Microsoft on February 4, 2014 named Satya Nadella as only the third CEO in 38 years, after Bill Gates and Steve Ballmer. Nadella is heading the Cloud Computing division, and his ascendancy reflects a subtle shift in Microsoft's strategic direction from the focus on personal computers to the increasing focus on mobile and cloud technology and services.
Monday, February 17, 2014
Saturday, February 15, 2014
Aviation Industry News
WRIGHT AMENDMENT AND LOVE FIELD
On February 3, 2014, Southwest Airlines announced the 15 cities it would serve non-stop from Dallas' Love Field Airport once the Wright Amendment would be lifted on October 13, 2014. The fifteen cities named by Southwest included:
* Denver; Baltimore; Las Vegas; Chicago Midway; and Orlando; (the non-stop service begins October 13, 2014)
* New York's La Guardia; Washington Reagan National Airport; Atlanta; Phoenix; Los Angeles; Nashville; Orange County, California; San Diego; Tampa; and Fort Lauderdale.
Southwest is celebrating the whole year to the run-up of a regulatory event that has characterized the aviation history of North Texas for the last three-and-half decade. A snippet of Wright Amendment:
* 1980: The law was passed to help the newly established D/FW International Airport from unfair competition by restricting the non-stop flights from Love Filed to the adjacent four states: NM, LA, OK and AK.
* 1997: Congress added four more states to the list of non-stop destinations
* 2006: An agreement was reached among the city of Dallas, city of Fort Worth, American Airlines and Southwest Airlines to extend the Wright Amendment through October 13, 2014. The agreement later passed by Congress also called for, among others:
(1) Reducing the maximum number of gates from 32 to 20
(2) Prohibiting international flights
(3) Curfew on overnight operation of landings and takeoffs
Delta to Revamp Frequent Miles Program
Delta Air Lines announced on February 26, 2014 that it would revamp its SkyMiles frequent-flier program to reward miles based on dollars spent instead of miles flown. The proposed change will become effective January 1, 2015. Delta's SkyMiles program includes five tiers: (1) General; (2) Silver; (3) Gold; (4) Platinum; and (5) Diamond. A "general" flier will get, under the new plan, 5 miles for each dollar spent, while a "diamond" will get 11 miles per dollar spent. Delta's move was not new in the aviation industry. In the USA, Virgin America and Jet Blue already have frequent flier rewards based on "dollar spent" model. Delta is the latest, but the first US legacy carrier, to switch to "dollar-based" model from the "miles-based" model. Now, it is to be seen how the new American Group integrates its two "miles-based" frequent-flier programs: AAdvantage from the old American's, industry's oldest frequent-flier program, and US Airways' Dividend Miles program. Southwest Airlines changed its Rapid Rewards frequent-flier program on March 1, 2011 to a "dollar-spent" model.
Judicial Probe against Major Airlines on Price-Fixing
On July 1, 2015, major US airlines admitted that US DOJ had opened an inquiry into "price-fixing" of the nation's major airlines.
Obama Administration Launches Formal Probe in Price Gouging
The Department of Transportation on July 24, 2015 sent letters to nation's five biggest airlines-- American, Southwest, JetBlue, Delta and United--seeking for information before and after May 12, 2015, Amtrak accident near Philadelphia that killed eight people, thus formalizing Obama administration's launch of price gouging investigation of airlines. The report that DOJ was looking into airlines' price-fixing strategy came into light on July 1, 2015, and since then, at least 49 lawsuits were filed in 12 federal district courts.
Buffett's Airline Holdings Pay Rich Dividends
That he has been an iconic investor with a knack for choosing long-term value over short-term quick bucks has been proven one more time this year as Warrant Buffett's equity stake in Southwest and Delta Airlines has returned $428 million and $398 million in earnings, respectively for a three-year period ending November 2019.
To avoid giving up the profits for a major shareholder for short-term investing under the so called short-swing rule, Berkshire Hathaway has retained equity positions below 10%.
On February 3, 2014, Southwest Airlines announced the 15 cities it would serve non-stop from Dallas' Love Field Airport once the Wright Amendment would be lifted on October 13, 2014. The fifteen cities named by Southwest included:
* Denver; Baltimore; Las Vegas; Chicago Midway; and Orlando; (the non-stop service begins October 13, 2014)
* New York's La Guardia; Washington Reagan National Airport; Atlanta; Phoenix; Los Angeles; Nashville; Orange County, California; San Diego; Tampa; and Fort Lauderdale.
Southwest is celebrating the whole year to the run-up of a regulatory event that has characterized the aviation history of North Texas for the last three-and-half decade. A snippet of Wright Amendment:
* 1980: The law was passed to help the newly established D/FW International Airport from unfair competition by restricting the non-stop flights from Love Filed to the adjacent four states: NM, LA, OK and AK.
