Exclusive: TikTok’s Chinese owner offers to forego stake to clinch U.S. deal


© Reuters. FILE PHOTO: TikTok logos are seen on smartphones in front of displayed ByteDance logo in this illustration

By Echo Wang and Alexandra Alper

NEW YORK/WASHINGTON (Reuters) – China’s ByteDance has agreed to divest the U.S. operations of TikTok completely in a bid to save a deal with the White House, after President Donald Trump said on Friday he had decided to ban the popular short-video app, two people familiar with the matter said on Saturday.

U.S. officials have said TikTok under its Chinese parent poses a national risk because of the personal data it handles. ByteDance’s concession will test whether Trump’s threat to ban TikTok is a negotiating tactic or whether he is intent on cracking down on a social media app that has up to 80 million daily active users in the United States.

Trump told reporters onboard Air Force One late on Friday that he would issue an order for TikTok to be banned in the United States as early as Saturday. “Not the deal that you have been hearing about, that they are going to buy and sell… We are not an M&A (mergers and acquisitions) country,” Trump said.

ByteDance was previously seeking to keep a minority stake in the U.S. business of TikTok, which the White House had rejected. Under the new proposed deal, ByteDance would exit completely and Microsoft Corp (NASDAQ:) would take over TikTok in the United States, the sources said.

Some ByteDance investors that are based in the United States may be given the opportunity to take minority stakes in the business, the sources added. About 70% of ByteDance’s outside investors come from the United States.

The White House declined to comment on whether Trump would accept ByteDance’s concession. ByteDance in Beijing did not respond to a request for comment

Under ByteDance’s new proposal, Microsoft will be in charge of protecting all U.S. user data, the sources said. The plan allows for another U.S. company other than Microsoft to take over TikTok in the United States, the sources added.

Microsoft did not respond to a request for comment.

As relations between the United States and China deteriorate over trade, Hong Kong’s autonomy, cyber security and the spread of the novel coronavirus, TikTok has emerged as a flashpoint in the dispute between the world’s two largest economies.

ByteDance has been considering a range of options for TikTok amid U.S. pressure to relinquish control of the app, which allows users to create short videos with special effects and has become wildly popular with U.S. teenagers.

ByteDance had received a proposal from some of its investors, including Sequoia and General Atlantic, to transfer majority ownership of TikTok to them, Reuters reported on Wednesday. The proposal valued TikTok at about $50 billion, but some ByteDance executives believe the app is worth more than that.

ByteDance acquired Shanghai-based video app Musical.ly in a $1 billion deal in 2017 and relaunched it as TikTok the following year. ByteDance did not seek approval for the acquisition from the Committee on Foreign Investment in the United States (CFIUS), which reviews deals for potential national security risks. Reuters reported last year that CFIUS had opened an investigation into TikTok.

APP SCRUTINY

The United States has been increasingly scrutinizing app developers over the personal data they handle, especially if some of it involves U.S. military or intelligence personnel. Ordering the divestment of TikTok would not be the first time the White House has taken action over such concerns.

Earlier this year, Chinese gaming company Beijing Kunlun Tech Co Ltd sold Grindr LLC, a popular gay dating app it bought in 2016, for $620 million after being ordered by CFIUS to divest.

In 2018, CFIUS forced China’s Ant Financial to scrap plans to buy MoneyGram International Inc over concerns about the safety of data that could identify U.S. citizens.

ByteDance was valued at as much as $140 billion earlier this year when one of its shareholders, Cheetah Mobile (NYSE:), sold a small stake in a private deal, Reuters has reported. The startup’s investors include Japan’s SoftBank Group Corp.

The bulk of ByteDance’s revenue comes from advertising on apps under its Chinese operations including Douyin – a Chinese version of TikTok – and news aggregator app Jinri Toutiao, as well as video-streaming app Xigua and Pipixia, an app for jokes and humorous videos.





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Laredo Petroleum: Lengthy Potential Runway Offers Upside For The Bonds (NYSE:LPI)


Laredo Petroleum (LPI) looks capable of generating a modest amount of positive cash flow over the next couple of years at current strip prices. Laredo’s oil production is expected to fall considerably during 2020, but then rebound after Q4 2020 as it completes its oil heavy Howard County DUCs.

