Battle for Cove Energy heats up as PTT trumps Shell

LONDON (Reuters) - The takeover battle for Cove Energy looks set to run after Thailand's PTT Exploration and Production trumped Royal Dutch Shell with a $1.9 billion offer, underscoring interest in new east African gas finds.

Shares in Mozambique-focused Cove jumped as much as 12 percent to 250.5 pence on Wednesday, above PTT's offer of 240 pence a share and signaling investors expect Shell to come back with a higher bid.

Shell could counterbid as much as 300 pence a share, and still stay within the range of prices others have paid for international oil and gas assets in recent years, said Stuart Joyner, oil analyst at Investec.

"Clearly the game is not yet over," analysts at Singer Capital Markets said in a research note.

East Africa is set to become one of the world's largest gas exporters, executives operating in the region believe, after a string of major discoveries across Mozambique and Tanzania. That has fuelled speculation of a wave of takeover deals involving companies active there.

Cove has an 8.5 percent stake in massive gas finds offshore northern Mozambique. Project leader Anadarko Petroleum plans to build large plants to freeze the gas to liquefied natural gas (LNG) for export in ships.

PTT sees Cove as an opportunity to secure energy resources to help power Thailand's economy. Shell hopes Cove will be a springboard to a major presence in east Africa.

Cove management said hours before of a deadline for investors to accept Shell's bid that it had switched to back an improved 1.22-billion-pound ($1.9 billion) offer from PTT.

It had previously supported Shell's offer, which followed a PTT bid that trumped Shell's opening salvo in February.

An official within Mozambique's minerals ministry told Reuters the government would prefer a company with LNG expertise, but did not say whether it would block PTT's bid on the basis it had not previously built an LNG export plant.

Investors say this is now the biggest risk facing the deal.

"We're all exposed to the Mozambique government risk now," said one hedge fund manager holding Cove stock.

Nonetheless, many investors doubt Mozambique will block PTT, and force them to accept the lower Shell bid.

"We will keep our position in Cove for now on the anticipation that Shell might come back with an even higher offer," said Anne-Sophie D'Andlau, co-founder of Paris-based hedge fund firm CIAM.

Anglo-Dutch group Shell, Europe's biggest oil company by market capitalization, declined to comment.

PTT shares tumbled following news of its higher bid, while Shell's were down in line with the UK market.

CONSOLIDATION SEEN

The latest wave of exploration in Kenya, Tanzania and Mozambique in recent years was led by smaller explorers including London-listed Ophir Energy, Aminex and Wentworth Resources and Toronto-listed Africa Oil.

Industry executives say they expect a burst of consolidation as larger companies such as Norway's Statoil, Britain's BG Group and U.S.-based ExxonMobil, which have entered the region more recently, snap up smaller players.

Shell has already said it would like to add other acquisitions to Cove's Mozambique interest. If it is successful in buying Cove, it is expected to bid for a share of a neighboring block that Italy's Eni said it planned to sell.

These ambitious plans means Shell is not expected to walk away from Cove without a fight.

"Whilst it is not in Shell's corporate culture to get into lengthy bidding wars, given the strategic nature of the asset, they may come back with a yet higher bid," said Westhouse Security analysts.

Yet analysts said Shell would likely try and lobby the Mozambique government to back its bid rather than enter a counter-bid immediately.

Whoever buys Cove will have to pay a capital gains tax to Mozambique, which Shell has estimated at around $200 million, pushing the value of PTT's bid above $2 billion.

Cove will also owe Shell a 11.1 million pound break fee under the terms of the deal agreed in April.

Three sources close to the process said around 70 percent of Cove shares were in the hands of risk arbitrage hedge funds, whose strategy is to squeeze every last penny out of a takeover situation.

(Addtional reporting by Khettiya Jittapong in Bangkok, Agnieszka Flak in Johannesburg, William Mapote in Maputo and Laurence Fletcher in London; Editing by Mark Potter)

New Zealand says 'zero' budget will bring surplus

WELLINGTON, New Zealand (AP) — New Zealand's center-right government unveiled a relatively austere budget Thursday, saying it will tackle rising debt and return the country's books to the black in two years.