* 1997: Congress added four more states to the list of non-stop destinations
* 2006: An agreement was reached among the city of Dallas, city of Fort Worth, American Airlines and Southwest Airlines to extend the Wright Amendment through October 13, 2014. The agreement later passed by Congress also called for, among others:
(1) Reducing the maximum number of gates from 32 to 20
(2) Prohibiting international flights
(3) Curfew on overnight operation of landings and takeoffs
Delta to Revamp Frequent Miles Program
Delta Air Lines announced on February 26, 2014 that it would revamp its SkyMiles frequent-flier program to reward miles based on dollars spent instead of miles flown. The proposed change will become effective January 1, 2015. Delta's SkyMiles program includes five tiers: (1) General; (2) Silver; (3) Gold; (4) Platinum; and (5) Diamond. A "general" flier will get, under the new plan, 5 miles for each dollar spent, while a "diamond" will get 11 miles per dollar spent. Delta's move was not new in the aviation industry. In the USA, Virgin America and Jet Blue already have frequent flier rewards based on "dollar spent" model. Delta is the latest, but the first US legacy carrier, to switch to "dollar-based" model from the "miles-based" model. Now, it is to be seen how the new American Group integrates its two "miles-based" frequent-flier programs: AAdvantage from the old American's, industry's oldest frequent-flier program, and US Airways' Dividend Miles program. Southwest Airlines changed its Rapid Rewards frequent-flier program on March 1, 2011 to a "dollar-spent" model.
Judicial Probe against Major Airlines on Price-Fixing
On July 1, 2015, major US airlines admitted that US DOJ had opened an inquiry into "price-fixing" of the nation's major airlines.
Obama Administration Launches Formal Probe in Price Gouging
The Department of Transportation on July 24, 2015 sent letters to nation's five biggest airlines-- American, Southwest, JetBlue, Delta and United--seeking for information before and after May 12, 2015, Amtrak accident near Philadelphia that killed eight people, thus formalizing Obama administration's launch of price gouging investigation of airlines. The report that DOJ was looking into airlines' price-fixing strategy came into light on July 1, 2015, and since then, at least 49 lawsuits were filed in 12 federal district courts.
Buffett's Airline Holdings Pay Rich Dividends
That he has been an iconic investor with a knack for choosing long-term value over short-term quick bucks has been proven one more time this year as Warrant Buffett's equity stake in Southwest and Delta Airlines has returned $428 million and $398 million in earnings, respectively for a three-year period ending November 2019.
To avoid giving up the profits for a major shareholder for short-term investing under the so called short-swing rule, Berkshire Hathaway has retained equity positions below 10%.
Pair of Airline Quality Surveys Put SW on the Top
The Dallas Morning News on May 17, 2022 has published a couple of aviation industry quality surveys that shows an industry in decline, but Dallas-based Southwest holding the top spot in both Wichita State University's Airline Quality Rating and J.D. Power's Airline Satisfaction Ranking. AQR ranks airlines on four measures: (1) customer complaint, (2) flight delay, (3) bumped-up passengers and (4) lost/mishandled luggage. ASR ranks airlines on customer satisfaction by class (premium, economy and business). Southwest ranks top on the basic ASR scores which apply to economy class rating.
Buttigieg Urge Airlines to Help Passengers Travel "Safely, Reliably and Affordably"
As the airline cancellations and delays rose to 3.2% and 24% of all flights, respectively, in the first half of 2022, an exasperated transportation secretary on August 19, 2022 wrote in sharp letters to nation's airline CEOs that they should focus on operational reliability to help passengers fly from origin to destination "safely, reliably and affordably". Transportation Secretary Pete Buttigieg added that his department would soon unveil an "interactive portal" for air passengers. The portal will be up and running by September 2, 2022. The letter advises the airline leaders to follow best practices and protocols on
* Meals and lodging if flights are significantly delayed or cancelled
* Improved customer services
* Efforts to address complaints more efficiently
* Better refund policies.
Airlines Update Delay, Cancellation Policies
In response to Transportation Secretary Pete Buttigieg's August 19, 2022, letters to airlines' CEOs to call attention to the surge in flight delays and cancellations that had worsened in the summer months of 2022, nation's major airlines on August 31, 2022 updated their voucher and other compensation plans for flight delays and cancellations caused by worker shortages or operational problems. The airlines' actions were meant to ward off any potential administrative or legislative action as major airlines such as American, Southwest, Delta, United, Spirit, Frontier and JetBlue faced challenging times to sustain operational reliability during summer months of 2022.
Key FAA System Glitch Grounds All Domestic Flights for 90 minutes
The malfunction of a key Federal Aviation Administration safety system has grounded all U.S. flights for about 90 minutes, beginning around 8AM CT on January 11, 2022. Although the airlines resumed their flights after the aircraft grounding was lifted, the operation didn't return to normalcy until hours later. FAA said in the evening that it had traced the root cause of the problem to a damaged database file in its Notice to Air Mission, or NOTAM, system. NOTAM feeds critical information to airplanes and pilots.
FAA is now without a permanent head. Former Administrator Stephen Dickson resigned in March 2022, halfway through his five-year term. Billy Nolen, FAA's top safety executive, is working as an acting administrator. Biden administration in July 2022 named Denver International Airport chief Phillip Washington to the post. The confirmation hearing was not held, and Biden administration resubmitted Washington's nomination.
********************** FEDERAL AVIATION ADMINISTRATION **********************
Biden Pick Withdraws Nomination
Biden administration's pick for the FAA chief withdrew his nomination, according to March 26, 2023, edition of The Dallas Morning News. Denver International Airport chief Phillip Washington faced hurdles from Republicans from the get-go moment as GOP Senators insisted that Washington lacked aviation experience. Key Democratic Senators had also doubt about Washington, making it all but impossible to win a Senate confirmation. During Senate hearing, Washington was attacked by Senator Ted Cruz and other Republicans on the merit of qualification.
