Archive

Reuters blog archive

from Breakingviews:

Investors beware: France will get more erratic

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The French government didn’t have to buy a 20 percent stake in Alstom. It could have smugly observed that its intervention in the acquisition of the French engineer’s energy assets by General Electric had yielded some success. Pressure from Paris forced GE to rework its offer, giving France a decisive say in the future of Alstom’s nuclear business. With that concession secured, there was no good reason to buy out Alstom’s main shareholder, construction-to-telecom conglomerate Bouygues.

The bad reason for doing so was that President François Hollande had to make a concession to his Economy Minister Arnaud Montebourg, who is building his career on an unapologetic defence of old-style interventionism. True, the French government hasn’t yet spent any money - it has obtained an option to buy two-thirds of Bouygues’ stake in the next 20 months at a relatively high price, or at the market price afterwards. The government may never actually buy it, and the partial nationalisation that Montebourg is bragging about might never happen.

Either way, the whole deal sends a worrying signal about Hollande’s inability to steer a course and keep his unruly ministers in check. Stunned by the terrible results of his socialist party in the European Parliament elections last month, he has been mostly absent from both the domestic and the international stage. His former partner and current Energy Minister Segolene Royal only last week sent EDF shares tanking by abruptly cancelling an increase in electricity tariffs due in July. The French state’s 85 percent stake in the utility has lost almost 5 billion euros in value since she spoke. The planned raise had been agreed by Hollande’s previous prime minister after painstaking negotiations with EDF. So France’s president simply looks like he is contradicting himself, and letting his ministers run the show.

from Counterparties:

MORNING BID – The first step is a Lulu

It will be interesting to see if the spiral that yogawear retailer Lululemon Athletica has found itself in over the last year is one that can be arrested. Companies rise and fall often in this world, but the U.S. stock market’s history is littered with retailers that went into a tailspin after series of missteps that turn once-interesting investments into a veritable death trap for investors, and result in the kind of drop that benefits mostly short-sellers, late-night comedians and eventually restructuring lawyers.

It’s particularly rough for companies that inspire cult-like followings, be they as a stock or as a retail purchase, as markets eventually become saturated, competitors jump into the fray, and investors go forth and look for the next big thing to occupy their time. And a stock like Lululemon, which quintupled between late 2010 and early 2012, is kind of the definition of a cult stock. That’s well and good when earnings keep going, which kept the stock price in a range (albeit elevated) through December 2013, but those days are over.

from Breakingviews:

Harvard could get smarter about its endowment

By Richard Beales

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Harvard University could get smarter about its $33 billion endowment. Jane Mendillo, who has managed the Ivy League university’s portfolio for six years, is leaving at the end of 2014. Her predecessor is partly to blame for crisis losses, but Harvard nevertheless seems to have overpaid for mediocre returns.

from The Great Debate:

What’s a leveraged ETF and what makes it dangerous?

RTR2WGWZ.jpg

Larry Fink is sounding the alarm. The chairman and CEO of $4.4 trillion asset manager BlackRock is worried about leveraged ETFs (exchange-traded funds). Fink thinks they could “blow up the industry.” His statement is a little unclear, but the industry he's referring to is probably ETFs themselves, not the global financial system.

Blackrock is itself a huge player in ETFs, but Fink says they'll never get into leveraged version of the financial instruments.

from Counterparties:

MORNING BID – All bonds, all the time

There’s nothing dull these days about the bond market, which is exhibiting an unforeseen, profound level of strength that’s spread through the various asset classes on the fixed income side, and that continues to remain unexpected for the most part.

As of Wednesday the Barclays US Aggregate Index had notched a year-to-date return of 3.62 percent; the 10-year-plus index was up a crazy 9.39 percent, and the Barclays Intermediate High Yield Index was up 4.05 percent. Looking at one of their competitors, the Bank of America/Merrill Lynch Corporate Index has so far netted a 5.39 percent return year-to-date while the Merrill High Yield CCC and Lower Index is up 4.45 percent. So that’s pretty solid returns across the board – comparing favorably with the S&P 500’s total return of 4.3 percent so far this year. Explaining how it’s all happening in the bond market is the more difficult task, but let’s give it a whirl.

from Breakingviews:

M&A targets can get stiffed when they “go shop”

By Reynolds Holding
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Shopping ’til you drop doesn’t really work for merger targets. The so-called “go shop” strategy of seeking higher bids after signing up a buyer is designed to ensure top dollar is paid. More often, it leads to final prices that are lower than they otherwise would be, new research suggests. Tweaks to deals like Media General’s buyout of Lin Media may mean sellers are wising up, though, portending better value for shareholders.

from Breakingviews:

Hedge fund customers’ yachts washing further away

By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Hedge fund customers’ yachts are washing further away. The flood of money – now $2.7 trillion – in hedge funds has squashed returns below public stock markets. Private equity doesn’t seem to be doing much better. Investors beware.

from Breakingviews:

Rob Cox: The worry now is a brewing M&A bubble

By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Stop worrying about the tech bubble – there may be an even bigger one inflating beyond the confines of Silicon Valley. The corporate urge to merge has gone into global hyper-drive this year. Deal activity has surged as investors egg companies on and bid up the shares of acquirers well beyond mathematical explication, or prudence. As new metrics from interested parties are trotted out to justify the irrational, it’s time to exercise caution.

from Breakingviews:

Interpreting Apple/Beats using Andreessenomics

By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Attachment therapy is controversial in the field of mental health. It’s far from indisputable in the technology world, too. Venture capitalist Marc Andreessen justifies some high tech-deal price tags, in part, with the idea that huge companies are able to “attach” the products of smaller ones, making them worth far more than traditional analysis would suggest.

from Counterparties:

MORNING BID – “Omaha! Omaha!”

If the U.S. economy indeed is going to shake off the weather-related problems and push higher in coming months, one of its biggest bettors is likely to remain Warren Buffett, whose Berkshire Hathaway reports results this weekend in addition to its Omaha confab that brings in investors, fans and interested parties alike, where Warren and Charlie Munger will sip Coke, talk up their investments and reveal what else it is they’re looking at about now. Buffett famously couldn’t find a bear on Berkshire this time around (bears on Berkshire being the market’s equivalent of the Washington Generals, just looking to be a punching bag), so they’ll have other analysts asking them questions, with one of the more pertinent ones surrounding what companies Buffett might be eyeing for potential acquisitions in the coming years.

That’s not an easy one to suss out. Buffett famously hates newfangled stuff that strikes of a fad. He partnered with 3G Capital last year to buy Heinz in a $23 billion deal, and so he may not go alone if he hunts for another “elephant” as he likes to put it. He told Luciana Lopez last week that such a template could be used again, saying “If I live long enough we'll do another one.”

  •