Finance Minister Bill English described his economic blueprint as a "zero budget" because it contains no increase in discretionary spending. Under the plan, modest spending increases on education and health would be paid for by raising tobacco taxes and increasing student loan repayments, among other measures.

The government's pledge to return to surplus also depends on a plan to sell minority stakes in several state-owned energy companies. Many New Zealanders oppose that plan, which has sparked several large street protests.

Neighboring Australia recently announced a plan to become the first major developed nation to return to a budget surplus following the economic downturn, and New Zealand hopes to follow close behind. China's continued demand for commodities has helped both countries weather the downturn better than most. In New Zealand, the unemployment rate remains a relatively healthy 6.7 percent.

However, an earthquake in the second-largest city of Christchurch last year, which killed 185 people and destroyed much of the downtown, has cost the country billions of dollars. And the country's small size and reliance on farming makes it vulnerable to economic changes in Europe and elsewhere.

The National Party-led government predicts the rebuilding effort in Christchurch will stimulate the economy, helping it grow by an average of 3 percent over each of the next four years.

English said the budget balances austerity with growth, making it a "sensible budget for uncertain times."

But opposition Labour Party leader David Shearer said austerity will not help improve the economy. "A zero budget is nothing to boast about. It's an admission of failure," he said in a release.

Opposition parties also blame National for imposing tax cuts they say have benefited wealthy New Zealanders at the expense of low-income earners and the country's overall economic health.

The budget plan shows the country running a deficit of NZ$7.9 billion ($5.9 billion) in the fiscal year that begins in July. The government expects a deficit of NZ$2 billion ($1.5 billion) the following year before returning to a slim surplus of NZ$200 million ($150 million) in the year beginning July 2014.

The budget includes a 40 percent hike in tobacco taxes over four years and a plan to raise extra money by cracking down on tax fraud. It shows public debt peaking at about 29 percent of gross domestic product next year, a low level compared with the U.S. and Europe.

However, New Zealand continues to have relatively high levels of private debt, which has helped fuel high housing prices. Concerns about the total debt levels last year prompted two ratings agencies to downgrade New Zealand's credit rating.

Although English was promoting his plan as a "zero budget," increased costs for nondiscretionary items like the pension program are forecast to push overall government spending up by about 4.5 percent over the next year, to NZ$73.7 billion ($55 billion), or one-third of the country's economy.

Bundesbank says Greek euro exit "manageable"

BERLIN (Reuters) - The impact of a Greek exit from the euro zone would be substantial but "manageable", Germany's Bundesbank said on Wednesday, raising pressure on Athens to keep its painful economic reforms on track.

In a toughly worded monthly report, the German central bank also said euro zone member states should have a say on further payments of aid to Greece under its 130 billion euro bailout program funded by the IMF and the European Union.

"Greece is threatening not to implement the reform and consolidation measures that were agreed in return for the large-scale aid programs," the Bundesbank said.

"This jeopardizes the continued provision of assistance. Greece would have to bear the consequences of such a scenario. The challenges this would create for the euro area and for Germany would be considerable but manageable given prudent crisis management."

Echoing German political leaders, the Bundesbank warned against Europe easing the conditions for Greece to access aid.

"A significant dilution of existing agreements would damage confidence in all euro area agreements and treaties and strongly weaken incentives for national reform," it said.

Greece holds a second election on June 17 after a previous poll produced a parliament split between supporters and opponents of the bailout program, which requires Athens to make deep spending cuts and hike taxes.

Anti-bailout parties are expected to repeat their strong performance, opinion polls show, increasing the risk that Greece will renege on its austerity pledges, default on its debt and possibly leave the single currency.

RISKS

The Bundesbank said the Eurosystem of euro zone central banks had assumed "considerable risks" by providing Greece with large amounts of liquidity.

"In light of the current situation, it should not significantly increase these risks," the bank said.