Senate Confirms Nominee as New FAA Chief
The U.S. Senate on October 24, 2023 confirmed 98-0 Michael Whitaker as the new head of Federal Aviation Administration, filling a critical void that had been left vacant for 18 months amidst surging airline traffic, employee unrest at major airlines and growing number near-collision incidents averted by happenstance.
********************** FEDERAL AVIATION ADMINISTRATION **********************
FAA Requires a Second Cockpit Barrier in New Planes
Federal Aviation Administration on June 13, 2023 announced that the manufacturers had to build a second cockpit barrier for the new commercial passenger planes. The rule is to be published in the Federal Register in August 2023 and will be effective circa two years henceforth. The FAA requirement on the second cockpit barrier is obtained after a series of negotiations with airlines, unions, manufacturers and regulators. Acting FAA Administrator Polly Trottenberg on June 13, 2023 expressed optimism that airlines and manufacturers would make those changes quickly.
*********************************** PART 135 CARRIERS ***************************
American, Southwest Oppose the Rule Relaxation of Part 135 Carriers
American Airlines and Southwest objected to waiver of several FAA rules for Part 135 carriers such as private charter airline JSX that operates from Dallas Love Field airport. Part 135 carriers can operate planes with 30 or less seats, and their passengers and crew members don't need to go through the TSA security checkpoints. The Dallas Morning News reported on October 14, 2023 in the Business section that two North Texas-based legacy carriers had recently expressed concern over security and safety of passengers and airline staff because of the lax rules covering the Part 135 airlines.
*********************************** PART 135 CARRIERS ***************************
************************************* BELL HELICOPTER *************************
Recent Crash Raises Red Flag about Tilt-Rotor Aircraft's Safety
The controversy over the tilt-rotor technology is not something new. They have been swirling around for years as Bell Textron is developing the military's Future Long-Range Assault Aircraft, or FLRAA, that does take off and land vertically like copter and fly at an elevation like a turbo-prop plane. Last year, the U.S. military rewarded Bell Textron for V-280 Valor for the Army to replace its iconic UH-60 Black Hawk utility helicopter. V-280 Valor beat out a competitive model, compound rotor Defiant X, offered by a collaboration of Boeing and Connecticut-based Sikorsky, owned by Lockheed Martin. Connecticut's Congressional delegation, including Senator Chris Murphy, are still questioning whether it [choosing V-280 Valor] is a rushed decision without a more vetted review. The Connecticut delegation received more ammunition after the November 29, 2023, crash of a V-22 Osprey off the coast of Japan that had killed all eight airmen on board. Although V-280 Valor and V-22 Osprey are fundamentally two different platforms, they are functionally similar on many operational aspects. Bell pioneered the underlying technology of V-22 Osprey in collaboration with Boeing.
Osprey Cleared to Resume Flying
Osprey was grounded on December 6, 2023 a week after a fatal crash in Japan had killed eight airmen. The fleet-wide grounding came after two fatal accidents in a span of few months and four fatal accidents in two years. On March 8, 2024, the U.S. Naval Systems Command announced that the Osprey would resume flying for Marine Corps, Air Force and Navy. However, U.S. military pointed out that special attention and focus were given on Proprotor Gearbox, putting new checks-and-balances and instituting new operational guardrails prior to clearing.
************************************* BELL HELICOPTER *************************
BOEING
****************** GROUNDING OF BOEING 737-9 MAX AIRPLANE ******************
Alaska, United Ground all 737-9 MAX Planes
Many airline safety experts are seeing repeat of the failure of a key component of an earlier model of the Boeing 737, which is thought to be responsible for two fatal crashes resulting in 346 deaths, in the January 5, 2024, midair accident of the Alaska Airlines Flight 1282 in which a door plug has come off, resulting in injuries and chaos, but no fatalities as the plane has been brought to an emergency landing at the Portland airport. Since the January 5, 2024, fateful experience, all 171 Boeing 737-9 MAX planes were grounded. The affected airlines are United Airlines and Alaska Airlines, according to the January 9, 2024, edition of The Dallas Morning News. National Transportation Safety Board is conducting an investigation. Alaska Airlines Flight 1282 was on its way to Hawaii when the mishap had happened midair on January 5, 2024, but fortunately no major injury was reported.
Prior to the January 5, 2024, incident, Alaska Airlines had three prior flights--December 7, 2023, January 3, 2024, and January 4, 2024--that had experienced the auto-pressurization fail light going off. NTSB Chair Jennifer Homendy said that the earlier incidents were concern too and would approach the investigation holistically.
FAA Investigating Boeing on Door Plug Falling off Incident
Boeing on January 11, 2024 said that it would cooperate with Federal Aviation Administration in the agency's investigation into whether the aircraft manufacturer had adhered with all the quality procedures related to door plugs. components used to fill in the emergency exit doors, of the 737-9 MAX. Boeing is under the scanner after two fatal crashes involving 737-8 MAX planes in Indonesia and Ethiopia. After the January 5, 2024, mid-air mishap, in which a door plug fell off the Alaska Airlines Flight 1282 from Portland to Hawaii after it took off from Portland, FAA grounded all 737-9 MAX jets, including Alaska's 65 planes and United's 79 planes.
