Wall Street Breakfast: M&A Buzz Hits The Street

Economy

Japan’s economy nearly stalled in Q2 amid falling exports and weak corporate investment, adding pressure on Shinzo Abe to ramp up efforts to revive growth. The economy expanded at an annualized rate of 0.2% during the period, weaker than a 2% expansion in the first three months of the year. While the government announced a large stimulus package earlier this month in hopes of increasing GDP, many are still skeptical on whether the package will be effective.

Meanwhile, Japan’s financial watchdog estimates that negative interest rates under the BOJ’s monetary easing policy will reduce profits for the country’s three big banks – Mitsubishi UFJ Financial (NYSE:MTU), Sumitomo Mitsui (NYSE:SMFG) and Mizuho Financial (NYSE:MFG) – by at least $3B for the year through March 2017, the Nikkei reports. The BOJ implemented negative interest rates in February in a bid to boost the economy, under which it charges banks for parking some of their excess reserves at the central bank.

Chinese stocks climbed to a seven-month high today on hopes of a formal announcement regarding the Shenzhen-Hong Kong Stock Connect. “It has two positives: the first is it shows that this period of worry in Beijing about currency outflows has passed,” said Erwin Sanft, a regional strategist at Macquarie. “But in a more practical way, it opens up increased access to the China market.” The trading link could be announced as soon as this week and will be officially launched in December, according to the Hong Kong Economic Journal.

Britain’s exit from the EU could be delayed until late 2019 because the government is too “chaotic” to start the two-year process early next year, the Sunday Times reported, citing sources that were briefed by ministers. “They don’t have the infrastructure for the people they need to hire. They say they don’t even know the right questions to ask when they finally begin bargaining with Europe.”

With tensions rising in the region, Russia’s foreign minister Sergei Lavrov has told reporters that his country will fulfill its part of the “Minsk Protocol.” The agreement to halt the war in the Donbass region of Ukraine was signed in September 2014. Last week, Moscow accused Kiev of trying to send saboteurs into Crimea and reported the deaths of a soldier and a secret police officer in an operation to foil the alleged plot.

The EU should grant Turks visa-free travel in October or the migrant deal that involves Turkey stemming the flow of illegal migrants to the bloc will be shelved, Foreign Minister Mevlut Cavusoglu told Germany’s Bild newspaper. “I don’t want to talk about the worst case scenario – talks with the EU are continuing but it’s clear that we either apply all treaties at the same time or we put them all aside.”

Stocks

Real-estate investment trust Mid-America Apartment (NYSE:MAA) is nearing a deal to buy Post Properties (NYSE:PPS) for about $4B, bringing together two major apartment owners who have benefited from a boom in rental demand. Post investors are to get 0.71 share of new MAA stock for each share they own in a deal that could be announced today. Shares of both companies have soared in recent years as investors have been drawn to their relatively rich payouts with interest rates at historic lows.

Building on Friday’s gains, Sharp (OTCPK:SHCAY) started the week with a 10% advance after the company said Foxconn (OTC:FXCOF) completed its $3.8B takeover. “With the risk of insolvency removed, the shares have a strong upward momentum,” said Hideki Yasuda, an analyst at Ace Research Institute. “How far they climb will depend on how Foxconn will choose to restructure Sharp.” The company also received a $3B commitment line from its lenders.

Honeywell’s deal for JDA Software, an acquisition that could be valued at around $3B, is expected to be announced as soon as today, WSJ reports. The purchase would boost Honeywell’s (NYSE:HON) shift into software. CEO David Cote says about half of the company’s 23K engineers are now working in the sector, as opposed to the heavy goods like jet engines and building control systems for which it is best known.

Looking to become a major player in the smart meter market, Xylem (NYSE:XYL) is nearing a deal to acquire Sensus USA for around $1.7B, including debt, according to Reuters. The acquisition comes at a time when regulatory requirements and a drive for savings are pushing both companies and consumers to tightly control their water and energy consumption.

More M&A… KKR may bid for television distributor Entertainment One (OTC:ENTMF) after the owner of the preschool cartoon character “Peppa Pig” rejected an offer from ITV Plc (OTCPK:ITVPF), Bloomberg reports. Last week, eOne rebuffed a £1B ($1.3B) takeover offer from the British broadcaster, saying it undervalued the production and distribution company.

