What You Need To Know This Week — April 4th, 2020
What You Need To Know This Week
A weekly recap to keep you informed on the most important events this week impacting markets, business, tech and the global economy.
T-MOBILE CLOSES ITS $30 BILLION MERGER WITH SPRINT
T-Mobile’s landmark acquisition of rival Sprint, which was initially announced in April 2018, finally closed this week. The merger represents a major consolidation as it brought the U.S. mobile carrier industry from four competitors to three. The deal was left for dead by investors until it surprisingly received court approval in February (the consensus view was that the merger would be blocked on antitrust grounds). The pro-forma company has 100 million customers, making it a strong competitor to industry leaders AT&T and Verizon. T-Mobile’s stock is one of the few that has had a positive return year-to-date.
SOFTBANK PULLS $3 BILLION WEWORK TENDER OFFER
Japanese conglomerate SoftBank officially pulled its proposed $3 billion tender offer for WeWork stock, blaming the change of heart on certain conditions of the offer not being satisfied. SoftBank, who is one of WeWork’s largest shareholders, had previously agreed to buy shares from Adam Neumann, WeWork’s controversial former CEO and co-founder, in addition to other existing shareholders. While WeWork’s shares are private, it does have publicly traded bonds that have traded down to 37 cents on the dollar.
XEROX ENDS ITS HOSTILE PURSUIT OF RIVAL HP
Xerox pulled the plug on its long-shot hostile takeover of rival HP this week, stating that pursuit of the highly-leveraged deal is not prudent given the pandemic and resulting bear market. Xerox had previously launched a more than $30 billion tender offer, along with a proxy fight to replace HP’s board of directors, with the goal of gaining control of the much-larger printer maker. HP shares were down -15% this week on the news.
WHITING PETROLEUM FILES FOR BANKRUPTCY AS THE FIRST INSOLVENCY OF THE OIL-PRICE CRASH
U.S. shale oil producer Whiting Petroleum filed for Chapter 11 bankruptcy as it deals with the plummeting oil price. Whiting, once the largest oil producer in North Dakota, is seeking to reduce its debt load by $2.2 billion in a proposed debt-for-equity swap. Current shareholders won’t be totally wiped out — they could end up with 3% of the post-reorganization equity. Whiting stock dropped -47% to reach $0.37 on the news.
Recommended Articles, Podcasts, Books and Tweets
Listen to former Surgeon General Dr. Vivek Murthy discuss combating COVID-19 and the loneliness of social distancing on the Tim Ferriss Show.
Sign up for the upcoming webcast, “Merger Arbitrage: A Strategy for Consistent Returns,” which will be live on Tuesday, April 7th, at 2:00pm EST (12:00 MST). Investment Advisors will be able to earn 1 CE credit for participating.
Chinese coffee chain Luckin Coffee’s shares plunged as much as -80% on Thursday after an internal investigation found the company was cooking its books and fabricating revenue. Shortseller Muddy Waters Research flagged the company as a potential fraud back in January.
Since December 31, 1999, bonds are outperforming stocks. The Bloomberg Barclays U.S. Aggregate Bond Index has returned 176% compared to the S&P 500’s 149% gain on a total return basis.
Private equity firms are seeking bailouts, claiming their portfolios companies are small businesses and deserve government assistance.
Junk bond funds had $7 billion in inflows this week, an all-time record. Buyers are dipping their toes back into the market as spreads have stopped widening while the Fed’s support of investment grade bonds has improved sentiment.
The first people outside of China have begun to receive an experimental vaccine against the coronavirus. It’s only a matter of time before everyone has access to a proven and effective vaccine.
British American Tobacco claimed that it made a breakthrough in developing a plant-based vaccine for the coronavirus.
In a recent interview, famed shortseller Jim Chanos talks about how the gig economy companies won’t be spared in the coronavirus-led economic slowdown.
Distressed cruise ship operator Carnival issued bonds to shore up its balance sheet. It initially sought to raise $3 billion in secured bonds but upsized the deal to $4 billion after receiving more than $10 billion in orders.
Analysts see the Bank of Canada purchasing as much as $200 billion of Canadian Government debt as it commences quantitative easing.
Hedge fund Man GLG believes high-yield bonds present a generational buying opportunity: “Dollar junk bonds are implying a five-year cumulative default rate of more than 40% while those in euro are projecting 35%. That compares with the worst rate of 32% in all of history and a roughly 10% realized level expected by the GLG team.”
Oaktree’s Howard Marks believes too much optimism is priced in and that the market will go on to hit new lows in the short-term as the economy tumbles into a deep recession and defaults spike.
The first quarter was a rough one for equity investors as the Dow suffered its worst quarter since 1987. Small cap stocks fared worse as the Russell 2000 had its worst quarterly drop on record based on data going back to 1979.
Right now is the best time in decades to buy merger stocks.
The junk bond market had its longest drought since 2008 until Yum Brands broke the lull with a $600 million issue on Monday. The deal was more than 10-times oversubscribed.
Cannabis producer CannTrust Holdings filed for CCAA protection.
Big hedge funds such as Baupost and DE Shaw are raising new funds to capitalize on dislocations in the market caused by the corona-panic.
