ASX falls; Pacific Smiles rallies; gold, lithium miners drop

Warner Bros and Paramount have opened discussions about a $US38 billion merger ($56.4 billion) that would bring together two of Hollywood’s “Big Five” studios.

David Zaslav, chief executive of Warner Bros Discovery, met Bob Bakish, the boss of Paramount Global, in New York this week to discuss a possible combination of the two companies, online news website Axios reported.

A deal would bring together Warner Bros franchises including Harry Potter and Batman with Paramount properties such Indiana Jones and Star Trek.

A merger would help both companies compete with streaming platforms Netflix and Disney+. Both companies’ existing streaming platforms, Paramount+ and Max, have so far struggled to make serious ground against competitors.

Zaslav has also spoken to media heiress Shari Redstone, a major Paramount investor and chairman of the company.

Recent reports suggest Redstone, who has a controlling state in Paramount through her National Amusements holding company, is considering selling her stake in the business.

Warner would be expected to dominate the merged business, as it is nearly three times the size of Paramount.

A combination would mark the latest major deal engineered by Zaslav. Warner Bros Discovery was created in April last year after WarnerMedia, a spin-off of AT&T, combined with Discovery, known for its documentary and sports channels and being an early investor in GBNews.

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Citigroup has decided to exit the distressed-debt trading business, the latest retrenchment in chief executive Jane Fraser’s effort to reshape the firm in pursuit of higher returns.

The move, described by people briefed on the matter, will remove one of the key players in distressed-debt markets, and follows a recent decision by the New York-based bank to get out of municipal bond trading and underwriting.

Closing the distressed-debt business, run by Pat Kris and Joseph Beggans, will impact roughly 20 positions, one of the people said, asking not to be identified because this information isn’t public. A company spokesperson declined to comment.

Fraser announced in September that she is undertaking the biggest restructuring of Citigroup in decades to make the company more efficient and eliminate layers of management within the bank’s 240,000-person workforce. The firm has repeatedly abandoned or missed targets over the years, and Fraser is determined to restore investor confidence in the company’s ability to set and meet guidance.

Distressed trading can be volatile, with outsized performance one year potentially followed by leaner times. The business at Citigroup outperformed in 2021 and slowed significantly in the two years after that, two of the people said.

Bank of America and Goldman Sachs are among the other participants in the market known for their distressed franchises, a field that’s dwindled to only a few big sell-side players globally, the people said.

Citigroup also has seen a number of senior exits from that business. That included the two former co-heads – Olaf Auerbach, who left last year, and Pete Hall, who departed earlier this year.

Distressed-debt investors often hunt for troubled borrowers whose bonds or loans have fallen to below 70¢ on the dollar. Most credits require deep analysis, understanding both the financials and legal agreements that can determine who gets paid what in the event of a bankruptcy proceeding.

Australian shares declined at the opening bell, tracking a late sell-off on Wall Street, as traders took profits after a sharp run up in equities pushed the major indices to record.

The S&P/ASX 200 fell 0.8 per cent, or 48.5 points, in the first 10 minutes of trade to 7489.4, pulling away from a 10-month peak touched on Tuesday. Ten out of the 11 sectors were in the red, with industrials unchanged.

Mining companies paced the decline, with BHP falling 1 per cent, Rio off 0.9 per cent and Fortescue down 0.7 per cent. Lithium explorers and energy companies also came under pressure, and the major banks were also in the red.

On Wall Street, stocks turned lower in the last hour of trade in skittish markets ahead of the Christmas break. The Dow Jones closed down 1.3 per cent, while the S&P 500 and the Nasdaq both retreated 1.5 per cent.

‘Overbought’

“The market is very extended, we do see it being very overbought,” Cameron Dawson, chief investment officer of Newedge Wealth, told Bloomberg. “But we’re in this melt-up period and so oftentimes things can get even sillier before they really do have a pullback.”

The US sharemarket has climbed more than 20 per cent this year, buoyed by expectations of aggressive rate cuts by the US Federal Reserve in 2024. The strong rally, however, has pushed relative strength readings on the major indices to levels typically seen before a decline.

