CVS’s Transformative Deal — CEO Daily, Friday, 27th October

October 27, 2017, 11:51 AM UTC

Good morning.

The big news of the day is CVS’s offer to buy health insurer Aetna in a $66 billion deal. Aetna shares rose on the news, while CVS shares dropped. The acquisition would cement CVS CEO Larry Merlo’s effort to turn his drug store company into a health care giant. You can hear Merlo’s take on his company’s transformation here, and Aetna CEO Mark Bertolini’s view of the rapidly changing health care marketplace here.

Meanwhile, it’s feedback Friday, and time for a couple of reader responses:

In response to my Tuesday post about Ray Dalio’s analysis of the plight of the bottom 60%, J.B. writes:

“While deep down I know we should celebrate every time someone with this kind of influence and power wakes up to the power of disaggregating data and seeing what’s really going on in the U.S., it’s a bit hard to read this and not think—yes, thanks for the analysis and welcome to reality, Ray. And I note basically almost nothing detailed about what to do about any of these issues. Should we start with an evaluation of the merits of carried interest, perhaps?”

And W.M. wrote in to call my attention to the apparent grammatical error in last Friday’s headline, “How Intuit Do It.” Apologies, W.M., but my colleague Geoffrey wrote that headline, and he comes from that small island nation where people think collective nouns can take plural verbs.

More news below—and enjoy the weekend.

Alan Murray

Top News

Big Tech’s Big Quarter

Amazon, Alphabet, and Microsoft all posted significantly better-than-expected earnings in the third quarter. That will reinforce confidence in a stock market rally that got another boost yesterday from the European Central Bank, which refused to set an end date for its quantitative easing program yesterday. Fortune

Meister Kills Bad Chemistry Deal

Huntsman abandoned its $20 billion merger with Clariant under pressure from activist investors led by Keith Meister’s Corvex (through a vehicle called “White Tale”). They accused Clariant of underselling itself in the deal, implicitly accusing the Swiss company’s CEO of caring more about his job security than about his shareholders. The deal would have created the world’s second-biggest specialty chemicals company. Fortune

Insys Founder Kapoor Arrested Over Opioid 'Conspiracy'

The Department of Justice arrested Insys Therapeutics founder John Kapoor on charges of bribing doctors to needlessly prescribe his firm’s opioid painkiller. Kapoor’s arrest comes a day after President Donald Trump declared the opioid crisis a nationwide public health emergency and nearly a year after former Insys CEO Michael Babich and five other onetime executives were arrested as part of an alleged “nationwide conspiracy." Insys, which was valued at over $19 billion only two years ago, is now worth a mere $417 million after falling another 23% in response to the news Thursday. Fortune

VW Raises Outlook Despite Dieselgate Charges

Volkswagen shares hit a 10-month high after the company posted better-than-expected profits for the third quarter and raised its guidance for the year. That’s despite growing concern that auto sales are weakening in markets well beyond the U.S. (where VW is under-represented). The results included extra charges related to the diesel scandal that had been announced some weeks ago. Germany’s car sector is anxiously waiting to see what transport and environmental policies will be adopted by the new government, which is set to include both pro-business liberals and hard-line environmentalists. Fortune

Around the Water Cooler

The Market Glosses Over Twitter’s Twin Embarrassments

Twitter’s shares soared 19% after it said it could turn its first profit “soon.” The stock performance is all the more remarkable for ignoring a double embarrassment that said nothing good about its business model. The company said it would stop accepting ads from Russian-owned broadcaster RT and its associated news agency Sputnik, whereupon RT published details of Twitter’s pitch to sell vast tracts of election-related ad space on its network. More importantly Twitter also had to admit it had overstated its user base for three years. Fortune

Massacre at Mattel

The collapse of Toys’R’Us triggered a 13% drop in sales and a $603 million net loss at Mattel in the third quarter, a horror story that wiped 27% off the toymaker’s shares. The company said it will scrap its quarterly dividend and accelerate its transformation plan. Fortune

GE’s Long Train Running out of Track

General Electric is looking to get out of the railroad business after a hundred years, according to The Wall Street Journal’s sources. The company is one of the world’s biggest makers of freight locomotives but the unit is barely big enough to move GE’s dial these days, accounting for only $4.3 billion out of total annual sales of $124 billion). Tax considerations may rule out an outright sale, however. WSJ, subscription required

Catalonia, Spain Run out of Options

Catalonia is set to declare independence from Spain as both sides exhaust the wiggle room they had created to avoid responsibility for plunging the country into a constitutional crisis. Spain’s upper house is due to approve the imposition of direct rule over the region later Friday. That will force civil servants, police, and tax collectors alike to decide whose orders they are going to obey. Spain’s central government has all the hard power, but will need to use it with restraint if it wants to keep its moral authority. Bloomberg

Summaries by Geoffrey Smith;


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