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Frontrunning: August 14

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  • Vocal billionaire activist IRR - 150x: Icahn bought $1 billion of AAPL stock, seeks $150 billion buyback (BBG)
  • BlackBerry Said to Have Sought Buyers Since 2012 (BBG) - for a phone or the entire company?
  • IPhone Fingerprint Reader Talk Boosting Biometric Stocks (BBG) - also, the NSA will need to grow its Utah data center
  • UPS Jet Crashes in Birmingham, Ala. (WSJ)
  • America's Farm-Labor Pool Is Graying (WSJ)
  • Hong Kong Lowers Storm Signal as Typhoon Closes on China (BBG)
  • Indian submarine explodes in Mumbai port (FT)
  • BofA Banker Sued by Regulator Later Joined Fannie Mae (BBG)
  • Software that hijacks visits to YouTube uncovered (FT)
  • Chinese Billionaire Huang Readies Iceland Bid on Power Shift (BBG)
  • China to launch fresh pharmaceutical bribery probe (Reuters)
  • Defeat at J.C. Penney Hurts Ackman as Performance Trails (BBG)

 

Overnight Media Digest

WSJ

* The Justice Department unexpectedly moved to block the merger of American Airlines parent AMR Corp and US Airways Group Inc threatening to upend what was viewed as the final step in the consolidation that has helped return U.S. airlines to profit after years of heavy losses.

* JPMorgan Chase & Co trader Bruno Iksil, known as the "London whale", has reached an agreement with federal authorities to avoid criminal prosecution over a $6 billion trading loss, but two former colleagues are expected to be charged as soon as Wednesday, according to people close to the case.

* Investor Carl Icahn has grabbed a stake valued at over $1.5 billion in Apple Inc believing that more cash should be falling from the tech giant's branches. While Apple earlier this year announced a large buyback, Icahn said in an interview on Tuesday that he wants to see it happen right away, near the current share price, which he considers cheap.

* Hedge-fund manager William Ackman has resigned from the board of J.C. Penney Co Inc, bringing an end to an unusually public rift among directors that had threatened the struggling company's turnaround efforts. The board also declared its "overwhelming support" for Chairman Thomas Engibous and Chief Executive Myron Ullman, both of whom Ackman had argued should be replaced.

* Antero Resources Inc, an energy company backed by New York private-equity firms, plans to spend more than half a billion dollars on a pipeline. But the 80 miles of pipe won't transport oil or gas. They will carry water from the Ohio River to fracking sites in West Virginia and Ohio. The project is a costly wager that the hydraulic-fracturing industry's thirst for reliable sources of water will grow over the next few years.

* Whirlpool Corp agreed to buy a majority stake in Chinese home appliances maker Hefei Rongshida Sanyo Electric Co for $552 million, giving Whirlpool a set of appliance brands that span the Chinese market where it has struggled to grow.

* The pressure on big auto makers to squeeze more miles out of a gallon of gas is powering a surge in profits for the suppliers of turbochargers, fuel injectors and other lean parts. Once dismissed by Wall Street, companies including BorgWarner Inc, Delphi Automotive PLC, Federal-Mogul Corp and TRW Automotive Holdings Corp are today beating Wall Street's profit forecasts, hiring workers and making acquisitions.

* H.J. Heinz Co is eliminating 600 office positions in the U.S. and Canada, or 9 percent of the company's workforce in North America. The cuts include 350 jobs in Pittsburgh, where Heinz is based.

 

FT

Yields on benchmark British government bonds touched a two-year high amid doubts about whether the Bank of England will be able to keep the lid on interest rates until 2016.

United States Department of Justice sued to block American Airlines and US Airways' proposed merger to create the world's biggest airline, saying it would push up fares.

Brussels' competition authority has called for a single pan-European watchdog instead of 28 national telecoms regulators, in a sharp rebuke of the proposed reforms from Neelie Kroes, the bloc's telecoms chief.

Foxtons, the private equity-backed British estate agent, will file for an initial public offering as early as August 27.

CVC Capital Partners agreed to buy British home appliance insurer Domestic & General from its private equity owner Advent International, betting on international expansion from the UK.

FitBit, the maker of health and fitness tracking devices, has raised $43 million in venture capital funding as it gears up for companies such as Apple and Samsung to enter the "wearable technologies" field.