And Wall Street’s fear gauge – the VIX – also rose sharply, after trading near multi-year lows. The bond market still powered on, with the yield on the US 10-year note down 7 basis points to 3.87 per cent in New York after softer UK inflation data sparked a decline in global bond yields.

Stocks in focus

Dental chain Pacific Smiles′ rallied 2.1 per cent after the board rejected Genesis Capital’s takeover bid because it is “materially undervalued”.

ANZ Group hosts its annual meeting on Thursday.

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Dental chain Pacific Smiles’ board has rejected Genesis Capital’s takeover bid because it is “materially undervalued”, it said on Thursday.

On Monday, Genesis made a non-binding offer of $1.40 a share in cash, valued at $233 million.

Pacific Smiles has updated its fiscal 2024 guidance. It expects patient fees in the range of $293 million to $297 million with underlying earnings between $26 million and $28 million.

High-flying stocks notched one of their worst days in months on Wednesday after Wall Street warned of a pullback from the rally ignited by the US Federal Reserve’s pivot last week.

The Nasdaq 100 ended the session down 1.5 per cent, the biggest one-day drop in eight weeks, as the tech-heavy benchmark drew back from its latest all-time high. The S&P 500 fell at a similar pace in its steepest drop since September 26.

Some in the market speculated that expiring zero-day options traded on Wednesday helped accelerate the sell-off as options dealers sold more to rebalance their positions before expiration.

Jim Caron, portfolio solutions chief investment officer at Morgan Stanley Investment Management, is cautious looking ahead to the new year. “It’s going to get a lot rockier and a lot more uncertain into the future.”

Treasuries powered ahead with the yield on the policy-sensitive two-year notching a 10 basis point move, the 10-year rate fell to 3.9 per cent. British 10-year debt led the global bond rally following data showing a slowdown in UK inflation.

Traders also digested data showing US consumer confidence in December rose by the most since early 2021 on Wednesday. The second-straight monthly increase showed Americans were less concerned about a recession, but economists are still keeping a wary eye on the jobs market.

Pilbara Minerals says it plans to reduce its power related emissions by up to 80 per cent by 2030 as it looks to cut costs and become a sustainable battery materials producer.

The lithium producer has executed two key agreements which will expand onsite power generation at the Pilgangoora Operation and support the transition from diesel to natural gas. This includes the installation of a lithium-ion Battery Energy Storage System.

The company said the agreements were part of its so-called power strategy to cut emissions and costs which is expected to be operational in the second half of FY25.

Bubs Australia says it has raised $3.4 million from its share purchase plan and follows the $14 million raised from institutional investors to help it expand in the US.

The SPP offered eligible shareholders $30,000 worth of new shares at 12.5¢ apiece. Bubs said it would issue about 27 million SPP shares at the offer price on December 22.

Bubs said the funds would “accelerate growth in the USA, invest to expand production to pursue growth, and seek permanent access to the USA infant formula market”.

Transurban said the financing arm of the WestConnex Group had issued $800 million of fixed rate 10-year senior secured notes in the US private placement market.

Transurban, which owns 50 per cent of WCX, said the proceeds would be used to refinance existing loans with the remainder to be paid as a capital release to WCX’s shareholders. The notes will rank equally with WCX’s existing senior secured debt.

Codelco had its credit rating cut two notches by S&P Global Ratings as an output slump prompts the world’s largest copper producer to raise debt levels for project funding.

The Chilean state-owned miner’s long-term foreign currency rating was downgraded to BBB+ from A, S&P said Wednesday. It follows recent cuts by Fitch Ratings and Moody’s Investors Service.

Codelco’s production levels are at the lowest in a quarter century while costs have surged. Management is battling to bring late and over-budget projects on stream to counter that slump, embarking on a $US40 billion overhaul of its ageing mines.

“We now expect Codelco will use more debt in 2024 than we previously expected,” S&P analysts led by Diego Ocampo wrote. “We also don’t expect capitalisation from the owner or any other sort of alleviation at this point.”

S&P’s outlook for Codelco is stable given the very high likelihood of government support in an event of financial distress.