Key Events
👉Sony and Apollo Offer Paramount $26B
Sony and Apollo submitted a $26B joint bid to acquire Paramount Global on Wednesday. This development comes as Sony and Apollo seek to challenge the existing deal that Paramount has been negotiating with Skydance Media.
Investors and analysts are closely watching this situation, as a successful bid from Sony and Apollo could offer Paramount shareholders a more favorable all-cash deal, compared to the current stock and cash proposal from Skydance.
Here’s some important M&A background– with any deal the board of directors (BoD) has a fiduciary duty to shareholders to get the highest value in an all-cash deal. This is known as the Revlon Rule.
Notice I said value. Not price.
Highest value means you account for …
- Price
- Certainty of close
- Speed to close
Each one of the factors are critical in determining the bid the BoD is allowed to accept. It must maximize all 3 components in order to be the highest value offer.
The BoD does not have a fiduciary duty to choose Sony and Apollo simply because they pay a higher sticker price for Paramount. They have a fiduciary duty to give shareholders the highest value offer that exceeds the current market price.
Fun fact: Aaron Sobel, the Apollo partner that signed the offer, is a ‘08 Michigan alum!
👉Apple posts earnings, announces record share buyback program
Apple posted their Q2 results which included a 4% decline in sales and a 2% decline in net income. The company’s losses stemmed from a downturn in global iPhone sales as they face significant competition from smartphone rivals in China.
So why were the company’s shares up 6% pre-market trading on Friday?
Apple announced a record $110B share buyback program and raised its quarterly dividend 4%.
In a share buy back program, the issuing company buys shares back from shareholders, reducing the amount of outstanding shares on the market. Investors benefit from receiving cash for their shares, and the issuing company benefits from less dilution, increasing earnings per share.
However, this is simply a way for companies to return excess cash to investors. And Apple has a lot of cash. $32B. Plus lots more in marketable securities. Returning cash does not increase shareholder value.
Why? Because if we think about the fundamental nature of the transaction it is moving cash from one account to another. By definition, cash movement cannot create value. If anything, it deteriorates value due to transaction costs (think taxes and trading fees).
And if it does generate value. Well then, run. And run fast!
Hint: it’s probably a ponzi scheme.
Even though the buyback and dividend boosts themself do not fundamentally increase shareholder value, investor perception can change.
Prices trade on investor’s price-implied expectations. That is where investors think the price-affecting fundamentals are moving. Dividends and buybacks signal increased stability and can positively adjust future forecasts, resulting in upward price movements.
👉US labor market report falls significantly short of expectations
In April, the U.S. labor market added 175,000 jobs, falling short of the 241,000 expectation, registering the lowest job growth in the past six months. The unemployment rate increased to 3.9%, surpassing the forecasted 3.8%.
The report follows the Fed’s recent decision to keep rates between 5.25% – 5.5% as it wrestles with persistent inflation. Powell highlighted in Wednesday’s meeting that unexpected downturns in the labor market may prompt the Fed to consider reducing rates.
Remember, we are in a bad news is good news environment. Investors and analysts want data that suggests that inflation is cooling down.
Mergers and Acquisitions
Energy Capital Partners seeking $2.5B acquisition of Atlantica Sustainable Infrastructure.
Private Equity
Clearlake Capital and Francisco Partners seeking $2B acquisition of Synopsys.
Initial Public Offerings
Games Global, an online betting and casino platform, priced IPO shares at $16-$19.
Venture Capital
Karius, a provider of blood-testing for infectious disease, raised $100m in Series C funding.
