What You Need To Know This Week — July 18th, 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.
PREVIOUSLY JILTED MERGER TARGET FORESCOUT SEES ITS STOCK SURGE AFTER IT STRIKES A NEW DEAL WITH PRIVATE EQUITY ACQUIROR ADVENT
Private equity firm Advent International chose to come back to the table, cease litigation and strike a new deal with its merger partner Forescout Technologies after the parties agreed on a recut deal at $29.00 per share, down -12.1% from the initial price of $33.00. After Forescout had released poor first quarter results, Advent had a change of heart and tried to wriggle out of the deal by purporting a Material Adverse Effect had occurred. The would-be buyer made amends after Forescout announced positive second quarter results. Forescout’s stock was up 16.1% this week on the news.
SPAC FORTRESS ACQUISITION CLINCHES DEAL WITH RARE EARTHS PRODUCER MP MATERIALS
The special purpose acquisition company sector continues to heat up as more deals get announced and share prices surge. This week, blank check company Fortress Value Acquisition announced a business combination with MP Materials, a producer of rare earth materials used in electric cars, wind turbines, defense systems and other technologies. The pro-forma entity will have a market cap of approximately $1.5 billion. Investors cheered the news, bidding up Fortress’ stock 10% this week. The bull market in SPACs continues.
QIAGEN STOCK HITS NEW HIGHS AFTER ACQUIROR THERMO FISHER SWEETENS BID BY €1 BILLION
The coronavirus pandemic has been severe for many companies’ recent financial performance, however, some businesses have thrived. One of those businesses, Qiagen, a supplier of medical laboratory equipment, saw its earnings per share rise 68% in the second quarter. These stellar results forced Thermo Fisher, which struck a friendly deal to acquire Qiagen in early March, to raise its offer for the company by 10.2%, from €39.00 to €43.00. Nonetheless, the increased consideration still undervalues the company, according to some hedge funds. Qiagen represents a top-5 holding in the Accelerate Arbitrage Fund.
BANK TRADING REVENUE SURGES IN Q2 AS VOLATILITY SPIKES
Wall Street investment banks’ second quarter results blew past expectations due to a surge in revenue from their trading operations, specifically in fixed income. Traders at firms such as JP Morgan, Goldman Sachs and Morgan Stanley were able to generate trading revenue not seen in over a decade by capitalizing on the record-breaking stock and bond market volatility. The surge in profits from their trading operations offset losses from increases in loan loss provisions on the lending side of the banks’ operations.
Notable Insights, Articles, Podcasts, and Tweets
Listen to fund manager Bill Miller make a case for value investing on Bloomberg’s Masters in Business podcast. “Value has led markets out of every recession as far back as the data goes.”
Another legendary fund manager has become bullish on value stocks. This time, Bill Gross indicated that “value stocks, versus growth stocks, should be an investor’s preference in the near-term.”
The Bank of Canada maintained its benchmark interest rate at 0.25% at its policy meeting this week. Tiff Macklem, Governor of the central bank, made it very clear that interest rates won’t be going up for the next two years and maybe even longer.
Toronto-based legal technology services company Dye & Durham completed its IPO on the TSX on Friday. The initial public offering raised $150 million for the company. Its stock traded up as much as 80% as investors remain enamoured with new growth stock issues.
Special purpose acquisition company Leisure Acquisition Corp. terminated its acquisition of Gateway Casinos & Entertainment, one of Canada’s largest casino companies. The failure of the deal is a blow to Gateway’s private equity backer Catalyst Capital, which has been trying to exit the investment since 2012.
SPACs, long a bastion of hedge funds, have become one of the favourite areas of speculation for retail traders. According to the Wall Street Journal, “a forum devoted to SPACs was created on the online platform Reddit in May and now has more than 10,000 members.” The special purpose acquisition company asset class has grown to nearly $40 billion, up a stunning 60% over the past three months.
Veteran dealmaker and founder of Jarden Corp., Martin Franklin, is working on launching a SPAC that will raise at least $1 billion. We continue to await the IPO of Bill Ackman’s SPAC, which should raise at least $4 billion, making it the largest SPAC on record.
Electric vehicle manufacturer Tesla, whose share price has surged this year, is poised to join the S&P 500. Index managers would need to buy roughly 25 million shares of Tesla stock, currently worth approximately $34 billion. Perhaps front-running of index inclusion has contributed to the stock’s outperformance year-to-date. Meanwhile, Tesla CEO Elon Musk zoomed past Warren Buffett on the ranking of billionaires, with a $70.5 billion fortune.
Given the recent success of Peloton, new at-home fitness companies continue to emerge as gyms remain closed and people become restless. Liteboxer, the “Peloton of boxing”, launched this week at a cost of $1,495 plus a $29-per-month subscription fee. Haven’t people heard of a heavy bag?
Cannabis producers Aphria Inc. and Aurora Cannabis Inc. recently explored merger talks that would have created one of the largest LPs in the space with a market value around $3.5 billion. However, the deal discussions failed due to disagreements on board composition and compensation for some senior executives.
Dealmaking in the podcast sector continues to heat up as SiriusXM announced the acquisition of podcast platform Stitcher for up to $325-million.
Markets are rallying on positive news with respect to the development of a coronavirus vaccine. Moderna, a US biotech company, announced results from an early stage trial that indicated its COVID-19 vaccine candidate produced antibodies in all 45 participants and with no safety issues. The company’s stock is up nearly 400% year-to-date.
