SoftBank Group Corp. is reportedly in discussions to purchase the 25% stake in chip designer Arm Ltd. that is held by its Vision Fund 1, ahead of a highly anticipated IPO.
Reuters reported Sunday that Japan’s SoftBank 9984, +0.37%
— which owns 75% of Arm — is negotiating a deal with VF1, the $100 billion investment fund it created in 2017, and noted that a deal could give VF1 investors a big boost after years of meager returns. Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment Co. are among VF1’s largest investors.
SoftBank is planning to launch a long-awaited initial public offering for British chip designer Arm as soon as September. That will likely be the biggest IPO of the year on Wall Street, aiming to raise $8 billion to $10 billion at a valuation around $60 billion to $70 billion.
The thing that will make companies lower prices is if consumers stop complaining about paying more for the things they need and want, and actually start refusing to buy them.
As the U.S. corporate earnings-reporting season progresses, with earnings from major retailers Walmart Inc. WMT, +0.59%,
Target Corp. TGT, +0.10%
and Home Depot Inc. HD, +0.52%
on tap next week, investors can get a ground-floor view of how consumer demand may have been hurt, or not, by higher prices, and what the companies plan to do, or not do, about it.
This dynamic of how consumers adjust their spending habits when prices change is referred to by economists as the price elasticity of demand.
“ For companies to cut prices, ‘you have to have the consumer go on strike, and they’re not there yet.’”
— Jamie Cox, Harris Financial Group
Those who trust companies will choose to ratchet down prices on their own, or at least not raise them because the rise in input costs has been slowing, haven’t been listening to what the many companies have told analysts on their post-earnings-report conference calls.
Kraft Heinz Co. KHC, +0.47%
acknowledged after its second-quarter report that its relatively higher prices have hurt demand, but not by enough for the food and condiments company to consider cutting prices.
Colgate-Palmolive Co. CL, +0.81%
said it will continue to raise prices, even as inflation slows and selling volume declines, as the consumer-products company continues to be laser focused on boosting margins and profits.
And while PepsiCo Inc. PEP, +0.16%
was worried that elasticities would increase, given how its lower-income customers were being particularly pressured by inflation, the beverage and snack giant reported strong results as it witnessed “better elasticities” in most of the markets in which it operated.
“Obviously, there is still carryover pricing, and I don’t think we’ll do anything different than our normal cycles on pricing in the balance of the year,” PepsiCo Chief Financial Officer Hugh Johnston told analysts, according to an AlphaSense transcript.
Basically, as MarketWatch has reported, so-called greedflation is alive and well.
Jamie Cox, managing partner for Harris Financial Group, said as long as the job market stays strong, as it is now, corporate greed will continue to pay off.
“If something is more expensive, and you have a job, you’ll complain about it, but you won’t substitute it for something cheaper,” Cox said. For companies to cut prices, “you have to have the consumer go on strike, and they’re not there yet,” Cox added.
“ ‘At some point, people are going to say, “All right — enough.” ’ ”
— Paul Nolte, Murphy & Sylvest Wealth Management
The reason elasticity is so important in the current environment is that, as long as consumers continue to pay the higher prices companies are charging, inflation will remain stubbornly high, making it, in turn, more likely that the Federal Reserve will continue to raise interest rates or, at the very least, not lower them.
But the longer interest rates stay high enough to crimp economic growth, the more likely the stock market will reverse lower as recession fears rise.
“At some point, people are going to say, ‘All right — enough,’ ” said Paul Nolte, senior wealth manager and market strategist at Murphy & Sylvest Wealth Management. “But we just haven’t seen that yet.”
What is elasticity?
Economists use the term “price elasticity of demand” to refer to the way in which consumers adjust their spending habits when prices change.
“Elasticity tries to measure how much more producers will want to produce if prices rise, and how much more consumers will want to buy if prices fall,” explained Bill Adams, chief economist at Comerica.
Elasticity often depends on the type of product a company sells.
For example, consumer-discretionary-goods companies that sell products and services that people want will often experience greater price elasticity than consumer-staples companies that sell things that people need, such as groceries and prescription drugs.
But even for needs, consumers often still have a choice, as less expensive generic, or private-label, alternatives may be available.
Andre Schulten, chief financial officer of consumer-staples maker Procter & Gamble Co. PG, +0.58%,
which recently beat earnings expectations as it continued to raise prices, telling analysts that, while there was “some trading into private label,” the overall market share of private-label products was unchanged for the year.
As Harris Financial’s Cox said, consumers may be complaining about higher prices, but they aren’t yet desperate enough to stop buying.
The Federal Reserve’s latest Beige Book economic survey stated that business contacts in some districts had observed a “reluctance” to raise prices as consumers appeared to have grown more sensitive to prices, but other districts reported “solid demand” allowed companies to maintain prices and profitability.
That’s likely why companies and analysts have become less concerned about price elasticity. Based on a FactSet analysis, mentions of the word “elasticity” in press releases and conference calls of S&P 500 companies SPX
increased as inflation and interest rates started surging in early 2022 through the end of the year.
Mentions of the word elasticity in earnings press releases and conference-call transcripts of S&P 500 companies.
FactSet
As the chart shows, “elasticity” popped up in more than 55% of earnings releases and conference calls in mid-2022, but with the second-quarter 2023 earnings-reporting season more than half over, mentions had dropped to about 20%.
