Business Blog Posts

Shares in Minmetals, a unit of China's largest metals trader, were placed on a trading halt in Hong Kong with the company expected to respond to Barrick's rival bid later on Tuesday.

An unsuccessful capital raising by Minmetals in Hong Kong last week prompted speculation it might not have the funding in place to formally launch the C$6.3 billion offer it announced earlier this month.

State-owned Chinese firms also traditionally do not get drawn into bidding wars.

However, some analysts said they expected Minmetals to respond with a higher offer. One source close to the deal said Minmetals chief executive Andrew Michelmore was under pressure to secure a deal although noted the company was having funding issues.

"Michelmore is liable to lose, and I have to use a Chinese expression here, a hell of a lot of face if he doesn't get a deal away," said the source, who was not authorized to talk publicly about the deal.

Canada's Barrick, the world's largest gold miner, announced an agreed offer for Equinox on Monday, seeking to tap surging demand from China and other developing economies that has pushed prices up more than sevenfold in the past eight years.

Barrick Chief Executive Aaron Regent said it was too early to speculate on how it would respond to a bidding war with Minmetals but highlighted his company's strong balance sheet and access to debt.

"We put what we think is a fair offer on the table and the Equinox board and management think so as well and we have their endorsement. If there is another bid coming we will have to wait and see," Regent told reporters on a conference call.

UNIQUE OPPORTUNITY

Barrick offered to buy Equinox for C$8.15 a share, an 8.7 percent premium over its Thursday closing price. The all-cash bid is 16 percent higher than Minmetals' earlier offer.

Equinox shares jumped 11.6 percent in Toronto on Monday and closed at C$8.37, only about 2.6 percent higher than Barrick's offer, indicating investors were divided about a higher offer emerging.

"China has too much hot cash and the state policy is to encourage domestic companies to go out buying resources," said Zibo Chen, an analyst at Kingsway Financial Services Group. He would not speculate on whether Minmetals will raise its offer but said. "Even if they fail this time, the company will continue to seek opportunities overseas," he said.

Equinox, a global miner listed in Canada and Australia, owns the Lumwana mine in Africa's rich Zambian copper belt and most of the Jabal Sayid project in Saudi Arabia.

"This is a unique opportunity, an opportunity to acquire a large copper production base with expansion potential in an attractive region," Regent said.

Equinox had previously called the C$7-a-share Minmetals offer a low-ball bid. On Monday it said it believes the Barrick bid is superior in terms of price and its likelihood of completion.

In Australia, markets were closed for a public holiday. Trading resumes on Wednesday.

Minmetals said it would not comment on the Barrick offer until it had studied the details.

COPPER/GOLD FOCUS

Barrick would use about half of the $4 billion in cash they have on their balance sheet to fund the deal, Regent said. The balance would be funded with debt, revolving credit facilities and new bonds.

Regent, who has a background in base metals, sees the takeover bid as an opportunity to gain access to the Zambian copper belt at a time when copper prices are expected to keep climbing to fresh records. London copper hit an all-time high above $10,000 a tonne in February and traded near $9,700 on Tuesday.

Barrick will double its position in copper with the acquisition while reducing Barrick's exposure to gold to 80 percent from a current 90 percent.

Regent said the company's focus remained on copper and gold and that it was not planning on expanding into other commodities at this stage.

Equinox's Lumwana mine is Africa's third-largest copper operation by production and the Jabal Sayid development is due to start production next year.

(Additional reporting by Alison Leung in HONG KONG; Editing by Lincoln Feast)

About 5.4 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below the daily average of 7.74 billion.

Kimberly-Clark (KMB.N) fell 2.7 percent to $64.24 after it cut the low end of its full-year outlook because the costs of pulp and other goods rose more than twice as much as it had expected.

The threat of rising commodity costs will remain in the spotlight for one of the busiest weeks of earnings, with 180 S&P 500 companies set to report this week, including other major consumer names like Procter & Gamble (PG.N) and Colgate-Palmolive (CL.N).

"That is going to be the next thing that happens -- the forward guidance is going to start to become impacted because of higher prices," said Ken Polcari, managing director of ICAP Equities in New York.

