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Canaccord Genuity on Bank of America, JC Penney, Walgreen

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Commentary on Bank of America's sale of Merrill Lynch division to Julius Baer, JC Penney's CEO's departure, and Walgreen's stake in Alliance Boots.

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MINYANVILLE ORIGINAL

Bank of America
(BAC): Let's make a deal.

Julius Baer is in discussions with Bank of America about purchasing Merrill Lynch's non-US wealth management division, as the Swiss private bank looks to improve margins through scale. The unit is estimated to be worth $1.5- 2.0 billion and would increase Baer's assets under management by 50% from the $186 billion reported in April.

If the deal took place, it would be the biggest since Baer teamed up with Oversea-Chinese Banking Corp. to purchase ING's (ING) private banking assets. Julius Baer and other Swiss banks are looking to increase their presence in Europe and offshore in Asia as the business of serving Western foreigners has come under pressure in a global clampdown on tax evasion.

Commenting on the possible acquisition, a spokesperson for Julius Baer said, "Given the early stage of these discussions, the outcome is entirely open," declining to say if the company would buy some or all of the business.

Reuters initially reported that Bank of America was looking at selling the unit in April, citing Credit Suisse (CS) and Royal Bank (RY) as potential suitors. The bank has been selling off non-core assets over the past several months as it looks to build capital. It has trailed its rivals in the recovery since the financial crisis, primarily due to losses and lawsuits regarding its 2008 purchase of Countrywide Financial, a subprime lender.

JC Penney (JCP): Francis surrenders.

Shares of JC Penney plummeted Tuesday after its president abruptly left the department store operator following a botched advertising campaign that was part of the 110-year-old chain's turnaround plans. Penney said on Monday that Michael Francis, a key member of the "dream team" it assembled to transform the company's image, merchandising, and pricing, was leaving just eight months after he joined from Target (TGT).

CEO Ron Johnson, who took over in November after coming from Apple (AAPL), admitted last month that Penney's ads had not clearly explained to shoppers a shift in its pricing strategy, which was central to its turnaround efforts. As president, Francis was responsible for the marketing of a controversial new pricing plan that aimed to get rid of hundreds of sales events. He also oversaw merchandising and product development.

The move, announced in a three-sentence statement, comes weeks after the department store operator said it had a worse-than-expected 18.9% drop in same-store sales and a $163-million loss for the first quarter as it tried to wean middle-market customers off a steady use of couponing and frequent discounts. No formal successor has yet been named.

Walgreen (WAG); Big boots to fill.

Walgreen agreed to buy a 45% stake in European health and beauty group Alliance Boots for $6.7 billion in cash and stock as it looks to diversify in a changing global health market. The US drug retailer said it will initially invest about $4.0 billion in cash and 83.4 million shares for a minority stake in Alliance Boots and will have the option to acquire the remaining stake in roughly three years.

Alliance Boots has a presence in more than 25 countries and operates more than 3,330 health and beauty retail stores and around 625 optical practices; its pharmaceutical wholesale businesses supply medicines, other health-care products, and related services. Walgreen said the deal, which will put four of its senior executives on the Alliance Boots board, is expected to add between $0.23-0.27 to adjusted earnings in the first year.

Combined synergies across both companies were forecast to be $100-150 million in the first year and $1 billion by the end of 2016. However, Walgreen shares traded slightly lower on the news as enthusiasm among investors might be muted by the decision to expand in Europe at the current time. European drug prices are under intense pressure as cash-strapped governments across the eurozone make deep budget cuts, but that is increasing the incentives to boost volumes and achieve economies of scale.

The acquisition also comes as Walgreen works through a sales slump prompted largely by a split with pharmacy benefits manager Express Scripts (ESRX), resulting in some clients going elsewhere to fill their prescriptions.

Editor's note: For more information on Canaccord Genuity, click here.
No positions in stocks mentioned.
Canaccord Financial and its affiliated companies may have a Corporate Finance or other relationship with the companies mentioned and may trade in any of the Designated  Investments mentioned herein either for their own account or the accounts of their customers, in good faith and in the normal course of market making. The authors have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Corporate Finance activities, or to coverage herein.
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