Perhaps that will pick up, as retailers, especially those catering to lower-income customers — recall the PepsiCo comment — assess the demand impact of continued price increases.
Meanwhile, the branded-foods company Conagra Brands Inc. CAG, +0.71%,
whose wide-ranging food brands including Birds Eye, Duncan Hines, Hunt’s, Orville Redenbacher’s and Slim Jim, were starting to see the emergence of a different dynamic.
Chief Executive Sean Connolly said consumers were shifting behavior in some categories as prices remained high. Rather than trade down to lower-priced alternatives, he noticed some consumers buying fewer items overall, “more of a hunkering down than a trading down.”
That’s exactly the kind of consumer behavior that is needed, if companies are to stop feeding into the greedflation phenomenon and to start pulling back on prices.
Analysts got to the point early and often during a conference call late Wednesday: What are Disney Chief Executive Robert Iger’s M&A plans, particularly following reports that former Disney executives Kevin Mayer and Tom Staggs, now co-CEOs of Blackstone-backed Candle Media, have been retained in a “consulting capacity” to decide ESPN’s fate?
The prospect of an Apple-Disney combo seems far-fetched in a heated regulatory climate, where the Federal Trade Commission is attempting to crack down on Big Tech acquisitions, but it could happen should Disney sell off assets and Apple gobbles up Disney’s direct-to-consumer business that includes streaming service Disney+, some media analysts speculate. Apple could conceivably even buy ABC, which reportedly is on the block. But the path is long and circuitous.
Yet the rumors persist, dating back to Apple co-founder Steve Jobs’ reverence for the Disney brand, and the increasingly overlapping businesses of both companies over the years.
When pressed by analysts during a conference call late Wednesday, Iger declined to discuss the future of Disney’s structure or possible asset sales. When asked if Disney might “plausibly” be snapped up by one company — read Apple — an exasperated Iger said he would not “speculate” on the sale of Disney to a technology company or anyone else, given the current global stance of regulators. The FTC has aggressively challenged mergers from the likes of Microsoft Corp. MSFT, -1.17%
and Facebook parent Meta Platforms Inc. META, -2.38%,
with limited success.
Since Iger hinted at the potential sale of Disney’s assets in an interview with CNBC last month, rumors have swirled around ESPN.
ESPN and related properties likely could command at least one-third of Disney’s current depressed market cap of about $150 billion, say some media watchers, though Iger has denied ESPN is for sale. He has acknowledged “the sports leader” is seeking “strategic partners” — possibly with the NFL, MLB, NBA and NHL — to generate revenue. Late Tuesday, ESPN stuck up a deal with Penn Entertainment Inc. PENN, +9.10%
to create ESPN Bet, a digital sportsbook to launch in the fall in 16 states.
Another possible property being dangled is ABC. But with rights to the NBA Finals and two Super Bowls in the next eight years, it is unclear who would acquire the network and how Disney would replace lucrative sports revenue.
Other properties on the block include cable channels Freeform and Disney Channel, according to a report by the Wall Street Journal.
“If an asset sale happens, will the proceeds be deployed into fortifying its balance sheet or beefing up its remaining operations?” Rick Munarriz, senior media analyst at The Motley Fool, said in an email.
Disney, which is in the midst of a $5.5 billion cost-cutting campaign, is exploring several avenues to prop up sales as linear TV ads shrink, Disney+ subscriptions decline and attendance at Walt Disney World wanes.
Shares of Disney are trading at half their highs from a few years ago, in large part because of dwindling sales and profits at ESPN and Disney’s other cable networks.
Enter Mayer, who previously ran Disney’s strategic planning group for years and engineered a trifecta of mega deals: The acquisition of the aforementioned Pixar Animation Studios from Steve Jobs for $7.4 billion in 2006, the purchase of Marvel Entertainment for $4 billion in 2009, and the acquisition of Lucasfilm for $4.05 billion in 2012. Mayer also led the $71.3 billion acquisition of 20th Century Fox’s entertainment assets in 2019, which has drawn mixed reviews.
Online sports-betting company Penn Entertainment Inc. sealed a $1.5 billion deal with Walt Disney Co.’s DIS, +1.50%
ESPN to launch ESPN Bet, a branded sportsbook for fans in the U.S., and pivoted away from Barstool Sports on Tuesday, selling the platform back to founder Dave Portnoy.
Penn Entertainment PENN, -0.68%
will rebrand its current sportsbook and relaunch as ESPN Bet in the fall in 16 legalized-betting states where Penn is licensed.
The rebrand — which includes the mobile app, website, and mobile website — sent Penn’s stock soaring 13% in after-hours trading Tuesday. ESPN Bet will benefit from exclusive promotional services across ESPN’s platforms, including access to ESPN talent, the companies said.
Penn will pay ESPN $1.5 billion over 10 years as part of the strategic partnership, and will grant ESPN $500 million of warrants to purchase about 31.8 million Penn common shares, with additional bonus warrants possible.
“Together, we can utilize each other’s strengths to create the type of experience that existing and new bettors will expect from both companies, and we can’t wait to get started,” Penn Entertainment Chief Executive Jay Snowden said in a release.
