prev

Call Today: "A Counterpoint To Herbalife as a Pyramid Scheme"

The Hedgeye Consumer Staples Team, led by Rob Campagnino, will be hosting an expert conference call entitled "A Counterpoint To Herbalife as a Pyramid Scheme" today, February 14th, at 1:00pm EST featuring Professor Anne Coughlan. 

 

Please dial in 5-10 minutes prior to the 1:00pm EST start time using the number provided below, if you have any further questions email .

  • Toll Free Number:
  • Direct Dial Number:

Conference Code: 582869#

 

 

KEY TOPICS WILL INCLUDE

  • Historical context and understanding of multi-level marketing (MLM) and how direct selling looks different than traditional retail
  • Areas in which Ackman and others misrepresent or misunderstand the MLM model
  • Assessment of HLF moving forward

 

ABOUT PROFESSOR ANNE COUGHLAN

 

Professor Coughlan is the John L. & Helen Kellogg Professor at the Kellogg School of Management. She joined the faculty in 1985. Coughlan's areas of expertise are distribution channels, direct marketing, international marketing, sales force management and compensation, and pricing. She is the lead author of Marketing Channels (a textbook originally published in 1996 and now in its seventh edition from Prentice Hall). She teaches classes on distribution channel strategies at the MBA level, and quantitative models in marketing at the doctoral level.  

 

Coughlan was invited by Herbalife to explain multilevel marketing plans at the company's January 10, 2013 Analysts Day. In July 2012 she published a paper titled "Assessing an MLM Business: Herbalife as a Legitimate MLM".

 

Coughlan was the recipient of the school's Executive Master's Program Teacher of the Year Award for the best elective course in 1996 and again in 2003, as well as receiving the Sidney J. Levy Teaching Award in 2000-01.  She received her Ph.D. in Economics at Stanford University. Prior to her appointment at Kellogg, she was a professor at the business school of the University of Rochester.

 

 

 


Call Today: "A Counterpoint To Herbalife as a Pyramid Scheme"

Call Today: "A Counterpoint To Herbalife as a Pyramid Scheme" - Staples herbalifeB

 

The Hedgeye Consumer Staples Team, led by Rob Campagnino, will be hosting an expert conference call entitled "A Counterpoint To Herbalife as a Pyramid Scheme" today, February 14th, at 1:00pm EST featuring Professor Anne Coughlan. 

 

 

KEY TOPICS WILL INCLUDE

  • Historical context and understanding of multi-level marketing (MLM) and how direct selling looks different than traditional retail
  • Areas in which Ackman and others misrepresent or misunderstand the MLM model
  • Assessment of HLF moving forward

 

ABOUT PROFESSOR ANNE COUGHLAN

 

Professor Coughlan is the John L. & Helen Kellogg Professor at the Kellogg School of Management. She joined the faculty in 1985. Coughlan's areas of expertise are distribution channels, direct marketing, international marketing, sales force management and compensation, and pricing. She is the lead author of Marketing Channels (a textbook originally published in 1996 and now in its seventh edition from Prentice Hall). She teaches classes on distribution channel strategies at the MBA level, and quantitative models in marketing at the doctoral level.  

 

Coughlan was invited by Herbalife to explain multilevel marketing plans at the company's January 10, 2013 Analysts Day. In July 2012 she published a paper titled "Assessing an MLM Business: Herbalife as a Legitimate MLM".

 

Coughlan was the recipient of the school's Executive Master's Program Teacher of the Year Award for the best elective course in 1996 and again in 2003, as well as receiving the Sidney J. Levy Teaching Award in 2000-01.  She received her Ph.D. in Economics at Stanford University. Prior to her appointment at Kellogg, she was a professor at the business school of the University of Rochester.

 

 

CALL DETAILS

 

Please dial in 5-10 minutes prior to the 1:00pm EST start time using the number provided below, if you have any further questions email .

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 582869#


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – February 14, 2013


As we look at today's setup for the S&P 500, the range is 16 points or 0.68% downside to 1510 and 0.37% upside to 1526.

