News Archive


Fox and Disney shareholders approve deal for entertainment assets

NEW YORK (Reuters) – Twenty-First Century Fox Inc (FOXA.O) and Walt Disney Co (DIS.N) said on Friday their shareholders voted to approve Disney’s $71 billion purchase of Fox’s film and television assets.

Results were announced at both companies’ special shareholders’ meetings, held in New York.

Shares of Fox were down slightly, by 0.3 percent to $45.25 in afternoon trading, while Disney shares were down 0.7 percent to $112.70.

Disney was forced to sweeten its offer last month after Comcast Corp (CMCSA.O), the largest U.S. cable company, made a $66 billion bid for Fox’s well-known TV shows and movie franchises, including the “X-Men” and “The Simpsons.”

The bidding between Comcast and Disney was part of a bigger battle in the entertainment industry as media companies spend tens of billions of dollars on deals to compete with Netflix Inc (NFLX.O) and Amazon.com Inc (AMZN.O).

Last week, Comcast dropped its pursuit of Fox’s film and television studios, cable networks and international TV businesses.

Disney’s cash and stock offer has already received approval from U.S. regulators. In an agreement with the U.S. Department of Justice, Disney, which owns sports network ESPN, said it would divest 22 of Fox’s regional sports networks.

Disney still needs deal approval from more than a dozen countries, including China, Russia and regulators from the European Union.

Rupert Murdoch, who owns 17 percent of Fox’s voting shares along with his family, could have faced a large capital gains tax bill under Comcast’s all-cash offer.

Fox will separate the Fox Broadcasting network and stations, Fox News Channel, Fox Business Network and its sports channels FS1, FS2, and the Big Ten Network into a newly listed company that it will spin off to its shareholders.

Reporting by Sheila Dang; Editing by Dan Grebler and Marguerita Choy

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Merck profit beats, but Keytruda sales fail to impress

(Reuters) – Merck Co (MRK.N) beat quarterly profit estimates on Friday as sales of its blockbuster drug Keytruda overtook rival Bristol-Myers Squibb’s Opdivo, but that was not enough for investors who expected bigger gains in market share for the cancer therapy.

Shares of the Dow component fell as much as 2.5 percent, with the company sticking to its decision to keep the animal health unit unlike rival Eli Lilly, which plans to take its unit public.

“They’re (Merck) going in the right direction and in the next couple of quarters they are going to gain more market share from Bristol, but maybe it’s taking a little longer than expected,” Jeff Jonas, a portfolio manager at Gabelli Funds that owns shares of Merck, said.

Keytruda sales surged 89.2 percent to $1.67 billion. Analysts had expected sales of $1.59 billion, according to Credit Suisse.

Both Keytruda and Bristol’s (BMY.N) Opdivo work by triggering the immune system to attack tumors but Merck leads in lung cancer treatments, both alone and in combination with chemotherapy.

(For a graphic on ‘Keytruda vs. Opdivo’ click tmsnrt.rs/2LtYabm)

Merck’s total sales rose 5.4 percent to $10.47 billion. The company also raised full-year forecast for adjusted earnings per share and now expects it to be between $4.22 and $4.30, up from prior guidance of between $4.16 and $4.28.

Excluding items, the company earned $1.06 per share, ahead of the average analyst estimate of $1.03 per share, according to Thomson Reuters I/B/E/S.

ANIMAL HEALTH PLAN

Merck in the past has called the animal health unit, whose sales rose 14.1 percent to $1.09 billion in the quarter, a “pillar of growth” as it provides diversification away from Keytruda.

“We see animal health still fitting with our strategic intent,” Chief Executive Officer Kenneth Frazier said.

Much before Lilly (LLY.N) moved to take its animal health business public, bigger rival Pfizer Inc (PFE.N) had done the same with Zoetis Inc (ZTS.N) five years ago and since then its market value has tripled.

“Many investors had hoped that Lilly’s recent announcement would have been the final tipping point to cause Merck to do the same,” Brad Loncar, chief executive officer of Loncar Investments, which runs the Loncar Cancer Immunotherapy ETF, said.

Shares of the company were trading down 1 percent at $63.40 in midday trading.

Reporting by Manas Mishra in Bengaluru and Michael Erman in New York; Editing by Arun Koyyur

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Amazon shares hit record high as profit tops $2 billion for first time

(Reuters) – Shares of Amazon.com Inc (AMZN.O) rose 4 percent to hit an all-time high after the online retailing giant’s quarterly profit topped $2 billion for the first time, powered by its best operating margin in 13 years.