Penn also said it has divested 100% of its stake in Barstool Sports to Portnoy, allowing the sports media platform “to return to its roots of providing unique and authentic content to its loyal audience without the restrictions associated with a publicly traded, licensed gaming company.”
For Penn, the ESPN partnership represents “a clear step up from Barstool in terms of mass appeal…and minimal regulatory risk,” according to Wells Fargo analyst Daniel Politzer, who said it was a “nearly impossible challenge for a publicly traded, licensed gaming company” to own “a media platform that thrived on viral/provocative content.”
Still, he said in a note to clients that “it’s premature to conclude this is a game change” since past partnerships between online sports-betting companies and media players have come up short of what initial fanfare would’ve suggested.
The news sent rival DraftKings Inc. shares DKNG, +0.25%
sinking about 5% in after-hours trading.
The decline in DraftKings shares comes as they’ve advanced 178% so far in 2023, through Tuesday’s close. Two analysts upgraded DraftKings’ stock just this week.
Palantir Technologies Inc. matched expectations with its latest quarterly results Monday while announcing a new $1 billion buyback authorization.
The software company posted its third quarter in a row of GAAP profitability, recording second-quarter net income of $28 million, or 1 cent a share, whereas Palantir PLTR, -1.15%
racked up a net loss of $179.3 million, or 9 cents a share, in the year-earlier period. Analysts tracked by FactSet were modeling GAAP earnings per share of 1 cent.
Palantir logged adjusted earnings per share of 5 cents, in line with the FactSet consensus.
Revenue rose to $533 million from $473 million and also met the FactSet consensus. The company notched $232 million in commercial revenue, up 10% from a year before, along with $302 million of government revenue, up 15%.
After initially falling following the report, Palantir shares rose 2.6% in after-hours trading.
“We continue to see unprecedented demand,” Chief Revenue Officer Ryan Taylor told MarketWatch. That includes both “top-of-funnel” conversations with new customers and others expanding their use of Palantir software, as momentum builds for the company’s artificial-intelligence offerings.
Taylor added that Palantir’s U.S. government work has “never been stronger.”
Palantir also announced that its board of directors has approved a stock-buyback program of up to $1 billion. The move comes as the company posted $285 million in adjusted free cash flow during the first half of the year and finished the second quarter with $3.1 billion in cash and equivalents on its balance sheet.
“Our cash flow, balance sheet and the authorization of a billion-dollar buyback show what we believe in for the future of this company,” Chief Financial Officer David Glazer told MarketWatch. The belief is that “AI is a massive opportunity.”
Added Chief Executive Alex Karp in a shareholder letter: “The scale of the opportunity that lies ahead has increased significantly in recent months. And we intend to capture it.”
He noted that the company is in talks with more than 300 additional enterprises about using Palantir’s AI platform, “all of which are searching for an effective and secure means of adapting the latest large language models for use on their internal systems and proprietary data.”
For the third quarter, Palantir expects $553 million to $557 million in revenue, along with GAAP profitability. Analysts tracked by FactSet were modeling $553 million,
Palantir also expects to report GAAP net income for its fourth quarter. It further models upwards of $2.212 billion in full-year revenue, while analysts were looking for $2.210 billion.
Palantir Technologies Inc. matched expectations with its latest quarterly results Monday while announcing a new $1 billion buyback authorization.
The software company posted its third quarter in a row of GAAP profitability, recording second-quarter net income of $28 million, or 1 cent a share, whereas Palantir PLTR, -1.15%
racked up a net loss of $179.3 million, or 9 cents a share, in the year-earlier period. Analysts tracked by FactSet were modeling GAAP earnings per share of 1 cent.
Palantir logged adjusted earnings per share of 5 cents, in line with the FactSet consensus.
Revenue rose to $533 million from $473 million and also met the FactSet consensus. The company notched $232 million in commercial revenue, up 10% from a year before, along with $302 million of government revenue, up 15%.
After initially falling following the report, Palantir shares rose 2.6% in after-hours trading.
“We continue to see unprecedented demand,” Chief Revenue Officer Ryan Taylor told MarketWatch. That includes both “top-of-funnel” conversations with new customers and others expanding their use of Palantir software, as momentum builds for the company’s artificial-intelligence offerings.
Taylor added that Palantir’s U.S. government work has “never been stronger.”
Palantir also announced that its board of directors has approved a stock-buyback program of up to $1 billion. The move comes as the company posted $285 million in adjusted free cash flow during the first half of the year and finished the second quarter with $3.1 billion in cash and equivalents on its balance sheet.
“Our cash flow, balance sheet and the authorization of a billion-dollar buyback show what we believe in for the future of this company,” Chief Financial Officer David Glazer told MarketWatch. The belief is that “AI is a massive opportunity.”
Added Chief Executive Alex Karp in a shareholder letter: “The scale of the opportunity that lies ahead has increased significantly in recent months. And we intend to capture it.”
He noted that the company is in talks with more than 300 additional enterprises about using Palantir’s AI platform, “all of which are searching for an effective and secure means of adapting the latest large language models for use on their internal systems and proprietary data.”
For the third quarter, Palantir expects $553 million to $557 million in revenue, along with GAAP profitability. Analysts tracked by FactSet were modeling $553 million,
Palantir also expects to report GAAP net income for its fourth quarter. It further models upwards of $2.212 billion in full-year revenue, while analysts were looking for $2.210 billion.
