Obama Dashes Pfizer/Allergan Inversion Dreams; Oil-Vey: The Wrath of the DOJ; Verizon Gets Awesome(ness);

Breaking up is hard to do…

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Pfizer can kiss its $160 billion merger with Allergan goodbye all thanks to some new treasury rules that seemed to have been designed just with this particular deal in mind. President Obama unveiled the new rules that make it harder for corporations to do inversions and basically make them not fiscally worth it. The rules make sure to target “serial inverters” which are foreign companies that became corporate giants by buying up American companies for tax reduction purposes. President Obama and the Treasury are trying to end corporate inversions and calls the practice “one of the most insidious tax loopholes out there, fleeing the country just to get out of paying their taxes.” Plenty of American companies have moved parts of their operations to countries where the corporate tax rates are more hospitable and essentially reincorporate in those places. The Pfizer/Allergan deal would have been the largest deal of its kind and would have effectively knocked off a $1 billion chunk of change from Pfizer’s corporate tax bill. Which explains why Pfizer was so eager to do its deal with Ireland-based Allergan. According to President Obama, global tax avoidance is a “huge problem.” So is climate change and the roster of presidential candidates, by the way, but Obama was only able to do something to curtail inversions. Just saying. Now experts suspect other foreign companies with large American operations will fall under the microscope and things could get ugly for them as well. Pfizer will now have to pay Allergan $150 million to reimburse the company for expenses from the deal that wasn’t. At least its not as much as the $1.6 billion AbbVie had to pay Shire back in 2014 when that $55 billion deal fell apart. Why Congress can’t make the corporate tax rate just as hospitable in the United States as it is in other countries, and maybe even attract foreign companies to come here and pay billions in taxes is a mystery to me. If someone has an answer, I’d love to hear it.

Oil drink to that…

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Pharmaceutical Corporations aren’t the only ones displeased the with the U.S. government today. Enter two of Big Oil’s biggest players who have some unkind thoughts for the Department of Justice. Halliburton and Baker Hughes happen to be the second and third largest oil companies and control 15.8% of the market share. Together, the two companies pulled down a combined revenue of $39.3 billion. Halliburton alone scored over a $5 billion profit for 2014. But in 2015, the oil giant didn’t fare nearly as well and instead posted a $165 million loss with a major decline in revenue. The drop in oil prices have left dozens of oil companies filing for bankruptcy as hundreds of thousands of people in the industry are now without jobs. Halliburton and Baker Hughes think a merger would help keep both of them from going under but the DOJ is not buying it. The DOJ says anti-trust is written all over this deal, calls it anti-competitive and feels it would make the newly-formed entity way too powerful. The DOJ argues that the deal would lead to much much higher prices and consumers would be at the mercy of the companies. But maybe Baker Hughes can console itself with the $3.5 billion break-up fee it gets to collect from Halliburton now that the deal won’t be going through. At least for now…

Everything is awesome…

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As wireless companies hunt for new ways to make money, Verizon figured out one way to do it – through the very hip and very lucrative teen demographic. So like any eager telecom giant, it found a business to buy that it hopes will help them pull in some of more cash. Enter AwesomenessTV, a company that’s home to some of YouTube’s most popular channels and features all sorts of short videos, from dating advice to celebrities. Verizon plunked down $160 million for a 24.5% stake in the company that boasts 3.6 million subscribers. DreamWorks Animation SKG Inc already owns a 51% stake while Hearst Corp owns the remaining stake. DreamWorks Animation was prescient enough to buy AwesomenessTV back in 2013 for the bargain price of just $33 million. This new deal puts AwesomenessTV’s latest valuation at a very cool $650 million. Part of the deal includes Verizon creating a mobile video service for the endeavor and it will be a part of Verizon’s go90 mobile video app – which of course, will be exclusive to Verizon.  Double boom for Verizon because there tends to be lots of juicy revenue in mobile video that comes from both data usage and advertising. AwesomenessTV already had an exclusive deal with Verizon to provide content for go90 so this new development ought to fit in nicely. DreamWorks Animation’s Jeffrey Katzenberg must also be pretty stoked about the deal since he expects annual revenue for AwesomenessTV to double because of it.

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Things are Looking Up on Wall Street. For Now; Could it Get Any Worse for Lumber Liquidators?; Will you Remain Loyal to Starbucks?

Could it be?

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Oil and other commodities had a nice little surge today with a lot of thanks to just released jobs numbers and inflation figures.  The surge helped the market achieve a moment of zen by stabilizing it and even almost erasing all the declines it took on Friday. All ten major S&P sectors were up. Yes, there are ten major ones. Some of these major sectors include oil, metals, autos and even retail. Stocks are also up, as is the Dow, which took in around 22o points. Not to be a downer but the S&P is still down around 5% for the year with oil hanging out at 12 year lows. However, U.S. crude is up around 7% checking in at about $31.44 per barrel. The International Energy Agency says that the U.S. is taking the “biggest hit right now,” but by 2021 it will lead in oil production. So where does that leave the U.S. for the next five years? Hmmm. Something to think about.

