Cigna Group abandoned its pursuit of a tie-up with Humana after shareholders balked at a deal that would have created a roughly $140 billion giant in the health-insurance industry.
The companies couldn’t come to agreement on price and other financial terms, according to people familiar with the matter. In the near term, Cigna is turning its focus toward smaller, so-called bolt-on, acquisitions.
Broadcom Chief Executive Hock Tan shelled out $40,000 to sit at Xi Jinping’s table for the Chinese leader’s recent dinner in San Francisco with the heads of American businesses. Tan had a lot more at stake—a $69 billion deal he was waiting on China to approve.
For months, Chinese regulators wouldn’t clear the U.S. chipmaker’s bid to buy enterprise software developer VMware, leading Broadcom to put off its date for completion of the deal—first announced in May 2022—three times. Beijing had held up previous mergers involving U.S. companies. Intel’s planned acquisition of Israeli firm Tower Semiconductor, for more than $5 billion, was scuttled in August after Chinese regulators failed to approve it.
A number of Amazon.com Inc. executives have disclosed sales of some of their Amazon stock holdings in recent weeks, but Jeff Bezos, the company’s executive chair and a mega-shareholder, was not among them.
Despite some reports to the contrary, Bezos hasn’t disclosed any sales of Amazon shares AMZN for two years, but he has given some shares away to nonprofit organizations.
BERLIN—Bayer Chief Executive Bill Anderson said the company would bounce back quickly from a recent spate of bad news, and warned that a breakup of the pharmaceutical and agricultural company was no universal cure for its ailments.
A stream of negative news has rekindled calls from investors for Bayer to unlock value by spinning off its units into separate businesses. But in an interview with The Wall Street Journal this week, Anderson said the company couldn’t be distracted from the tough restructuring to fix the businesses.
Stock futures pointed higher Friday as Wall Street returned for a
shortened trading session following the Thanksgiving holiday. Retailers will be in focus on Black Friday, which marks the unofficial start to the Christmas shopping season.
Shareholders of Walmart Inc. may have had an inkling of today’s stock selloff if they had been watching the performance of its bonds over the last two weeks.
The bonds have seen net selling even as spreads have tightened, according to data solutions company BondCliQ Media Services.
The same is true for Costco Wholesale Corp. COST, -3.12%,
as the company’s stock fell in sympathy with Walmart on Thursday. That was after Walmart WMT, -8.11%
Chief Executive Doug McMillon said he expects to see a U.S. deflation trend in the coming months.
McMillon was the first retail executive to raise the specter of deflation on an earnings call this season so far.
The comment came after the retail giant posted better-than-expected third-quarter earnings, but offered per-share earnings guidance that was below consensus, sending the stock down more than 7%.
The following charts show what’s been happening with Walmart and Costco bonds in the run-up to today’s numbers.
Bondholders tend to be keenly focused on a company’s underlying financials and closely watched metrics such as cash flow to ensure it can cover interest payments.
That’s because, by buying corporate bonds, they are effectively lending money to a company for a set term and want to be sure they will get their full investment back once they mature. Shareholders tend to be more tuned into daily stock-price movements.
Bonds of Walmart and Costco Wholesale by maturity bucket. Source: BondCliQ Media Services
The following chart shows the two-week volume for the bonds by trade type.
Bonds of Walmart and Costco Wholesale — two-week volume by trade type. Source: BondCliQ Media Services
The next chart focuses on two-week client flows, showing net selling for both issuers over the period.
Bonds of Walmart and Costco – two-week net client flow. Source: BondCliQ media Services
The selling has come as spreads have been tightening, as the next chart illustrates.
Select bonds of Walmart and Costco – two-week spread performance. Source: BondCliQ Media Services
Walmart’s numbers come after other retailers this week said they are seeing signs of pushback from their customers, especially when it comes to big-ticket items.
That was the message from Target Corp. TGT, -1.00%
on Wednesday, with that company’s sales number lagging consensus. Chief Executive Brian Cornell the company saw soft industry trends in discretionary categories, as well as higher inventory shrink.
On Tuesday, Home Depot Inc. HD, -0.79%
said its customers were avoiding big-ticket items.