Warren Buffett’s Berkshire Hathaway swung to a profit in the second quarter owed to its investment portfolio and insurance holdings, according to a release out Saturday.
The holding company with businesses that range from insurer Geico and railroad BNSF Railway to Dairy Queen restaurants and its own energy division posted net income of $35.9 billion, or $24,775 a class A share equivalent. That compared with a loss of $43.8 billion, or $29,754 a class A share equivalent, a year earlier.
BRK.B, -1.08%
after-tax operating earnings, a figure Warren Buffett wants shareholders to and which excludes some investment results, rose 6% to just over $10 billion from $9.3 billion a year earlier. Regulations do require Berkshire to include unrealized gains and losses from its investment portfolio when it reports its net income.
Berkshire’s stock repurchases totaled $1.4 billion in the second quarter, compared with $4.4 billion in the first quarter and $1 billion for the year-earlier period. The Q2 repurchases were below an estimate of $2.2 billion from UBS analyst Brian Meredith.
Reduced buybacks did come alongside appreciation in Berkshire stock, which was up 10% in the second quarter.
Berkshire ended the second quarter with $147.4 billion in cash and cash equivalents, compared with $105.4 billion in the same period a year ago.
Berkshire’s Class A shares have been hovering near all-time highs, up 21% over the past year and bringing the company’s market value to roughly $780 billion.
Icahn Enterprises L.P.’s stock tumbled 30% on Friday, after the company said it’s cutting its quarterly distribution to $1 from $2 previously.
The company IEP, -23.23%
made the announcement as it reported a surprise quarterly loss with Chairman Carl Icahn, the billionaire activist investor, blaming the news squarely on one thing.
“I believe the second quarter partially reflected the impact of short selling on companies we control or invest in, which I attribute to the misleading and self-serving Hindenburg report concerning our company, “Icahn said in a statement.
“It also reflected the size of the hedge book relative to our activist strategy.”
Icahn was referring to a report by short seller Hindenburg Research published on May 2 that accused IEP, Icahn’s publicly traded investing arm, of overstating asset values. Hindenburg also revealed that Icahn himself had borrowed from the company, among other issues.
That had been disclosed in a footnote to financials that Wall Street had overlooked.
The report shaved billions off IEP’s market cap and was firmly rebutted by Icahn, who recently said he has finalized amended loan agreements with banks that untie his personal loans from the trading price of his company’s shares.
Icahn said IEP has paid out distributions for 73 continuous quarters and does not intend for a “misleading” report to interfere with that practice.
“The payment of future distributions will be determined by the board of directors quarterly, based upon current economic conditions and business performance and other factors that it deems relevant at the time that declaration of a distribution is considered,” said Icahn.
On a call with analysts, IEP’s Chief Executive David Willetts highlighted the long-term “lumpiness” of the business, given its many moving parts.
“We have large wins at times and we have volatility, we’re not a company that necessarily has predictable cash flow, there are no guarantees,” he told analysts.
But IEP is not changing its strategy on distributions, he added.
The stock was headed for the biggest one-day selloff since it went public 36 years ago. The next biggest drop was 20.0% on May 2, when the Hindenburg Research report was released.
The company, which is 84% owned by Icahn and his son, Brett, offers exposure to Icahn’s personal portfolio of public and private companies, including petroleum refineries, car-parts makers, food-packaging companies and real estate. Its unit holders are mostly retail investors.
The fund has performed poorly in the past decade. For many years Icahn has publicly expressed suspicion of the bull market that raged around him. He shorted the stock market in a big way as a hedge against his long activist positions. Going into 2021, for example, Icahn’s investment fund had a short exposure of 142%, SEC filings show.
Hindenburg, the short selling firm founded by Nate Anderson, took a victory lap on Elon Musk’s X platform, the renamed Twitter, noting that it had predicted that IEP’s poor investment performance would eventually force it to cut the distribution.
Icahn has himself waged endless activist campaigns against companies and their management teams, and most recently succeeded in his effort to shake up management at gene sequencing test maker Illumina Inc. ILMN, +1.26%
In June, that company accepted the resignation of its Chief Executive and director, Francis DeSouza, ending a monthslong heated battle over its $7.1 billion acquisition of cancer test maker Grail that has faced regulatory hurdles, as the Associated Press reported.
Icahn had urged shareholders to vote out its chairman, John Thompson, and DeSouza. Company shareholders voted out Thompson in late May.
Past activist campaigns by Icahn’s company have generated billions of dollars for shareholders and helped boards and CEOs capture untapped value, Icahn has argued, citing Reynolds, Netflix NFLX, +0.14%,
Forest Labs, Apple AAPL, -4.80%,
CVR Energy CVI, -0.98%,
Herbalife HLF, -0.69%
eBay EBAY, -1.28%,
Tropicana, Cheniere LNG, -0.95%
and Occidental OXY, +2.11%
as examples.
IEP said it had a loss of $269 million, or 72 cents per depositary unit, for the second quarter, wider than the loss of $128 million, or 41 cents per depositary unit, posted in the year-earlier period.
Revenue fell to $2.684 billion from $3.796 billion.