Wall Street analysts cheered the broad-based strength in the results and overlooked the retailer’s decision to tap the brakes on its blazing revenue growth for plump profits.

At least 16 brokerages raised the price target on the stock with several saying that the high levels of profitability may be a new normal for the company.

Brokerage Oppenheimer made the most aggressive move, raising its price target on the stock by $380 to $2,130, going past the median target of $2,100.

“What we’ve been waiting on for many years is finally happening, meaningful margin expansion,” Macquarie Research analysts said in a note.

Amazon Web Services (AWS), which handles data and computing for large enterprises in the cloud, remained the cash cow for the Seattle-based company and generated about 55 percent of the its total operating income.

Amazon’s results were also a relief for distressed investors in the U.S. technology sector, still woozy from a nosedive in Facebook Inc’s (FB.O) shares following a profit warning earlier in the week.

“In this messy earnings season, AMZN stands out as one of the strongest performers,” SunTrust analysts said.

“Broad-based strength suggests to us AMZN is hitting that elusive margin leverage tipping point investors have been awaiting, driven by AWS and advertising.”

The company, which originally started an online book seller in 1994, now gains revenue from selling products quite unrelated to its original business.

Of the 48 analysts covering the stock, 46 have a “buy” rating, while only 2 rated it “hold”.

Amazon’s stock price has increased more than 54 percent since the start of the year. With a market value of $916.97 billion, Amazon is racing with Apple Inc (AAPL.O) and Alphabet Inc (GOOGL.O) to be the world’s first trillion-dollar public company.

(Corrects a typo in paragraph 2)

Reporting by Vibhuti Sharma, Akanksha Rana and Aniruddha Chakrabarty in Bengaluru; Writing by Sweta Singh; Editing by Arun Koyyur

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Qualcomm CEO in the ring alone after U.S.-China spat kills deals

(Reuters) – Qualcomm Inc Chief Executive Officer Steven Mollenkopf sought government help to block an acquisition of the U.S. chip maker on fears of China’s technological ascendance, only to see his biggest deal thwarted by China.

Now the 49-year-old former electrical engineer is under investor pressure to show that he can go it alone.

Several Qualcomm shareholders interviewed by Reuters said they were willing to give Mollenkopf, who has been CEO since March 2014, only one to two more years to show he can diversify the company’s business beyond the fiercely competitive mobile phone sector that now accounts for the vast majority of its business and settle disputes with Apple Inc and Huawei Technologies Co Ltd.

“Mollenkopf is in the ‘show me’ phase of his tenure. I think he has about two years,” said Tom Plumb, founder of Wisconsin Capital Management, which has 2 percent of its equity portfolio allocated to Qualcomm.

Mollenkopf faces the consequences of a bold gambit. Earlier this year, Qualcomm asked the Committee on Foreign Investment in the United States (CFIUS), which scrutinizes deals for potential national security risks, to review a $121 billion hostile bid for Qualcomm by rival Broadcom Ltd.

It was an unusual move, because typically only agreed deals are submitted for CFIUS review. If CFIUS took this up, it would be the U.S. government, not Qualcomm shareholders, that would decide its fate.

Qualcomm’s maneuver worked. President Donald Trump blocked the deal in March, citing CFIUS’s concerns over a shift to Chinese dominance in 5G wireless technology, even though Broadcom, which at the time was based in Singapore, was not a Chinese company.

Amid growing tensions with the United States over trade disputes, China responded by stalling on its antitrust review of Qualcomm’s $44 billion acquisition of NXP Semiconductors NV, which the two companies had agreed in October 2016.

On Thursday, frustrated with Chinese regulators’ seemingly endless delays, Qualcomm let the merger agreement with NXP expire and paid it a $2 billion breakup fee. NXP’s whose strength in the automotive market had been expected to help Qualcomm reduce its dependence on the smartphone market.

Qualcomm now faces an uphill struggle in carrying out a transformative acquisition such as NXP in the near term, given that all major semiconductor peers have a footprint in China that would subject any acquisition to a China review.

Mollenkopf has acknowledged this, but told analysts on Wednesday that he believed big acquisitions would be possible again after this “unusual window” of trade tensions between the United States and China passed.

Without NXP, Mollenkopf will have to find ways to expand Qualcomm’s chip offerings on its own into sectors such as automobiles, internet connectivity and network processing on its own, investors say.

“Qualcomm has a lot to prove and the markets are not giving it the benefit of the doubt,” said Neuberger Berman associate portfolio manager Shawn Trudeau. Neuberger Berman’s equity income fund owns $10 million in Qualcomm stock and has been an investor in the company for close to three years.