Passengers File Suit against Boeing
Six passengers and a family member on January 11, 2024 filed a lawsuit against Boeing for a door plug loosening and falling off midair, leading to the passengers of the Alaska Airlines Flight 1282 going through a harrowing experience. The carrier is not listed as defendant.
FAA Recommends Checking for 737-900ER
FAA on January 22, 2024 recommended that airlines do check the door plugs for an earlier version of 737-9MAX, which had been grounded. According to the recommendation, airlines are to assess the door plugs for 737-900ER. Boeing delivered about 500 737-900ER planes between 2007 and 2019. Out of that, 380 do have door plugs instead of exits.
Boeing Fires Executive at Its Vaunted 737 MAX Program
Boeing on February 21, 2024 announced that its head of 737 MAX program, Ed Clark, an 18-year Boeing veteran, was leaving the firm immediately. He will be replaced by Katie Ringgold, vice president of 737 delivery operation. The firing of Clark came after the high-profile safety mishap of an emergency door plug loosening off in the midair for an Alaska Airlines flight in January 2024 and subsequent security lapses identified related to door plugs in the follow-up maintenance check-ups.
Boeing CEO to Step down
Strings of setbacks led to the reorganization at one of the most iconic American firms. After two crashes in Asia and Africa, high-profile security lapses, critique by the airline executives over its safety culture and in the midst of ongoing numerous investigations, including the recently launched FBI investigation, it was quite natural that there would be some degree of purge and upheaval at the top hierarchy of Boeing.
On March 25, 2024, Boeing CEO David Calhoun said in a memoire to employees that the world's eyes were on "us" after the January 5, 2024, falling-off of the emergency door panel at an Alaska Airlines flight and he would step down at the end of the year. Calhoun became CEO in January 2020 after Dennis Muilenburg had been fired.
In addition, Stan Deal, CEO of the firm's commercial airplane unit, is retiring. He will be succeeded by 51-year-old Stephanie Pope, who has been company's COO just for three months. Boeing Chairman and Board member Lawrence Kellner will not seek reelection. The aviation firm has tapped Former Qualcomm CEO Steven Mollenkopf to replace Kellner.
Aside from personnel changes, Boeing is also reconsidering manufacturing model revamp by bringing in-house the Spirit AeroSystems, its fuselage supplier, which had been spun off two decades ago.
Boeing Names New CEO
Boeing on July 31, 2024 named industry veteran Robert "Kelly" Ortberg the new CEO of the iconic company. Ortberg will begin his journey at Boeing on August 8, 2024.
****************** GROUNDING OF BOEING 737-9 MAX AIRPLANE ******************
AMERICAN AIRLINES
Pilots, Airline Reach a Tentative Deal
The Dallas Morning News reported on May 23, 2023 a tentative deal that had been reached last week by American Airlines and its pilots union, Allied Pilots Association. The deal in amendable on August 1, 2027. According to the deal, pilots will get an average raise of 21% this year, followed by 5% in 2024, 4% in 2025, 4% in 2026 and 3% in 2027, respectively. The raise will be effective every year on May 2. This year's hefty raise of 23% will come on the top of raises in back-payment going back to 2020, including 4% from 2020, 4% from 2021, and 14% from 2022, respectively. The agreement is expected to be ratified by August 1, 2023. The deal is considered to have bested the Delta's deal with its pilots that has raised Delta pilots' salaries, on the average, 18% on the day of signing, 5% in 2024, 4% in 2025, and 4% in 2026, respectively. Delta deal reached earlier this year will be amendable in December 2026.
Pilots Approve the Deal
Allied Pilots Association members voted overwhelmingly to support the new contract. The approval vote was 72.7%, according to Ed Sicher, president of the Allied Pilots Association. The Dallas Morning News reported on August 22, 2023 the outcome of the endorsement vote by the APA members.
American Flight Attendants Ratify New Deal
The Dallas Morning News reported on September 13, 2024 that American Airlines' flight attendants ratified a new contract that would add an additional $4.2 billion to the current levels of benefits and compensation. The flight attendants' journey of a contentious negotiation began in 2019, but halted during the time of pandemic. The negotiation resumed in August 2021. After a tortuous journey, "they finally are getting an agreement that they have earned and deserve after a very long fight with American Airlines", added Association of Professional Flight Attendants, or APFA, President Julie Hedrick. American CEO Robert Isom celebrated "this important milestone" too. The new contract will be effective October 1, 2024 and become amendable on October 1, 2029.
DELTA
DOT to Investigate Delta on Mass Flight Cancellation-related Passenger Impact
DOT Secretary Pete Buttigieg on July 23, 2024 announced that the regulators were looking into how Delta had addressed the passenger needs in the midst of mass flight cancellations last week because of CrowdStrike-related outage.
SOUTHWEST AIRLINES
Southwest to Consider DFW Expansion in 2025
As part of a 2006 agreement among the city of Dallas, city of Fort Worth, Southwest Airlines and American Airlines, Southwest will have rights to operate from 18 out of 20 gates at the Love Field Airport. However, if the discount airliner chooses to expand its service to another regional airport, say DFW International Airport, it has to give up one gate, according to the 2006 landmark agreement. The 2006 agreement is effective for another few years. Southwest will be able to expand to other regional airports such as DFW International Airport, or a regional airport at McKinney, without conceding any Love gate effective 2025, according to a July 22, 2022, front-page article by The Dallas Morning News.
