Friday, June 23, 2017
If you needed any further proof that Amazon is shaking the US commercial landscape to its very core, look no further than the past week.
Amazon's $13.7 billion deal for Whole Foods has had a ripple effect across sectors. The grocery industry, an $800 billion addressable market in the US, according to Goldman Sachs, has a low level of e-commerce penetration. That could be about to change. Traditional grocery-store players like Kroger, Costco, and Target saw their stocks get battered after the deal was announced.
The effects haven't been contained to the grocery aisles, either. United Natural Foods, the primary distributor for Whole Foods, also took a hit. And the pharmaceutical supply chain took a big hit too.
Then, it emerged that Amazon could enter into a partnership with the world's biggest athletic-apparel brand, hitting the likes of Dick's, Under Armour, and Foot Locker.
In short, Amazon is rapidly putting its stamp on industries far and wide. Capable of creating or erasing billions of dollars of market value with even the smallest action, the tech titan has investors and corporate employees alike shaking in their boots.
The rise of Amazon hints at a broader question that looms over executives in traditional consumer-facing industries. If a tech giant can in one fell swoop land a deal and emerge as a key player in an $800 billion industry, what's stopping a new entrant doing the same in my industry?
"It's been a while since we've seen such an aftershock from an M&A transaction," said Marc-Anthony Hourihan, UBS' cohead of mergers and acquisitions in the Americas. "These ripples seem to be going in much broader sectors."
Amazon's acquisition of Whole Foods, combined with reports that the company will start directly selling Nike products, has helped the tech giant add $18 billion in market cap in the past week. In contrast, $31 billion in competitor market cap has been wiped out in the same period.
Add the two amounts together and you have an almost $50 billion gap.
Walmart and Costco have been hit the hardest, both losing more than $8 billion in value since the Whole Foods deal was announced on June 16. Whole Foods stock has been trading above Amazon's offer of $42 a share, however, signaling that investors believe a bidding war could emerge and drive up the final price for Whole Foods.
Competitors like Target, Costco, and Kroger have been rumored as potential suitors, and they would do anything to make this deal harder for Amazon, according to Barclays analyst Karen Short. But according to JPMorgan, Walmart is the only retailer with a legitimate shot of entering the fray.
At the same time, Morgan Stanley said in a research note that the retail drug space could experience a wave of M&A action as companies try to outflank Amazon.
"Competition across the supply chain continues to increase as Amazon inches closer to entering drug retail on the heels of the Whole Foods acquisition," the analysts said, highlighting CVS and Express Scripts as companies with strong merger opportunities.
Dick's, Under Armour, and Foot Locker have dropped about $300 million in market value since Goldman Sachs predicted Amazon would start selling Nike.
Business Insider dug into the wreckage from the past week, looking at the three most affected industries in the US stock market. Here's how the damage looks, with handy acronyms dreamed up by BI for each group:
Biggest US banks clear first hurdle in Fed's annual stress tests
WASHINGTON/NEW YORK (Reuters) - The 34 largest U.S. banks have all cleared the first stage of an annual stress test, showing they would be able to maintain enough capital in an extreme recession to meet regulatory requirements, the Federal Reserve said on Thursday.
Although the banks, including household names like JPMorgan Chase & Co and Bank of America Corp , would suffer $383 billion in loan losses in the Fed's most severe scenario, their level of high-quality capital would be substantially higher than the threshold that regulators demand, and an improvement over last year's level.
"This year's results show that, even during a severe recession, our large banks would remain well capitalized," said Fed Governor Jerome Powell, who leads banking regulation for the central bank. "This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough."
The Fed introduced the stress tests in the wake of the financial crisis to ensure the health of the banking industry, whose ability to lend is considered crucial to the health of the economy.
Under the Fed's worst-case stress test scenario, the U.S. unemployment rate more than doubles to 10 percent.
However, even with the losses in that scenario, the banks' aggregate level of high-quality capital would still cover 9.2 percent of their risk-weighted assets, according to the Fed. That is much better than the 4.5 percent threshold that regulators demand, and an improvement on the 8.4 percent common equity tier 1 capital ratio assessed last year.
The results released on Thursday are the first of a two-part exam. This part determines whether the banks would meet minimum requirements under the Fed's methodology, using materials they submitted.