“The third quarter was in line with our expectations – similar to the second quarter, we saw continued customer engagement with smaller projects and experienced pressure in certain big-ticket, discretionary categories,” said Home Depot CEO Ted Decker, during a conference call to discuss the results.
Soros Fund Management, the investment firm founded by billionaire George Soros, took new positions or bulked up on IPOs and a number of tech names during the third quarter.
But it sold off small holdings of some of the largest — like Nvidia Corp. and Microsoft Corp. — as well as electric-vehicle maker Rivian Automotive.
According to a filing on Tuesday, the firm during the third quarter bought up 325,000 shares of chip designer Arm Holdings ARM, +3.37%,
which went public in September, for $17.4 million. It also bought smaller stakes in recent IPOs such as Maplebear Inc. CART, +1.25%,
better known as grocery-delivery platform Instacart, and digital-marketing firm Klaviyo Inc. KVYO, +6.90%.
Those purchases were disclosed as investors remain cautious on new IPOs.
Elsewhere, the fund took a new position, of around 41,000 shares, in Apple Inc. AAPL, +1.43%.
And it did so as well for Datadog Inc. DDOG, +4.58%,
buying 62,000 shares during the quarter. It also bought up 574,962 shares of Splunk, and took fresh positions in Snowflake Inc. SNOW, +4.51%
and Taiwan Semiconductor TSM, +2.58%.
Soros also packed on more to some of its other tech holdings. It added 125,000 shares to its stake in Uber Technologies Inc. UBER, +3.14%,
boosting its position by 16.6% for a total of 878,955 shares. It also bought 42,000 more shares of another gig-economy player, DoorDash Inc. DASH, +4.37%,
a 30.9% increase for 178,075 shares.
While Soros boosted its stake in General Motors GM, +4.83%,
it sold off its 4.2 million shares in Rivian RIVN, +4.39%.
The firm also sold off its positions — of roughly 10,000 shares apiece — in tech giants Microsoft MSFT, +0.98%
and Nvidia NVDA, +2.13%.
Soros Fund Management also sold off its stake in Walt Disney Co. DIS, +1.82%.
Groupon Inc. shares were tumbling more than 20% in Thursday’s extended session after the discounting marketplace announced a new rights offering and acknowledged “challenged” business conditions.
The company said in a Thursday afternoon release that its board approved an $80 million fully backstopped rights offering to all holders of its common stock. The rights offering will occur through the distribution of nontransferable subscription rights to purchase common stock at a price of $11.30 a share.
Groupon GRPN, -2.73%
also posted third-quarter results, showing revenue down to $126.5 million from $144.4 million a year prior and slightly below the $129.7 million FactSet consensus, which is based on estimates from three analysts.
The company logged a net loss of $41.4 million, or $1.31 a share, compared with a loss of $56.2 million, or $1.86 a share, in the year-earlier period.
“We are turning our focus to delivering projects across product, engineering, sales, marketing and revenue management that we expect will reinvigorate our marketplace and position our business to return to growth,” interim CEO Dusan Senkypl said in a release.
Added Senkypl: “While we did not make as much progress on key projects as I expected and our business continues to be challenged, I am pleased to see sequential improvement in our financial performance, Local Billings return to growth, and our plan to strengthen our liquidity position.”
In addition, co-founder Eric Lefkofsky plans to leave Groupon’s board of directors, according to Thursday’s release. “With a new management team and the announcement of today’s financing strategy, I am confident that Groupon is on the right track to become the ultimate destination for experiences and services,” Lefkofsky said.
Groupon’s stock is up 58% so far this year but off 97% from its 2011 all-time high.
UBS Group issues $3.5 billion in Additional Tier 1 bonds in the first issuance since the acquisition of Credit Suisse.
It is comprised of two tranches of $1.75 billion of 9.25% perpetual notes redeemable at the option of UBS after five years and $1.75 billion of 9.25% perpetual notes redeemable after 10 years.
“Each issue is a direct, unsecured and subordinated obligation of UBS Group AG,” it said.