Report Accuses Southwest, FAA over Unethical Relationship
A report prepared by the Office of Special Counsel was sent to President Joe Biden's desk on July 26, 2022, pointing out cozy relationship between FAA officials and Southwest Airlines' executive that had led to compromised investigation into the airline's business practices. The report was released on July 27, 2022.
****************** SOUTHWEST AIRLINES: 2022 HOLIDAYS WOES ******************
Thousands of Flights Cancelled around Christmas Holidays
To the inconvenience of hundreds of thousands of passengers stranded at various airports because of the "bomb cyclone", airlines cancelled, or delayed, tens of thousands of flights since December 22, 2022. On December 26, 2022, at least 3,700 flights were cancelled, including at least 2,700 by the Dallas-based Southwest Airlines. Since December 22, 2022, Southwest Airlines cancelled at least 8,000 flights. Although the operations of the other airlines are improving, Southwest's remain bogged down to massive cancellations and delays, stranding thousands of customers at airports in Dallas, Chicago and Denver. Southwest blamed weather and technology for this massive disruptions. Southwest CEO Bob Jordan emphasized need for massive investment in the technology revamp. The U.S. Department of Transportation issued a statement on December 26, 2022, saying that it was assessing whether to look into the airline's operational woes as well as its compliance with the Dallas-based airline's customer service commitment.
U.S. DOT to Examine Southwest's "Cancellations" and "Customer Service Plan"
Southwest Airlines on December 27, 2022 cancelled an additional 2,600 flights, adding on the top of over 10,000 flight cancellations that had piled up since December 22, 2022 through December 26, 2022. First, a fierce winter storm has severely disrupted flight operations at Chicago, Denver and other key airports, creating a domino effect over its network and messing up crew schedules. As chaos at major Southwest hubs continues on December 27, 2022, Department of Transportation during the day announced that it would "examine whether cancellations were controllable and if Southwest is complying with its customer service plan". Southwest's woes are attributed partly to obsolete technology that the airline CEO Bob Jordan had vowed to replace as soon as possible. The scheduling software didn't work out under the overwhelming burden of cancellations, thus failing to match flight crews with the appropriate flights. Stories are being shared on the social media about flight attendants and pilots waiting out for hours in the hotel rooms for the airline to get them instruction. Southwest's another big problem is their Point-2-Point Flying Model that requires same plane to fly between various airports, thus an adverse weather condition in one segment to torpedo the entire trip of the same plane and thus disproportionately affecting passengers in each of the segments in the plane's flying path. Other legacy airlines, instead, use Hub-and-Spoke Model where planes fly between the Hub and another city and back to Hub again, thus insulating the operation from adverse weather conditions in a separate region.
More than 2,500 Flights Cancelled for Dec 28, An Additional 2,300 for Dec 29
At least 4,800 flights were cancelled for December 28 and December 29 combined, but these cancellations didn't happen at the eleventh hour. Instead they had been pre-planned--and announced dating back to December 26, 2022--in order to "re-set" the flight operation. 2,509 flights, or 62% of the network's total schedules, have been cancelled for December 28, 2022, according to Flightaware.com. An additional 2,300, or so, flights are cancelled for December 29, 2022. After a massive snow storm pattern, known as "Bomb Cyclone", has impacted major parts of the nation and led to issuance of some kind of wintry advisories for the nation's two-third population, mass-scale cancellations on December 22 and December 23, 2022 have led to a very rare edge case situation that Southwest Airlines' scheduling software has not been prepared for. As a result, it was not able to handle the overwhelming cancellation burden and assign crews to flights. The airline's Point-2-Point Flying Model also didn't help. Southwest then badly needed a "re-set". On December 26, 2022, the airline cut almost all of its future flights by two-third, and imposed a temporary moratorium on re-booking and new reservation. Southwest CEO Bob Jordan on December 27, 2022 apologized for the inconvenience and begged for patience.
Southwest Direct Route Model under Scanner
The Dallas Morning News reported on December 29, 2022 that the Southwest Airlines' Point-2-Point Flying, or Direct Route, Model that connects multitude of airports, including many small- to medium-sized, and picks up different batches of crews along the way has become a key focus for the its operational failure during this Holiday period. The Point-2-Point Flying, or Direct Route, Model has enabled Southwest to service more routes and markets in a span of 24 hours compared to other legacy airlines which are dependent on the Hub-and-Spoke Model. The Point-2-Point Flying, or Direct Route, Model also enabled the airline to achieve a torrid growth over the past four decades, making it the largest domestic carrier of the nation. But, the Point-2-Point Flying, or Direct Route, Model came as a bane to normal operation during a major storm system such as the one during this year's Christmas time as it had disproportionately impacted the operational model of the Southwest Airlines as it had less leeway to insulate its flight operation from the wrath of mother nature that might have afflicted one region, but not the other regions along the path of Direct Route of a flight. Hub-and-Spoke Model is better insulated from disruption in a weather pattern such as this as the planes fly from a Hub to various Spokes and return to the same Hub.
Southwest to Begin Operation Normalization on December 30
After cancelling about 15,700 flights in a span of eight day (December 22-29, 2022) and inconveniencing and stranding millions of passengers, Southwest will restore the schedules of 4,000 flights on December 30, 2022, according to the Dallas-based airlines' press release on December 29, 2022.
