Chinese Proposal, Mexican Tariffs, Facebook Data (Again): CEO Daily for June 6, 2018
If you are looking to sell a company in the U.S., now would be a good time to do it, according to EY’s 2018 mid-year M&A outlook, which comes out later this morning. A powerful combination of cheap debt, tax cuts, strong corporate earnings, and improved balance sheets is driving the appetite for acquisitions. And continued disruption and pressure from activists are pushing divestments.
Other findings of the study:
— M&A hit a record in the first five months of the year: $978 billion in activity, up 80% from the same time last year. The $245 billion of M&A activity in April was the largest for that month since April of 2007.
— Megadeals are also up. There have been 15 proposed transactions this year worth $10 billion or more—also the highest ever.
— Companies are under pressure to divest nonperforming assets, with nearly half of the executives surveyed (45%) saying divestiture is the top area of focus for shareholder activists in the next year.
— Despite growing protectionism and geopolitical uncertainty, cross-border deals are still going strong, with Brazil, Canada, Mexico and the U.K. ranking as top destinations.
— Both innovation and tight labor markets are driving M&A. Acquirers are looking for both needed new technology and hard-to-acquire talent.
The survey of U.S. businesses and private investors shows they expect the M&A boom to continue through the second half of the year.
China has reportedly offered the U.S. a deal: if the White House drops its threat of massive tariffs against imports from the People’s Republic, China will buy nearly $70 billion (in the first year) of agricultural products, fuel and manufactured goods. Chinese officials apparently say this would go a long way towards reducing the trade deficit that so exercises President Donald Trump. However, it’s far from certain that the U.S. will reverse its plan to introduce its tariffs around the middle of this month. Wall Street Journal
Mexico has laid out its retaliatory tariffs on U.S. products, after the White House hit Mexico (and Canada, and the EU) with steep tariffs on steel and aluminum imports. The Mexican tariffs cover U.S. whisky, cheese, pork, bourbon, and steel of course. Mexico is the main foreign destination for U.S. pork. The choice of targets is apparently designed to place maximum pressure on Republican strongholds ahead of this year’s midterms. BBC
Facebook Data (Again)
Facebook’s latest data-sharing scandal has taken on another new dimension—after Senator Mark Warner pressed the company on whether it shared customers’ data with Chinese companies that are perceived as risky, the company admitted that yep, it gave Huawei some private access to user data. It also struck similar deals with Lenovo, Oppo and TCL, in every case in order to let the phone-makers incorporate Facebook functionality into their own software. CNBC
Meanwhile, ZTE (with which Facebook has apparently not been sharing data) has reportedly signed an agreement in principle with the U.S. Commerce Department to lift the ban on American components and software that has forced the Chinese telecoms giant to halt most of its operations. The preliminary deal apparently includes a $1 billion fine for breaking the terms of an earlier agreement with the Commerce Department, per U.S. demands. And ZTE has sent letters of reprimand to 35 current and former employees over its breaking of Iran sanctions, and is trying to claw back some bonuses—in other words, it’s trying to fix the stuff that broke the original settlement. Fortune
Around the Water Cooler
Another day, another expert warning about the economic consequences of the burgeoning global trade war. This time it’s the World Bank, which has used conservative impact estimates to warn of “severe consequences” stemming from U.S.-style economic nationalism, with the worst-hit economies being developing nations. If the use of import tariffs goes up to the maximum allowed under WTO rules, the World Bank said, there would be a 9% decline in global trade, reminiscent of that experienced a decade ago during the financial crisis. And if countries break the WTO rules… well, the impact would be even harsher. Guardian
Labour on Brexit
The U.K. opposition Labour Party has made a move that could help sink Theresa May’s Conservative government. Labour leader Jeremy Corbyn proposed an amendment to May’s Brexit legislation, which will be voted on next week, that would make “full access” to the European single market a formal goal in the British negotiating stance. The move finally draws a line between Labour and May’s hard-Brexit stance, and if he can get enough soft-Brexit-favoring Conservative MPs to agree to the amendment or propose a similar amendment of their own, May’s defeat may prompt a leadership challenge. Bloomberg
Property data provider CoreLogic reckons 40% of America’s biggest metropolitan housing markets are overvalued. The company said home prices were, in April, up 6.9% year-on-year and are likely to rise 5.3% over the next year. “New construction has failed to keep up with and meet new housing growth or replace existing inventory. More construction of for-sale and rental housing will alleviate housing cost pressures,” said CoreLogic chief economist Frank Nothaft. Fox Business
At Tesla’s annual shareholder meeting yesterday, investors were keen to see CEO Elon Musk quantify the reliability of his “Elon time” timeline estimates, as one put it. “I kind of say when I think it can occur, but then I’m typically optimistic about these things,” said Musk. “I think I do have an issue with time…I have a condition, I don’t know.” He reassured shareholders—who are by now uncomfortably used to seeing Tesla’s deadlines slip—that he is “trying to recalibrate as much as possible.” Fortune