Whole Foods stock surges past Amazon’s offer as investors bet rivals will start bidding war

Whole Foods Market Inc shares rose on Monday for the second straight trading session after Amazon.com Inc announced plans to buy the upscale grocer, with investors appearing to bet that rivals could step in to create a bidding war.

Despite that possibility, Amazon shares also gained as Wall Street analysts lauded the proposed US$42-per-share deal and bet that the company would prevail in any bidding battle.

After closing at US$42.68 on Friday, Whole Foods shares were up 1.5 per cent at US$43.32 on Monday morning after rising as high as US$43.64 earlier in the session, suggesting hopes it would end up fetching a higher price. Amazon hit a high of US$1,017 and was last up 1.4 per cent at US$1,001.13.

Barclays analyst Karen Short raised her Whole Foods price target to US$48 from US$38 and upgraded the stock to overweight from equal-weight, citing the possibility of counterbids.

“Many will do anything to either make this acquisition more costly for Amazon, or prevent the asset from landing in Amazon’s lap,” Short wrote in a note to clients.

A US$48-a-share price tag would be more than reasonable for a fellow retailer that could eliminate overhead at Whole Foods, Short said, while adding that very few companies could outbid Amazon.

Benchmark Research analyst Daniel Kurnos also expects a bidding war, but he said: “Amazon will ultimately be able to outbid any other party by a meaningful amount, given the valuation gap between them and WFM.”

Wedbush analyst Michael Pachter said the deal was a “healthy option to accelerate growth” at Amazon as it could use Whole Foods supermarkets as distribution centers for its online grocery service and to sell its own branded devices, such as Kindle e-readers.

Pachter said Amazon was likely to increase spending to build its online grocery business over the next several years, so the acquisition would add only slightly to earnings while boosting revenue significantly.

© Thomson Reuters 2017

U.S. activist investor urges Hudson’s Bay Co to go private

U.S. activist investor Land & Buildings Investment Management LLC on Monday urged the management of Canadian retailer Hudson’s Bay Co to explore alternatives, including taking the company private.

Land & Buildings owns a 4.3 per cent stake in Hudson’s Bay.

© Thomson Reuters 2017

Magna International Inc to build BMW’s new hybrid as the world’s only contract auto manufacturer

Canadian auto supplier Magna International Inc will produce BMW’s new 5-series plug-in hybrid at its Austrian factory, the company said on Monday, part of a strategy to produce electric cars on a contract basis for global automakers.

The BMW 530 plug-in hybrid will be manufactured beginning this summer at Magna’s plant in Graz, Austria, where it already plans to produce Jaguar’s I-PACE SUV beginning in early 2018.

Global automakers and their suppliers are investing heavily in fully-electric and gasoline-electric hybrid vehicles. Consumer demand is still low versus that for gasoline engine vehicles, but companies are beginning to offer more choices to respond to government mandates for greater sales of vehicles that emit little or no carbon dioxide, and prepare for a future experts believe will be dominated by electric vehicles.

Rival tier-one auto supplier Continental AG, for example, said in April it was increasing spending by 300 million euros (US$334.68 million) on new products such as charging systems and battery management components related to electric vehicles.

Magna, North America’s largest automotive supplier and the third globally, is alone among the top auto suppliers to perform contract manufacturing for carmakers. Its Austrian plant can produce about 200,000 cars per year. Magna is currently building a new paint shop in Slovenia due to increased demand.

A Magna spokeswoman would not comment on a statement by the Slovenian government in March that the auto supplier would potentially invest up to 1.24 billion euros in the country, including a car plant with capacity of 100,000 to 200,000 vehicles per year.

Having contract manufacturing in its portfolio creates a niche for the company as automakers slowly bring more electrified vehicles to market over the next decade. For automakers, outsourcing the assembly can be an advantage on low-volume models to minimize capital expenditures and avoid tying up their own production lines.

Swamy Kotagiri, Magna’s chief technology officer, said he sees contract manufacturing of electric vehicles as a “near-term opportunity” for the company, given that by 2025, 40 to 50 per cent of all vehicles produced will include some electrification elements.