“The notes provide that, following approval of a minimum amount of conversion capital by UBS Group AG’s shareholders, upon occurrence of a trigger event or a viability event, the notes will be converted into UBS Group AG ordinary shares rather than be subject to write-down,” UBS added.
In less than a year, Chevron has gone from being Wall Street’s favorite Big Energy company to a show-me story. Investors who buy the stock now should end up liking what they see.
Chevron stock (ticker: CVX) has fallen 17% in 2023, making it the worst performer by far among the half-dozen global super majors this year. Exxon Mobil (XOM), by comparison, is down just 2% this year, and the Energy Select Sector SPDR exchange-traded fund (XLE) is about flat.
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Most of the drop has come during the past few weeks after a disappointing earnings report that included news of a surprise delay in the development of a key oil field in Kazakhstan, while Chevron’s $60 billion deal to buy Hess (HES), an independent energy producer, not only failed to excite investors but was seen as a sign of weakness by some.
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Going back decades, if you wanted to buy or sell a stock on the open market, you had to pay a 2% commission to buy and a 2% commission to sell. Then the advent of discount brokerage, led by Charles Schwab Corp. SCHW, +1.64%,
made lower commissions available until eventually, with improved technology and efficiency, the entire industry changed to enable the average investor to avoid commissions completely.
But the internet hasn’t done much to reduce the cost of selling a home in the U.S. Sellers typically pay a 6% commission to a real-estate agent to list and sell a home, with the seller’s agent splitting that commission with the buyer’s agent. But all of that may change because of a verdict this week in a class-action lawsuit in federal court against the National Association of Realtors.
Aarthi Swaminathan covers the case, what may happen next and the implications for home sellers and buyers:
Real-estate advice from the Moneyist
MarketWatch illustration
Quentin Fottrell — the Moneyist — works with three readers to answer tricky real-estate questions:
Jon Gray, the president of Blackstone Group, spoke with MarketWatch Editor in Chief Mark DeCambre and said he expected the Fed to succeed in bringing down inflation without pushing the U.S. economy into a deep recession.
The U.S. Treasury yield curve has been inverted for nearly a year.
FactSet
Normally, longer-term bonds have higher yields than those with short maturities. But the yield curve has been inverted for nearly a year, with 3-month U.S. Treasury bills BX:TMUBMUSD03M
having higher yields than 10-year Treasury notes BX:TMUBMUSD10Y.
There has been elevated demand for long-term bonds, as investors have anticipated a recession and a reversal in Federal Reserve interest-rate policy. When interest rates decline, bond prices rise and vice versa.
As you can see on the chart above, the yield curve was narrowing until mid-October. Yields on 10-year Treasury notes were close to 5% on Oct. 19, but they have been falling the past several days as the three-month yield has remained close to 5.5%.
In the Bond Report, Vivien Lou Chen summarizes the action as investors react to the Federal Reserve’s decision not to change its federal-funds-rate target range this week and to other economic news.
For income-seekers looking to avoid income taxes, here’s a deep dive into municipal bonds, with taxable-equivalent yields and a deeper look at those within four high-tax states.
Ford’s good news — in the bond market
Ford Motor Co.’s debt rating has been lifted by S&P to investment-grade.
By now you have probably heard the term “Magnificent Seven” used to describe stocks of the tremendous tech-oriented companies that have led this year’s rally for the S&P 500 SPX
: Apple Inc. AAPL, -0.52%,
Microsoft Corp. MSFT, +1.29%,
Amazon.com Inc. AMZN, +0.38%,
Nvidia Corp. NVDA, +3.45%,
Alphabet Inc. GOOGL, +1.26%
GOOG, +1.39%,
Meta Platforms Inc. META, +1.20%
and Tesla Inc. TSLA, +0.66%.
With Tesla’s recent decline, that company is now the ninth-largest holding in the portfolio of the SPDR S&P 500 ETF Trust SPY,
which tracks the benchmark index. Here are the top 10 companies held by SPY (11 stocks, including two common-share classes for Alphabet), with total returns through Thursday:
Five of these stocks (including the two Alphabet share classes) are still down from the end of 2021. SPY itself has returned 14% this year, following an 18% decline in 2022. It is still down 7% from the end of 2021.