                                                                                                                               

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

*Buy trade and sell trade levels updated as of 02/13/13

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.77 from 1.75
  • VIX  closed at 12.98 1 day percent change of 2.69%

MACRO DATA POINTS (Bloomberg Estimates):

  • G20 finance ministers, central bank governors meet in Moscow for two days
  • 5:30am: U.K. to sell GBP4b 1.25% 2018 bonds
  • 8:30am: Initial Jobless Claims, Feb. 9, est. 360k (prior 366k)
  • 9:45am: Bloomberg Consumer Comfort, Feb. 10, prior -36.3
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 10:30am: Fed’s Tarullo testifies before Senate on regulation
  • 11am: U.S. to announce plans for sale of 10Y TIPS
  • 11am: Fed to purchase $4.75b-$5.75b in 2017-2018 sector
  • 12:50pm: Fed’s Bullard speaks in Miss. on economy
  • 1pm: U.S. to sell $16b 30Y bonds

GOVERNMENT:

    • 9am: Northrop Grumman briefings on defense programs
    • 9:30am: House Appropriations hears from Undersecretary of State on embassy security
    • 10am: Senate Appropriations Cmte hearing on sequestration
    • 10am: House Select Intelligence Cmte hearing on advanced cyber threats
    • President Obama speaks on economy in Decatur, Ga.
    • Senate Banking Cmte hearing on Dodd-Frank rules
    • Sens. Richard Durbin, D-Ill., Mike Enzi, R-Wyo., Lamar Alexander, R-Tenn., introduce legislation allowing states to collect sales tax from Internet-based retailers

WHAT TO WATCH

  • AMR, US Airways boards said to approve $11b merger
  • Dell said to plan holder meetings to assess demands for LBO
  • AB InBev to sell U.S. Corona rights to meet deal demands
  • Apple says it will fight Greenlight’s effort to block vote
  • Google sues BT Group unit over 4 patents for network services
  • Buffett’s PacifiCorp denied rehearing of Cal ISO case at FERC
  • Endeavour hires advisers, considers sale of company
  • Time Warner said to talk w/Meredith about magazine deal
  • Total in ‘advanced talks’ to sign China shale exploration accord
  • Newfield to examine alternatives for international properties
  • Bertelsmann said to work w/Lazard on RTL Group share sale
  • Pershing, other funds to report holdings as of Dec. 31

EARNINGS:

    • Precision Drilling (PD CN) 6am, C$0.08
    • Alliant Energy (LNT) 6am, $0.57
    • Cenovus Energy (CVE CN) 6am, C$0.38
    • Encana (ECA CN) 6am, $0.39
    • Alexion Pharmaceuticals (ALXN) 6:30am, $0.53
    • Regeneron Pharmaceuticals (REGN) 6:30am, $1.37
    • SPX (SPW) 6:30am, $1.56
    • Barrick Gold (ABX CN) 6:46am, $1.05 - Preview
    • PPL (PPL) 6:53am, $0.46
    • General Motors (GM) 6:58am, $0.51 - Preview
    • Incyte (INCY) 7am, $(0.02)
    • Alpha Natural Resources (ANR) 7am, $(0.49)
    • Discovery Communications (DISCA) 7am, $0.76
    • Jarden (JAH) 7am, $1.26
    • PepsiCo (PEP) 7am, $1.05 - Preview
    • RioCan Real Estate Investment Trust (REI-U CN) 7am, C$0.37
    • GNC Holdings (GNC) 7:30am, $0.46
    • NorthStar Realty Finance (NRF) 7:30am, $0.22
    • BorgWarner (BWA) 7:30am, $1.14
    • DIRECTV (DTV) 7:30am, $1.15
    • Molson Coors Brewing Co (TAP) 7:30am, $0.64
    • Waste Management (WM) 7:30am, $0.60
    • Apache (APA) 8am, $2.29
    • Vulcan Materials (VMC) 8am, $(0.09)
    • Realty Income (O) 9:15am, $0.54
    • CI Financial (CIX CN) 12:41pm, C$0.34
    • CBS (CBS) 4:01pm, $0.70
    • DaVita HealthCare Partners (DVA) 4:01pm, $1.58
    • Brocade Communications Systems (BRCD) 4:04pm, $0.16
    • QLIK Technologies (QLIK) 4:05pm, $0.23
    • Agilent Technologies (A) 4:05pm, $0.67
    • Health Management Associates (HMA) 4:05pm, $0.19
    • Fairfax Financial Holdings Ltd (FFH CN) 5:01pm, $8.87
    • Goldcorp (G CN) 5:01pm, $0.55
    • Key Energy Services (KEG) Post-Mkt, $0.08