Powered by ample liquidity and reinvigorated confidence in the U.S. economy, major stock indexes rallied to record highs last week. History also suggests there may be another reason to look for further gains in August – the Rio Olympics. According to Bespoke Investment Group, the average rate of return of the Dow Jones Industrial Average during each of the Summer Olympic Games dating back to 1900 was an impressive 4% from the opening to closing ceremonies, with positive returns 68% of the time. Are more record highs in store this week?

The U.S. is on pace to take home the most gold medals at the Olympics, but when it comes to television ratings, NBC (NASDAQ:CMCSA) may have to settle for a bronze. Through Saturday, the network averaged 27.9M viewers for the first nine nights, down about 15.5% from the 2012 Games in London. It’s also missing targets it promised advertisers who spent more than $1.2B for commercials during the 17-day event.

About 40 companies have signed on to the so-called Privacy Shield agreement, the new data-protection pact that allows American firms to transfer information on European citizens to servers in the U.S. Among them: Microsoft (NASDAQ:MSFT), Workday (NYSE:WDAY) and Salesforce.com (NYSE:CRM). According to the Commerce Department, “there are nearly 200 applications currently involved in our rigorous review process” and the list will be updated on a rolling basis.

Tim Cook has struck back at critics of Apple’s (NASDAQ:AAPL) strategy to avoid paying U.S. taxes, saying he would not bring money back from abroad unless there was a “fair rate.” “It is legal to do. It’s not a matter of being patriotic or not patriotic. It doesn’t go that the more you pay, the more patriotic you are,” he told The Washington Post. The U.S. federal corporate tax rate, which stands at 35%, is among the highest in the developed world.

Separately, in a piece covering Twitter’s successful effort to win live streaming rights for Thursday night NFL games, the NYT reports that Twitter (NYSE:TWTR) is in discussions to launch an app that would let users watch the events on the Apple TV (AAPL). While the company’s strategy for live streaming is not yet “fully formed,” Twitter is considering how to enable live videos through notifications in the main timeline or in the Moments tab of its current app.

Volkswagen has won German regulatory approval for technical fixes on another 460K diesel cars fitted with software that cheats emissions tests, raising the number of vehicles cleared for repair to over 5M. Approval by Germany’s motor vehicle authority KBA is valid for countries throughout Europe where 8.5M diesel cars are affected by VW’s (OTCPK:VLKAY) scandal. About 11M autos are implicated globally.

Tesla has removed the word “autopilot” and “self-driving” from its China website after a driver in Beijing, who recently crashed in “autopilot” mode, complained that the car maker overplayed the function’s capability and misled buyers. “We’ve been in the process of addressing any discrepancies across languages for many weeks,” a Tesla (NASDAQ:TSLA) spokeswoman said in a statement. “Timing had nothing to do with current events or articles.”

A data breach at 20 U.S. hotels operated by HEI Hotels & Resorts for Starwood (NYSE:HOT), Marriott (NASDAQ:MAR), Hyatt (NYSE:H) and Intercontinental (NYSE:IHG) may have divulged payment card data from tens of thousands of transactions. The malware was discovered in early to mid-June on payment systems used at restaurants, bars, spas, lobby shops and other facilities at the properties.

Workday is expected to announce a seven-year deal today to use IBM’s cloud-computing services for some internal operations, sources told WSJ. The Workday (WDAY) deal, in which Big Blue will win a marquee customer with solid cloud credentials, comes soon after two recent reports from analysts raised questions about IBM’s ability to compete in the contentious market for computing horsepower delivered over the internet.

Three new non-travel cases of the Zika virus have been found in Florida, including another person who doesn’t live in the one-square-mile area believed to be the hub of local transmission, bringing the number of cases confirmed there so far to 28. The U.S. Centers for Disease Control and Prevention issued a warning two weeks ago for pregnant women to avoid this area of Miami. Zika has been shown to cause birth defects, including microcephaly, which causes severe developmental problems. Related tickers: SNY, INO, AEMD, XON, CEMI, BCRX, TMO, OTCQB:GOVX