After the market close on Wednesday, PayPal Holdings Inc. PYPL, +1.89%
announced quarterly results that came in ahead of analysts’ expectations, and the stock soared 7% on Thursday even though the company lowered its target for improving its operating margin.
Consumers drive mixed reactions to earnings results
Apple Inc. reported mixed quarterly results.
Mario Tama/Getty Images
Here’s more of the latest corporate financial results and reactions. First the good news:
And now the news that may not be so good:
Harsh verdict for SBF
FTX founder Sam Bankman-Fried.
AP
It might seem that some legal battles never end, but it took only a year from the collapse of FTX for the cryptocurrency exchange’s founder, Sam Bankman-Fried, to be convicted on all seven federal fraud and money-laundering charges brought against him. The charges were connected to the disappearance of $8 billion from FTX customer accounts.
Here’s more reaction and coverage of the virtual-currency industry:
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Zhejiang Leapmotor Technology’s shares were lower at the mid-day break after initially rising on news of a 1.5 billion euro ($1.58 billion) investment by Stellantis in the Chinese electric-vehicle maker.
Leapmotor shares ended the morning session down 9.4% at 33.40 Hong Kong dollars, reversing course from early gains of as much as 11.5%.
Some of the whipsawing into negative territory arose from early investors in the company seeking an exit point, said Ke Qu, an analyst at CCB International Securities.
“The stock price is under pressure due to selling pressure from pre-IPO investors,” Qu said in an email. “Most may think this partnership announcement creates [a] better exit window for their three-year or even longer investment.”
Qu added that Leapmotor is relatively short on cash compared with other listed startups in China, and can benefit from a partner to leverage its exposure and competitiveness in European or U.S. markets.
“Greater access to [the] EU means better profitability than elsewhere in the world,” she said.
Netherlands-based Stellantis said early Thursday that it is taking a roughly 20% stake in Leapmotor, with the companies planning to create a joint venture to sell Leapmotor products outside of China, starting with Europe.
Leapmotor debuted in Hong Kong in September 2022 after raising about HK$6.06 billion (US$774.8 million) in its initial public offering.
The Chinese company delivered 44,325 vehicles in the third quarter, up almost 25% from a year earlier. Revenue in the quarter rose 32% on the year to CNY5.66 billion.
Chevron said it would buy Hess in an all-stock deal worth $53 billion, in the latest sign of consolidation in an oil-and-gas industry flush with cash.
The U.S. energy giant said buying Hess would upgrade and diversify its portfolio, adding a large oil asset in Guyana and bolstering its U.S. shale operations. Chevron also highlighted the attraction of Hess’s assets in the Gulf of Mexico and its natural-gas business in Southeast Asia.
When Eyal Waldman thinks of his youngest daughter and her boyfriend, he sees them dancing.
“Danielle and Noam loved dancing, and I hope they continue dancing somewhere up there,” Eyal Waldman told MarketWatch.
Danielle Waldman and Noam Shay were killed at a music festival in southern Israel last week, part of a campaign by the Hamas terrorist group that has led to further bloodshed.
Danielle’s father — an Israeli tech executive who co-founded Mellanox, which became the largest acquisition in Nvidia Corp.’s NVDA, -3.16%
history — spoke with MarketWatch as Friday turned to Saturday in Israel, in hopes of increasing attention on the hostages who are still held in Gaza as well as to memorialize his daughter, who was 24, and Shay, who was 26.
“They loved to celebrate life,” Eyal Waldman said of his daughter and her boyfriend, before adding “they went down on Friday night to celebrate life, love and freedom, and they were massacred.”
Courtesy of Eyal Waldman
Danielle Waldman — who was born in Palo Alto, California, but moved back to Israel with her family at age 4 — and Israeli native Shay were students who met six years ago in the army, and her father said they had been inseparable since. They attended the Supernova music festival in early October with friends, and were killed while attempting to escape Hamas terrorists in a car that Eyal Waldman found bullet-riddled near the festival’s location.
“Danielle and Noam have done nothing bad to anyone, and they were murdered only because they were Israelis,” he said.