Laredo’s stock appears to require sustained mid-$50s oil to have significant true upside. Laredo’s unsecured bonds are still trading at a noticeable discount to par, and look to be a solid value though, given Laredo’s low projected amount of credit facility debt. Laredo’s next bond maturity isn’t until January 2025, so it may be able to pay out four years of interest payments and still provide a substantial recovery for noteholders if oil recovers slowly, but doesn’t reach the mid-$50s level. At mid-$50s oil, Laredo may be able to deal effectively with the 2025 bonds.

2020 Production

Laredo has cut its 2020 capex budget to $265 million, and now expects total 2020 production to average around 81,250 BOEPD and 2020 oil production to average around 26,300 barrels per day. This is roughly flat total production growth and a decrease of -8% in oil production compared to 2019.

Source: Laredo Petroleum

However, the expected Q4 2019 to Q4 2020 decline in production is much greater due to Laredo’s front loaded capex plans. Twenty-eight of the 33 planned completions in 2020 came in Q1 2020.

Laredo expects its Q4 2020 total production to be down -12% versus Q4 2019, while its oil production is expected to be down -22% over the same period of time.

Source: Laredo Petroleum

2020 Outlook

At $39 WTI oil in 2020 (around current strip), Laredo may deliver $661 million in revenues. This includes $232 million in positive 2021 hedge value. Laredo is affected by low NGL prices as it only received $4.68 per barrel for its NGLs in Q1 2020 and it anticipates receiving $1 to $2 per barrel for its NGLs in Q2 2020. NGL futures are improving for later in 2020, but Laredo’s average NGL price will still likely be low for the whole year.

Barrels/Mcf $ Per Barrel/Mcf (Realized) $ Million
Oil 9,599,500 $36.00 $346
NGLs 9,426,673 $5.00 $47
Natural Gas 63,780,470 $0.80 $51
2020 Hedge Value $232
Net Midstream Service $5
Net Oil Purchases -$20
Total Revenue $661

Laredo’s total cash expenditures are estimated at $611 million for 2020. This includes $51 million that it is paying for additional 2021 hedges.

$ Million
Lease Operating Expense $85
Production and Ad Valorem Taxes $30
Marketing and Transportation $50
Cash G&A $45
Interest $85
2021 Hedge Cost $51
Capital Expenditures $265
Total Expenses $611

Thus, Laredo is expected to end up with around $50 million in positive cash flow in 2020. This would have been over $100 million without the payment for additional 2021 hedges. However, this positive cash flow is only achieved with a combination of strong 2020 hedges and significant production declines in the second half of the year.

2021 Outlook

It appears that Laredo may be able to maintain total production (at Q4 2020 levels) in 2021 and increase oil production while generating a bit of positive cash flow. I estimate that it could maintain total production at 73,500 BOEPD and significantly increase its oil production to around 25,000 barrels per day in 2021 with a $250 million capital expenditure budget.

This would be accomplished primarily through drawing down most of the 40 Howard County DUCs that it expects to have at the end of 2020. Laredo mentioned that it expected to be able to maintain Q4 2020 production levels in 2021 by completing as few as 30 Howard County DUCs. However, I believe that would require it to front-load the wells into the first part of 2021, so I am assuming a higher capex budget than the cost of completing 30 Howard County DUCs in order to achieve a more balanced rate of completions during the year. The Howard County wells are forecasted to have 80% oil production during their first year, contributing to Laredo’s increased oil production while its total production remains flat.

At around $43 WTI oil in 2021, Laredo may end up with around $560 million in revenues after hedges. This also assumes some rebound in NGL prices and natural gas prices compared to 2020. NGL prices would still be below 2019 levels in this scenario, but natural gas prices would be higher with the WAHA basis differential narrowing significantly.

Barrels/Mcf $ Per Barrel/Mcf (Realized) $ Million
Oil 9,125,000 $40.00 $365
NGLs 8,320,175 $8.50 $71
Natural Gas 56,293,950 $1.40 $79
2020 Hedge Value $60
Net Midstream Service $5
Total Revenue $580

With $250 million in capital expenditures, Laredo’s total cash expenditures for 2021 are estimated at $557 million.

$ Million
Lease Operating Expense $81
Production and Ad Valorem Taxes $35
Marketing and Transportation $46
Cash G&A $40
Interest $105
Capital Expenditures $250
Total Expenses $557

Thus, Laredo is projected to end up with $23 million in positive cash flow in 2021 if it attempts to maintain 73,500 BOEPD in average production (along with a significant increase in oil production).

