Morning News Call Reuters U.S

MORNING NEWS CALL REUTERS U.S. Edition Friday, March 31, 2017

TOP NEWS INSIGHT • EU offers Brexit trade talks, sets tough transition terms The European Union offered Britain talks this year on a future free trade pact Trump helps make cross-border but made clear in negotiating guidelines issued on Friday that London must M&A great again first agree to EU demands on the terms of Brexit. • Apple sends warning to banks with Australian mobile payments deci- Cross-border M&A had its strongest sion start since 2007, driving first-quarter Apple Inc won a victory in its global fight to prevent banks from introducing global volumes up 7 percent, as opti- their own mobile payment services on Apple devices, as an Australian regula- mism over U.S. President Donald tor barred lenders from bargaining collectively for access. Trump's economic agenda buoyed • Dutch launch tax raids over suspect 55,000 accounts, Credit Suisse vis- the stock market and the dollar, ited making foreign acquisitions cheaper Credit Suisse's London, Paris and Amsterdam offices were contacted by local than some U.S. targets. authorities over client tax matters, it said, after Dutch prosecutors said they Many U.S. CEOs are feeling richer had seized assets and arrested two people in an international hunt for tax and more confident thanks to a rally evaders. in their companies' stock. Yet poten- • Danone to sell Stonyfield unit as part of WhiteWave deal tial U.S. acquisition targets often feel French food group Danone said on Friday it would sell its U.S. organic yoghurt they are worth a lot too, while uncer- business Stonyfield to facilitate the rapid completion of its $10.4 billion acquisi- tainty over Trump's tax policies tion of U.S. organic food producer WhiteWave foods Co. makes planning a merger more diffi- • Waymo-Uber judge says may grant injunction if key witness doesn't cult for the companies involved. testify To be sure, U.S. M&A was still up 3 The U.S. judge overseeing a blockbuster case over self-driving car technology percent in the first quarter. Some suggested Uber could face an injunction if a key Uber executive does not testi- acquirers brushed off the political fy for fear of exposing himself to criminal prosecution, according to a transcript uncertainty, and often got around seen by Reuters. disagreements over the cash value of a company by using their stock as currency to pay for deals. Nonethe- BEFORE THE BELL less, a few acquirers chose to cast U.S. stock index futures fell as investors booked profits on the last trading their net overseas. day of the month and quarter. Consumer spending and University of Michi- The biggest deal since the start of gan's sentiment data are on the radar. European shares traded lower, as the year was U.S. healthcare and losses among miners and a slump in insurer Old Mutual weighed in. Asian consumer conglomerate Johnson & stocks dipped. The dollar rose, benefitting from a weaker euro, while gold Johnson's $30 billion agreement in slipped. Oil prices fell as growing U.S. crude stockpiles posed a threat to January to acquire Swiss biotechnol- OPEC-led production cuts. ogy firm Actelion Ltd. Other major cross-border deals were attempted unsuccessfully. Anglo- STOCKS TO WATCH Dutch consumer goods giant Unile- ver Plc snubbed a $143 billion acqui- Deals of the day sition offer from U.S. food conglom- • DuPont (DD). The company said it would swap some assets with FMC Corp erate Kraft Heinz Co, while Dutch to get clearance from the European Commission for its merger with Dow paint maker Akzo Nobel NV rejected Chemical Co, and pushed back the closing date of its merger again. The com- a sweetened $24 billion bid from pany said it would sell part of its crop protection business to FMC and buy U.S. coatings manufacturer PPG nearly all of FMC's health and nutrition unit in a deal that will fetch DuPont Industries Inc. about $1.6 billion because of the difference in the value of the assets. The Some cross-border M&A even head- deal, which also includes DuPont divesting some of its research and develop- ed in the other direction. British con- ment facilities to FMC, includes a cash portion of $1.2 billion and working capi- sumer products company Reckitt tal of $425 million. Benckiser Group Plc, for example, agreed in February to acquire baby In other news milk manufacture Mead Johnson • Apple Inc (AAPL). The company won a victory in its global fight to prevent Nutrition Company for $17.9 billion. banks from introducing their own mobile payment services on Apple devices, "We saw an increase in outbound as an Australian regulator barred lenders from bargaining collectively for ac- deals from the United States into cess. The decision by Australia's competition watchdog, the first of its kind, will Europe, as the outlook on the Euro- MORNING NEWS CALL - U.S. EDITION March 31, 2017 stop the banks from introducing their own mobile applications on iPhones and pean economy has improved. Trans- Apple Watches that could be used for contactless payments instead of the actions for European targets are also Apple Wallet. less impacted by uncertainty around • Broadcom Ltd (AVGO). The U.S. chipmaker and U.S. private equity firm potential U.S. tax reform," said Gary Silver Lake Partners have offered Toshiba Corp about $17.9 billion for its chip Posternack, global head of mergers unit, the Nikkei business daily reported. About 10 potential bidders are inter- & acquisitions at Barclays Plc. ested in buying a stake in the NAN flash memory maker, a source with Preliminary Thomson Reuters data knowledge of the planned sale told