to launch in UK

LONDON (Reuters) – Silicon Valley e-cigarette start-up Juul Labs is bringing its small flash drive-sized vaping device to the United Kingdom this week, aiming to reproduce its break-neck U.S. growth overseas.

Juul e-cigarette starter pack is seen in this picture illustration taken July 16, 2018. REUTERS/Martinne Geller/Illustration

Since launching in 2015 Juul has transformed the market in the United States, where it now accounts for nearly 70 percent of tracked e-cigarette sales.

Juul says it targets adult smokers, but it has faced scrutiny over the popularity of its products with teenagers. In April the U.S. Food and Drug Administration launched a crackdown on the sale of e-cigarettes and tobacco products to minors, particularly those developed by Juul Labs.

A day after the FDA’s announcement, Juul revealed several initiatives to address the issue, such as earmarking $30 million to support government initiatives to raise the minimum tobacco-buying age.

Grant Winterton, Juul Labs’ president for Europe, the Middle East and Africa, told Reuters that its activities in Britain would adhere from the start to its new “social and public policy”, which calls for using only adults in its marketing and making sure its brand ambassadors are older than 28.

Slideshow (3 Images)

“It’s true there are too many teens using our product, but they are far the minority,” Winterton said.

Public health advocates are still debating whether e-cigarettes represent a health risk or potential benefit.

The Juul device will be available in 250 vape shops across the UK by the end of this week. A starter pack, including the device and four nicotine pods, will cost about 29.99 pounds ($39.66).

Winterton said Britain was Juul’s third market after the United States and Israel, partly because it has the world’s “most supportive government” when it comes to encouraging smokers to vape. Also on the radar are France, Germany and Italy.

The San Francisco-based company recently raised $650 million in equity financing as part of an investment round aimed at raising $1.25 billion, a securities filing showed last week.

A source familiar with the matter said the round would be completed by the end of July and that it valued Juul at more than $15 billion.

Winterton and co-founder James Monsees declined to comment on company valuation, revenue or growth.

Juul’s main rivals are tobacco companies such as Altria (MO.N), Philip Morris International (PM.N) and British American Tobacco (BATS.L), who also sell e-cigarettes.

Despite many meetings with big tobacco companies, Monsees said he was not interested at the moment in partnerships or a takeover, saying their missions were at odds.

If Juul ever believed that a partnership with one of those companies would help to eliminate cigarettes, then it would take it very seriously, he said.

Apart from increased scrutiny and competition, Juul also faces potential U.S. tariffs on its electronic devices, which are made in China.

“We have a number of different options, but we’re still looking at the implications of the tariffs so we can understand what strategy would be best for us,” Monsees said.

The empty pods are made in China but more of their manufacturing process is moving to the United States, he added.

Reporting by Martinne Geller; Editing by David Goodman

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S&P 500 dips as energy shares fall; Netflix tumbles late after results

NEW YORK (Reuters) – The SP 500 ended slightly lower on Monday following a drop in oil prices that weighed on energy shares and offset a jump in financials as Bank of America’s results reinforced expectations of a strong U.S. earnings season.

Netflix (NFLX.O) shares ended the session up 1.2 percent but dropped more than 14 percent after the bell when it reported results. The company missed Wall Street forecasts for U.S. and international subscribers.

Nasdaq e-mini futures NQcv1 volume jumped after Netflix’s results and sold off sharply to end the session down 1 percent.

Facebook (FB.O), Amazon.com (AMZN.O) and Google parent Alphabet (GOOGL.O) – the other ‘FANG’ stocks – were down more than 1 percent in after-hours trading. The stocks have led the technology and consumer discretionary sectors back to record-high levels in recent days.

During the regular session, the SP energy sector .SPNY fell 1.2 percent, leading percentage declines among the 11 major SP sectors. Shares of Exxon Mobil (XOM.N) slid 1.0 percent and Chevron (CVX.N) fell 0.9 percent. The stocks were among the biggest drags on the benchmark index, along with Microsoft (MSFT.O), down 0.5 percent.

Oil prices slumped more than 4 percent as Libyan ports reopened and traders eyed potential supply increases by Russia and other producers.

