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Elliott Discloses AT&T Stake, Calls for Shake-Up
Topic of the day
Activist investor Elliott Management Corp. disclosed a $3.2 billion stake in AT&T Inc., criticized the company's strategy and called on the telecommunications giant to shed unnecessary assets. The New York hedge fund wrote in a letter to the company released Monday that it would seek seats on the company's board and challenged AT&T to sharpen its focus on its core assets, including its relatively healthy wireless business. The fund didn't ask AT&T to sell specific divisions but said the company should review any assets that lack a strategic rationale, including the DirecTV satellite service and Mexican wireless operations. With a market value of more than $260 billion, the Dallas company is among the hedge fund's biggest corporate targets to date. AT&T shares rose 4% to $37.80 in Monday morning trading. Elliott assailed AT&T management for alleged missteps including the purchase of DirecTV and said it remains cautious about last year's purchase of Time Warner Inc., a collection of TV and film businesses including HBO and CNN that was renamed WarnerMedia. "AT&T has been an outlier in terms of its M&A strategy," Elliott wrote. "Most companies today no longer seek to assemble conglomerates." AT&T said it looked forward to engaging with the hedge fund. "Indeed, many of the actions outlined are ones we are already executing today," the company said in a statement. "AT&T's Board and management team firmly believe that the focused and successful execution of our strategy is the best path forward to create long-term value for shareholders. This strategy is driven by the unique portfolio of valuable businesses we've assembled across communications networks and media and entertainment."
The SMI slid 0.1 percent on 10,059 points Monday, buoyed by hopes of upcoming economic stimuli from Chinese central bank and US Federal Reserve rate cuts and a raft of ECB measures. However, losses of between 0.4 percent and 2.1 percent among defensive heavyweights Nestle, Novartis and Roche pulled down the index. Nestle was curbed by an analyst downgrade to “hold” from “buy”, despite a target increase by other analysts to CHF 120 from CHF 105 and reiteration of their “overweight” rating. Banks and insurers led the field on rising bond yields. Credit Suisse rose 2.5 percent and UBS 2.3 percent. Swiss Life, Swiss Re and Zurich Insurance gained between 1.1 percent and 1.7 percent. Sika rose 1.1 percent on news of the takeover of sealant and adhesive maker Chinese Crevo-Hengxin, expanding its presence in the industry and sealing & bonding markets in China and the APAC region. Givaudan slid 0.3 percent to CHF 2,733 despite an analyst upgrade to “buy” with a target of target CHF 3,150.
The Stoxx Europe 600 slipped 0.3%. Data released showed German exports unexpectedly rose in July, a bright spot following a string of negative economic data from Europe's biggest economy, though analysts said concerns remained that U.S.-China trade tensions could affect the German economy. The U.K. economy also steadied in the three months through July, as its dominant services sector continued to expand, although Brexit uncertainty continued to weigh on manufacturing and construction. Shares in Lloyds Banking Group are among the biggest FTSE 100 fallers, down 1.6% after the U.K.-focused bank Monday said it was suspending its share buyback program following a spike in claims relating to mis-sold payment-protection insurance. Markets.com points out that Lloyds has said it will take an additional charge of between GBP1.2 billion and GBP1.8bn relating to the final rush of claims made in August. Still, the trading firm says the later the claims are received, the less chance they have of success. "Therefore investors will be hoping the charge is at the lower end of expectations and that management sticks to its goal of a progressive annual dividend," says Markets.com.
Major U.S. stock indexes swung between small gains and losses as investors looked ahead to meetings later this month where central bankers are expected to cut interest rates. The Dow Jones Industrial Average rose 18 points, or 0.1%. The S&P 500 was recently down about 0.2%, while the Nasdaq Composite fell 0.5%. Monday's move puts a pause on major indexes' advance after two consecutive weeks of gains for stocks. Analysts said there was little new information to drive shares Monday. "It definitely continues to feel that central banks have the market's back," said a director of equity trading at KBW. "It's more of a positive feedback loop right now." Still, there is disagreement over how much the Fed should cut rates, leaving the stock market potentially vulnerable if the Fed fails to enact a more aggressive pace of rate cuts. Following a speech by Fed Chairman Jerome Powell Friday, the market is now adjusting its expectations from larger cuts that had previously been priced in, sending yields up, said a chief market analyst for online foreign-exchange brokerage XTB. "We've seen a strong move lower on this expectation on stimulus measures, and now the market's doing a wait and see," he said. Rising yields helped lift the S&P 500's financials sector, which was one of the biggest gainers Monday, rising 1.4%. Shares of Citigroup added 4.4%, while Synchrony Financial added 2.4%.
Asian markets were mixed Tuesday with benchmarks struggling for direction. Japanese stocks were recently up, led by financial and auto stocks, as hopes for fiscal and monetary stimulus globally provided some support. The Nikkei Stock Average was up 0.3% at 21378.25. In Japan, the scope of policy stimulus is likely limited, however, since the Bank of Japan has already been easing aggressively and the Japanese government is scheduled to raise its sales tax on Oct. 1.
U.S. government bonds pulled back sharply, extending recent price declines that have reflected hopes for progress in U.S.-China trade talks and some encouraging economic data. In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 1.628%, according to Tradeweb, compared with 1.552% Friday.
JPM downgrades Orange to Neutral (Overweight)
Berenberg upgrades Givaudan to Buy and raises Symrise target
UBS upgrades Prosiebensat1 to Buy (Neutral) – Target 18,20 EUR
BoA-ML downgrades Caterpillar target to 145 (150) USD - Buy
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