 

NYT

* After a decade of rapid consolidation in the U.S. airline industry, the Justice Department filed a lawsuit on Tuesday to block the proposed merger between American Airlines parent AMR Corp and US Airways Group Inc, which would create the world's largest airline. It underscores a newly aggressive approach by the Justice Department's antitrust division, which has been more closely scrutinizing proposed mergers as the economy recovers.

* Hedge fund titan William Ackman resigned this week from the board of J.C. Penney Co Inc, just days after he began a public rebellion against his fellow directors over the future of the company. At the same time, he has made a very public bet against Herbalife Ltd, the nutritional supplements company, that has not gone his way over the last several months. By some counts, Ackman has lost about $1 billion on both companies.

* Private equity firm Kohlberg & Co, which offered last month to buy Steinway Musical Instruments Inc, said on Tuesday that it would not seek to raise its bid in the face of a rival offer. That puts Steinway in a position to complete a buyout deal with the rival bidder, which offered this week to buy the company for $38 a share, or about $475 million. The rival bidder, which has not been publicly identified, is the hedge fund Paulson & Co, according to a person briefed on the matter. ()

The Senate's committee on homeland security sent a letter this week to the major financial regulators and law enforcement agencies asking about the threats and risks related to virtual currency like bitcoin. These currencies, whose popularity has grown in recent years, are often used in online transactions that are not monitored by traditional financial institutions.

* The Public Company Accounting Oversight Board is proposing a major overhaul of how company audits are reported to the public, a move that could provide investors with deeper insights into the health of corporations.

* On Wall Street, strange financial products sometimes exist not because they are good for investors or companies, but because they offer their promoters a way to profit. Silver Eagle is a special purpose acquisition company, or SPAC, which raises money through an IPO and then casts a wide net in search of a private company to buy. Silver Eagle's IPO is the largest in the past seven years for a SPAC and sure to earn its promoters millions, but the outcome is not so clear for its investors or even the company itself.

* Private equity firm Advent International agreed on Tuesday to sell Domestic and General, an extended warranty company, to CVC Capital Partners for about $1.2 billion, according to a person with direct knowledge of the matter.

 

Canada

THE GLOBE AND MAIL

* Canadian Industry Minister James Moore is firing back at Rogers Communications Inc, BCE Inc and Telus Corp for their public relations efforts to press Ottawa into reversing a controversial wireless policy, calling it a "dishonest attempt" to skew public debate through "misleading campaigns".

* The release of a detailed audit of Pamela Wallin's expense claims is deepening political problems for the Stephen Harper government, with the Saskatchewan senator accused of billing more than C$121,000 ($117,000) in questionable expenses including dozens of trips related to personal and partisan events since taking office.

Reports in the business section:

* A massive penny stock fraud scheme that bilked Canadian and foreign investors of more than $140 million was masterminded by four Canadians and carried out with the help of five Americans, the U.S. Department of Justice alleged on Tuesday. One of the Canadians was arrested in Ontario and another one was among six suspects arrested in the United States, authorities said.

* Toronto-based Spin Master Ltd has acquired the iconic Meccano construction set line, with the ambitious goal of challenging Lego AS's dominance in the category, at a time when toy sales are slipping overall. Toy makers have been struggling for years to pick out winners in a landscape that is increasingly dominated by Angry Birds and other popular digital applications.

* Shrugging off the notion of an industrial rivalry, Mexican Ambassador Francisco Suarez says Canadian companies will enjoy enormous opportunities as his country seeks to rejuvenate its energy sector with sweeping, though politically challenging, liberalization. The ambassador rejected the notion that Mexico would become an increasingly threatening competitor for Canadian oil companies eager to expand their deliveries on the U.S. Gulf Coast.

NATIONAL POST

* New Democratic Party Leader Thomas Mulcair suggests the rail disaster that killed 47 people in the Quebec town of Lac-Megantic last month may have resulted from years of industry deregulation. In a speech before members of the United Food and Commercial Workers International union in Chicago, Mulcair laced into Conservatives on both sides of the border who say organized labor is a thing of the past and that the economy is best served when left to its own devices.

FINANCIAL POST

* The Canadian Transportation Agency on Tuesday ordered Montreal, Maine and Atlantic Railway Ltd to cease operations in Canada as of next week after determining the railroad no longer had the adequate insurance to continue to operate in the country in the aftermath of the Lac-Mégantic disaster.