Southwest Back to Normal Schedules
Southwest Airlines flew about 4,000 flights on December 30, 2022 and experienced only 43 cancellations, all but four were planned cancellations, according to Flightaware.com. Appearing on the ABC's Good Morning America, Southwest CEO Bob Jordan said on December 30, 2022 that the airlines was on its way to "operate a really tight operation today". The meltdown had happened after thousands of flights were cancelled beginning December 22, 2022 and its "archaic" scheduling software, SkySolver, was overburdened by sheer number of cancellations and was unable to assign crews to designated flights. On December 26, 2022, Southwest decided to "re-set" its operation by chopping two-third flights off its schedule through December 29, 2022, by which the Dallas-based airline had cancelled more than 15,700 flights since December 22, 2022. With the December 30, 2022, restoration of the full flight schedule, Southwest, hopefully, leaves behind a dark chapter of operational failure in the nation's aviation history.
The tool, SkySolver, that Southwest uses for crew and pilot scheduling is a bespoke tool that has been built in-house. Many other airlines, especially the legacy airlines, use industry-standardized, vendor-developed tool that's easy to make improvement. To change or replace the crew scheduling software, Southwest may take months or even years. Meanwhile, Southwest is putting in place a 1,000-strong "volunteer" team that will manually assign crews to planes in case the extreme severity in weather condition leads to massive cancellation and subsequent functional breakdown of the bespoke crew scheduling software.
Southwest Hires OW for Independent Review of Christmas Meltdown
Southwest Airlines on January 12, 2023 announced that it had hired Oliver Wyman for a "top to bottom" review of the conditions and circumstances that had led to cancellation of about 16,700 flights. In addition, Southwest formed an internal "Operational Review Committee" to go through what had happened during meltdown, according to Southwest CEO Bob Jordan, who told reporters on January 12, 2023 that "I can't say it enough, it just can't happen again". Southwest said in a recent filing that the Holiday 2022 meltdown would cost the Dallas-based airline an estimated $725 million to $825 million in lost revenue, reimbursements, refunds and goodwill gesture in frequent flyer points for impacted customers and company store points for employees. Southwest COO Andrew Watterson worked for Oliver Wyman for 12 years as aviation consultant.
DOT Investigating into Southwest's Overscheduling
The Dallas Morning News has reported on January 26, 2023 that the Department of Transportation is investigating whether the Dallas-based airline has overscheduled flights during holidays that has gone awry by a severe snow storm during Christmas in 2022, eventually leading to cancellation of more than 16,700 flights and stranding millions of customers and crews at various airport for days.
Southwest Executive Peppered with Question at a Senate Hearing
Southwest Airlines COO Andrew Watterson on February 9, 2023 appeared at a hearing held by the U.S. Senate Commerce, Science and Transportation Committee. The committee members, especially the panel chair Sen. Maria Cantwell, probed the airline's operations head over the company's worst meltdown during Christmas Holidays in 2022 that had led to more than 16,700 cancellations and millions of passengers stranded at various airports. Lawmakers focused on lack of technology upgrade as the primary reason for the meltdown. SWAPA President Casey Murray testified that his employer had not taken much of a lesson from previous smaller meltdowns.
Southwest Unveils Plans to Address Meltdown Issues
Three months after a 10-day-long wave of cancellations of circa 16,700 flights, Southwest has a three-part plan to address the roots of the massive disruptions and avert a future meltdown on that scale. The consulting firm Oliver Wyman has been hired to carry out a thorough investigation into the causes of disruptions and come up with recommendations to avoid the ones in future. Based on initial findings and internal ongoing reviews and analysis, Southwest CEO Bob Jordan on March 14, 2023 said at an industry conference, J. P. Morgan's Industrials Conference, that the Dallas-based airline would focus on implementing a three-part plan to prepare for the coming winter months. The three components are:
* Winter Operations that will ramp up preparations at key airports--such as Denver International Airport and Chicago Midway Airport, two airports where cascading of disruptions has begun just before the Christmas 2022 because of massive snow storms--including acquiring additional deicing vehicles
* Accelerating Investments, including a circa $1.3 billion in upgrading the airline's technology (just days ago, Southwest announced partnership with Amazon to embrace AWS as its preferred platform for fare search tools, crew scheduling and software related items)
* Cross-Team Collaboration, including aligning Network Operations and Network Planning functions
Largest Fine Imposed on Southwest for December 2022 Meltdown
Southwest Airlines on December 18, 2023 agreed to pay $140 million in fines for the traveler woes during the Christmas Holidays in 2022 that had seen almost 2 million passengers inconvenienced after the nation's largest airline had cancelled more than 16,000 flights. Alluding the largest aviation fine, Transportation Secretary Pete Buttigieg said in a statement that "taking care of passengers is not just the right thing to do--it's required".
The fine amount breaks down as follows:
* $35 million in actual fines
* $90 million in compensatory fines which Southwest will receive a $72 million offset
* $33 million in credit that it already distributed earlier this year
The Holidays 2022 disruptions had already cost Southwest Airlines $1.1 billion.
****************** SOUTHWEST AIRLINES: 2022 HOLIDAYS WOES ******************
Southwest Airline's Pilot to Vote on Strike Authorization
Southwest Airlines Pilots Association is calling for a strike authorization vote by rank-and-file members, beginning May 1, 2023. SWAPA President Casey Murray on January 18, 2023 called it a "historic action".