Eyal Waldman, a onetime Israeli combat fighter, founded Mellanox in 1999, and sold it 20 years later to Nvidia for $6.9 billion. He is known internationally for attempting to foster peace between Israelis and Palestinians through his work in technology — Mellanox hired Palestinian tech workers in Gaza, Nablus and the West Bank town of Rawabi, which led to a “60 Minutes” appearance.
“We wanted to make peace, to work together, to bring prosperity to the Palestinian people, the same as we have in Israel,” he said. “I brought even Apple AAPL, -1.03%
to open a design center in Rawabi and I brought other companies to open design centers in Rawabi.”
The death of his daughter and Shay and the scope of the attacks and counter-attacks dominating headlines in recent days have not changed Waldman’s hope for peace in the future, he said, but not the near future. He believes this time, the violence “took us back several years, if not decades.”
“We need time to build the trust, if at all, between the two nations and start working together to be able to talk about peace,” he said. “Until then, we will continue protecting ourselves in a very direct manner in Gaza and everywhere else around Israel.”
Waldman also said he would continue to try to hire Palestinians and work with them to be a part of the Israeli tech ecosystem, as long as they state “that they are working for peace, and they are not supporting — not financially and not in any other way — any terror actions, or any actions that are not civilian economics between the two nations.”
“Our hands are always reaching out for peace. But at the same time, before we do this, we need people to understand that Israel is strong, Israel is united, and we will never let anyone harm the citizens of the state of Israel again.”
Waldman was thankful for U.S. aid and was forceful in discussing the need to find hostages that were still missing. One of Nvidia’s current employees was kidnapped, according to an email that Chief Executive Jensen Huang sent to employees that was obtained by Insider, which reported that the employee was also at the Supernova music festival.
Nvidia has more than 3,000 employees in Israel mostly working for Mellanox, which makes networking gear that connects Nvidia’s high-performance data-center products. In an emailed statement, an Nvidia spokesman said “our focus now is working with our Israel leadership to ensure our employees and their families are safe and well cared for. We will then turn our focus to shoring up [the company’s] execution if necessary to ensure continued operations of our business.”
Waldman said the return of hostages is top of mind.
“What’s important now is to focus on bringing back the hostages, and that is the No. 1 priority for the State of Israel and for the international community,” he said.
Continuing to worry about others while suffering his own tragedy is a trait that Eyal Waldman seems to have passed down to his youngest daughter. He said that he had received a note from another festival attendee who was wounded in the eye in the initial attack. That victim told him that Danielle Waldman had stopped to attend to her and make sure she was safe before attempting to escape in a car that was later believed to have been attacked by Hamas terrorists with rifles.
“They loved to celebrate life,” Waldman said of his daughter and her boyfriend.
“And they went down on Friday night to celebrate life, love and freedom, and they were massacred.”
Microsoft’s acquisition of videogame company Activision Blizzard won approval from U.K. competition authorities, clearing a path for the companies to close the $75 billion deal after a lengthy struggle with regulators.
The U.K.’s Competition and Markets Authority said Friday that the proposed deal no longer poses a major threat to competition in cloud gaming. The shift comes after Microsoft offered to restructure the deal by forfeiting cloud-streaming rights for “Call of Duty” and other popular Activision franchises in much of the world.
Iconic German sandal maker Birkenstock Holdings Ltd.’s stock fell 10% out of the gate in its trading debut Wednesday, signaling that investors remain cautious about new deals and the casual-footwear market remains competitive.
The company’s initial public offering priced at $46 a share late Tuesday, a bit shy of the midpoint of its expected range. The company BIRK, -11.63%
is trading on the New York Stock Exchange under the ticker “BIRK.” Goldman Sachs, JPMorgan and Morgan Stanley were the lead underwriters on the deal.
The deal was expected to prove the latest test for the IPO market, which recently saw three key deals perform strongly on their first day of trade, only to fall back in subsequent sessions.