The FactSet consensus was for income of 25 cents per depositary unit and revenue of $2.657 billion.
shares were getting a major boost Friday after Wedbush technology analyst Dan Ives launched coverage of the AI software company with an Outperform rating, setting a target price of $25. Ives contends Palantir is well-positioned to take market share in both the commercial and government analytics software markets.
Stocks have surged this year without really anything going right, besides the rolling out of error-prone artificial intellligence chatbots. Interest rates have surged to a 22-year high, earnings are down from last year, and pandemic-era savings are being drawn down if not entirely exhausted.
Strategists at Bank of America led by Michael Hartnett have an interesting theory.
“Asset price overshoots [are] the new normal,” they say.
Consider:
Oil CL00, -0.37%
went from -$37 in April 2020 to $123 in March 2022, then down to $67 the following 12 months.
Bitcoin BTCUSD, +0.32%
went from $5,000 in January 2020 to $68,000 in November 2021, down to $16,000 a year later, and up to $29,000 now.
The S&P 500 went from 3300 to 2200 to 4800 to 3500 to 4600 thus far in 2020s.
“AI is simply the new overshoot,” they say.
The S&P 500 SPX, +0.67%
has gained 18% this year as the Nasdaq Composite COMP, +1.53%
has rallied by 34%.
Hartnett and team noted that real retail sales — that is, adjusted for inflation — fell at a 1.6% year-over-year clip, which has coincided with recessions since 1967. Real retail sales falls in excess of 3% are associated with hard recessions.
Historically, a 2-3 point rise in the savings rate also is recessionary, and already it’s risen from 3% to 4.6%. The unemployment rate so far hasn’t risen, though a 0.5 point to 1 point rise in the jobless rate also is typically recessionary.
“It would be so ‘2020s’ for the economy to hit a brick wall just as everyone punts ‘soft landing’ into 2024,” they say.
They like emerging market/commodities as summer upside plays and credit and tech as autumn downside plays.
Banc of California Inc.’s proposed agreement to acquire PacWest Bancorp. helped send regional-bank stocks considerably higher on Wednesday. But even after a two-day increase of 12% for its shares, the acquiring bank remains the favorite name among analysts covering regional players in the U.S.
The merger agreement was announced after the market close on Tuesday, but the rumor mill had already sent Banc of California’s BANC, +0.62%
stock up by 11% that day. Then on Wednesday, shares of PacWest Bancorp PACW, +26.92%
shot up 27% to $9.76, which was above the estimated takeout value of $9.60 a share when the deal was announced. The merger deal, if approved by both banks’ shareholders, will also include a $400 million investment from Warburg Pincus LLC and Centerbridge Partners L.P.
A screen of regional banks by rating and stock-price target is below.
With PacWest closing above the initial per-share deal valuation, it is fair to wonder whether or not its shareholders will vote to approve the agreement. In a note to clients on Wednesday, Wedbush analyst David Chiaverini called Banc of California’s offer “fair, but not overwhelmingly attractive,” and wrote that PacWest was “a likely seller before the mini banking crisis occurred in March.”
While Chiaverini went on to predict the deal’s approval by PacWest’s shareholders, he added that he “wouldn’t be surprised if there were some dissent among a minority of shareholders [which could] possibly open the door to the potential emergence of a third-party bid.”
More broadly, Odeon Capital analyst Dick Bove wrote to clients on Wednesday that the merger deal, along with increasing involvement of private-equity firms in lending businesses, the expected enhancement of regulatory capital requirements for banks and other factors could lead to more consolidation among smaller banks.
He went on to write that we might be entering a period for the banking industry similar to the 1990s, “when rules were being changed and acquisitions were rampant,” which “created new investment opportunities.”
The SPDR S&P Regional Banking exchange-traded fund KRE, +4.74%
rose 5% on Wednesday but was still down 17% for 2023, while the SPDR S&P 500 ETF Trust SPY, +0.02%
was up 19%, both excluding dividends.
KRE holds 139 stocks, with 98 covered by at least five analysts working for brokerage firms polled by FactSet. Out of those 98 banks, 45 have majority “buy” ratings among the analysts. Among those 45, here are the 10 with the most upside potential over the next 12 months, implied by consensus price targets:
Any stock screen can only be a starting point when considering whether or not to invest. If you see any stocks of interest here, you should do your own research to form your own opinion.
PacWest Bancorp’s stock jumped more than 38% in after-hours trading Tuesday after the company said it had agreed to be acquired by Banc of California Inc. in an all-stock merger backed by two private-equity firms. The merger comes as PacWest looks to put a rocky period behind it.
Under the terms of the merger agreement, PacWest PACW, -27.04%
stockholders will receive 0.6569 of a share of Banc of California common stock for each share of PacWest common stock. Based on closing prices on Tuesday, the deal values PacWest at $9.60 a share, a premium over its closing price of $7.67 a share on Tuesday.
Warburg Pincus and Centerbridge will provide $400 million in equity.
PacWest stockholders will own 47% of the outstanding shares of the combined company, while the private-equity investors will own 19% and Banc of California shareholders will have 34%.
PacWest said that it is the company being acquired and that it will change its name to Banc of California. PacWest said it will be the “accounting acquirer,” with fair-value accounting applied to Banc of California’s balance sheet at closing.