Southwest to Lose Money even in Q1 2023
Southwest Airlines said on January 26, 2023 that its pre-tax loss of $800 million stemming from the holiday meltdown that had led to 16,700 cancellations had forced the airline to lose money in the final quarter. It said that it had lost $220 million in the Q4 and made profit of $539 million for the full year. The Dallas-based airline also said that it would lose about $300 million to $350 million in the first quarter of 2023 because of lower booking.
Another Mass-scale Disruption Hits Southwest Airlines
Circa three months after an operational meltdown that had forced the nation's largest airline to cancel about 16,700 flights in the midst of Christmas and New Year Holidays, Southwest on April 18, 2023 morning was forced to suspend its operation for 30 minutes because of a "vendor-supplied firewall" failure that had disrupted connections with certain vital systems. As the flights resumed flying, the chaos stemming from a 30-minute operational shutdown was too big to overcome for operations to return to normal in a span of few hours, and as of 2PM on April 18, 2023, the flight delays stood as high as 47% of Southwest's circa 2,000 daily flights.
Southwest Pilots to Vote on the Deal
Southwest Airlines is the last among major carrier to have a deal with its pilots union after Delta, United and American have reached near-similar agreements with their respective pilots unions. On December 21, 2023, Southwest Airlines Pilots Association Board sent the deal for rank-and-file voting between January 8 and January 22, 2024. SWAPA President Casey Murray struck an optimistic tone after four years of, often rancorous, negotiation. The deal will increase the wage cumulatively, on the average, 50% over the life of the contract:
* 29.15% when the deal is approved
* 4% each on January 1, 2025, January 1, 2026 and January 1, 2027
* 3.25% increase on January 1, 2028
********** ELLIOTT INVESMENT MANAGEMENT'S STAKE IN SOUTHWEST **********
Activist Investor Takes Stake at Another Corporate Icon Headquartered in North Texas
Elliott Investment Management takes an important stake at the Southwest Airlines after investing $2 billion that has made the activist firm an important player with about 11% share in the Dallas-based airline company. On June 10, 2024, the activist investor sent a letter--signed by Elliott's portfolio manager Bobby Xu and partner John Pike--to Southwest Board of Directors, calling out the airline's subpar financial performance and "poor execution". The letter recommended three key action plans:
* Enhance the board
* Upgrade leadership [implies management overhaul]
* Undertake business review
In May 2024, Elliott Management wrote a similar letter to Texas Instruments, critiquing the semiconductor firm's high capital spending that prohibited the deserving returns to the shareholders. Elliott bought 1.3% stake in TI by investing $2.5 billion.
Southwest Adopts "Poison Pill" to Thwart Takeover
The Southwest Board of Directors on July 3, 2024 adopted a poison pill that would make Elliott Investment Management's bid to take over the airline, or even to force the management out, a lot costlier. The poison pill, formally called the Limited Duration Shareholder Rights Plan, will trigger empowering the existing shareholders to buy shares at 50% discount if any shareholder buys more than 12.5% stake, or if the existing shareholders who have already more than that trigger point [12.5%] buy any additional shares. Elliott now holds 11% of the Southwest Airlines (based on the common stocks, not based on the beneficial ownership). If it acquires more than 12.5% shares, it's value will be diluted significantly, according to the poison pill.
Elliott Holds 8.2% Beneficial Ownership in Southwest
According to an August 13, 2024, sharing of the Securities and Exchange Commission filing, Elliott Investment Management now owns 8.2% beneficial ownership in Southwest Airlines, according to the August 25, 2024, edition of The Dallas Morning News. Once the activist investor reaches 10% threshold, it will have the ability to call for a special shareholder meeting.
Elliott Acquires 10% Beneficial Ownership
In an SEC filing, Elliott on September 3, 2024 said that it had acquired 10% beneficial ownership of the Southwest Airlines, giving the activist firm the right to call a special shareholders session. On June 10, 2024, Elliott bought 11% stake of the airline's economic interest through derivatives. Since then it has been converting them to eventually reach the 10% threshold of beneficial ownership.
Elliott Forces "Unprecedented" Changes at Southwest
After meeting with Elliott Investment Management leaders on September 9, 2024, Southwest Airlines Executive Chairman Gary Kelly on September 10, 2024 decided to step down from the Board of Directors. Six other current directors--(1) Former Missouri Senator Roy Blunt, (2) Jill Soltau, former CEO of JCPenney, (3) Thomas Gilligan, (4) David Beigler, (5) Veronica Biggins and (6) William Cunningham--have decided not to rerun for reelection.
********** ELLIOTT INVESMENT MANAGEMENT'S STAKE IN SOUTHWEST **********
Southwest Ends Open-Seating, to Fly Overnight
After Elliott Investment Management's June 2024 acquiring of significant stakes at the Southwest Airlines, things have changed drastically on the Southwest's side from some internal soul searching to adopting "poison pill" to fight back the activist investor.
On August 13, 2024, a filing with the Securities and Exchange Commission showed that Elliott had acquired 8.2% beneficial ownership in Southwest despite a long-held belief among market watchers that Elliott might be interested in acquiring more stocks to achieve a beneficial ownership of 10% stake, a threshold required for Southwest investors to call a special shareholders' session.