Chip maker Arm Holdings Ltd. ARM, -1.09% ; Klaviyo KVYO, -3.11%
a digital marketing company; and Instacart, which trades as Maplebear Inc. CART, -7.04%
; all enjoyed strong gains on their first day of trade but pared those in the following sessions. Instacart was quoted at $25.50 on Wednesday, well below its issue price of $30.
Birkenstock clearly has its fans, as its customers are brand loyal, with 70% of existing U.S. consumers, for example, purchasing at least two pairs of its shoes, according to its filing documents.
A survey found 86% of recent purchasers said they wanted to buy again, while 40% said they did not even consider another brand while buying.
But as Kyle Rodda, Senior Market AnalystatCapital.com, said the Birkenstock deal was to be a good measure of broader market sentiment and sentiment toward consumer-sensitive stocks.
“It might tell us, too, whether cashed-up millennials like to buy the stocks of products they commonly find on the bottom shelf of their wardrobes,” he said in emailed comments.
The valuation of around $8.6 billion also looks rich, he said. Based on the company’s latest revenue release, the stock’s price-to-sales ratio is above 6, “which is at the higher end of comparable consumer discretionary companies on Wall Street.
“In a higher interest rate environment, these multiples may be hard to sustain in the short term, especially if consumer spending slows as expected next year as interest rate hikes bite households,” Rodda said.
David Trainer, Chief Executive of independent equity research company New Constructs, said ahead of the deal that the valuation was far too high, noting that it was higher than peers such as Skechers USA Inc. SKX, -0.67%,
Crocs Inc. CROX, -0.12%
and Steve Madden Ltd. SHOO, +0.60%.
“Even more shockingly, the only footwear companies with a larger market cap are Nike Inc. NKE, +0.80%
and Deckers Outdoor DECK, -0.07%,
” he said, referring to the maker of Uggs.
“While Birkenstock is profitable, we think it is fair to say that the $8.7 billion valuation mark is too high, especially for a company that was valued at just $4.3 billion in early 2021. Not a whole lot has changed since then,” Trainer said in a report.
“We don’t doubt that Birkenstock has strong brand equity and produces stylish sandals, but there is really no reason for this company to be public,” said Trainer. “We don’t think investors should expect to make any money by buying this IPO.”
The Renaissance IPO exchange-traded fund IPO
has gained 29% in the year to date, while the S&P 500 SPX
has gained 13%.
If anyone wanted evidence that the market feels skittish just look at stocks related to electric vehicles. They are getting hammered on
capital raising activity that, frankly, should surprise no one.
Exxon Mobil Corp. confirmed Wednesday an agreement to buy shale driller Pioneer Natural Resources Co. in an all-stock deal valued at $59.5 billion, or $64.5 billion including debt.
“Pioneer is a clear leader in the Permian with a unique asset base and people with deep industry knowledge,” said Exxon Mobil Chief Executive Darren Woods. “The combined capabilities of our two companies will provide long-term value creation well in excess of what either company is capable of doing on a standalone basis.”
Pioneer shares rose 1.9% in premarket trading, while Exxon’s stock fell 1.3%.
Under terms of the deal, Pioneer shareholders will receive 2.3234 Exxon shares XOM, -0.42%
for each Pioneer share PXD, +0.76%
they own. The companies said that based on the Oct. 5 closing prices of $108.99 for Exxon’s stock and $214.96 for Pioneer’s stock, the deal values Pioneer shares at $253.23 each, or a 17.8% premium.
The deal combines Pioneer’s more than 85,000 net acres in the Midland Basin with Exxon’s 570,000 net acres in the Delaware and Midland Basins. Combined, the companies will have an estimated 16 billion barrels of oil equivalent in the Permian.
Exxon, Pioneer merger provides an estimated combined 16 billion barrels of oil equivalent resource in the Permian.
Exxon Mobil Corp.
Exxon said the merger will increase its lower-cost-of-supply production and short-cycle capital flexibility. From Pioneer’s assets, the company expects a cost of supply of less than $35 per barrel.
Exxon said the deal will accelerate plans to achieve net zero greenhouse gas emissions in the Permian, as the company plans to use its own plans to accelerate Pioneer’s net-zero emissions plan by 15 years, to 2035.