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Sugar War Revived as U.S. Senators Back Cuts in Price Supports
  • Cattle Disappearing Amid Drought Signals Beef Rally: Commodities
  • Gold Demand Rose 3.8% in Fourth Quarter, Narrowing Annual Drop
  • Platinum Widens Spread Over Gold as Supply Concern Drives Rally
  • Aluminum Climbs for Third Day Before Report on Jobless Claims
  • Wheat Rebounds From Seven-Month Low as U.S. Exports May Increase
  • Barrick Gold Takes $3 Billion Writedown on Zambia Copper Mine
  • Astra Agro Targets 10% Production Growth This Year, Mahdi Says
  • Soy Spread Surging Amid Wait for Big Harvest: Technical Analysis
  • Indonesian Palm Exports to Slump to Four-Month Low; Futures Drop
  • Gold Fields’ Profit Declines 7.4% After Strikes Cuts Production
  • Desalination Seen Booming at 15% a Year as World Water Dries Up
  • Alpha Quarterly Results Exceed Estimates After Coal Exports Rise
  • ‘No Moo in Mince’ Claim Helps Horse Meat in Food Scandal Twist
  • Gold Council Sees Central Bank Bullion Buying at 48-Year High

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 


New Deal for Anheuser-Busch InBev/Modelo and Constellation Brands

What’s New?



In a press release this morning, Anheuser-Busch InBev, Grupo Modelo and Constellation Brands announced a revised merger agreement that completely divests Grupo Modelo’s interest in the U.S. in perpetuity.  Under the terms of this revised agreement, STZ will acquire (in addition to the Crown JV as originally contemplated) Compania Cervecera de Coahuila, an asset that includes Grupo Modelo’s brewery in Northern Mexico as well as the profit stream associated with the sale of beer to Crown.    The total compensation now moves to approximately $4.75 billion ($2.90 billion for the brewery and $1.85 billion for Crown).



This revised agreement provides for STZ’s complete control over all aspects, including production, of Grupo Modelo’s brands in the United States, effectively establishing STZ as the third largest brewer in the U.S



Almost certainly, this revised agreement was created within the context of the ongoing discussions with the Department of Justice, satisfying most, if not all, of the concerns expressed in the DOJ’s complaint, making regulatory approval extremely likely.



What Does it Mean?

 

As some background, there are two profit streams associated with the sale of Grupo Modelo’s brands in the United States.

  1. Crown JV - $2.5 billion of revenue, $430 million of EBIT – to be acquired by STZ under original agreement
  2. Compania Cervecera de Coahuila - $310 million of EBITDA derived the manufacturing and licensing of the Modelo brands to the Crown JV

STZ will own the entirety of the profit pool associated with the sale of Grupo Modelo’s brands in the United States.  The quick and dirty math is as follows (2013):

  1. Approximately $660 million of EBITDA generated by the wine and spirits business at STZ
  2. An incremental $450 million of EBIT/EBITDA to be acquired under the terms of the original transaction (likely very little depreciation as there were few assets associated with the deal)
  3. $310 million of EBITDA associated with Compania Cervecera de Coahuila
  4. $1,420 million in total EBITDA at Constellation (roughly and conservatively)
  5. At $40 per STZ share, we conservatively estimate EV/EBITDA at 10.5x – for perspective, TAP trades at 9.4x a 2013 EBITDA number we don’t think that the company will achieve

The Good and the Bad

  1. Positive – deal almost certainly gets done having satisfied the bulk of the concerns expressed by the DOJ
  2. Positive – STZ becomes the 3rd largest brewer in the U.S. with a premium portfolio in the fastest growing segment of the U.S. beer market
  3. Negative – new transaction moves STZ between 5.0 – 5.5x debt to EBITDA
  4. Negative - deal moves from asset light to asset heavy for STZ – there were virtually no assets associated with the original deal.  Under the modified terms, STZ owns a brewery and one that needs to be expanded over time to meet the demands of the Crown JV, to the tune of $400 million in CAPEX over three years

Conclusion

 

Obviously, today's news justifies our view that the value of the transaction to Anheuser-Busch InBev was so substantial globally that the company was willing to make significant concessions related to the business in the U.S.  With the closing of the deal highly likely now that the transaction has been revised, we believe that STZ should move to the mid-$40's based upon our math.  We suspect that the first print of the day will be close to $41 and that buyers come into what will be a very different Constellation Brands going forward.  We may even get a couple of upgrades from the shops that downgraded the name at $31 last week.

 

-Rob

 

Robert  Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

E:

P:

 

Matt Hedrick

Senior Analyst



Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

next