Banc of California CEO Jared Wolff will retain the same role at the combined company.
The combined company will repay about $13 billion in wholesale borrowings to be funded by the sale of assets, “which are fully marked as a result of the transaction, and excess cash,” the companies said.
The merged company is currently projecting about $36.1 billion in assets, $25.3 billion in total loans, $30.5 billion in total deposits and more than 70 branches in California.
John Eggemeyer, the independent lead director at PacWest, will be chair of the board of the combined company following the merger.
The board of directors of the combined company will consist of 12 directors: eight from the existing Banc of California board, three from the existing PacWest board and one from the pair of private-equity firms led by Warburg Pincus.
Citing sources close to the deal, the Wall Street Journal had reported earlier that a tie-up was imminent.
In regular trading Tuesday, PacWest’s stock ended 27% down; trading was halted for volatility following the report of the deal.
Banc of California’s stock rose 11% but was later halted for news pending as well. The stock rose more than 9% in after-hours trading on Tuesday.
At last check, PacWest’s market capitalization was about $1.2 billion, while Banc of California’s was about $764 million. Combined, the business would be worth about $2 billion.
PacWest’s big share-price move on Tuesday marks the latest in a volatile few months for the Beverly Hills, Calif., bank, which was founded in 1999.
Investors had speculated that the bank could be the next to fail after Silicon Valley Bank and Signature Bank failed in March and First Republic Bank was taken over by JPMorgan.
Also on Tuesday, PacWest said it lost $207.4 million, or $1.75 a share, in its second quarter, as it got a hit from items related to loan sales and restructuring of its lending unit Civic. The loss contrasts with earnings of $122 million, or $1.02 a share, in the year-ago period.
Analysts polled by FactSet expected the bank to report a loss of 58 cents a share in the quarter.
PacWest disclosed in recent months that it was exploring strategic alternatives while it sold off parts of its business to raise cash to strengthen its balance sheet. It sold a loan portfolio to Ares Management Corp. ARES, +0.92%
in a move to generate $2 billion.
It also sold a portfolio of loans to Kennedy-Wilson Holdings Inc. KW, -1.70%,
which then sold part of the portfolio to Canada’s Fairfax Financial Holdings Ltd. FFH, +1.07%.
Tupperware Brands Corp. shares enjoyed their best day on record Monday despite an apparent absence of news related to the beleaguered seller of kitchen and home products.
The stock shot up more than 75% Monday in meme-like trading action and amid vastly higher-than-average volume. The surge marked Tupperware’s TUP, +75.56%
largest one-day percentage gain yet, surpassing the prior record of a 67.7% increase on July 29, 2020, according to Dow Jones Market Data.
Just shy of 130 million Tupperware shares changed hands on the day, easily breaking the record of 42.7 million shares traded, also set on July 29, 2020. The name’s 30-day average volume is about 2.4 million shares.
The stock finished Monday at $1.58 to record its highest close since April 6, 2023, according to Dow Jones Market Data.
The company’s website doesn’t appear to show any recent filings or press releases that would have driven Monday’s stock move. Tupperware didn’t immediately respond to a MarketWatch request for comment about the day’s trading activity.
Tupperware’s stock is up 136% over a two-session span, with the rally coming as investors don’t necessarily seem spooked by companies sporting bankruptcy risk. Used-car retailer Carvana Co. CVNA, +1.36%, once thought to be on the brink of failure, has seen its shares come roaring back this year, up nearly 900% over the course of 2023.
Shares of Digital World Acquisition Corp. DWAC, -2.05%,
the special purpose acquisition company (SPAC) looking to take Donald Trump’s Truth Social media company public, soared 20% in premarket trading Friday, after the SPAC reached a settlement with the Securities and Exchange Commission over fraud charges. The rally put the stock on track to open around the highest-price seen during regular-session hours since Feb. 6. The agreed upon settlement was a $18 million civil penalty fee in the event that it completes its planned merger with the Trump Media and Technology Group (TMTG) and takes it public. The SPAC, which went public in September 2021, and entered into an agreement in October 2021 to buy TMTG. The SPAC’s stock has tumbled 59% over the past 12 months, while the S&P 500 SPX, -0.68%
has gained 13.4%.
Sirius XM Holdings stock surged 42% Thursday on an apparent combination of short covering, an unwinding of a spread trade involving Liberty SiriusXM, and possible buying related to a rebalancing of the Nasdaq 100 index.
Lionel Barber is former editor of the Financial Times (2005-20) and Brussels bureau chief (1992-98)
Nobody does “No” better than the French. Charles De Gaulle said “Non” twice to Britain’s bid to join the European Economic Community; Jacques Chirac said “Non” to the Iraq war; and Emmanuel Macron this week gave a thumbs down to Fiona Scott Morton, the American Yale academic selected for the post of top economist at the EU’s powerful competition directorate in Brussels.
L’affaire Scott Morton may seem trivial in comparison to the (still unresolved) debate over Britain’s place in Europe or armed conflict in the Middle East, but the French veto of the first foreigner to take up the post says an awful lot about the European Union’s current paranoia about America’s influence and power.
As Macron has pushed a vision of Europe that stands up to the U.S., resisting pressure to become “America’s followers,” as he put it in April, such thinking has strengthened in Brussels.
