Lights. Camera. Acquisition.
Quote of the Day
Stupid Fun vs. Responsible Fun”
Title of a memo distributed to FCB Worldwide employees, warning them to behave at the ad agency’s holiday party. At a time when sexual harassment at the workplace is all over the news, is your company rethinking the party this year (less booze, etc)? Let us know.
Market Snapshot
- For the first time since August, the S&P has slid three days straight.
- Stalled Brexit talks weighed down the British pound.
- Oil rose thanks to lower U.S. inventories and OPEC supply cuts.
- Bitcoin topped $200 billion in market cap.
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Lights. Camera. Acquisition.
The big world of box offices just got a little cozier—European theater chain Cineworld (-1.52%) acquired American counterpart Regal Entertainment (+9.30%) for $3.6 billion.
When all's said and done, the two will command nearly 9,000 screens for your viewing pleasure, making it the world’s second largest movie theater chain.
But closing in on top dog AMC’s 11,000 worldwide screens is only half the battle. It’s also looking to hedge against declining industry revenue. Because despite the head-spinning influx of expensive blockbusters hitting the big screen, it’s not really paying off for big cinemas.
You might not believe it, but no one went to see Transformers 5
Or any other movie, for that matter. The North American box office hit a 22-year low this summer, down 16% from last year. That’s a major issue when you consider May to August accounts for 40% of annual box office sales.
Maybe it’s because no one wants to watch a balding Jack Sparrow fight off ghost pirates post-midlife crisis, or maybe it’s just the simple economics of it all. Most people won’t pay $20 to go see a movie that got a 25% on Rotten Tomatoes, when the alternative is Netflix & Chill.
One idea is to meet consumers where they are: at home. Some have proposed cutting the 90-day theatrical window to 17 days, and charge a much higher rental price (up to $50). But for some in the cinema community, that signals defeat.
So why is Cineworld buying a North American-based theater chain?
It likes what it sees across the pond. Even with U.K. box office sales surging 8% this year, the market pales in comparison to its North American counterpart, which brings in $11 billion each year.
And while it’s weird to think of a smaller company buying a much bigger one, Regal Entertainment might not mind. Last quarter, it suffered a 12% drop in revenue and a 14% drop in attendance.
Amazon Goes Down Under
Amazon (+0.67%) is officially open for business in Australia, which became the 12th country to host the $550 billion retailing giant. It marks the first time in the firm’s history when boxes will be dropped off on both front porches and in front pouches.
But it wasn’t the type of explosive arrival you might expect from Bezos. Right now, the Australian site only features a couple hundred vendors, not to mention high prices. An iPhone 7 Plus costs about $150 (AUD) more on Amazon than from a competitor.
And since this is the southern hemisphere, where everything is the opposite, traditional retailers’ stocks surged.
The good times may not last, though. As Amazon’s algorithms kick into gear, more sellers start listing items, and customers culturally adjust to the change, Bezos could very well cause anguish to Australia’s $228 billion retail sector.
One issue that’ll be on his mind is demand, or the lack thereof. Online sales contribute less than 10% of all retail revenue in Australia (that’s 12% in the U.S.).
We have a hunch that number will change.
With $60 Billion up for Sale, Fox Awakens the Sleeping Beauty
In the race to land over $60 billion of 21st Century Fox’s (-0.30%) assets, one leader has emerged from the pack: Disney (-2.72%). A deal could be reached next week (h/t CNBC).
Content distributors Comcast and Verizon also threw their hats in the ring, but with AT&T-Time Warner (distributor and creator, respectively) headed to court with the DOJ, Rupert Murdoch’s not trying to test the regulation gods. So going with Disney, which only produces content, might be his best bet.
The deal could mean a ray of sunlight for Disney, which is desperately looking to climb out of the rubble left by ESPN. By acquiring Fox’s non-sports, non-news assets (like NatGeo, 20th Century Fox, Sky plc, Star India), it’ll significantly expand its entertainment offerings and grow its global reach.
But there are even more goodies hidden in Fox’s pantry—a controlling stake in Hulu, for one. As Disney’s cable networks continue to flounder (sorry for the pile on, ESPN), competing in the streaming game will be critical to success.