Laredo’s Howard County wells are now expected to provide okay returns at $40+ oil (and higher IRRs for finishing the DUCs), so I can see it completing the DUCs in 2021 if oil remains in the $40s.

Source: Laredo Petroleum

Debt And Valuation

Laredo started 2020 with $375 million in credit facility debt, while its working capital deficit (excluding derivatives) was pretty minimal. Laredo’s forecasted positive cash flow in the 2020 and 2021 scenarios mentioned above, as well as its note offerings in early 2020 should reduce its credit facility debt to approximately $135 million by the end of 2021. This includes the effect of its non-budgeted $22.5 million Howard County acquisition in February 2020.

Thus, Laredo may end 2021 with approximately $1.135 billion in total net debt. At that level of debt and 2021 production levels, Laredo’s leverage would be 3.4x at $45 WTI oil, 2.9x at $50 WTI oil and 2.7x at $55 WTI oil. This assumes no hedges.

WTI $45 $50 $55
Leverage 3.4x 2.9x 2.7x

Laredo’s historical valuation has been around 3.0x to 3.5x EBITDAX, so at $45 to $50 WTI oil, its common stock has pretty minimal value. At $55 WTI oil, Laredo’s common stock may be worth around $21. While Laredo’s stock isn’t hopelessly out of the money in the long run, it does require sustained oil in the $50s to have upside without being overvalued.

Notes On Bond Valuations

Laredo’s unsecured bonds (currently trading in the mid-60s) appear to have solid potential though. Laredo’s credit facility debt is expected to be reduced substantially by the end of 2020, leaving it with plenty of liquidity. It also appears able to maintain total production (and increase oil production) from Q4 2020 levels at current strip of $43 WTI oil for 2021 without cash burn. This is with the benefit of DUCs though.

Source: Laredo Petroleum

After its hedges run out in 2021, Laredo’s breakeven point should rise to around $45 to $50 WTI oil.

Laredo looks capable of keeping its credit facility debt at relatively low levels. Laredo’s next bond maturity is in January 2025, so it may be able to get its credit facility extended to at least 2024.

This means that in a scenario with at least slowly improving oil prices, Laredo’s unsecured bonds could receive four years’ worth of interest payments. As well, at $45 WTI oil, Laredo’s unsecured bonds would be worth around 85 cents on the dollar assuming a 3.0x multiple.

Conclusion

Laredo Petroleum’s hedges should help it generate a modest amount of positive cash flow in 2020 and 2021. Its production (particularly its oil production) is expected to decline considerably from Q4 2019 to Q4 2020. However, it looks likely that Laredo’s total production can stabilize and its oil production can increase after that point with the help of its Howard County wells.

Laredo’s common stock likely requires a sustained period of mid-$50s oil to have significant long-term upside from current levels. A prolonged period of mid-$50s oil may allow Laredo to deal with its 2025 notes as well.

In case of lower oil prices, Laredo’s unsecured bonds can probably get four years’ worth of interest payments as well potentially a significant (85% with $45 oil) recovery in restructuring if it comes to that. This also depends on natural gas and NGL prices, and I have assumed longer-term realized prices of around $1.20 and $10 (22% of WTI) respectively in my calculations.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Alstom offers French factory sale to clinch Bombardier deal By Reuters


© Reuters. FILE PHOTO: A logo of Alstom is seen at the Alstom’s plant in Semeac near Tarbes

PARIS (Reuters) – France’s TGV high-speed train maker Alstom (PA:) on Thursday offered to sell a French rail factory and make other concessions to win European Commission approval for its planned purchase of Bombardier (OTC:) Inc’s (TO:) transportation business.

The commitments also included selling Alstom’s Coradia Polyvalent – a range of regional trains – and divesting a Bombardier commuter trains division and the production facilities attached to that at its Hennigsdorf site in Germany.

Alstom’s bid in February of up to 6.2 billion euros ($7.0 billion) for Montreal-based Bombardier’s rail business has faced scrutiny from EU antitrust authorities, which have been expected to demand concessions to approve the deal.

By buying Bombardier’s train division, Alstom is seeking to create the world’s second largest train manufacturer to compete more effectively with Chinese leader CRRC Corp (SS:). Last year, EU regulators blocked Alstom’s attempt to merge rail assets with Siemens AG (DE:).

Alstom said it would sell its Reichshoffen factory in France, confirming a report by Reuters on Wednesday. The site in Eastern France has around 800 employees and produces mostly regional trains.