Banks are still subject to a second portion of the test in which the Fed approves or denies their capital plans. The Fed is expected to release that component next week.
The results are the first since Republican President Donald Trump took office and called for a relaxation of capital regulations to encourage banks to lend more. Bank executives and many investors hope the Fed will allow lenders to put a lot more capital toward stock buybacks and dividends.
Stock analysts and investors expected banks to hold up well in this year's test because they have accumulated a lot more capital since the financial crisis abated and the economy rebounded.
Of the 34 banks that were required to undergo the most recent stress tests, Ally Financial Inc and KeyCorp were the only two lenders to show common equity Tier 1 capital ratios below 7 percent.
Citigroup Inc fared the best among big Wall Street banks, with a ratio of 9.7 percent. Its results are being watched especially closely by shareholders who have been wanting management to buy back more of its common stock, which is trading below what its assets are worth.
The other five largest banks, JPMorgan, Bank of America, Wells Fargo & Co , Goldman Sachs Group Inc and Morgan Stanley , showed common equity Tier 1 capital ratios between 8.4 and 9.4 percent in the Fed's most aggressive scenario.
The Fed has changed the emphasis in stress scenarios from year-to-year to keep banks from managing their portfolios to the test. The Fed has also seen the tactic as a way to poke around bank balance sheets for weak assets. This year a spotlight was turned on commercial real estate came after some regulators feared the sector was overheating on easy credit from the banks.
(Reporting by Pete Schroeder in Washington and David Henry in New York; Additional reporting by Patrick Rucker; Writing by Lauren Tara LaCapra; Editing by Leslie Adler)
JPMORGAN: There's a chance Walmart will go head-to-head with Amazon to buy Whole Foods
Amazon's deal to acquire Whole Foods may seem like a dream come true to some, but there's a realistic chance Walmart could still swoop in to trump Amazon's $13.7 billion offer, according to JPMorgan.
Whole Foods stock has been trading above Amazon's offer of $42 a share, signaling that investors believe a bidding war could emerge and drive up the final price for Whole Foods.
Competitors like Target, Costco, and Kroger have been rumored as potential suitors, and they'd do anything to make this deal harder for Amazon, according to Barclays analyst Karen Short.
According to JPMorgan, Walmart is the only retailer with a legitimate shot of entering the fray.
Here's JPMorgan (emphasis added):
"From our perspective, we have a hard time seeing Kroger, Costco, or Target coming in over the top. We do think there is a chance that Walmart makes a bid. There are compelling reasons for it to do so (adding new, generally wealthier customers; acquiring a strong brand; generating synergies and efficiencies; et al), in addition to keeping Amazon out of its wheelhouse."
Walmart is the only company with the financial might to play ball with Amazon. The current offer for Whole Foods comprises only 3% of Amazon's market cap and only 6% of Walmart's. It would match 64% of Kroger's.
Here's how other companies would fare, including Costco (COST), Publix (PUSH), Target (TGT), and Netherlands-based Ahold-Delhaize (AD NA).
Walmart also has plenty of incentives to make a move for Whole Foods, according to JPMorgan. Among them:
- Grocery is its strongest advantage right now against Amazon, its top competitor. That moat is significantly diminished once Whole Foods is safely in Amazon's clutches.
- Walmart could leverage the distribution network of its roughly 4,000 locations to help expand Whole Foods' audience.
- Whole Foods would also fit nicely into Walmart's network of stores without overlapping too much, as their stores are concentrated in urban, high-income locations.
That's not to say that a Walmart bid would be a slam dunk. While JPMorgan thinks Walmart is the only competitor in the group "with the means and motive to counterbid," doing so would have serious downsides.
For starters, it puts Walmart in a defensive position rather than offensive: It already owns a colossal network of brick and mortar grocery stores; what it really needs to improve is its online platform.
"Given Walmart’s 20%+ share in grocery, why should the company spend $14B+ on what it’s already good at (selling food via brick-and-mortar) when the money instead could be used to expand and improve Jet.com and Walmart.com? Jet.com is Walmart’s urban/millennial alternative to Amazon Prime, and Walmart.com is in many ways the 'forgotten man’s' alternative to Prime."
