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For Wednesday’s equity market disaster du jour we take a short hop across the North Sea to the Netherlands and Koninklijke Philips Electronics, which has unleashed an ugly profits warning that’s knocked about EUR2.5bn from its market capitalisation.
Philips, the Dutch electronics group, on Monday said it would spin off its lossmaking television division into a joint venture with Chinese TV manufacturer TPV Technology, reports the FT. The venture, which will have a licence to market TVs in Europe under the Philips brand, was the first big move by chief executive Frans van Houten, who took over on April 1.
This stylish bracelet and bowl are the fruits of a joint venture between Dutch electronics group Philips and ABN Amro, and were designed to help online traders make better decisions.Here’s how the system works: The Emobowl ™ acts as an emotion mirror, in which the intensity of the user’s feelings is reflected. Read more
Gavan Nolan of Markit wrote this CDS report
European credit spreads tightened today, extending the rally seen last week. The Markit iTraxx Europe index closed at 87bp, over 3bp tighter than Friday’s close. The Markit iTraxx HiVol index was about 7bp tighter at 146bp, while the Markit iTraxx Crossover index traded below 550bp for the first time since the roll in September.
The mood was upbeat on expectations that the perceived improvement in the global economy will feed through into earnings. Dutch electronics group Philips provided some support to that scenario after it posted a surprise third-quarter profit. Effective cost-cutting measures boosted earnings, masking an 11% fall in sales. However, the firm was cautious about the short-term outlook, stressing that it sees little sign of recovery in its main markets. Read more
European conglomerates’ argument that they are a good investment in troubled times has been hurt by a string of below-average performances during the current recession, according to the FT’s annual snapshot of the world’s largest companies, ranked by market capitalisation. Eight of Europe’s 10 largest conglomerates – including Siemens, Philips and Saint Gobain – ranked in the bottom half for shareholder returns out of the 600 largest companies on the continent over the first six months of this year, the research showed.
NXP, the Dutch semiconductor maker founded by Philips, is understood to be planning to restructure its $6bn debt. The company, which has about $5.7bn of high-yield bonds, making it Europe’s biggest issuer of junk bonds, could announce a proposal on Thursday to swap its lower-ranking, unsecured bonds for new secured bonds. S&P recently warned that NXP, whose bonds are trading at about 20% of face value, was at risk of default this year.
Corporate bellwethers in the US and Europe slashed more than 76,000 jobs from their payrolls on Monday. US corporate groups such as Caterpillar, General Motors, Sprint Nextel, Texas Instruments, and Home Depot led the retreat, citing factors such as the domestic recession coupled with tough export markets. Pfizer, the drugs group, added to the tally saying jobs would be lost in its takeover of Wyeth, while IBM slashed more than 2,800 jobs last week. Large European companies such as Philips, financial group ING and the Anglo-Dutch steelmaker Corus, owned by India’s Tata Group, also unveiled plans to axe staff. In many cases, the cutbacks accompanied disappointing quarterly results or bleak outlooks for 2009.
Caterpillar, the world’s largest maker of construction equipment, said it would cut 20,000 jobs as it reported an annual fall of more than 32% in Q4 profits – a month after slashing executive salaries and jobs at large plants. Sprint Nextel, the US mobile-phone operator, said it will cut 8,000 jobs, or 14% of its workforce, while DIY retailer Home Depot is cutting 7,000 jobs and freezing salaries. Pfizer said 19,500 jobs would go after its takeover of US rival Wyeth, while carmaker GM announced 2,000 job losses at two plants in Michigan and chipmaker Texas Instruments said it would cut 3,400 positions. IBM meanwhile cut 2,800 jobs last week. In Europe, ING said it would axe 7,000 of its 130,000 global staff and Philips 6,000 jobs while Corus, Britain’s largest steelmaker, announced cuts of 3,500 from its global workforce of 41,000, with more than 2,000 jobs to go in the UK where it employs 20,000.
Bain Capital, the US buy-out fund, is set to make a rare acquisition in Japan with the agreed purchase of the maker of Denon audio equipment in a deal worth up to Y48bn ($447m). Bain said Friday it would launch a tender offer this week for shares in D&M Holdings, which also owns the Marantz audio brand. D&M’s biggest shareholder, RJH International, the listed spin-off of Ripplewood, another US fund, has agreed to sell its 49% stake to Bain. Philips, the Dutch electronics group, is also expected to sell its 12% stake. Ripplewood, which made a series of acquisitions in Japan earlier in the decade, created D&M in 2002 after splitting Denon from parent Columbia Music and buying Marantz from Philips.
Europe’s Q1 earnings season starts Monday with earnings due from Philips, as some European executives and analysts warn about the continent’s outlook. After General Electric disappointed markets with a profits warning Friday, analysts in Europe expect a mixed Q1 but low or negative growth for the whole year. Teun Draaisma, head of European equity strategy at Morgan Stanley, says he expects a reasonable first quarter but forecasts a 16% drop in earnings over the whole year.
Five-year credit default swaps on Continental, the German tyre and car parts maker, widened sharply on Tuesday on rumours of a private equity bid approach.Credit default swaps, which are a kind of insurance against non-payment of bonds, widened to a high of 70 basis points, 18bp higher on the day, meaning that the cost to protect the bonds against default had risen by €18,000 on €10m of debt over five years.The company has been at the centre of speculation over a private equity approach for the past month. This is deemed as negative for bonds and the derivatives of bonds as private equity funds leverage up the debt on the balance sheet of the target company, which reduces their creditworthiness and in some cases lowers their credit ratings.
Other active individual names included Philips, the electronics company, Syngenta, the agribusiness, OTE, the Greek telecoms operator, and Rentokil, the pest control firm, which all widened between 2bp and 4bp on bid speculation. Read more