What You Need To Know This Week — August 22nd, 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.
FORMER HOUSE SPEAKER PAUL RYAN TO LAUNCH BLANK CHECK IPO
Former politician Paul Ryan is trying his hand at another form of deal-making. The former House speaker will serve as chairman of a special purpose acquisition company to be called Executive Network Partnering Corp. The company will be called CAPS, an acronym for “capital which aligns and partners with a sponsor” (or SPAC, backward). The launch of SPACs involving people far outside the areas of business, including leaders from politics and sports, further signifies how far the asset class has come and also indicates that perhaps the SPAC market is a tad frothy. The IPO documents for CAPS, which plans on raising $300 million, are expected to be filed within the next week.
APPLE’S MARKET CAP RIPENS TO $2 TRILLION
Apple holds the crown as the largest publicly traded company as it reached the milestone of a $2 trillion market capitalization. The stock has been one of the biggest beneficiaries of the fiscal and monetary stimulus program that lifted asset values as the shares have more than doubled off their March low, creating over $1 trillion of shareholder value. It only crossed the $1 trillion market cap threshold in August of 2018. The tremendous share price performance has not been driven by profit growth, instead being driven by multiple expansion as investors have become willing to pay a higher valuation for its shares. Back in 2013, its shares were universally hated and traded at an extremely cheap valuation of 4.5x EBITDA. Now, despite being seemingly the exact same company, its valuation has risen more than 5-fold to 25x EBITDA and it is near-universally loved.
CREATOR OF FORTNITE SUES APPLE AND GOOGLE IN APP STORE DUST-UP
Epic Games, the creator of the wildly popular online battle royale game Fortnite, is suing both Apple and Google, claiming that the tech giants’ app store fees are anti-competitive. Fortnite implemented a method in which customers could pay for in-game items without paying the platform providers’ 30% fees. In return, both Apple and Google banned Fortnite from their app stores, alleging a violation of company policy. The case has significant implications, as both Apple and Google have built sizable businesses from their respective app stores, which provide the revenue growth and consistency that investors crave.
Notable Insights, Articles, Podcasts, and Tweets
Listen to the history of Bitcoin and how it came to be a $200 billion asset on the Unchained podcast.
After Pershing Square’s blockbuster $4 billion SPAC IPO, another hedge fund is launching a blank check company. Hedge fund Starboard Value has filed paperwork for a $300 million special purpose acquisition company.
Another electric vehicle startup is going public via a SPAC. This time, blank check company Hennessy Capital Acquisition Corp IV is merging with EV startup Canoo at a $2.4 billion valuation. It aims to start delivering vehicles by the second quarter of 2022.
The CEO of Casper Sleep, Philip Krim, is launching a $300 million SPAC called Tailwind Acquisition Corp.
Healthcare giant Johnson & Johnson is buying autoimmune disease specialist Momenta Pharmaceuticals Inc for approximately $6.5 billion in a friendly all-cash tender offer. The Accelerate Arbitrage Fund (TSX: ARB) has a position in Momenta.
In more biotech M&A, Sanofi has struck a deal to buy Principia Biopharma for $3.7 billion in cash. The Accelerate Arbitrage Fund (TSX: ARB) also has a position in Principia.
GMO’s James Montier writes, “Never before have I seen a market so highly valued in the face of overwhelming uncertainty.” Certainly, it’s unprecedented to have record-high equity valuations in the midst of one of the worst recessions on record.
A profile on retail speculator trading app Robinhood, whose business model relies on selling order flow of unsuspecting retail traders to hedge funds such as Citadel.
U.S. existing home sales jumped 24.7% from June to July and up 8.7% year-over-year. The 5.86 million homes sold represented the highest rate since December 2006.
According to Cornerstone Macro, stocks are overly expensive and long-dated are Treasuries too cheap. Accordingly, they believe portfolios that overweight government bonds will return as much as 20% over the next year while a traditional 40%-bond-and-60%-stock mix will return just 3%. Certainly it’s a non-consensus view on Treasuries, which currently yield a paltry 1.4%.
Uber and Lyft are preparing to shut down services in California as a court ruling forced the companies to treat their drivers as employees, which would effectively destroy the “gig economy” companies’ business model.
Net equity outflows, a decline in foreign direct investment, and record deficits are some of the reasons why David Rosenberg is bearish of the Canadian dollar. “The country’s economic leadership has been cannabis (average annual growth of 10%), condo construction (3%) and government (2%).” Ouch.
Shortseller Spruce Point Capital Management published a bearish report on TSX-listed garbage company GFL Environmental, questioning managements’ background and casting doubts on the highly-leveraged company’s ability to show consistent profitability. GFL’s stock was down as much as -12% on the report.
Gold investors went into a frenzy as Berkshire Hathaway’s quarterly investment filing indicated that Warren Buffett’s holding company bought a stake in Barrick Gold, its only gold mining investment. Sadly for the bulls, the investment likely was not selected by Warren himself, given the size of the trade indicates that it was probably one of his lieutenants, Todd Combs or Ted Weschler, who made the purchase.
Riding on the coattails of Microsoft, tech dinosaur Oracle joined the bidding war for wildly popular social media app TikTok. The sale process is driven by President Trump’s demand that TikTok’s Chinese parent company either shut down the app or sell it before his mid-September deadline.
Caisse de Depot et Placement du Quebec spent $75 million six months ago to double its stake in Cirque du Soleil Entertainment. Montreal-based Caisse said it recently wrote off its entire $170 million investment in Cirque, given the company filed for bankruptcy.
Calgary-based warehouse robotics company Attabotics is raising $50 million of venture capital in a funding round led by Ontario Teachers’ Pension Plan.
Actor Ryan Reynolds sold his Aviation American Gin brand to drinks giant Daigeo for $610 million, proving that celebrity branding and marketing are key considerations in the spirits business.