It would also be very difficult to overcome the culture clash. For instance, Whole Foods CEO John Mackey has focused intently on employee welfare — even to the detriment of shareholders, he acknowledges — while Walmart is notoriously stingy on benefits and has reputation for paying minimum wage, JPMorgan notes.
When Walmart spent $310 million last Friday to acquire Bonobos — a high-end brand like Whole Foods — fans of the hip fashion brand were furious, saying it was "no longer cool." It's hard to imagine Whole Foods loyalists would be more subdued.
"As cultural similarity is often a key determinant of a successful merger, we think WMT and WFM have conclusively different guiding principles for the two entities to combine and thrive," JPMorgan wrote in the note.
Walmart is probably the only company out there with the financial firepower and the motive to compete with Amazon for Whole Foods. But it wouldn't be easy, and Amazon, with a cash war chest nearly $20 billion larger than Walmart's, will have the right to match or beat any offer that comes in.
Gulf states issued 13 demands to Qatar and set a deadline of 10 days to comply
LONDON — Gulf states have issued Qatar with 13 demands that must be met to lift their blockade of the country, including the disbanding of news channel Al Jazeera.
Qatar has been given just 10 days to comply or the offer becomes void.
Qatar has previously said it won't negotiate until the blockade, enacted by neighbouring countries including Saudi Arabia and Bahrain, is lifted.
On Thursday, a US state department spokeswoman said that the demands have to be "reasonable and actionable.”
The crisis hit Qatar on June 5 when Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and trade ties and accused it of supporting terrorist groups such as the Islamic State and Al-Qaeda. Qatar has denied the allegations.
Here is the full list of demands:
- Qatar must reduce diplomatic representation with Iran.
- Qatar must immoderately shut down the Turkish military base that is being established, and halt any military co-operation with Turkey in Qatar.
- Qatar must announce severance of ties with terrorist, ideological and sectarian orgs, including the Muslim Brotherhood, Islamic State, Al Qaeda and Hizbollah; and designate them as terrorists.
- Qatar must cease any funding activities to extremist and terrorist individuals, entities and organisations.
- Qatar must hand over all designated terrorists, wanted by the four countries; freeze their assets; stop hosting others in the future.
- Qatar must shut down Al Jazeera and all affiliated channels.
- Qatar must stop interference in other countries' domestic + foreign affairs.
- Qatar must provide reparations to these countries for any opportunity costs incurred over the past few years because of Qatari policies.
- Qatar must get in sync with its Gulf and Arab neighbourhood on all levels.
- Qatar must provide all databases related to oppositionists that it provided support to and clarify what help was provided.
- Qatar must declare all media outlets backed by it directly or indirectly.
- These demands must be agreed within 10 days, otherwise they would be invalidated.
- The agreement will involve clear goals and a reporting mechanism – monthly reports in the first year, every three months and then annually for 10 years.
The blockade has had an immediate effect on Qatar, which has imported cows to maintain its milk supply and battled to keep its tight currency peg with the dollar.
Earlier this month shares in the country's banks fell sharply after the UAE central bank told its lenders to stop dealing with 59 individuals with links to Qatar and carry out enhanced due diligence on their activities with six Qatari banks.
Qatari lenders receive a lot of funding from other Gulf states, about 60 billion riyals ($16.5 billion) according to a Reuters report, which could dry up if the crisis continues or worsens.
Meanwhile the Qatari riyal hit 3.67 to the dollar, its weakest level in 19 years. Qatar's central bank has pegged the currency to 3.64 to the dollar so even small movements are likely to produce new lows.
4 GOP senators, including Rand Paul and Ted Cruz, come out against Senate healthcare bill — enough to kill it
4 GOP senators, including Rand Paul and Ted Cruz, come out against Senate healthcare bill — enough to kill it
Hours after the release of the Better Care Reconciliation Act (BCRA), the Senate Republican vehicle to repeal and replace Obamacare, four Republican senators signaled they opposed it in its current form.
Sens. Rand Paul, Ted Cruz, Mike Lee, and Ron Johnson said they will not support the current version of the bill, enough defections to prevent the legislation from passing the Senate.