French unions, which are due to be updated on the concessions on Thursday, were still hoping to keep the site, a source familiar with the matter said on Wednesday.

The EU is due to decide whether or not to pursue a deeper enquiry on July 16, following its preliminary review of the deal.

Alstom said other concessions included providing access to some products within Bombardier’s train control systems and signalling units – one of the areas where the combined companies would have a large market share.

Alstom’s shares were up 0.3% at 43.05 euros by 0828 GMT.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Commerzbank CEO offers to resign to give bank a fresh start By Reuters


© Reuters. FILE PHOTO: Germany’s Commerzbank AG hold their annual results press conference in Frankfurt

FRANKFURT (Reuters) – Commerzbank (DE:) Chief Executive Martin Zielke offered to resign on Friday to open the way for a fresh start for the German lender, which has been under pressure from some investors over its poor financial performance.

The bank said its supervisory board would recommend to the broader Commerzbank board that it accept Zielke’s offer and a decision would be made at a July 8 board meeting.

Zielke was meant to present a strategy update to the board this week but the chief executive, in the top spot for four years, has struggled to persuade some investors that he can turn the bank around after a previous effort failed.

“I would like to open the way for a fresh start. The bank needs a profound transformation and a new CEO, who gets the necessary time from the markets to implement a strategy,” Zielke said in a statement.

Supervisory board chairman Stefan Schmittmann also offered to resign and Commerzbank said he would step down on Aug. 3.

The bank’s leadership has come under increased pressure in recent weeks from one of its top investors, Cerberus, which has called for management and other changes.

Cerberus, which bought a 5% stake in Commerzbank in 2017, began an activist campaign to force the lender to change strategy and hand the U.S. investor two seats on its supervisory board early last month.

Cerberus was not surprised by the resignations, though it was surprised by the timing, a person close to the investor told Reuters, adding that it would work with the government and bank staff to fill the vacuum.

The state, which owns almost 16% of Commerzbank, is its largest shareholder. The Finance Ministry said it was fully committed to its engagement with the bank.

“Commerzbank plays a central role in the financing of small and medium businesses and exports,” the ministry said in a statement.

The 150-year-old Commerzbank has struggled this year, posting a first-quarter loss, halting its 2019 dividend plans, backtracking on the sale of its Polish lender mBank (WA:), and losing a long-standing sponsorship deal with a local soccer team to rival Deutsche Bank (DE:).

Bailed out by the state during the last financial crisis, Commerzbank has also warned that its target for turning a profit in 2020 now seems “very ambitious” because of the COVID-19 pandemic.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Ex-Obama economic adviser offers this fiscal stimulus plan that’s ‘incredibly high bang for the buck’


Jason Furman, a Harvard economics professor and former economic adviser to President Barack Obama, has a very simple plan to both stimulate the economy and slow the spread of coronavirus.


“A fiscal stimulus plan that would have incredibly high bang for the buck would be for the government to print up masks … and mail them out to every American and tell every American to wear them.”

Furman made the comments Thursday on CNBC’s “Closing Bell.”

By his estimation, there’s not a lot that fiscal policy can do to stop a virus. But the small cost of mailing a mask to everyone would — assuming the vast majority of people wore them — slow the spread of COVID-19 and make it possible to actually reopen the economy successfully.

“It’s really not hard,” he said. “A mask is one of the steps that can control that virus,” adding that the masks could even say “‘Thank you Donald Trump’ on them,” as long as they did the trick.

Furman’s not alone in preaching the economic power of masks. Goldman Sachs analysts earlier this week said that a national face-mask mandate could save the U.S. economy from a 5% hit to GDP.

That’s not to say fiscal stimulus doesn’t also have its place.

Furman noted that the massive amount of stimulus from the Fed and Congress has definitely helped, but that “it’s really important that we continue action.”

“We had an extraordinary amount of support,” he said. “Over the last two months, over $1 trillion went out. That was more than any given year in the financial crisis.”

“So this is something that protected us from seeing an even larger second-wave recession as the people that got shut out of their jobs didn’t have to cut back on their spending nearly as much as they would have otherwise,” he told CNBC.

Furman also warned that the economic recovery will likely be much slower than previously expected, as many companies will take the opportunity to cut costs — and jobs.

“A lot of employers will use this as an opportunity to downsize,” he said.



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