The Scott Morton fiasco brings back memories of a lunch in Brussels exactly 30 years ago when some officials suspected the U.S. was engaged in an Anglo-Saxon plot to sabotage their plans for economic and monetary union. “Remember James Jesus Angleton,” said a stone-faced Belgian bureaucrat, invoking the name of the legendary, obsessive CIA counterintelligence officer at the height of the Cold War.
Professor Scott Morton was selected as the best candidate in open competition. She enjoyed the backing of Margrethe Vestager, the Danish EU competition commissioner often described as the most powerful antitrust regulator in the world. She also had support from Ursula von der Leyen, German president of the European Commission, whose leadership during the Ukraine war and the COVID pandemic has won widespread praise on both sides of the Atlantic.
All this counted for naught. Despite her distinguished academic pedigree, Scott Morton, a former Obama administration antitrust official, worked for Apple, Amazon and Microsoft in competition cases in the U.S. The notion her background somehow disqualified her for the job shows George W. Bush was wrong when he complained the French had no word for “entrepreneur.” Today’s problem is that Paris has no understanding of the term “poacher turned gamekeeper.”
As Carl Bildt, former Swedish prime minister, tweeted: “Regrettable that narrow-minded opposition in some EU countries has led to this. She was reportedly the most competent candidate, and a knowledge of the U.S. and its antitrust policies should certainly not have been a disadvantage.”
Now, President Macron’s opposition to the appointment has attracted a good deal of support in the Commission, in the European Parliament and among European trade unions. Cristiano Sebastiani, head of Renouveau & Démocratie, a trade union representing EU employees, said senior EU officials should “be invested, believe and contribute towards the European project. The very logic of our statute is that an EU official can never go back to being an ordinary citizen.”
France’s veto of Professor Scott Morton is de facto a veto of Vestager, who was almost untouchable during her first term as competition commissioner between 2014-19. She won kudos for investigating, fining and bringing lawsuits against major multinationals including Google, Apple, Amazon, Facebook, Qualcomm, and Gazprom. More controversially, at least in Paris and Berlin, she vetoed the planned merger between Alstom and Siemens, two industrial giants intent on creating a European champion.
Vestager’s second term has been a different story. She has suffered reverses in the courts which overturned punitive fines against Apple and Qualcomm. Then, although she ranks as a vice-president of the Commission, Vestager found herself challenged by a nominal underling in the shape of Thierry Breton, a former top French industrialist put in charge of the EU’s internal market.
Both have battled over the policing of the EU’s Digital Markets Act and over policy on artificial intelligence, a proxy fight for influence overall in Brussels.
Vestager and Breton have battled over the policing of the EU’s Digital Markets Act and over policy on artificial intelligence | Olivier Hoslet/EPA/AFP via Getty Images
Breton favors the so-called AI Pact, an effort to bring forward parts of the EU’s draft Artificial Intelligence Act. This would ban some AI cases, curb “high-risk” applications, and impose checks on how Google, Microsoft and others develop the emerging technology.
By contrast, Vestager favors a voluntary code of conduct focused on generative AI such as ChatGPT. This could be developed at a global level, in partnership with the U.S., rather than waiting for the two years it will take to secure legislative passage of Breton’s AI Pact.
So what’s the solution? If Europe is to have any chance of prevailing, so the argument goes, member states must take a far harder-nosed attitude to competition policy. This leads in turn to the creation of national or pan-European champions at the expense of crackdowns on subsidies and other anti-competitive behavior. In short, the very liberal policies designed to protect the single market’s level playing field and embodied by the fighting Viking.
For those who occasionally wonder how power has shifted inside the EU since Brexit took the U.K. out of the equation, it is proof indeed that “liberal Europe” is on a losing streak.
Funds associated with Cathie Wood’s ARK Investment continued to cull shares of Coinbase Global Inc. and Tesla Inc. on Monday, according to recent trade disclosures.
The ARK Fintech Innovation ETF ARKF, +1.58%
dumped 76,788 Coinbase shares COIN, +0.23%
on the day, while the ARK Innovation ETF ARKK, +2.29%
sold 127,266 and the ARK Next Generation Internet ETF ARKW, +2.23%
sold 44,784 shares.
Coinbase represents 0.78% of the Fintech Innovation ETF, along with 0.15% of the Innovation ETF and 0.30% of the Next Generation Internet ETF. ARK disclosed the transactions and weightings in the daily trade notifications it posts to its website.
Meanwhile, the ARK Innovation ETF shed 38,329 Tesla shares TSLA, +3.20%
on Monday, while the ARK Next Generation Internet ETF sold 6,855. Those shares were worth $13.1 million based on Tesla’s Monday closing level of $290.38. Tesla represents about 0.12% of both funds as they continue to unload shares.
ARK scooped up 455 shares of Meta Platforms Inc. META, +0.57%
within its Next Generation Internet ETF and bought up 3,729 shares within the ARK Innovation ETF. That amounted to $1.3 million worth of stock based on Meta’s $310.62 Monday close.
Two ARK funds bought a combined $790 million in Robinhood Markets Inc.’s stock HOOD, +0.89%,
with the fintech fund scooping up 25,641 shares and the Next Generation Internet ETF buying 37,630 shares. ARK added 4,608 shares of SoFi Technologies Inc. SOFI, +4.41%
to the fintech fund, worth $43,683 based on Monday’s close.