“We are setting up knowing the penetration will be higher.”

Magna has also produced non-electric cars at its Austrian facility, including BMW’s Mini Countryman and Mercedes-Benz’ luxury G-Wagen SUV.

Last month, Magna raised its full-year sales forecast on higher demand.

© Thomson Reuters 2017

Amazon to buy upmarket grocer Whole Foods for $13.7 billion in e-commerce giant’s biggest deal yet

Amazon.com Inc. will acquire Whole Foods Market Inc. in a US$13.7 billion deal, marking the biggest transaction ever for the e-commerce giant as it pushes deeper into groceries.

Amazon will pay US$42 a share in cash for the organic-food chain, the companies said on Friday. John Mackey, Whole Foods’ outspoken co-founder and chief executive officer, will continue to run the business.

The deal sends a shockwave across both the online and brick-and-mortar industries, uniting two brands that weren’t seen as obvious partners. But Whole Foods came under pressure to find a buyer this year after activist investor Jana Partners LLC acquired a stake and began pushing for a deal. Jana’s move irked Mackey, who has referred to Whole Foods as his “baby.” By enlisting Amazon, he gets to keep his job as CEO of the grocery chain.

Grocery chains dove on news of the deal. Wal-Mart Stores Inc., which generates more than half of its revenue from groceries, plunged as much as 7.1 per cent shortly after the open of trading in New York, while Kroger Co., the biggest U.S. grocery store, dropped as much as 17 per cent. Sprouts Farmers Market Inc. fell up to 14 per cent. In Canada, Loblaw was down more than four per cent.

Trading in Whole Foods was halted ahead of the announcement.

Amazon’s biggest acquisition announced to date came in 2014, when it agreed to buy video-game service Twitch Interactive Inc. for US$970 million in cash, according to data compiled by Bloomberg. The Seattle-based company had about US$21.5 billion of cash and equivalents at the end of March, the data show.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” Amazon Chief Executive Officer Jeff Bezos said in a statement.

The takeover is slated to be completed in the second half of the year, with Whole Foods’ headquarters remaining in Austin, Texas.

Amazon previously contemplated a takeover of Whole Foods last fall, but it didn’t pursue a deal, a person with knowledge of the situation have said. The e-commerce company revisited the idea after Jana stepped in.

“Amazon clearly wants to be in grocery, clearly believes a physical presence gives them an advantage,” said Michael Pachter, an analyst at Wedbush Securities Inc. “I assume the physical presence gives them the ability to distribute other products more locally. So theoretically you could get 5-minute delivery.”

Bloomberg.com

Oil and U.S. dollar conspire to push down loonie as this week’s gains lose some loft

TORONTO — The Canadian dollar weakened against its U.S. counterpart on Thursday, paring some of this week’s gains as lower oil prices and broader strength in the greenback offset stronger-than-expected domestic manufacturing data.

Canadian manufacturing sales rose more than expected to a record level in April as sales of petroleum and coal products rebounded after two months of declines, data from Statistics Canada showed. The 1.1 per cent advance topped economists’forecast for a gain of 0.7 per cent.

Prices of oil dropped to six-week lows, under pressure from high global inventories and doubts about OPEC’s ability to implement agreed production cuts.

U.S. crude prices were down 0.56 per cent at US$44.48 a barrel.

The U.S. dollar rose against a basket of major currencies, supported by the Federal Reserve’s decision on Wednesday to boost interest rates further.

At 9:25 a.m. ET, the Canadian dollar was trading at $1.3275 to the greenback, or 75.33 U.S. cents, down 0.3 per cent.

The currency traded in a range of $1.3226 to $1.3293.

On Wednesday, the loonie touched its strongest in 3-1/2 months at $1.3165. It has gained 1.5 per cent this week, helped by signals from the Bank of Canada that higher interest rates lie ahead.