Oh yeah, and Disney’s already rolling out its own service in 2019.
Nestle Supplements its Business with Supplements
Nestle (+0.41%) acquired vitamin maker Atrium Innovations for $2.3 billion, showing no signs of stopping its steady push into consumer healthcare.
Atrium is known for its organic, non-GMO Garden of Life supplements...basically, what you take after stuffing your face with Nestle’s Wonka Bars to make you feel better. It’ll add Atrium’s $700 million in sales to a health-science division that brought in $15.2 billion last year—a sizeable slice of Nestle’s total top line of $90 billion.
A slice that new CEO Mark Schneider expects to grow.
Nestle climbed to the top of the packaged food mountain with brands (KitKat, Nesquik) that would make even the most seasoned nutritionist go weak in the knees. But in today’s changing food landscape, the only way it can remain on top is by embracing the turn towards healthier and more specialized diets.
And after a year spent scooping up niche brands—Blue Bottle Coffee, Chameleon, Sweet Earth, and now Atrium—it’s done just that.
What Else Is Happening…
- One person who’s rooting for the CVS-Aetna merger to be approved? Aetna (-0.01%) CEO Mark Bertolini, who stands to make $500 million.
- Patagonia caused a stir when it protested President Trump’s action to shrink public lands on its website.
- Apple (-0.09%) successfully blocked Xiaomi from trademarking its “Mi Pad” tablet in the EU since it’s too close in name to the “iPad.”
- Special Counsel Bob Mueller subpoenaed Deutsche Bank to access data related to President Trump’s account.
Economic Calendar
- Monday Earnings: No Events
- Tuesday Earnings: Dave & Buster’s (+), Lands’ End (+)
- Wednesday Earnings: Broadcom, Lululemon
- Thursday Earnings: Cloudera
- Friday Earnings: No Events
Economic Events: Factory Orders (+)
Economic Events: International Trade (-), ISM Non-Mfg Index (-)
Economic Events: ADP Employment Report, Petroleum Status
Economic Events: Jobless Claims
Economic Events: Consumer Sentiment
Brewified Term: Spotify's Direct Listing
When Spotify isn’t busy putting together your “Songs that feature farm animals” playlist, it’s getting ready to go public in 2018. But instead of your traditional IPO, the streaming service is doing things a bit differently: listing its shares directly.
What is it?
A direct listing is when a company goes public without an investment bank underwriting shares. With a valuation of $8.5 billion, Spotify would be by far the largest private company to go public in this way.
What’s the upside?
For one, no fees paid to underwriters. Those typically add up to 7% of all capital raised, or $300 million for Spotify. At the same time, it provides a marketplace for early-stage employees and investors to sell their shares.
And the downside?
There’s a lot of risk. Without large institutions locking down long-term investments from the start (like a standard IPO), the stock could endure a roller coaster of wild fluctuations.
What it means for IPOs
It’s no secret that with a ton of VC money flowing to startups, the number of IPOs, especially in tech, is down (how has Uber not gone public yet?). But if Spotify knocks it out of the park, then other unicorns could follow. And the idea has gotten more mainstream acceptance—in March, the NYSE changed its rule-book to allow direct listings...mainly to accommodate Spotify.
The Breakroom
Question of the Day
Three teachers were discussing how long they had been teaching.
* Adrian and Betty had been teaching for a total of 36 years.
* Charles and Betty had been teaching for a total of 22 years.
* Charles and Adrian had been teaching for a total of 28 years.
How long had each been teaching?
(Answer located at the bottom of newsletter)
Business Trivia
Ride-hailing has become a global industry. Can you name the country of origin for each of the following companies?
Didi Chuxing, Ola, Grab, 99, Taxify
(Answer located at the bottom of newsletter)
Stat of the Day
43%—Fortune 500 companies founded or co-founded by first or second generation immigrants...52% if you’re counting just the top 25. Heard of Elon Musk? Or Estée Lauder?
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Breakroom Answers
Question of the Day: Adrian - 21, Betty - 15, Charles - 7 (Explanation)
Business Trivia: China (Didi), India (Ola), Malaysia (Grab), Brazil (99), Estonia (Taxify)
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