Reuters earlier. show that global M&A totaled $726.5 • Chipotle Mexican Grill Inc (CMG). The company said on Thursday it would million in the first quarter, up 7 per- strengthen its lead director position in an agreement with a group of share- cent year-on-year. Cross-border holders who are withdrawing their proposal to split the chief executive and M&A totaled $323.1 billion year-to- chairman roles. Union-affiliated investors Amalgamated Bank and CtW Invest- date, the highest level since 2007, ment Group filed a proposal in November to strip the chairman's role from Ste- accounting for 45 percent of total ve Ells, who is also Chipotle's founder and chief executive officer, by instituting M&A activity so far this year. an independent chair. Chipotle said in a filing that it was not only "appropriate Acquisitions by U.S. companies but also important" for Ells to serve as both chairman and CEO. Under the abroad reached $114.1 billion so far agreement, Chipotle agreed to strengthen the lead director position held by in 2017, a triple-digit percentage in- Neil Flanzraich, who has been an independent director since September 2014. crease compared with a year ago, Among other things, Flanzraich will write an annual letter to shareholders be- surpassing the year-to-date record ginning in 2018. set in 2007 of $97.1 billion. Europe • ConocoPhillips (COP). Cenovus Energy's offer to buy the company's oil inbound cross-border M&A reached sands and natural gas assets for $13.27 billion was unsolicited, a ConocoPhil- $127.1 billion, topping the year-to- lips Canada spokeswoman said on Thursday. The company had already de- date record of $104.5 billion set last cided to sell several of its Canadian conventional natural gas assets but had year. not planned to offload oil sands assets, sources told Reuters earlier this year. In the United States, the biggest • Credit Suisse (CS). The bank's London, Paris and Amsterdam offices were questions CEOs faced when consid- contacted by local authorities over client tax matters, it said on Friday, after ering M&A were around mulled poli- Dutch prosecutors said they had seized assets and arrested two people in an cy reforms that would affect deducti- international hunt for tax evaders. The Netherland's office for financial crimes bility of interest expense, corporate prosecution said the coordinated raids began on Thursday in the Netherlands, tax rates, overseas cash repatriation, Britain, Germany, France and Australia after receiving a tip-off about 55,000 and the potential cross-border ad- suspect accounts of a Swiss bank. It did not identify the bank. justment tax. • Johnson & Johnson (JNJ). The company declared its $30 billion tender "There are a number of people who offer for Swiss biotechnology company Actelion successful, reporting it con- are saying I want to wait until this trolled 77.2 percent of the voting rights after the main offer period. The price of fleshes out a bit, until questions the offer, which J&J announced on Jan. 26, was $280 per share for Actelion. It around tax or certain healthcare poli- said it expected the transaction to close in the second quarter. The company cies get reformed over time, it’s has said it intends to delist Actelion, while a new research and development harder to do a deal," said Robin company being spun out of Actelion, to be called Idorsia and led by Actelion Rankin, co-head of global M&A at founder Jean-Paul Clozel, will have a separate Swiss listing. Credit Suisse Group AG. • Lululemon Athletica (LULU). The steep drop in the company's stock price, Nevertheless, most M&A advisers following a sales warning that resulted from poor color choices in the compa- appear optimistic. About 44 percent ny's spring collection, turns the spotlight on slowing growth in the athleisure of dealmakers expected M&A to in- category pioneered by the Canadian yogawear retailer. Shares of rivals Nike crease in 2017, an uptick from just Inc and Under Armour also were down on Thursday, raising questions of 13 percent a year ago, according to whether athletic leisure wear can maintain its torrid growth amid competition a survey published this week by fi- from denim and possible shopper fatigue with the now decade-old fashion cat- nancial communications firm Bruns- egory. wick Group. • NextEra Energy Inc (NEE). Texas regulators on Thursday agreed to scuttle the company's $18 billion purchase of Energy Future Holdings Corp, finding PRICE CONCERNS that the deal was not in the public interest. The three-member Public Utility After two years of particularly robust Commission of Texas found that the deal, a key component of Energy Future's M&A activity - 2016 and 2015 saw plan to exit an approximately three-year bankruptcy, placed too much risk on the biggest and third biggest M&A ratepayers, its members said in a public meeting Thursday. Energy Future is volumes on record, respectively - the majority owner of Oncor, the state's largest power network. The commis- and historically high corporate valua- sion said it was concerned about the debt of the combined company, the inde- tions, the main impediment to deals pendence of Oncor's board and payments to the parent company at the ex- is price concerns, dealmakers said. pense of Oncor. With his ruling Republican party di- • Panera Bread Co (PNRA). The company will begin to roll out new labeling of vided along ideological fault lines, it added sugars and calories in sodas and other self-serve fountain beverages, was also not clear what impact the first such move by a U.S. restaurant chain as food companies face rising Trump's failed bid to reform the U.S.