"This non-existent inflation that (the Federal Reserve) keeps talking about is elusive, because there clearly is much more inflation than they care to admit at the moment."

Kimberly-Clark, maker of Kleenex tissue and Huggies disposable diapers, is among companies highly vulnerable to rising commodity costs because its products contain oil-based materials and paper.

The Dow Jones industrial average .DJI dropped 26.11 points, or 0.21 percent, to end at 12,479.88. The Standard & Poor's 500 Index .SPX shed 2.13 points, or 0.16 percent, to 1,335.25. But the Nasdaq Composite Index .IXIC gained 5.72 points, or 0.20 percent, to close at 2,825.88.

Johnson Controls Inc (JCI.N) fell 2.8 percent to $39.60 after the company, one of the world's largest auto suppliers, said its fiscal third-quarter results would be hit by a drop in car production following Japan's massive earthquake last month. [ID:nN25139917] Japan's earthquake has disrupted the supply of auto parts and forced auto companies to idle plants.

Through Monday, 75 percent of the 151 companies in the S&P 500 that have reported results have beaten analysts' expectations. That is just above the average over the past four quarters but well above the average of 62 percent since 1994, according to Thomson Reuters data.

The Nasdaq edged higher, boosted by SanDisk Corp (SNDK.O), up 1.6 percent at $49.78 after raising its 2011 margin outlook late on Thursday.

But energy and materials companies' shares ranked among the worst performers, with the PHLX oil service sector index .OSX off 0.9 percent and the S&P Materials Index .GSPM down 0.7 percent. Oil prices slipped in thin, choppy trade as a sell-off in silver from near record highs lifted the dollar off its lows, prompting a bout of profit taking in crude.

The CBOE Volatility Index .VIX rose 7.4 percent after falling last week to its lowest level since 2007.

NETFLIX FALLS LATE

After the closing bell, Netflix Inc (NFLX.O) fell 4.5 percent to $240.44 after the video rental company reported better-than-expected profit and revenue, but issued an outlook for the second quarter that disappointed investors.

This week is another hectic one for earnings, including Amazon.com (AMZN.O), Coca-Cola Co (KO.N), Microsoft Corp (MSFT.O) along with a host of energy companies such as Exxon Mobil Corp (XOM.N) and Chevron Corp (CVX.N).

Regarding expectations for this week's batch of energy companies' earnings, Polcari added: "They are all projected to be better because of high oil prices and all that stuff -- great for them, but not good for anyone else."

The week's agenda includes a two-day meeting of the U.S. Federal Reserve's policymaking committee on Tuesday and Wednesday. Fed Chairman Ben Bernanke will hold the first of four annual press conferences on Wednesday after the Federal Open Market Committee's meeting ends.

Investors will look for clues about the direction of monetary policy when the Fed's bond buying program ends in June.

Declining stocks outnumbered advancing ones on the NYSE by 1,640 to 1,379, while on the Nasdaq, decliners beat advancers by 1,401 to 1,185.

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

Netflix posted first-quarter earnings of $60.2 million, or $1.11 a share -- up from $32.3 million, or 59 cents per share, in the period a year ago. Revenue rose 46 percent to $719 million, it said on Monday.

Analysts had expected revenue of $703.6 million, according to Thomson Reuters I/B/E/S.

Netflix's 3.3 million domestic subscriber additions -- plus another 29,000 new international subscribers -- brought its total to 23.6 million, underscoring its success so far in its transition from a mail-order business to one that increasingly delivers its movies and TV shows over the Web.

Its additions were at the high end of its own forecast range. It said it would likely end the second quarter with 24.9 to 25.9 million subscribers.

To attract more customers, Netflix has built its streaming offerings through a rush of content agreements. Recent ones include a Lionsgate deal for "Mad Men," a Fox deal for "Glee," and a two-year deal with CBS that adds shows such as "Cheers and "Frasier."

Netflix made an aggressive move into securing its own content, purchasing the distribution rights for the original series "House of Cards," starring Kevin Spacey.

