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Research Market strategy
by Swissquote Analysts
Morning News

Bombardier, Alstom Sign Definitive Agreement for Sale of Transportation Business

Topic of the day

Bombardier said it signed a definitive sale and purchase agreement with Alstom SA and the Caisse de depot et placement du Quebec for the sale of its transportation business to Alstom. Bombardier and la Caisse will sell their interests in Bombardier Transportation to Alstom based on an enterprise value of $8.4 billion, or EUR7.15 billion. Bombardier said this reflects a $350 million price reduction from the previously unveiled memorandum of understanding, offset by the impact of a more favorable currency exchange rate. Total proceeds are expected to be $6.2 billion, Bombardier said. After deducting la Caisse's equity position of $2.2 billion, Bombardier said it expects net proceeds of about $4.0 billion. Alstom said the terms of the agreement "have been adapted to the current situation." Alstom said the parties agreed to a EUR300 million reduction in the price range and the price range for the deal will now be EUR5.5 billion to EUR5.9 billion. Alstom said in February it signed a MOU with Bombardier Inc. and la Caisse to acquire Bombardier Transportation. Alstom said at the time the price for the acquisition of 100% of Bombardier Transportation shares would be EUR5.8 billion to EUR6.2 billion in a mix of cash and new Alstom shares. "Today's announcement marks a significant milestone towards achieving our near-term priorities and repositioning Bombardier as a pure-play business jet company," said Chief Executive Eric Martel said Wednesday. "The proceeds from this transaction will allow us to begin reshaping our capital structure and start addressing our balance sheet through debt paydown." "The acquisition of Bombardier Transportation represents a transformational change for Alstom. It will enable the Group to accelerate on its strategic roadmap and strengthen its leadership in the context of a dynamic market, at a time where sustainable transportation is at the heart of the global agenda," said Alstom CEO Henri Poupart-Lafarge. Bombardier said with regulatory approvals obtained from several jurisdictions, including the European Commission, it now expects the deal closing in the first quarter of 2021.


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Swiss stocks

The SMI closed up 0.3 percent on 10,552 points Wednesday, among investor reticence in advance of the US Federal Reserve’s interest rate announcement Wednesday evening. While no monetary policy measures are expected, it is hoped the Fed will reveal further details on its new inflation strategy. All but two stocks in the SMI closed higher. Leading the index were Adecco, up 1.8 percent, and Credit Suisse, up1.5 percent. However, defensive stocks were especially in demand. Swisscom climbed 1.0 percent. Aromamaker Givaudan also rose 1.0 percent. Roche gained 0.5 percent on the news it has received approval from US health authority FDA for extended use of a test to prevent cervical cancer. Competitor Novartis slid 1.0 percent. Richemont only optically declined 1.1 percent as the stock was trading CHF 1.00 ex-dividend. On the broader market, AMS surged 9.1 percent after lighting company Osram, which AMS recently acquired, revised upward its forecast for fiscal 2019/20, ending 30 September.

International markets

Europe

European stocks traded mixed on Wednesday, with retail stocks rising after Inditex results, as investors waited for the outcome of the Federal Reserve meeting later. U.S. stock futures also rose. The Stoxx Europe 600 index was up 0.3% to 372.22, on the heels of a 0.7% gain on Tuesday. The German DAX was flat while the French CAC 40 dropped 0.4%. The FTSE 100 fell 0.4%, driven south as the British pound climbed 0.7% against the U.S. dollar, which was weaker after U.S. retail sales rose in August, though slowed from the previous month. The retail sector was leading gains, led by a 6% rise in shares of Inditex , the world's biggest fashion store group, after the Spanish owner of Zara and Bershka returned to a profit in the second quarter, from a loss in the previous quarter from COVID-19 -related store closures. On the downside, shares of Grenke tumbled 33%. Short-selling firm Viceroy Research alleged accounting at the leasing company, triggering a slide in shares on Tuesday. The firm didn't return a request for comment. On Wednesday, Reuters reported that Germany's financial market regulator, BaFin, has launched a probe into the company.

United States

U.S. stocks gains slipped away Wednesday despite the Federal Reserve signaling it was ready to keep interest rates near zero for three more years and unpin the economy even in the face of inflation. The S&P 500 fell 0.5% as of the 4 p.m. close of trading in New York, while the Dow Jones Industrial Average added 38 points, or 0.1%, staying relatively stable after the central bank's release. Both broad indexes were aiming for their fourth-straight session of gains. The Nasdaq Composite Index slipped 1.3% as big tech stocks sold off. The indexes are all still down this month, with the Nasdaq off more than 6% in September. In individual moves, shares of FedEx rose 5.7% as one of the best performers. The delivery company posted the highest quarterly revenue in its history as the coronavirus pandemic spurred residential-shipment levels normally seen during the holiday season. The Dow Jones Transportation Average was headed for a record close, the first in two years. Facebook shares slipped 2.6% after The Wall Street Journal reported that the Federal Trade Commission was gearing up to file a possible antitrust lawsuit against the company, in a case that would challenge the company's dominant position in social media. Other tech stocks were sliding as well, including Apple down 1.9%.

Asia

Japanese stocks were down slightly, weighed by falls in auto and railway stocks, as the yen strengthened and prospects for travel demand remained subdued amid the coronavirus pandemic. USD/JPY was at 104.89, down from 105.36 as of Wednesday's Tokyo stock market close. The Nikkei Stock Average was down 0.6% at 23327.82 in early trade. The Bank of Japan kept the deposit rate at -0.1% as expected and reiterated that there was no limit on JGB purchases.

Bonds

Treasury yields picked up further after Fed Chairman Jerome Powell didn't bite on a question about what might cause the Fed to change the pace of its bond-buying. Powell reiterated that the Fed's current pace was appropriate and could be adjusted if necessary. That might have disappointed some investors who were looking for the central bank to make a stronger promise about using bond purchases to push inflation higher.

Analysis

Citi raises Brenntag target to 62 (57) EUR - Buy
Mainfirst raises Verbund target to 45 (39) EUR - Hold
HSBC raises H&M target to 185 (165) SEK - Buy
Citi: Merck KGaA with good prospects


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