"Currently, for a variety of reasons, we are not ready to vote for this bill, but we are open to negotiation and obtaining more information before it is brought to the floor," the joint statement said. "There are provisions in this draft that represent an improvement to our current health care system, but it does not appear this draft as written will accomplish the most important promise that we made to Americans: to repeal Obamacare and lower their health care costs."
"The current bill does not repeal Obamacare. It does not keep our promises to the American people," Paul said in a separate statement. "I will oppose it coming to the floor in its current form, but I remain open to negotiations."
Other Republican senators also issued tepid statements indicating they weren't ready to offer support for the bill.
One group that is skeptical is members in states that expanded the Medicaid program under the Affordable Care Act, the law better known as Obamacare. Sen. Dean Heller of Nevada, whose state expanded Medicaid and is up for reelection in 2018, said proposed cuts to Medicaid leave his support for the bill up in the air.
"At first glance, I have serious concerns about the bill’s impact on the Nevadans who depend on Medicaid," Heller said in a statement following the release. "I will read it, share it with Governor Sandoval, and continue to listen to Nevadans to determine the bill’s impact on our state. I will also post it to my website so that any Nevadans who wish to review it can do so. As I have consistently stated, if the bill is good for Nevada, I’ll vote for it and if it’s not – I won’t."
Arizona Sen. Jeff Flake, whose state also expanded Medicaid, said he had not made up his mind on the bill.
"Just got my copy of the healthcare bill and I'm going to take time to thoroughly read and review it," Flake tweeted.
Senate GOP leadership drafted the bill in closely guarded quarters over the past few weeks, and many members of the conference have not had access to the details of the plan.
A spokesperson for Sen. Susan Collins of Maine, another moderate Republicans who has expressed concern with the bill, said the senator will not pass judgment yet on the legislation.
"She has a number of concerns ans will be particularly interested in examining the forthcoming CBO analysis on the impact on insurance coverage, the effect on insurance premiums, and the changes to the Medicaid program," said the spokesperson.
Senate Majority Leader Mitch McConnell wants to vote on the bill by the end of next week.
Thursday, June 22, 2017
Snapchat reportedly paid over $250 million for an app that lets you track your friends
Snap recently snapped up mapping app maker Zenly in what was likely one of its largest acquisitions ever, TechCrunch reported Wednesday.
And it looks like Snapchat's parent company is already using Zenly's technology.
Snap Inc., bought Zenly for somewhere between $250 million to $350 million, according to TechCrunch. It's not clear when it completed the acquisition.
Snap declined to comment. Zenly did not respond to request for comment.
French-based Zenly created a location app that allows users to see where their friends are, but in a way that doesn't drain their phones' batteries. Popular in Europe, the Zenly app feeds on teenagers' fear of missing out. Users return to the app again and again to make sure they're not missing out on a hot party or event with their friends.
On Wednesday, Snapchat unveiled Snap Maps, a new feature that allows Snapchat users to see where their friends are on a map. A trailer for the feature showed two women browsing a map in Snapchat and tapping on a nearby location to see friends sharing videos from an ongoing concert. Users will also be able to browse photos and videos from specific locations around the world, including breaking news events.
After Snapchat launched the new feature, TechCrunch and others were quick to point out just how similar it looked to Zenly's app. It likely wasn't just a coincidence, given Snapchat's acquisition of the company.
The $250 million to $350 million that Snap paid for Zenly could make the acquisition the largest ever for the camera app maker. Snap's most recent acquisition — and its biggest reported one previously — was its rumored purchase of startup Placed, an advertising tracking company, that reportedly cost $200 million. However, Snap is is known for its secrecy when it comes to snapping up startups, so it could have made larger purchases that just haven't been reported yet.
Zenly had raised over $35 million from Silicon Valley's top investors. When Business Insider broke the news of its funding by one of Twitter's earliest investors last September, Zenly lacked a connection to a social network that could turn its amazing location-tracking feature into something more than just a creepy tool to for users to keep tabs on their friends. Snapchat's acquisition will give Zenly that opportunity, although Zenly will continue to operate its own app independently, according to TechCrunch.
One reason Zenly was likely a hot acquisition target compared to makers of other location-tracking apps is that its app is more power efficient. Instead of constantly monitoring users' locations — and running down their phones' batteries in the process — the app only determines them when their friends look them up on their phones.
Get the latest Snap stock price here.