Bank stocks rose, reversing their slide on Friday, when JPMorgan Chase (JPM.N), Citigroup (C.N) and Well Fargo (WFC.N) reported results. The SP 500 financial index .SPSY gained 1.8 percent, leading sector gains.

Bank of America (BAC.N) rose 4.3 percent after the lender’s quarterly profit beat analysts’ expectations on lower expenses and growth in loans and deposits. Goldman Sachs (GS.N) shares were up 2.2 percent ahead of its results, due Tuesday.

That wasn’t enough to extend recent gains in the SP 500, which on Friday had its highest close in more than five months.

Investors may be reluctant to make big trades ahead of the pickup in earnings reports this week and Federal Reserve Chairman Jerome Powell’s first congressional testimony Tuesday and Wednesday, said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 13, 2018. REUTERS/Brendan McDermid

“We’re taking a bit of a break after a good run last week,” he said.

The Dow Jones Industrial Average .DJI rose 44.95 points, or 0.18 percent, to 25,064.36, the SP 500 .SPX lost 2.88 points, or 0.10 percent, to 2,798.43 and the Nasdaq Composite .IXIC dropped 20.26 points, or 0.26 percent, to 7,805.72.

Sixty SP 500 companies were due to report this week.

Analysts have forecast second-quarter earnings increased 21.1 percent from a year ago according to Thomson Reuters data.

Of the companies that have reported earnings through last week, 86.7 percent have topped earnings expectations, above the 75-percent average of the past four quarters.

The SP 500 retail index .SPXRT was up 0.3 percent. U.S. retail sales increased a strong 0.5 percent in June, Commerce Department data showed, indicating consumer spending accelerated in the second quarter.

Among stocks, shares of Arconic (ARNC.N) jumped 10.5 percent on a report that the maker of aluminum parts used in planes, cars and buildings is the subject of takeover interest from private-equity firms.

Amazon.com Inc (AMZN.O) edged up 0.5 percent as its ‘Prime Day’ shopping event kicked off.

Declining issues outnumbered advancing ones on the NYSE by a 2.05-to-1 ratio; on Nasdaq, a 1.55-to-1 ratio favored decliners.

The SP 500 posted 16 new 52-week highs and two new lows; the Nasdaq Composite recorded 59 new highs and 65 new lows.

Trading volume was light, with about 5.4 billion shares changing hands on U.S. exchanges. That compares with the 6.6 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Additional reporting by Amy Caren Daniel in Bengaluru; Editing by Nick Zieminski and James Dalgleish

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Lockheed wins $451 million U.S. defense contract: Pentagon

WASHINGTON (Reuters) – Lockheed Martin Corp (LMT.N) is being awarded a $451 million contract modification to a previously awarded contract for material and detail design in support of the construction of four Multi Mission Surface Combatant ships, the Pentagon said on Monday.

FILE PHOTO – Lockheed Martin’s logo is seen during Japan Aerospace 2016 air show in Tokyo, Japan, October 12, 2016. REUTERS/Kim Kyung-Hoon/File Photo

The contract involves foreign military sales to Saudi Arabia, the Pentagon said.

Reporting by Eric Walsh; editing by David Alexander

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Warren Buffett donates $3.4 billion to Gates’ and family charities

(Reuters) – Warren Buffett has donated roughly $3.4 billion of Berkshire Hathaway Inc (BRKa.N) stock to five charities, the billionaire’s largest contribution in his longstanding plan to give away his fortune.

FILE PHOTO: Warren Buffett, CEO of Berkshire Hathaway Inc, pauses while playing bridge as part of the company annual meeting weekend in Omaha, Nebraska, U.S. May 6, 2018. REUTERS/Rick Wilking/File Photo

Buffett’s 13th annual donation comprised about 17.7 million Class “B” shares of Berkshire, valued at $192 each as of Monday’s market close.

The largest block went to the Bill Melinda Gates Foundation. Buffett’s own foundation, named for his late first wife Susan, and charities run by his children Howard, Susan and Peter received the rest.