"Instead, the parliaments and governments of the member states should decide on the manner in which any further financial assistance is provided and therefore whether the associated risks should be assumed."

German Finance Minister Wolfgang Schaeuble reiterated on Wednesday Berlin's insistence that Greece take its austerity medicine in order to regain competitiveness and resume growth.

"The Greek people must install a competent government," he told German radio. "(The austerity measures) are agreed not because we want to punish the Greeks but because they are necessary."

The Bundesbank said in its report that it would be crucial to phase out the euro zone's non-standard monetary policy measures in the future, to contain the risks arising from them such as distorting competition in the banking sector or inciting the delaying of structural reforms.

The Bundesbank said Germany's economic upswing would continue in the second quarter, driven by construction and consumption, while the manufacturing sector would "probably only make a comparatively small contribution".

"In light of all this, calls on German fiscal policymakers to loosen their fiscal policy stance in order to stimulate the economy appear inappropriate," the bank said.

"Attempting to kick-start the economy in the short term and putting off consolidation efforts in the long term are not conducive to regaining lost confidence."

This week, the Paris-based Organisation for Economic Co-operation and Development (OECD) raised its growth forecast for Germany this year to 1.2 percent and to 2.0 percent in 2013 on the back of strong domestic demand and a buoyant labor market in Europe's largest economy.

(Reporting by Sarah Marsh and Gareth Jones; Editing by John Stonestreet)

HP to lay off about 27,000, profit slides 31 percent

SAN FRANCISCO (Reuters) - Hewlett Packard Co plans to lay off roughly 27,000 employees or about 8 percent of its workforce over the next couple of years to jumpstart growth and save up to $3.5 billion annually, sending its shares 11 percent higher.

The company said the layoffs would be made mainly through early retirement and would generate annual savings of $3 billion to $3.5 billion as it exits fiscal year 2014, when the layoffs are expected to the completed.

The world's No. 1 personal computer maker, which employs more than 300,000 people globally, also said on Wednesday that it had a 31 percent decline in second-quarter profit and a 3 percent decline in revenue, compared with a year ago.

The results, however, were better than Wall Street expectations.

Layoffs "adversely impact people's lives, but in this case, they are absolutely critical to the long-term health of the company," Chief Executive Meg Whitman said.

"This is broad based," she said in an interview. "By design, it will touch all of HP."

Whitman said a third of the layoffs would be in the United States. The company will take a pretax charge of $1.7 billion in fiscal 2012 related to the layoffs.

Whitman plans to boost spending on research and development, especially in printing and PCs, with the savings from the cost cuts.

Sterne Agee analyst Shaw Wu said the quarter was surprisingly strong for HP, which had missed its own forecast most quarters in the last 18 months and prior to Whitman taking over as CEO.

"Everyone expected a miss, given what Dell said," Wu said. "It looks like HP is regaining its footing."

Dell shares on Wednesday plunged 17 percent following weaker than expected results and a disappointing revenue forecast spurred fears that global tech spending is weakening faster than anticipated.

HP itself has been trying to move past the internal upheaval that marked 2011, including the departure of two chief executives.

Whitman, a veteran Silicon Valley executive who took the top job last September, has been trying to turn the company around.

Whitman said both business leaders and consumers in Europe were worried about the region's economy, which is hurting HP's business. She warned that the European debt crisis was a big "headwind" the company was facing.

HP reported second-quarter net income of $1.59 billion, or 80 cents a share, compared with $2.3 billion, or $1.05 a share, a year ago. Revenue of $30.69 billion was down 3 percent compared with the same period last year.

Excluding after-tax costs for amortization, restructuring charges and acquisition-related charges, HP said it earned 98 cents a share, compared with analysts' average estimate of 91 cents, according to Thomson Reuters I/B/E/S.

TABLET LAUNCH FOR HOLIDAY

Whitman, who has been at the helm for six months, said the company also plans to launch tablets -- for both consumers and corporations -- later this year.

"We will have a Windows 8 tablet for the holiday," she said.