A Qualcomm spokeswoman said the company’s earnings demonstrated “that the execution of the company has been very strong in a period of great distraction” and that it had received positive feedback from investors from its standalone plan.

Mollenkopf has already faced questions internally about his leadership. In March, his predecessor, Paul Jacobs, stepped down from Qualcomm’s board of directors to pursue a long-shot acquisition bid for Qualcomm, which has a market capitalization of $93 billion. His exit followed disagreements with Mollenkopf over his strategy, sources said at the time. Jacobs has yet to secure the funds to put together that offer.

Later in March, investor frustration spilled over into Qualcomm’s annual shareholder meeting, when Mollenkopf was re-elected to the company’s board with only 45 percent of the shares outstanding. Shareholder advisory firms such as Egan-Jones Proxy Services said that anything less than 80 to 90 percent of the vote would undermine the authority of Mollenkopf and other board directors.

Mollenkopf got a partial reprieve on Thursday, when Qualcomm shares closed up 7 percent, at $63.58, as investors cheered the $30 billion share buyback Qualcomm announced to make up for the loss of the NXP deal and celebrated the end of uncertainty over the NXP deal.

However, Qualcomm’s stock is still below the roughly $76.00 level it was hovering at when Mollenkopf became CEO about 4-1-2/ years ago, and way below the $82-per-share offer from Broadcom that it rejected in February. Hal Eddins, chief economist at Qualcomm shareholder Capital Investment Counsel, said this puts Mollenkopf under new pressure to improve performance.

“We obviously got caught up in something that was above us, so I don’t know if I would conclude anything about our own business, our ability to invest [in China] or partner with Chinese companies,” Mollenkopf told Reuters on Wednesday.

SETTLING WITH APPLE

Mollenkopf’s immediate challenge is meeting Qualcomm’s goal for up to $7.50 in adjusted earnings per share by fiscal 2019, compared with $4.28 in fiscal 2017. That hinges on resolving its licensing disputes with Huawei and Apple, as well as continuing to diversify revenue.

Parts of Qualcomm’s global court battle with Apple are expected to come to a head in the fall and early next year, while Qualcomm and Huawei remain in talks to try to resolve their dispute.

Only 13.4 percent of Qualcomm’s $22.3 billion in revenue in fiscal 2017 was not tied to mobile phones. This year, Mollenkopf expects Qualcomm’s non-mobile revenue to hit $5 billion, or about 22 percent of the $22 billion in overall revenue at the low end of the company’s guidance.

Mollenkopf “is on the clock for sure, and I’m not certain that the NXP buy would have changed that,” Eddins said.

Reporting by Stephen Nellis in San Francisco and Liana B. Baker in New York; Editing by Greg Roumeliotis and Leslie Adler

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China says still open to talks on scrapped Qualcomm-NXP takeover

SHANGHAI (Reuters) – China’s market regulator said it still hoped to find a solution to antitrust concerns that doomed Qualcomm Inc’s $44 billion takeover of NXP Semiconductors, after finding that proposals to address the issue had fallen short.

U.S.-based Qualcomm abandoned on Thursday what would have been the world’s biggest ever semiconductor sector takeover after a deadline the companies set passed without the deal winning China’s approval.

China’s State Administration for Market Regulation (SAMR) said in a statement on Friday that proposals put forth by the firms to resolve Chinese antitrust concerns were insufficient, but it hoped to continue communicating with Qualcomm.

The Chinese move likely comes too late for a resurrection of the deal, which had become embroiled in a political spat between Washington and Beijing. With the deal called off, the two companies have announced major share buybacks and Qualcomm has already paid NXP a $2 billion break fee.

“Coming a day after the deadline, my guess is the SAMR statement is meant to counter perceptions the deal approval process was politicized, not to revive it,” said Andrew Gilholm, director of analysis for China and North Asia at consultancy Control Risks.

  • Qualcomm CEO in the ring alone after U.S.-China spat kills deals

“Of course, this conflicts with the view among many people following the deal that the U.S.-China situation had become the main obstacle, not the competition implications.”

The collapse of the deal could aggravate tensions between Washington and Beijing amid a whipsawing trade standoff that has chilled relations between the world’s top two economies.

Qualcomm, the world’s biggest smartphone-chip maker, had said on Wednesday it would drop the bid for NXP, unless a last minute reprieve from China was received. There was no word from SAMR, the antitrust regulator reviewing the deal, as the deadline for the deal to expire passed.

The Chinese regulator said on Friday that it was open to continuing negotiations over approving the deal. It added its current review period would expire on Aug. 15, with an extended review deadline of Oct. 14.