Buffett, 87, has since 2006 made more than $30.9 billion in donations to the charities, including roughly $24.5 billion to the Gates Foundation.

His largest previous annual donation had been $3.17 billion, in 2017.

Buffett still owns roughly one-sixth of Berkshire, the Omaha, Nebraska-based conglomerate he has run since 1965, despite giving away 43 percent of the shares he owned in 2006.

Following the latest donation, Buffett was expected to rank as the world’s fourth-richest person, worth $79.2 billion, according to Forbes magazine.

He would have trailed Amazon.com Inc (AMZN.O) founder Jeff Bezos’ $149.7 billion, Microsoft Corp (MSFT.O) co-founder Bill Gates’ $93.6 billion, and LVMH Moet Hennessy Louis Vuitton (LVMH.PA) Chief Executive Bernard Arnault’s $80 billion.

Facebook Inc (FB.O) co-founder and Chief Executive Mark Zuckerberg ranked fifth, at $78.5 billion.

The five charities typically sell Buffett’s shares to finance their activities, reflecting his desire that money be spent. Buffett makes smaller donations to other charities.

Reporting by Jonathan Stempel in New York; Editing by Susan Thomas and Diane Craft

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Oil’s 4 percent tumble weighs on energy shares; banks rally

NEW YORK (Reuters) – The price of oil tumbled more than 4 percent on Monday, putting pressure on energy shares and keeping global stock markets in check, although financial shares rallied after upbeat news from Bank of America and Deutsche Bank.

Oil slumped as Libyan ports reopened and traders eyed potential supply increases by Russia and other producers.

U.S. crude CLcv1 settled down 4.15 percent at $68.06 a barrel, while Brent LCOcv1 settled at 71.84, down 4.63 percent, and touched a three-month low.

Concerns over China’s second-quarter economic growth also weighed on oil prices. The country’s economy expanded at a slower pace as Beijing’s efforts to contain debt hurt activity, while June factory output growth weakened to a two-year low.

“The GDP missing a little bit psychologically was a warning sign that China is doing OK now, but not quite as strong as expected,” said Phil Flynn, analyst at Price Futures Group in Chicago.

  • Hong Kong’s bourse brushes off Chinese snub over dual-class shares

Wall Street’s main indexes ended little changed following strong weeks as investors geared up for a big week of corporate earnings and awaited commentary on the impact of U.S. trade disputes with China and its other trading partners.

“It looks as though we’re just taking a bit of a break after a good run last week,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

The Dow Jones Industrial Average .DJI rose 44.95 points, or 0.18 percent, to 25,064.36, the SP 500 .SPX lost 2.88 points, or 0.10 percent, to 2,798.43 and the Nasdaq Composite .IXIC dropped 20.26 points, or 0.26 percent, to 7,805.72.

Major energy stocks such as Exxon Mobil (XOM.N), Chevron (CVX.N) and BP (BP.L) weighed on key indexes.

Financials in the United States .SPSY and Europe .SX7P were higher following Bank of America’s (BAC.N) better-than-expected quarterly profit and Deutsche Bank’s (DBKGn.DE) upbeat earnings preview.

Overall in Europe, the pan-European FTSEurofirst 300 index .FTEU3 lost 0.34 percent.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 16, 2018. REUTERS/Brendan McDermid

MSCI’s gauge of stocks across the globe .MIWD00000PUS shed 0.13 percent.

Markets looked ahead to Federal Reserve Chairman Jerome Powell’s semiannual testimony on the U.S. economy and monetary policy before the U.S. Senate Banking Committee on Tuesday.

The dollar fell after posting its largest weekly gain in a month, as investors pared long bets on the greenback.

The dollar index .DXY fell 0.28 percent, with the euro EUR= up 0.23 percent to $1.1712.

The rouble held gains after a meeting between Russian President Vladimir Putin and U.S. President Donald Trump helped offset the negative impact from the drop in oil prices.

U.S. Treasury yields increased, with the two-year yield hitting a near decade peak, as domestic retail sales recorded growth for a fifth straight month in June, supporting the view of solid economic growth in the second quarter.