This would be HP's second attempt in the tablet market. HP killed its previous WebOS-based TouchPad tablet last year after just seven weeks on store shelves, citing poor demand.

Whitman also said HP's acquisition of British software company Autonomy for over $11 billion is facing challenges, and results in the division fell short of HP's expectations.

HP has moved the division under its chief strategy officer Bill Veghte. Autonomy founder Mike Lynch will be leaving the company.

Results from HP's other divisions were also weak.

Sales from the personal systems group, encompassing PCs, were flat with a decline in sales to consumers offsetting revenue from commercial clients.

Revenue from its bread-and-better printing group, which is being merged with the PC group, fell 10 percent after weak consumer and corporate demand.

"We improved the channel inventory to within an acceptable range," Whitman said on a conference call, referring to the printing group. "However, we continue to face a weak demand environment."

Sales of enterprise servers, storage and networking equipment fell 6 percent.

HP shares rose to $22.35 after hours after ending down 3.2 percent at $21.08.

(Reporting By Poornima Gupta; Editing by Bernard Orr)

Eurozone looks at Greek exit as leaders meet

BRUSSELS (Reuters) - European leaders, at odds over how to resolve the deepening crisis in the euro zone on Wednesday, have been advised by senior officials to prepare contingency plans in case Greece quits the single currency area.

Three officials told Reuters the instruction to be ready was agreed on Monday during a teleconference of the Eurogroup Working Group (EWG) - experts who work for the bloc's finance ministers - and the German central bank said losing Greece would be testing but "manageable".

"The EWG agreed that each euro zone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro," said one euro zone official.

The Greek finance ministry denied there was any such agreement but Belgian Finance Minister Steven Vanackere, asked by reporters ahead of the EU summit, said:

"All the contingency plans (for Greece) come back to the same thing: to be responsible as a government is to foresee even what you hope to avoid."

The news comes at a highly sensitive time with EU leaders gathering to try to breathe life into their struggling economies at a summit over dinner on Wednesday.

Although minds will be focused by the prospect of Greece leaving the currency area, something EU leaders insist they want to avoid, disagreements over a plan for mutual euro zone bond issuance and other measures to alleviate two years of debt turmoil have already been laid bare.

In its monthly report, Germany's Bundesbank said the situation in Greece was "extremely worrying" and it was jeopardizing any further financial aid by threatening not to implement reforms agreed as part of its two bailouts.

It said a euro exit would pose "considerable but manageable" challenges for its European partners, raising pressure on Athens to keep its painful economic reforms on track.

Greek officials have said that without outside funds, the country will run out of money within two months and there remains the threat that if it crashes out of the euro zone, other member states could be targeted by the markets.

For the first time in more than two years of crisis meetings, the leaders of France and Germany have not huddled beforehand to agree positions, marking a significant shift in the Franco-German axis which has traditionally driven European policymaking.

Instead, new French President Francois Hollande met Spanish Prime Minister Mariano Rajoy in Paris to discuss policy, before the pair travelled to Brussels.

Despite fears Greeks could open the departure door if they vote for anti-bailout parties at a June 17 election, Spain, where the economy is in recession and the banking system is in need of restructuring, is at the front line of the crisis, with concerns growing that it too could need bailing out.

After meeting Hollande, Rajoy said he had no intention of seeking outside aid for Spain's banks, although his government said its rescue of problem lender Bankia would cost at least 9 billion euros ($11 billion).

SHIFTING SANDS

Socialist Hollande's election victory has significantly changed the terms of the debate in Europe, with his call for greater emphasis on growth rather than debt-cutting now a rallying cry for other leaders.

That has set up a showdown with conservative German Chancellor Angela Merkel, who supports growth but whose primary objective is budget austerity and structural reform.

At his first EU summit, Hollande has chosen to make a stand on euro bonds - the idea of mutualising euro zone debt - despite consistent German opposition to the idea.