“The results of our evaluation showed that Qualcomm’s latest plan could not resolve competition issues,” the regulator said, adding it had notified the chipmaker of this decision.

“We hope to continue to communicate with Qualcomm and that we can find a suitable solution to resolve the issues within the review period.”

When asked for a comment on SAMR’s statement, a Qualcomm spokeswoman pointed to the announcement of the deal’s termination. NXP could not be immediately reached for comment.

CAUGHT UP IN TRADE WAR?

China’s commerce ministry said on Thursday the Qualcomm case was about anti-monopoly issues, and not related to China-U.S. trade frictions.

Qualcomm, however, viewed it differently.

Qualcomm Chief Executive Steven Mollenkopf told CNBC in an interview on Thursday the firm had been caught up in a trade war, while U.S. Treasury Secretary Steven Mnuchin said it was disappointing and called for U.S. firms to be treated fairly.

The Chinese market regulator added in its statement that the country would treat all companies fairly and that China was open to foreign firms investing and doing business in the country.

Gilholm of Control Risks said the big question for U.S. firms and politicians would be whether the issue would hit other deals involving American firms.

“The United States will certainly view it as political, no question about that,” he said. “What we don’t know yet is if it’s a one-off or not. I guess that’s the next question.”

Reporting by Adam Jourdan; Additional reporting by Kanishka Singh in Bengaluru; Editing by Muralikumar Anantharaman

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Consumers, soybeans seen powering U.S. second-quarter growth

WASHINGTON (Reuters) – The U.S. economy likely grew at its fastest pace in four years in the second quarter as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs before they took effect in early July.

Gross domestic product probably increased at a 4.1 percent annualized rate, also as business stockpiled inventory ahead of the impending import duties, according to a Reuters survey of economists. That would be strongest performance since the third quarter of 2014 and put the economy on track to achieve the Trump administration’s target of 3 percent annual growth.

Ahead of Friday’s release, President Donald Trump and members of his economic team have been promoting the notion that second-quarter growth will be robust. Earlier in the week he tweeted that the United States has “the best financial numbers on the planet.”

Along with its snapshot of second-quarter GDP growth, the report will likely include a revision of the first quarter’s growth estimate of a 2.0 percent rate as the government will also publish comprehensive revisions to prior GDP data.

“Ironically, the threat of a trade war appears to have bolstered activity in the second quarter,” said Michelle Girard, chief economist at NatWest Market in Stamford, Connecticut.

The United States slapped 25 percent duties on $34 billion worth of Chinese goods effective July 6, provoking a similar response from Beijing, which targeted soybeans and other agricultural products as well as U.S.-made cars.

Trump has also imposed tariffs on steel and aluminum imports, leading to retaliation by the United States’ main trade partners, including Canada, the European Union, Mexico and China. There was also a front-loading of exports of other goods in the second quarter.

With the trade-related boost expected to unwind in the second half of the year, economists caution against putting much weight on the April-June quarter growth. Excluding the tariffs-related bump, analysts estimate the economy probably grew at a 2.5 percent pace in the second quarter.

“The real issue is what is the underlying strength and what is temporary,” said Sung Won Sohn, chief economist at SS Economics in Los Angeles. “Going forward it’s quite likely that we could see economic growth slowing from this sizzling rate in the second quarter.”

The economy will this year be supported by a $1.5 trillion tax cut package and increased government spending in the last quarter. But the stimulus is expected to fade sometime next year. The import duties are seen undercutting economic growth, with higher prices for goods discouraging consumer spending and businesses shelving investment plans.

For now, strong growth in the second quarter will keep the Federal Reserve on course to raise interest rates two more times this year. The U.S. central bank increased borrowing costs in June for the second time this year and forecast two more rate hikes for 2018.

While there is broad agreement the economy performed well in the second quarter, economists have begun to question whether it can continue at this pace in the face of trade tensions and rising rates. Economists in a Reuters poll earlier this week predicted that growth will slow notably from here.

EXPORTS FRONT-LOADED

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, is forecast accelerating from the first quarter’s lethargic 0.9 percent rate, which was the slowest in nearly five years.

Consumer spending is being driven by the lower taxes and a robust labor market, which created an average of 215,000 jobs per month in the first half of this year.

The front-loading of deliveries of soybean and other goods probably boosted export growth in the second quarter and offset a tariff-induced increase in imports. That is expected to have sharply narrowed the trade deficit.

Trade is forecast to have contributed at least 1.5 percentage point GDP growth in the second quarter after being neutral in the January-March period.