The deal is expected to immediately add to Exxon’s earnings per share and free cash flow when it closes, which is expected to occur in the first half of 2024. The merger is expected to result in “significant” synergies.
Siebert Williams Shank analyst Gabriele Sorbara expects the deal, which “fits perfectly” for Exxon, to generate about $2 billion of synergies over the next decade. Sorbara also sees an “inflection to improved well productivity” in the second half of 2023 and beyond, which isn’t currently reflected in analyst expectations, so it boost the benefit to Exxon.
While Sorbara expects some scrutiny from the Federal Trade Commission, but believes “the deal should ultimately close,” without the receipt of a competing bid.
Citi was lead financial advisor to Exxon, and Centerview Partners was financial advisor and Davis Polk & Wardwell was legal advisor. For Pioneer, Goldman Sachs, Morgan Stanley, Petrie Partners and Bank of America Securities were financial advisors and Gibson, Dunn & Crutcher LLP was legal advisor.
Exxon’s stock has rallied 12.7% over the past 12 months through Tuesday and Pioneer shares have slipped 3.5%. In comparison, the Energy Select Sector SPDR ETF XLE
has climbed 11.6% and the S&P 500 index SPX
has advanced 21.4%.
Exxon Mobil Corp. XOM, -1.67%
is reportedly nearing a deal to buy energy-exploration company Pioneer Natural Resources Co. PXD, +10.45%
for $60 billion, a combination that could shake up Texas’ storied and oil-rich Permian Basin.
It’s also bound to attract attention from the Biden Administration’s antitrust enforcers, including Federal Trade Commission Chair Lina Khan, given the paramount political importance of oil and gasoline prices.
“You can be sure that the FTC will give this acquisition a serious look,” Stephen Calkins, former general counsel at the FTC told MarketWatch, adding that the agency has long paid special attention to the oil and gas industry at the behest of Congress, which has long been sensitive to anything that may increase prices at the pump.
The high cost of living after several years of historic inflation is one of President Joe Biden’s most important political vulnerabilities ahead of the 2024 election. A recent poll by Investors Business Daily showed only 24% of voters approve of his economic record.
The president has campaigned on gasoline prices specifically, telling an audience in Maryland last month, “I’m going to get those gas prices down again, I promise you.”
But any decision to challenge a merger must be based on the facts of the market in question and whether it would present a threat to competition that could lead to higher prices for consumers or other adverse effects.
Frederick Lawrence, director and energy analyst at Capital Alpha Partners told MarketWatch that there is much greater competition in the market for oil exploration and production, where Pioneer is a major player, than in other segments of the industry including gasoline stations, pipeline operators or refining.
Independent oil companies produce roughly 85% of natural gas and 65% of oil in the U.S., he said, and that fact will make it difficult for the Exxon acquisition to meaningfully reduce competition in oil exploration.
“People just think about big oil and they forget that there’s a very healthy independent community out there competing,” he said. “That said, this is Exxon Mobil we’re talking about, the 800 pound gorilla of the upstream oil value chain, so it’s important to acknowledge they’ll get more scrutiny.”
Investors should be prepared for the deal to take longer to consummate than a similar acquisition in another industry, Lawrence added, pointing to a recent deal between private equity firm Quantum and natural-gas producer EQT that was slowed because of additional information requests from the FTC.
The deal was ultimately consummated in August, nearly a year after it was announced.
Former FTC official Calkins said that investors should also be prepared for the FTC to get creative as it studies the deal, noting that Biden administration antitrust enforcers “have been receptive to unusual theories of competitive harm” and will study the impact of the merger on downstream businesses, like refiners and gasoline retailers.
The agency will also scour the deal for “any part of the business where there’s an anticompetitive story,” Calkins said, noting that large complex mergers often involve the transfer of a more obscure but valuable asset that could illegally boost an acquiring company’s market power.
Meanwhile, the FTC also has to contend with an already heavy workload, with ongoing cases against well-resourced companies like Amazon.com Inc. AMZN, +1.59%
“The FTC right now is doing a lot of litigating,” Calkins said. “There is a resources question of whether they have the ideal number of staff with the right skill set to add to their already full plate.”