He has support from Italian Prime Minister Mario Monti and European Commission President Jose Manuel Barroso, among others. But Merkel shows no sign of dropping her objections to the proposal, which she has said can only be discussed once there is much closer fiscal union in Europe.

The Netherlands, Finland and some smaller euro zone member states support her. "Euro bonds (are) not something we are in favor of, they would increase our borrowing costs," Dutch Prime Minister Mark Rutte said.

Arriving in Brussels, Merkel showed no sign of budging either. "I will propose that the mobility of labor market be improved," she said. "Secondly, it's about structural reform."

No decisions will be made at Wednesday's summit, which is intended to promote ideas on jobs and growth ahead of another meeting at the end of June.

But it is clear debate will be intense, not just over euro bonds but over how to rescue European banks and whether to give more time to struggling euro zone countries to meet their budget deficit goals.

"We haven't come together to confront each other ... but we have to say what we think - what are the right instruments, the right methods, the right steps, the right initiatives to raise growth," Hollande said.

Having rallied on Tuesday, European stocks dropped 2.2 percent as investors priced in a lack of dramatic policy intervention. The euro tumbled against the dollar to its lowest since August 2010 and Spanish and Italian borrowing costs climbed.

A German two-year debt auction gave a stark illustration of how money is dashing for safe havens. Investors snapped up the 4.5 billion euros of paper on offer even though it came with a zero coupon - offering no return at all.

As well as exploring ways to foster growth, the leaders will assess how to stabilize their banking systems, particularly Spain's which is laden with bad debts from a property boom that bust and still has some way to go before it touches bottom.

One proposal on the table is for the euro zone's rescue funds to be allowed to recapitalize banks directly, rather than having to lend to countries for on-lending to the banks.

But that is another idea with which Germany is uncomfortable.

"The top priority is injecting liquidity into the European financial system to ensure that European banks, all European banks, can be consolidated," Hollande said.

SEARCH FOR GROWTH

With the euro zone registering no growth in the first quarter of the year and threatening to slip back into recession, the formal summit agenda is jobs and growth, with policymakers touting three ideas they hope will provide near-term stimulus:

- 'Project bonds' backed by the EU budget to finance infrastructure projects alongside private sector investment.

- Doubling the paid-in capital of the European Investment Bank, the EU's co-financing arm, to a little over 20 billion euros.

- Redirecting structural funds which tend to flow to poorer countries, to other areas where they might reap more immediate growth rewards.

Even if all three proposals were to be activated quickly economists and analysts say they will not provide a sufficient shot in the arm to the euro zone and the wider EU economy.

(Additional reporting by Luke Baker and Marine Hass in Brussels, Julien Toyer in Madrid and Catherine Bremer in Paris, writing by Mike Peacock, editing by Anna Willard and Giles Elgood)

CalPERS to withhold votes for nine on Wal-Mart board

(Reuters) - CalPERS, the biggest U.S. public pension fund, said on Wednesday it plans to withhold votes for nine Wal-Mart Stores Inc board members amid allegations that the retailer's top brass failed to adequately investigate widespread bribery in Mexico.

The California Public Employees' Retirement System is the latest shareholder to publicly voice concerns over the board's role after the New York Times in April reported that Wal-Mart de Mexico , which is majority-owned by Wal-Mart, used illegal payments to win market leadership in that country and that top Wal-Mart executives knew about the matter and tried to cover it up.

CalPERS said it plans to withhold votes from Chief Executive Mike Duke, former CEO Lee Scott, Chairman Robson Walton and six others.

CalPERS said it believes the nine were in positions of authority, oversight or management of the company's operations during the period when the alleged bribery took place.

The other six are James Breyer, Michele Burns, Douglas Daft, Jim Walton, Christopher Williams and Linda Wolf. Wal-Mart has 16 nominees in the June 1 election.

(Reporting by Jessica Wohl and Lisa Baertlein in Chicago; editing by John Wallace)

Dell's strategy questioned as shares dive

(Reuters) - Shares of Dell Inc plunged 17 percent Wednesday after a disappointing revenue forecast spurred fears that global tech spending is weakening faster than anticipated and raised doubts about the PC maker's strategy.

