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Equities and M&A Market Update

Authors: Jerusan Jegatheeswaran Co-VP Education/ Research, Dragos Cada Co-VP Education/ Research, Sam Luo Research Analyst, Matthew Morgan Research Analyst, Bilal Lodhi Research Analyst

Latest Developments in Equities

Daily Update - S&P 500 Continues Its Upward March

As of March 18th, the S&P 500 Index advanced 0.4 percent to the highest in over four months, as rising oil prices fueled an advance in energy shares. Notably, West Texas Intermediate crude advanced 0.8 percent to $58.99 a barrel, a four-month high.

Financials and consumer stocks also advanced, while the Dow Jones Industrial Average fought to stay positive even as Boeing declined on reports that the U.S. Transportation Department was examining the 737 Max’s design certification. Equities have been trending upward, and volatility declining, on expectations the Fed will point the way to just one rate hike in 2019 when it meets this week. Other central bank gatherings, including at the Bank of England, will give further clues on monetary policy.

Credit Suisse Raises Its S&P 500 Target for the Year

Jonathan Golub, chief U.S. equity strategist at Credit Suisse boosted his year-end forecast for the S&P 500 by 100 points to 3,025, a level which represents a 7 percent increase from March 15th close or 20% gain for full 2019 year. “Growth in corporate profits is slowing more than expected, but improving sentiment means investors will be willing to pay a higher multiple for stocks”, Golub says. “More specifically, less hawkish comments from the Fed, declining inflation and recession fears, and the potential for a resolution to China trade issues are the primary forces driving volatility and spreads lower, and stocks higher,” he added.

But even as stocks keep going higher, investors have been slow to embrace equities. The lack of optimism is one reason why bulls like Golub say there is more upside for the 10-year-old bull market.

Lyft’s IPO

Lyft is doing its initial public offering roadshow this week for the listing on Nasdaq next week. In a filing, Lyft indicated it is planning to sell approximately 30.8 millions shares at an offer price from $62 to $68, which could result in a market value of $20 billion. Lyft was part of decacorns, which is a group of private companies that have a valuation between $1 billion and $10 billion, and has lots of cash. Its competitor Uber is also going public this year, so it would be interesting to see which ride share company provide greater returns to investors.

Marriott Plans to Expand

Marriott announced that it will open more than 1,700 hotels in the next three years, which could potentially bring in $400 million revenue. 44% of the new hotels will be open in North America, and the remaining 56% will be in Asia and EMEA. In addition, their hotel revenue per available room will increase between 1% to 3% annually. As a result of the announcement, the share price went up by 2.1% on Monday, March 19. Activist investor Land & Buildings Investment Management LLC was planning to get on Marriott’s board to effectively manage Starwood’s (acquired by Marriott in 2016) and Marriott’s rewards programs.

Key upcoming events to look out for:

· Company earnings include FedEx, China Telecom, Tencent, Porsche, BMW, Hermes, Tiffany, Micron, Nike and PetroChina.

· The Fed is expected to hold interest rates steady, announce the end of asset roll-off from its balance sheet, and lower projections for the number of interest-rate hikes this year. The decision is due Wednesday.

· Central banks in Thailand, the Philippines and Indonesia are all scheduled for policy meetings.

· In the euro zone, purchasing manager survey numbers on Friday will give an indication of the health of the region’s industrial and service sectors at the end of the first quarter.

M&A Market Update

Latest Developments for M&A

NVIDIA’s Acquisition of Mellanox

It was announced last Monday that NVIDIA will acquire Israeli chip designer Mellanox Technologies for $6.8 billion in cash. This represents an offer of $125 per share, which is a 14.3% premium to Mellanox’s closing price of $109.38 last Friday. The deal was reached after a bidding war with Intel and Microsoft both reported to be involved. The market reacted favourably as shares in NVIDIA and Mellanox both rose after the announcement with NVIDIA rising 7.0% and Mellanox rising 7.8%.

Mellanox Technologies Ltd., founded in 1999 and headquartered in Sunnyvale, California, is an Israeli multinational supplier of computer networking products using InfiniBand and Ethernet technology. Mellanox offers adapters, switches, software, cables and silicon for markets including high-performance computing, company data centers, cloud computing, computer data storage and financial services. In 2012, it was named one of the Fastest Growing Companies in Deloitte's 2012 Technology Fast 500 Rankings. Fast forward to 2019, Mellanox had a total market capitalization of approximately $5.9 billion on the Friday before the announcement.

This acquisition is the newest in an ongoing consolidation of chipmakers. This move is important for NVIDIA to increase its market share in high performance computing and powering supercomputers. The combined companies will power more than half of the world’s 500 biggest computers, covering “every major cloud service provider and computer maker.” This deal will allow NVIDIA to access Mellanox’s expertise and improve its data center business in this age of cloud services. On this subject, NVIDIA CEO Jensen Huang said to CBC, “The data center has become the most important computer in the world. The thing that's really exciting is that the computer no longer starts and ends at the server. The computer in the future would extend into the network. ... And what we want to do is, we want to extend our computing reach from the server, where we are today, out to the entire data center.” The deal is expected to close at the end of 2019.

Infusion Therapy Firm BioScrip to Buy Rival Option Care

BioScrip, an infusion-therapy services company, has agreed to buy rival Option Care Enterprises. This deals marks the creation of one of the largest independent home-therapy companies in the United States. Option Care is owned by investment funds affiliated with Madison Dearborn Partners (MDP) and Walgreens Boots Alliance (WBA). When the all-stock deal is finalized, MDP funds and WBA will own approximately 80% of the combined publicly traded company on a fully diluted basis, while current BioScrip will own the remained. Option Care CEO John Rademacher will lead the combined company.

In a recent statement, BioScrip CEO Daniel Greenleaf said: "This is a compelling and complementary fit of two leading players in the U.S. infusion market. Our expanded reach and broader array of offerings provide a key competitive advantage at a time when the demand for home and alternate site infusion services continues to grow."

It looks like investors approve, with BioScrip’s share price increasing on Friday before decreasing by 15.47% on Monday following the company’s Q4 earnings report which posted a loss of $0.12 per share compared to a loss of $0.14 per share in the prior year.