Benchmark 10-year notes US10YT=RR last fell 7/32 in price to yield 2.8545 percent, from 2.831 percent late on Friday.

Additional reporting by Stephanie Kelly and Caroline Valetkevitch in New York, Editing by Frances Kerry and James Dalgleish

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U.S. arms makers praise new U.S. weapons export policy

FARNBOROUGH, England (Reuters) – U.S. arms makers attending the Farnborough Airshow in Britain on Monday lauded the U.S. government’s push to sell more weapons overseas and said they expected European defense spending to increase in the coming years.

FILE PHOTO – Lockheed Martin’s logo is seen during Japan Aerospace 2016 air show in Tokyo, Japan on October 12, 2016. REUTERS/Kim Kyung-Hoon/File Photo

Western arms makers are jockeying to take advantage of expanding defense budgets among NATO allies and in other regions. Shares in Lockheed Martin (LMT.N), Boeing (BA.N) and other big U.S. arms makers have seen double-digit percentage rises since President Donald Trump took office in January 2017.

“We always felt like we were a company competing against countries. Now we feel like we’re a company within the United States defense industry, and that we have some sponsorship from the United States government to work these deals,” Wes Kremer, Raytheon Co.’s (RTN.N) head of Integrated Defense Systems, told Reuters at the airshow, 40 miles (60 km) southwest of London.

Many U.S. executives hope that bigger defense budgets and greater U.S. government advocacy will spur more sales, but say it may take time for the new policy to translate into orders.

“It’s very early days,” said John Bottimore, vice president of international business development at the U.S. unit of Britain’s BAE Systems (BAES.L). “It’s too early to say it’s making a difference yet.”

The U.S. State Department on Monday hailed the implementation of the Trump administration’s new weapons export policy, days after Trump pressured NATO allies at a meeting in Brussels to boost their military spending.

The State Department said the new policy was “a whole-of-government effort to expedite transfers” that support U.S. foreign policy and national security objectives.

The changes, first rolled out in April, are aimed at expanding sales to allies, bolstering the American defense industry and creating jobs at home.

The Aerospace Industries Association, the biggest U.S. arms industry lobbying group, welcomed Monday’s announcement, made by senior State Department official Tina Kaidanow.

“We are gratified to see our recommendations for strategic focus, whole of government coordination, and enhanced accountability feature prominently,” AIA’s CEO Eric Fanning said in a statement.

Kaidanow told reporters the U.S. was working with NATO ally Turkey on the possible sale of a Patriot system to halt Ankara’s plans to buy a Russian-made S-400 system that has sparked serious concerns.

Raytheon’s Kremer said Turkey showed how the Trump administration was already making a difference.

“Turkey is an example of where this administration has engaged … to get the U.S. systems out there,” he said, referring to his company’s push to sell its Patriot missile defense system to Ankara.

However several executives at the Farnborough Airshow, speaking on condition of anonymity, raised concerns that the new policy did not go far enough, and said they still lacked details on what equipment could now be sold.

Reporting by Mike Stone, with additional reporting by Andrea Shalal in Farnborough; Editing by Gareth Jones

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Ford agrees to $299.1 million U.S. Takata ‘economic loss’ settlement

WASHINGTON (Reuters) – Ford Motor Co (F.N) agreed to a $299.1 million so-called economic loss settlement covering at least 6 million U.S. vehicles with potentially faulty Takata air bag inflators, court documents filed in a federal court in Miami on Monday show.

The Ford logo is pictured on the company’s stand during the 88th Geneva International Motor Show in Geneva, Switzerland, March 7, 2018. REUTERS/Denis Balibouse

The settlement covers several forms of economic damages linked to the inflators, including claims that vehicles were inaccurately represented to be safe, and that buyers had overpaid for cars with defective or substandard air bags. Previously, six automakers to date have agreed to similar settlements collectively worth more than $1.2 billion including Honda Motor Co (7267.T), Toyota Motor Corp (7203.T), Nissan Motor Co (7201.T), Mazda Motor Corp (7261.T), Subaru Corp (7270.T) and BMW AG (BMWG.DE).

Reporting by David Shepardson; editing by Diane Craft

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