The stock plunge erased more than $4 billion in the company's market cap.

Rival PC maker Lenovo Group Ltd <0992.HK>, which reported results overnight that benefited from its dominance in the rapidly expanding Chinese market, fueled concerns after warning that it too saw a slowdown in U.S. and European corporate spending on PCs.

Shares of global leader Hewlett Packard Co closed 3.2 percent lower at $21.08 on expectations the company would announce a restructuring and sweeping layoffs after the market closed. HP said late Wednesday it would lay off about 27,000 employees or 8 percent of its workforce as it eyed more than $3 billion in savings.

The accelerating popularity of mobile computing devices such as Apple Inc's iPad has been eroding PC sales for years. To combat the erosion in sales to consumers, as well as dwindling margins as companies compete on price, Dell and HP have been gradually focusing more on sales to large enterprises.

Dell has been diversifying its revenue base in the face of weakened consumer demand, giving up low-margin sales to consumers and moving into higher-margin areas, such as catering to the technology needs of small and medium businesses in the public sector and the healthcare industry.

The company now finds itself lagging larger rivals like HP and IBM in the race to become one-stop shops for corporate IT needs.

Shebly Seyrafi, analyst with FBN Securities, said it was a "tough call" whether Dell's diversification strategy is working.

"The revenue slide does raise doubts about their strategy," Seyrafi said, adding that it appears Dell is waiting for the launch of Microsoft's Windows 8 software that will help it become a stronger player on the tablet market.

"It's all bit of wait and see," he said.

Also, many analysts now see this transition, which Dell began a few years ago, as a lengthy process.

"While we think that Dell's story of improving mix is still valid, it will take a long time to play out," said BMO Capital Markets analyst Keith Bachman.

Dell shares have lost half their value since the high-profile return of founder Michael Dell to the company's helm in January 2007. His return was hailed as pivotal in regaining the market share ceded to an aggressive HP in the preceding years, but in five years Dell has continued losing ground, especially in the consumer arena, to HP and Lenovo.

RUSH TO CUT

Once the world's top PC maker and a mainstay of business-school case studies, Dell has been losing market share and now vies with Asian PC makers like Lenovo.

Lenovo can rely on China to propel revenue growth and boost its bottom line. The company commands more than half of the world's second-largest personal computer market.

"IT demand softened unexpectedly in the month of April," Raymond James analyst Brian Alexander wrote. "While Dell walked away from business as the quarter progressed, it initially took more deals that did not meet its profit objectives."

Dell shares closed 17.2 percent lower at $12.49 on the Nasdaq. Earlier in the day, it forecast revenue of $14.7 billion to $15 billion in the current quarter, well short of analysts' average forecast of $15.4 billion.

Wall Street brokers, including RBC, Jefferies and Evercore, cut their price target on Dell shares.

A cautious IT spending environment and challenges in its PC business will keep dogging Dell in fiscal 2013, BMO Capital Markets analyst Jung Pak wrote in a research report, cutting the price target on the stock to $16 from $18.

Analyst Rob Cihra of Evercore Partners said Dell may be forced to cut prices in order to boost revenue.

"We think Dell continues to walk away from just too much business in the name of margin stability," Cihra said in a research note.

"We just don't see how Dell can keep trying to avoid competitive pricing," he added, noting that the company will otherwise have a hard time differentiating its computers, which like rivals' products are based on Intel Corp chips and Microsoft Corp software.

Dell's first-quarter earnings and revenue were also lower than expected, hurt by weak sales to consumers, large enterprises and government units.

"The non-PC transformation is not big enough yet to absorb acute pains in PCs," said JPMorgan Securities analyst Mark Moskowitz, who cut his price target to $19 from $21.

(Reporting by Poornima Gupta in San Francisco, Supantha Mukherjee in Bangalore and Sinead Carew in New York; Editing by Edwin Chan, Joyjeet Das, John Wallace and Matthew Lewis)