* BlackBerry Ltd's announcement on Monday that it's considering takeover bids followed almost a year of advisers unsuccessfully canvassing potential buyers in search of a deal, two people with knowledge of the matter said. In recent months, as BlackBerry sales and subscriber numbers deteriorated, bankers from JPMorgan Chase & Co and RBC Capital Markets quietly contacted possible bidders and found little interest in buying the whole company.

* General Motors of Canada Ltd has had the most difficulty of the Detroit Three in Canada coming out of the recession. It's difficult to point a finger at just one issue, with its cars winning accolades, but still fighting for market share in Canada. President Kevin Williams said he wasn't about to chase market share by flooding the market with low margin fleet sales, or overly aggressive incentives either.

 

China

CHINA SECURITIES JOURNAL

- Huayu Automotive Systems Co Ltd said it plans to acquire 50 percent shareholding in Yanfeng Visteon Automotive Trim Systems Co Ltd for 5.7 billion yuan ($931.1 million).

SHANGHAI SECURITIES NEWS

- The Central Bank has suspended Baoshang Bank's licence for its interbank bond clearing agency business for two years from Tuesday, according to a notice it released through the Foreign Exchange Trading Center.

- China Insurance Regulatory Commission plans to develop a new business evaluation index system to assist insurance companies with their management and methods of expansion, according to sources.

- China should guide private capital into telecommunications and defence, minister of industry and information technology Miao Wei said on Tuesday at a press conference. Beijing will also push ahead with efforts to cull excess industrial capacity a year earlier than planned even as economic expansion slows.

PEOPLE'S DAILY

- As at the end of June, internet users in China hit 590 million, of which 464 million used their mobile phones for access, according to statistics released by the Ministry of Industry and Information Technology.

SHANGHAI DAILY

- Foreign equity investment into China's financial institutions fell to $442 million in the second quarter, the lowest in more than a year, according to data released by the State Administration of Foreign Exchange on Tuesday.

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

American Woodmark (AMWD) upgraded to Buy from Neutral at Longbow
Cincinnati Bell (CBB) upgraded to Neutral from Underperform at BofA/Merrill
Cullen/Frost (CFR) upgraded to Market Perform from Underperform at Raymond James
GlaxoSmithKline (GSK) upgraded to Neutral from Underweight at JPMorgan
Hovnanian (HOV) upgraded to Buy from Neutral at UBS
JAKKS Pacific (JAKK) upgraded to Market Perform from Underperform at BMO Capital
MarkWest Energy (MWE) upgraded to Buy from Neutral at Goldman
Marvell (MRVL) upgraded to Buy from Neutral at B. Riley
Rowan Companies (RDC) upgraded to Strong Buy from Neutral at ISI Group
Royal Dutch Shell (RDS.A) upgraded to Overweight from Equal Weight at Barclays
SINA (SINA) upgraded to Buy from Sell at Citigroup
Statoil (STO) upgraded to Overweight from Equal Weight at Barclays
USA Compression (USAC) upgraded to Outperform from Market Perform at Wells Fargo

Downgrades

Broadridge (BR) downgraded to Underweight from Neutral at JPMorgan
Coca-Cola HBC (CCH) downgraded to Neutral from Buy at Goldman
Delta Air Lines (DAL) downgraded to Neutral from Overweight at JPMorgan
EV Energy (EVEP) downgraded to Sector Perform from Outperform at RBC Capital
Ensco (ESV) downgraded to Neutral from Buy at ISI Group
Global Payments (GPN) downgraded to Neutral from Overweight at JPMorgan
Millennial Media (MM) downgraded to Hold from Buy at Canaccord
Noble Corp. (NE) downgraded to Buy from Strong Buy at ISI Group
PAREXEL (PRXL) downgraded to Underperform from Neutral at Sterne Agee
PetroLogistics (PDH) downgraded to Neutral from Buy at UBS
Transocean (RIG) downgraded to Neutral from Strong Buy at ISI Group
US Airways (LCC) downgraded to Neutral from Overweight at JPMorgan
USA Compression (USAC) downgraded to Neutral from Buy at Goldman
United Microelectronics (UMC) downgraded to Sell from Neutral at Goldman
WEX Inc. (WEX) downgraded to Underweight from Neutral at JPMorgan
Western Union (WU) downgraded to Underweight from Neutral at JPMorgan