Chances of a rate hike this year have surged to more than 90 per cent from less than one-in-four before stronger-than-expected jobs data on Friday.

The central bank, which had long said interest rates are too blunt a tool to tackle the country’s housing market, may have finally decided to act and at least limit its role in fueling a potential bubble with low interest rates.

Resales of Canadian homes dropped 6.2 per cent in May from April as Toronto sales plunged 25.3 per cent in the month as new housing policy changes sideswiped demand and new listings rose again, the Canadian Real Estate Association said.

Canadian government bond prices were lower across a flatter yield curve, with the two-year down nine cents to yield 0.926 per cent and the 10-year falling 20 cents to yield 1.513 per cent.

The gap between the 2-year yield and its U.S. equivalent narrowed by 3.1 basis points to a spread of -43.5 basis points, its smallest since Feb. 27.

© Thomson Reuters

The pound is on a tear this morning after Bank of England came closest to voting for rate hike since 2007

LONDON — Sterling surged to its highest in a week against the euro on Thursday after as many as three members of the Bank of England’s policy committee surprised financial markets by voting for a rise in interest rates.

Trading below US$1.27 before the Bank’s decision, the pound also leapt a full cent to US$1.2795 after it emerged that Ian McCafferty and Michael Saunders had voted with existing policy hawk Kristin Forbes for higher borrowing costs.

The split votes comes at a time when the Bank has blamed a rise in inflation far above its 2 per cent target on a weak pound and was taken as a warning that officials could seek to defend the currency with rhetoric or action even as the economy overall slows.

It was also just the latest surprise in a week which has seen the pound slump after Prime Minister Theresa May lost her parliamentary majority in an early election.

“There is a clear emphasis on the risk of a sustained inflation overshoot and the Bank of England probably does not want to be seen as being dismissive of such concerns,” said Geoffrey Yu, Head of the UK Investment Office at UBS Wealth Management.

Short sterling contracts for December of this year moved 6 basis points, raising the likelihood attached to a rise in the bank’s main interest rates before the end of 2017 to around 30 per cent.

Two-year gilt yields hit their highest since May 10 as prices tumbled, and the eurozone’s benchmark German 10-year bond yield also hit a day’s high of 0.265 per cent.

But the implications for growth and company profits in an economy already slowing sharply were evident in a slump for both Britain’s main FTSE 100 index and more domestically focused mid-caps.

The FTSE 100 hit a session low of 1.1 per cent while mid-caps saw their sharpest one-day fall in nearly a year, down 1.9 per cent.

Other analysts emphasized that the vote may be chiefly a way of the Bank supporting the pound without actually changing policy conditions, noting also that Forbes is due to leave at the end of the month.

“With the economic outlook still challenging, wage growth will likely remain weak which should act as a drag on longer term inflation once the currency impact passes,” said Oanda analyst Craig Erlam.

“(That’s) assuming we don’t see further dramatic shifts lower in sterling.”

© Thomson Reuters 2017

‘The market is in trouble’: Oil drops below $45, losing all the gains from the OPEC output cut

Oil prices dropped to six-week lows on Thursday, under pressure from high global inventories and doubts about OPEC’s ability to implement agreed production cuts.

Brent crude oil fell 30 cents to US$46.70 a barrel, its weakest since May 5 and just above six-month lows, before recovering a little to trade around US$46.90 by 0945 GMT.

U.S. light crude was down 15 cents at US$44.58, also not far off six-month lows.

Both crude benchmarks have lost all the gains made at the end of last year after the Organization of the Petroleum Exporting Countries agreed with other big producers to cut output in an effort to prop up prices.

OPEC and its allies have promised to restrict output until at least the end of the first quarter of next year to try to drain surplus supply.

But inventories are near record highs in many parts of the world, and many traders expect further price falls.

“The market is in trouble,” said Tamas Varga, analyst at London brokerage PVM Oil Associates.

Crude prices have fallen about 12 per cent since May 25, when OPEC agreed to extend its output limits into next year.