2 MORNING NEWS CALL - U.S. EDITION March 31, 2017 demand from consumers to cut back on their use of the sweetener. The move healthcare system earlier this month comes at a time when casual restaurant chains from McDonalds Corp to Star- would have on his ability to imple- bucks Corp have been under pressure from slack demand and underscores ment tax proposals. the pressure that soft-drink makers are facing as sales decline. "While the strategic dialogue is as • Starbucks Corp (SBUX). The company will open a dedicated mobile order good as it has been in quite some and pay store next week in its Seattle headquarters building as it tests how to time, many assets are richly valued best serve convenience-oriented customers, the company said in a letter to and uncertainty still exists around tax employees on Thursday. The coffee chain has been looking for ways to ease reform and the regulatory environ- bottlenecks at cafe drink delivery stations, which suffered peak-hour backups ment," said Jack MacDonald, co- due to a pileup of mobile drink orders. head of Global M&A at Bank of • Verizon Communications Inc (VZ). The No. 1 U.S. wireless carrier has America Corp. been buying streaming rights from television network owners ahead of a na- Recovering oil prices boosted ener- tionwide launch of an online TV service, according to people familiar with the gy M&A, which reached 118.4 billion matter. The company plans to sell a package with dozens of channels this so far in 2017, up 41 percent year-on year, the sources told Reuters. The company did not immediately respond to a -year. request for comment. Credit markets remained wide open, • Wells Fargo & Co (WFC). A federal judge on Thursday said the bank must favoring not just big corporate deals face litigation seeking to hold it responsible for billions of dollars of claimed but also leveraged buyouts. Global investor losses stemming from its alleged failures as a trustee overseeing risky private equity-backed M&A activity residential mortgage-backed securities. U.S. District Judge Katherine Polk totaled $57.5 billion, the strongest Failla in Manhattan said the plaintiffs, including a few dozen funds from year-to-date period for such deals BlackRock Inc, Pacific Investment Management Co, Prudential Financial Inc since 2014, and a 38 percent in- and TIAA-CREF, may pursue breach of contract and conflict of interest claims crease from a year ago. related to 53 trusts. -- By Lauren Hirsch and Greg Rou- meliotis ANALYSTS' RECOMMENDATION • Alaska Air Group Inc (ALK). Imperial Capital cuts price target to $98 from $101 after the company raised its synergy forecasts, whose benefits are likely to reflect in the financial year 2019. • Home Bancshares Inc (HOMB). KBW raised target price to $30 from $29, after the company announced its largest till date acquisition of Stonegate Bank in a $778 mm deal. • Lear Corp (LEA). Berenberg initiated coverage with buy rating, saying that the automotive supplier is likely to remain a dominant player in this field. • NantHealth Inc (NH). Jefferies cuts target price to $8 from $16, citing the company’s fourth-quarter results, which came in below estimates.

ECONOMIC EVENTS 08:30 Personal consumption real mm for Feb: Prior -0.3 pct 08:30 Personal income mm for Feb: Expected 0.4 pct; Prior 0.4 pct 08:30 Consumption adjusted mm for Feb: Expected 0.2 pct; Prior 0.2 pct 08:30 Core PCE price index mm for Feb: Expected 0.2 pct; Prior 0.3 pct 08:30 Core PCE price index yy for Feb: Prior 1.7 pct 08:30 PCE price index mm for Feb: Prior 0.4 pct 08:30 PCE price index yy for Feb: Prior 1.9 pct 09:00 Dallas Fed PCE for Feb: Prior 2.4 pct 09:45 Chicago PMI for Mar: Expected 56.9; Prior 57.4 10:00 U Mich Sentiment Final for Mar: Expected 97.6; Prior 97.6 10:00 U Mich Conditions Final for Mar: Expected 114.0; Prior 114.5 10:00 U Mich Expectations Final for Mar: Expected 87.0; Prior 86.7 10:00 U Mich 1-year inflation final for Mar: Prior 2.4 pct 10:00 U Mich 5-year inflation final for Mar: Prior 2.2 pct 10:30 ECRI Weekly Index: Prior 144.6 10:30 ECRI weekly annualized: Prior 9.0 pct

S&P 500 COMPANIES REPORTING RESULTS No major S&P 500 companies are scheduled to report.

3 MORNING NEWS CALL - U.S. EDITION March 31, 2017

CORPORATE EVENTS No major events are scheduled for the day.

EXDIVIDENDS 8Point3 Energy Partners LP (CAFD). Amount $0.26 Agilent Technologies Inc (A). Amount $0.13 John Wiley & Sons Inc (JWa). Amount $0.31 Marvell Technology Group Ltd (MRVL). Amount $0.06 ServisFirst Bancshares Inc (SFBS). Amount $0.05

(All analysts' estimates are according to Thomson Reuters I/B/E/S)

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