Initiations

Cerner (CERN) initiated with a Buy at KeyBanc
Dresser-Rand (DRC) initiated with an Outperform at Raymond James
MedAssets (MDAS) initiated with a Hold at KeyBanc
Quality Systems (QSII) initiated with an Underweight at KeyBanc
Spectranetics (SPNC) initiated with an Overweight at JPMorgan
athenahealth (ATHN) initiated with a Hold at KeyBanc

HOT STOCKS

Standard & Poor's revised its outlook on Advanced Micro Devices (AMD) to negative from stable
RadioShack (RSH) can avoid restructuring if it can pay current lenders (WFC, BAC, GE), Reuters reports
Baidu (BIDU) to acquire NetDragon subsidiary 91 Wireless
NASDAQ OMX's (NDAQ) BWise, Atheeb NetSol (NTWK) agreed to partnership
Cubis (CBST) commenced tender offer for all outstanding Trius Therapeutics (TSRX) shares

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Towers Watson (TW), Luxoft (LXFT), Supernus Pharmaceuticals (SUPN), Myriad Genetics (MYGN), Jack Henry (JKHY), Athersys (ATHX), Millennial Media (MM), Netlist (NLST), Brocade (BRCD)

Companies that missed consensus earnings expectations include:
Chimerix (CMRX), ExOne (XONE), Regulus Therapeutics (RGLS), SeaWorld (SEAS)

Companies that matched consensus earnings expectations include:
Applied Industrial (AIT), Phototronics (PLAB), IMRIS (IMRS), JDSU (JDSU), Cree (CREE)

NEWSPAPERS/WEBSITES

  • Hollywood (FOX, SNE, VIAB, TWX) prevailed in a dispute with China's state-owned film distributor China Film Group Corp. that held up hundreds of millions of dollars in box-office payments due U.S. studios, as a standoff over a new value-added tax was resolved, the Wall Street Journal reports
  • Weyerhaeuser Co.’s (WY) plan to market its home building unit, valued at over $3B, has accelerated as prospective bidders submitted preliminary expressions of interest in a deal, sources say, the Wall Street Journal reports
  • Japanese airline ANA Holdings (ALNPY) said it had found an electrical wiring problem in the fire extinguishers of the engines of three of its Boeing (BA) Dreamliner jets, Reuters reports
  • South Africa's biggest union for the manufacturing sector, NUMSA, plans to launch a national strike in the auto industry (F, TM) beginning August 19 after wage negotiations deadlocked, Reuters reports
  • American Airlines’ (AAMRQ) chances of leaving bankruptcy as a strong competitor with its biggest peers were left in jeopardy yesterday when the Justice Department sued to block a merger with US Airways Group (LCC), Bloomberg reports
  • Liberty Global’s (LBTYA) acquisition of cable operator Kabel Baden-Wuerttemberg GmbH was overturned by a German court that said the competition authority didn’t demand tough enough concessions, Bloomberg reports

SYNDICATE

BioScrip (BIOS) files to sell 6.8M shares of common stock for holders
Cancer Genetics (CGIX) 1.5M share Secondary priced at $10.00
Diamondback Energy (FANG) files to sell 4M shares of common stock
Envision Healthcare (EVHC) 42M share IPO priced at $23.00
GenMark (GNMK) 7.622M share Secondary priced at $9.84
JA Solar (JASO) files $96M registered direct offering
Northern Tier (NTI) announces offering of 11.5M common units
PennyMac (PMT) files to sell 11.3M shares of common stock
Roadrunner (RRTS) 4.3M share Secondary priced at $27.00
The Medicines Co. (MDCO) 5.785M share Secondary priced at $30.25
WageWorks (WAGE) 2.968M share Secondary priced at $40.45

ACTIVIST/PASSIVE FILINGS

Appaloosa gives quarterly update on stakes: NEW STAKES - Chicago Bridge & Iron (CBI), Axiall (AXLL), and Hertz (HTZ). INCREASED STAKES - Goodyear Tire (GT), Citgroup (C), Prudential (PRU), and Fluor (FLR). DECREASED STAKES - Apple (AAPL), Microsoft (MSFT), AIG (AIG), HCA Holdings (HCA), and United Continental (UAL). LIQUIDATED STAKES - Two Harbors (TWO), MFA Financial (MFA), and Silver Bay Realty Trust (SBY).

 

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