Despite the deal, some OPEC members, including Nigeria and Libya, have been exempt from cutting and their rising output is seen to be undermining efforts led by Saudi Arabia.

“OPEC 2017 year-to-date exports are only down by 0.3 million barrels per day (bpd) from the October 2016 baseline,” analysts at AB Bernstein wrote.

OPEC’s pledge was to cut some 1.2 million bpd, while other producers including Russia agreed to bring the total reduction to almost 1.8 million bpd.

But production in the United States, which is not part of the deal, has jumped 10 per cent over the past year to 9.33 million bpd.

“Production growth in Libya and Nigeria and continued rig additions in the U.S. are complicating the picture, raising doubts on OPEC’s strategy,” AB Bernstein said.

The U.S. government’s Energy Information Administration has raised its forecast for domestic output growth in 2017 to 460,000 bpd from a predicted decline of 80,000 bpd in December.

OPEC now expects U.S. production to increase by 800,000 bpd in 2017.

This suggests global oversupply will persist for a while.

The International Energy Agency says it expects oil supplies next year to outpace demand despite consumption hitting 100 million bpd for the first time.

© Thomson Reuters 2017

Stocks fall, dollar pares losses after Fed forges ahead with rate hike

NEW YORK — U.S. stocks fell in volatile trading while the dollar pared losses on Wednesday after the Federal Reserve delivered a widely expected interest rate hike and announced it would begin cutting its huge holdings of bonds this year.

The U.S. central bank lifted the benchmark lending rate by a quarter percentage point and its policy-setting committee indicated the economy has been expanding moderately, according to a statement following a two-day meeting.

U.S. Treasury yields edged up but remained lower on the day, with the Fed sticking to its plan to raise rates again this year and detailing plans to reduce its US$4.5 trillion balance sheet.

Traders said the Fed might not be able to hike later this year as forecast given weak inflation data. Data earlier Wednesday showed U.S. consumer prices unexpectedly fell in May, suggesting a softening in domestic demand.

“It just looks like the Fed is sticking to their story and the market remains highly skeptical that the Fed is going to be able to deliver just based upon underlying data. I would think that at some point the market is going to be pricing in even greater risks that the Fed might be moving too quickly,” said Mark Cabana, head of U.S. short rates strategy at Bank of America Merrill Lynch in New York.

U.S. short-term interest rate futures pared earlier gains after the Fed’s hike. Traders now see June next year as the earliest meeting at which the U.S. central bank will next lift its target for overnight borrowing costs, based on fed funds futures traded at CME Group as analyzed by Reuters.

The dollar index fell 0.11 per cent, with the euro up 0.04 per cent to US$1.1219.

The Japanese yen strengthened 0.55 per cent versus the greenback at 109.49 per dollar, while sterling was last trading at US$1.2751, up 0.01 per cent on the day.

The Dow Jones Industrial Average was down 9.3 points, or 0.04 per cent, to 21,319.17, the S&P 500 lost 9.38 points, or 0.38 per cent, to 2,430.97 and the Nasdaq Composite dropped 56.39 points, or 0.91 per cent, to 6,163.98.

Benchmark 10-year U.S. Treasury notes were up 20/32 in price to yield 2.1377 per cent, from 2.207 per cent late on Tuesday.

The pan-European FTSEurofirst 300 index lost 0.35 per cent and MSCI’s gauge of stocks across the globe shed 0.24 per cent.

Energy sector shares were the biggest drag on the S&P 500, tracking a slide in crude oil prices.

Oil prices tumbled after data showing an unexpectedly large buildup in gasoline stockpiles.

U.S. crude fell 3.7 per cent to settle at US$44.73 per barrel and Brent was last at US$46.99, down 3.5 per cent.

Gold rose after the weaker-than-expected U.S. data knocked the dollar.

Spot gold added 0.2 per cent to US$1,267.44 an ounce. U.S. gold futures gained 0.07 per cent to US$1,269.50 an ounce.

Copper lost 0.87 per cent to US$5,667.00 a tonne.

© Thomson Reuters 2017