ARK was also active in shares of Twilio Inc. TWLO, -0.63%,
buying 15,702 within the Fintech Innovation ETF, 133,499 within the Innovation ETF and 22,748 within the Next Generation Internet ETF. That amounted to $11.4 million in Twilio’s stock based on Monday’s $66.47 closing price.
Shares of AT&T Inc. were falling again Monday after a Citi Research analyst weighed in with a more cautious view in light of recent reporting on legacy use of lead-sheathed cables within the telecommunications industry.
He also downgraded shares of Frontier Communications Parent Inc. FYBR, -15.79%
and Telephone & Data Systems Inc. TDS, -8.38%
to neutral from buy, and he already had a neutral rating on Verizon Communications Inc.’s stock VZ, -7.50%.
“First, copper network deployed with possible lead sheathing could be a significant percentage of the legacy network deployed nationally with varying exposures for each firm,” Rollins wrote. He said he was “unable to specifically quantify financial risks (if anything material)” for wireline telecommunications companies stemming from these issues, though “the timing to receive more information could take at least a couple months and full resolution could take years.”
AT&T’s stock was off 3.8% in Monday morning action, to a recent $13.95, and on track to close at its lowest level since March 24, 1993, according to Dow Jones Market Data. The stock is on pace to spend a ninth-straight session without a daily gain, factoring in one day of flat performance last week alongside a string of daily losses.
“We still expect the company to display forward progress on cash flow generation and setting the stage to reduce net debt leverage over the next two years before considering any potential liabilities, if anything material, associated with lead sheathed cables,” Rollins wrote, though he called out “uncertainty from the industry’s use of lead-sheathed cabling” as a key reason for the downgrade.
Frontier shares were down 8.2%, while TDS shares were off 5.0%. Verizon’s stock was down 1.6% and on pace for its eighth consecutive losing session.
USTelecom, a trade association that counts AT&T and Verizon as members, said in a statement that the telecommunications industry “has a long tradition of closely following science and evidence as it relates to public health, environmental protection, and worker safety issues,” while “safe work practices within the industry have proven effective in reducing potential lead exposures to workers.”
There are “many considerations” that go into deciding whether to remove legacy cables, “including those regarding the safety of workers who must handle the cables, potential impacts on the environment, the age and composition of the cables, their geographic location, and customer needs as well as the needs of the business and infrastructure demands,” the spokesperson continued.
The trade group said in a prior statement that it had “not seen, nor have regulators identified, evidence that legacy lead-sheathed telecom cables are a leading cause of lead exposure or the cause of a public health issue.”
Representatives from Frontier and TDS couldn’t immediately be reached for comment.
Rollins noted in his report that “Verizon and AT&T indicated their expectation as that the exposure should be small,” though he said that “for Verizon, we learned the term ‘small’ could be as much as 20% of its copper network infrastructure.”
SVB MoffettNathanson analyst Craig Moffett weighed in on the issue as well Monday, calling out heavy uncertainty.
“The unsatisfying, but honest, answer is that at this point we have nothing but unknowns to work with and no real way to quantify the companies’ exposures,” he wrote. “Lead risk is clearly not a good thing, but we don’t know how bad it will ultimately be. It would be disingenuous to try putting firm numbers around it.”
The Federal Trade Commission on Thursday asked an appeals court to temporarily block Microsoft Corp.’s $69 billion acquisition of Activision Blizzard Inc. while it challenges a ruling earlier this week green-lighting the deal.
The FTC on Thursday asked U.S. District Judge Jacqueline Scott Corley to postpone her ruling — which she promptly denied — and also appealed to the Ninth U.S. Circuit Court of Appeals in San Francisco to pause the acquisition “to preserve the status quo” while the case is reviewed, claiming it is likely to succeed in its appeal.
According to the filing, the FTC claims the judge applied the wrong legal standard to its request for a preliminary injunction, and erred in a number of other matters.
The deal is set to close in the coming days, and letting it happen will “irreparably harm the public interest and the FTC,” regulators said.
In a response filed with the court, Microsoft said the FTC “failed to carry its burden on independent, fact-based grounds” and “dragged its heels” before appealing.
“The court has already found that it would be inequitable” to order an injunction that could lead to “the potential scuttling of the merger,” Microsoft said, in asking for the FTC’s request to be denied.
The FTC has claimed the tie-up of a major videogame platform — Microsoft’s MSFT, +1.62%
Xbox — with a major videogame publisher — Activision ATVI, -0.51%
makes the wildly popular “Call of Duty,” among other titles — would be harmful to the videogame industry and consumers.
Microsoft has pledged to keep “Call of Duty” available to Sony’s SONY, +2.82%
PlayStation console for 10 years, and will make it available for Nintendo’s 7974, -0.36%
Switch and some cloud-gaming platforms.
In her ruling clearing the deal Tuesday, Corley said the FTC did not show “this particular vertical merger in this specific industry may substantially lessen competition.”
Bloomberg News reported late Thursday that Microsoft and Activision are considering giving up some control of their cloud-gaming business in the U.K. to win approval of British regulators, who — if the U.S. appeals court does not act — are the final hurdle to the deal closing on time.