The import duties also likely prompted businesses to increase their pace of inventory accumulation. Inventory investment probably added to output after making no contribution in the first quarter.

Another quarter of solid business spending on equipment is expected, though the pace has slowed from the double-digit growth experienced in the second half of 2017. The trade wars are casting a pall on the business spending outlook.

General Motors Co, Ford Motor Co and Fiat Chrysler Automobiles NV on Wednesday cut their full-year profit forecasts, citing higher steel and aluminum costs.

Harley-Davidson Inc has warned that more expensive steel and aluminum and a 25 percent retaliatory duty imposed by the European Union on shipments from the United States could cost the motorcycle maker $45 million to $55 million this year.

“To keep the economy growing, the swing factor always is whether U.S. companies are confident enough in the outlook to keep investing in the country’s future,” said Chris Rupkey, chief economist at MUFG in New York.

Reporting by Lucia Mutikani; editing by Jonathan Oatis

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Luxury group Kering’s shares fall, Gucci seen bit weaker than forecast

PARIS (Reuters) – Shares in luxury goods group Kering (PRTP.PA), which hit record highs last month, fell back sharply on Friday as traders said sales growth at Kering’s Gucci brand had come in a bit weaker than forecast.

Kering shares were down 5.9 percent at 473.40 euros in early session trading. The stock hit a record high of 522.40 euros on June 15, and nevertheless remains up by around 30 percent since the start of 2018.

Kering reported late on Thursday higher first-half profits, helped by resilient sales in China.

Gucci’s margins hit a record high of 38.2 percent at end-June. But its second quarter comparable sales growth of 40.1 percent was a touch below forecasts even as the label outperforms peers. Some traders said that was a trigger for investors to sell Kering shares and cash in on the stock’s recent rally.

“Gucci touch light, profit taking inevitable,” wrote one trader, who declined to be named, in an emailed comment.

That view was echoed by analysts at Berenberg, who nevertheless kept a “buy” rating on Kering shares.

“Yet, despite its impressive H1 performance, with operating profit and free cash flow increasing by around 53 percent and around 65 percent year-on-year, respectively, the small organic miss at Gucci (40 percent versus consensus of 42 percent) has attracted all the attention,” wrote Berenberg.

Reporting by Sudip Kar-Gupta, Editing by Sarah White

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WeWork’s China unit gets $500 million funding from Temasek, Softbank, others

BEIJING (Reuters) – The Chinese unit of U.S. co-working space provider WeWork Cos said it has raised $500 million from investors including Temasek Holdings [TEM.UL] and SoftBank Group Corp (9984.T) as it looks to expand in the market for shared office space in the country.

It is the second $500 million investment the unit has received since it was launched a year ago in China where it is competing with local firms such as UrWork, which WeWork sued in September alleging trademark infringement.

Other investors in the latest round include private equity firm Trustbridge Partners and Chinese fund Hony Capital, WeWork said in a statement on Thursday.

The new investment follows WeWork China’s purchase of local rival Naked Hub, which helped boost the firm’s presence to 40 locations in three cities, with roughly 20,000 members.

“While there is still much to do and learn, this investment highlights the potential for WeWork … and reaffirms our dedication to our team, our members and our partners in China,” WeWork cofounder and CEO Adam Neumann said in a statement.

New York-based WeWork leases office spaces and rents them out to individuals and startups, and has said it hopes to boost its membership in China to 1 million by 2021.

Reporting by Cate Cadell; Editing by Himani Sarkar

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Thyssenkrupp to invest up to $250 million in U.S. elevator site: executive

FRANKFURT (Reuters) – German industrial conglomerate Thyssenkrupp (TKAG.DE) is planning to invest $150 to $250 million in a new U.S. headquarters for its elevators business, an executive told Reuters.

“We see no indication that the (elevators) boom is waning,” unit head Andreas Schierenbeck told Reuters.

Thyssenkrupp, which employs 20,000 staff in the Americas, is planning to build a new site including a test tower in Atlanta by 2022, he added.

While new installations of elevators remain a core business, a large part of earnings from the business are generated with maintenance services. The elevators unit is Thyssenkrupp’s most profitable, accounting for almost half of the company’s 2017 core earnings of 1.9 billion euros ($2.2 billion).

Trade tensions have so far not impacted the unit’s business, Schierenbeck said. “We procure locally, produce locally, install locally, and maintenance is done locally – it is a very stable business. The U.S. property market is in good shape, there’s construction going on everywhere.”

Reporting by Tom Käckenhoff; Writing by Arno Schuetze; Editing by Maria Sheahan

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