Don’t breathe easy…

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Lumber Liquidators is on a roll. Except it’s not a very good one. First, the flooring company agreed to a $13 million penalty and five years probation for a criminal settlement after it acknowledged that it illegally imported wood from forests that are home to endangered species. So not cool. Then, just when Lumber Liquidators was about to breathe a big sigh of relief over a February 10 CDC report that found its formaldehyde-laced wood floors weren’t that toxic, the CDC announces that they were mistaken. Its revised report indicated that their floors are, in fact, that bad and that certain types of Lumber Liquidators’ flooring from China are actually three times more likely to cause cancer than what was previously thought. Oops. It seems an error was made in the calculations when incorrect figures were used for ceiling height in determining the risks of exposure from the offending floors. Serious arithmetic issues are at work. Before, it was thought that 2 – 9 cases could be developed in 100,000 people. But now the figure is closer to 6 – 30 cases in 100,000 people that could develop cancer. Of course, that cancer risk is separate from other the many other ailments people could develop, including respiratory issues and eye, nose and throat irritations. Just this morning the company lost about a quarter of its market value, besides being down 83% for the last twelve months. But at least Lumber Liquidators has suspended sales of flooring from China and is strengthening its quality controls, which is cute and all but probably too little too late.

Hey big spender…

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It’s time to decide what your Starbucks loyalty is worth. The coffee chain is tweaking its rewards program and that will have you spending more cash to get the coveted perks. Under the current rewards program, customers earn stars for every purchase they make, and after 12 stars a customer can score a free food or drink item. Some shrewd customers have figured out that in one visit they have baristas ring up multiple items separately so that their rewards rack up quicker. With one star earned per purchase, this tactic has managed to infuriate other customers since the strategy increases wait times at the register. But that’s about to change as the new rewards program is based on dollars earned, regardless of how many purchases you manage to make, even in a single visit. Consumers will now earn two stars for every dollar spent and 125 stars gets you a free item. Figure it’ll cost you upwards of $60 before you hit that freebie. If you happen to be a Starbucks customer who miraculously manages to spend less than $5 in a single visit, you probably won’t like the coming changes. So now, like most rewards programs, from airlines to credit cards, the more you spend the more you earn. The goal, Starbucks says, is to get more people to sign up for the program. Of course, the new programs also conveniently increases store sales and profit.

Oil Vey 2: The Wrath of Iran; Virtual Company with Real Billions; Dr. Pepper’s Outlook Fizzing Out

Double double oil and trouble…

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Oil surged 6% today. Yay. It finally finally went above $30 a barrel today. Another yay.  But maybe you’re thinking that positively sucks as you notice that you have a quarter of a tank of gas left in your car. However, in the grand scheme of things, a very grand scheme which does not fit in this blog today, a gradual price increase in gas is a healthy economic indicator. Plenty of folks on Wall Street are attributing this healthy surge to some conversations that were held recently between OPEC and non-OPEC members. Namely, Russia and Saudi Arabia. Oh yeah, Qatar and Venzuela were also allowed to participate. The deal is that these oil producers will cap their crude production – just as long as other major producers follow suit. The last time an  OPEC/non-OPEC “deal” was made was 15 years ago. And like the one 15 years ago, this one is not expected to do much, except act as a starting point. How reassuring. Now, guess which country has NO plans to cap, curb or freeze oil production? Iran, of course.  Sure, the totalitarian-run country thinks it’s a bummer that oil prices are so low, but its leaders are so hell-bent on re-grabbing its market share after all those pesky international sanctions it had to endure for the last 30 years, that it has no intention of curbing production. By the way, conspicuously absent from any talks was Canada, a country that just happens to have the third largest oil reserves, and China, the world’s fourth largest oil producer. Hmmm. Wonder what we ought to take away from that?

All in a maze work…

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At least virtual reality doesn’t bite. Swiss-based company MindMaze, a neural virtual reality platform – which is just as cool as it sounds – now has a pretty amazing valuation. After scoring $100 million in its latest round of funding, the company upped its valuation to over $1 billion. The company’s technology uses virtual and augmented reality and sells electronic headsets to hospitals in order to help rehabilitate stroke patients. The company also has plans to use its rehabilitation features for other injuries, and even amputations. Of course, since we are talking virtual reality, or VR as the cool kids call it, other versions will be available for video gaming as well. In an effort to boost profitability, the company is toying with the idea of selling the hardware separate from the software. It is the fifth start-up company of its kind, and joins the ranks of Oculous VR and Magic Leap. Apparently, investors dig the technology too, seeing as how they have dumped around $4 billion into various VR companies since 2010.

I’m not a Pepper…

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Dr. Pepper Snapple Group posted their fourth quarter earnings and there’s good news…and not so good news. Of course, the good news is the company’s profit. The beverage company, which also makes Canada Dry and A&W Root Beer, among other products, scored a $185 million profit, adding a buck per share and shooting down analyst estimates of 98 cents per share. Last year at this time the company earned $150 million with 77 cents added per share. The Texas-based company also pulled down $1.55 billion in revenue, a nice little boost from 2015’s $1.51 billion. But when we turn to the company’s outlook, we then find the not so good news. Despite people’s thirst, Dr. Pepper’s outlook is weak, expecting just a 1% increase in net sales. Even in 2015, the company took in a 3% increase. The company is figuring it’ll earn somewhere between $4.20 to $4.30 per share for the full year, even though predictions were for $4.34. Dr. Pepper may not be blaming the oil glut on the weak outlook, but there is another culprit – the ever blame-worthy strong dollar, which even managed to sully the beverage industry’s numbers.