Netflix shares fell to $238.20 following the earnings report, after closing at $251.67, down 55 cents, during the regular Nasdaq session. They have climbed almost 44 percent this year.

(Reporting by Paul Thomasch; Editing by Gary Hill)

Equinox shares jumped 11.6 percent in Toronto after the announcement on Monday, a signal that investors believe an even higher bid could emerge as copper prices keep pushing into record territory.

Barrick shares shed 6.7 percent as investors questioned whether a big move into the industrial metal would make the stock less attractive to those seeking exposure to gold prices.

"My attitude is that the Chinese are coming back higher, and I'd be surprised if Barrick played ball with the Chinese at a higher price because Barrick is already getting a lot of flak from its investor base for this deal," said an Equinox shareholder. He spoke on condition of anonymity because he was not authorized to speak about the deal.

Barrick will double its position in copper with the acquisition. Prices have risen more than sevenfold in the past eight years as supplies lag the surging needs of China and other developing economies.

Equinox, a global miner listed in Toronto and Sydney, owns the Lumwana mine in Africa's rich Zambian copper belt and most of the Jabal Sayid project in Saudi Arabia.

Toronto-based Barrick offered to buy Equinox for C$8.15 a share, an 8.7 percent premium over its Thursday closing price. Barrick said the deal was worth about C$7.3 billion, including warrants and options.

The all-cash bid is 16 percent higher than the C$6.3 billion offer that Minmetals presented on April 3. Its proposal underscored China's growing prominence in the global race for resources.

"I own a lot of Equinox but I was shocked - I was thrilled but I was shocked," the shareholder said, referring to the Barrick offer.

Minmetals declined comment until it had a chance to study the details of Barrick's announcement.

Equinox had previously called the C$7-a-share Minmetals offer a low-ball bid. On Monday it said it believes the Barrick bid is superior in terms of price and its likelihood of completion.

Equinox shares on Monday closed in Toronto at C$8.37, about 3 percent higher than Barrick's offer.

"I suspect that there is room on the upside for this, and the stock is trading at a premium to the bid," said John Ing, analyst at Maison Placements in Toronto.

"In a world where commodities are trading at ever new highs, and you're looking at this project and the cash flow generated, the reality is today's prices may well be cheap in tomorrow's world," Ing said, referring to Equinox's Zambian project.

Barrick said its agreement for Equinox prevents the Australian miner from soliciting superior bids and gives Barrick the right to match any higher offers. Equinox would have to pay Barrick C$250 million to walk away from the deal, even if it accepts a higher bid.

"If the Chinese are going to respond with a higher offer ... then we'll just have to respond in due course," Barrick Chief Executive Aaron Regent told Reuters in an interview.

Regent, who has a background in base metals, sees the takeover bid as an opportunity to gain access to the Zambian copper belt at a time when copper prices are expected to keep climbing to fresh records.

"Clearly we are optimistic on the copper price, otherwise we wouldn't be doing this," Regent said, noting that existing copper mines cannot keep pace with some 800,000 tonnes a year in new demand for the red metal every year.

But the deal would also lower Barrick's exposure to gold to 80 percent from a current 90 percent.

"If you're an investor in Barrick, you're buying it for its gold leverage," said Dahlman Rose mining analyst Adam Graf. "So investors may not be pleased that Barrick is spending $7 billion of cash, levering up its balance sheet, to buy something that they don't want exposure to."

Equinox's Lumwana mine is Africa's third-largest copper operation by production and the Jabal Sayid development is due to start production next year.

The acquisition will double Barrick's current production to around 600 million pounds. Output would increase to more than 700 million pounds with the completion of Jabal Sayid in late 2012.

Barrick already owns the Zaldivar copper mine in northern Chile, the No. 1 copper-producing country, so the acquisition of Equinox would provide it with access to two of the most prolific copper-producing regions of the world.

As part of the Barrick agreement, Equinox will pull its unsolicited bid for Lundin Mining (LUN.TO). Equinox had been trying to take over the rival copper miner since February but conceded on Monday that its own shareholders would not likely have supported the deal.

Barrick said it has committed cash and financing in place for the transaction. It expects the deal to add to earnings per share and cash flow immediately.