Last month (July 2024), Southwest ended its open seating model and favored overnight flights. Many analysts do believe that the changes decided last month are the beginning of a new journey under the pressure of Elliott. Meanwhile, the airline is coming under scrutiny for various reasons. The operational safety issues led FAA to launch in July 2024 a Certificate Holder Evaluation Process, bringing in a focused federal scrutiny on almost everything, spanning flight crew training to manuals. Currently the United Airlines is subject to such evaluation process.
Wednesday, February 12, 2014
Merger and Acquisition Announced (2014--2024)
MERGER ANNOUNCEMENTS IN 2014
Texas Industries to Merge with Martin Marietta
An era will come to an end in the space of cement industry as the iconic Texas cement maker TXI, or Texas Industries, Inc. has decided to be acquired by Raleigh, North Carolina-based Martin Marietta Materials Inc. Both companies' boards of directors approved the $2.7 billion deal, including assumption of about $700 million in debt, according to a joint announcement by both on January 28, 2014. As the CEO of Martin Marietta, Ward Nye, said on January 28, 2014 that the headquarters of the combined company would be based in Raleigh, TXI CEO Mel Brekhus reiterated that Dallas would be a key site for the combined company. The deal includes an all-stock swap in which Martin Marietta will give seven-tenth of Martin Marietta share in lieu of acquiring a share from TXI. The combined company will occupy a niche space in the construction materials sectors as iconic brands of TXI's cement and Martin Marietta's aggregates--crushed stone, sand and gravel--which are mixed with cement to make concrete will come from a single source, thus realizing significant savings in operation. Two largest shareholders of TXI, Memphis-based Southeastern Asset Management, Inc. (27.8% stakeholder) and Cayman Island-based NNS Holding (22.7 percent stakeholder) headed by the Egyptian tycoon Nassef Sawiris, who had started to seriously take a stake in TXI in 2006, okayed the deal. TXI's history goes back to 1951, when Ralph Rogers founded the company, and his son Robert, who had served as the President of Dallas Federal Reserve Bank, retired as President and CEO of the company his father had founded in 2004. Robert died in June 2013 at the age of 77. His son Jamie is the present COO of the company.
Martin Marietta closed the deal on July 2, 2014, and because of the surge of Martin Marietta's share prices, the final tag climbed to $3.2 billion.
Comcast to Acquire Time Warner Cable
On February 13, 2014, Comcast is expected to announce a more than $45 billion all stock deal to acquire Time Warner Cable, according to various market reports being aired on February 12, 2014. Comcast will give 2.875 shares of its newly issued stock for each share of Time Warner. Based on February 12, 2014, closing price of $55.24 of Comcast share, Time Warner Cable shareholders will get $158.82 (2.875*$55.24 = $158.815) for each Time Warner share. The price is in the ball park of what Time Warner's CEO Rob Marcus has set for considering any deal as he has rejected an earlier $132.50 in stock-and-cash offer from Charter Communications and has said at that time that an acceptable offer will be around $160 per share.
Zale to Wed with Signet
In a marriage of two stars, Irving-based Zale Corporation on February 19, 2014 agreed to an acquisition proposal from the larger jewelry chain Signet Jewelers, which has 17 major brands, including Kay Jewelers, Jared, H. Samuel and Ernest Jones. Zale includes 6 brands, including Zales, Gordon's, Piercing Pagoda and Canadian chain Peoples. Under the deal, Signet will pay $21 a share. The value of the deal stood at $1.4 billion in cash and debt as of February 19, 2014 and 41 percent more than Zale's closing price of $14.91 on February 17, 2014. Zale is in the midst of a turnaround plan under the leadership of CEO Theo Killion. The estimated sales of the combined company, the largest jeweler in the U.S., Canada and the UK, are around $6.2 billion based on 2013 revenue pictures from both chains (Zale has 2013 revenue of $1.89 billion and Signet has $3.98 billion). The combined company will have about 3,600 stores (1,954 Signet stores and 1,694 Zale stores as of February 19, 2014), with 2,958 in the U.S. The $79.5 billion U.S. fine jewelry industry is fragmented, and combined company will have about 16 percent market share. Signet CEO Michael Barnes will head the combined company.
Zale Shareholders Approve the Merger
Despite opposition from the hedge fund TIG Advisors, which owns 9.6 percent of the Irving-based jeweler, Zale shareholders on May 29, 2014 approved the merger with Signet Jewelers.
Facebook to Acquire WhatsApp
In its largest acquisition yet, Facebook on February 19, 2014 announced that it would acquire a messaging start-up, WhatsApp, for $16 billion in cash and stock transaction. WhatsApp has 450 million monthly users, and among them, 70 percent are active on daily basis.
On October 6, 2014, Facebook completed the WhatsApp acquisition, and the final price tag came out to be $22 billion.
Grocery Rivals Tom Thumb and Albertsons to Merge
Tom Thumb's parent company, Safeway, on March 6, 2014 agreed to be acquired by a group of investors led by the private equity firm Cerberus Capital, owner of Albertsons, in deal valued at $7.64 billion, with an upward potential of $9 billion when other transactions were to be included. Cerberus-led group will pay for $32.50 per share in cash. Pending other transactions, it will rise as high as $40 per share. The combined company, given the approval from Safeway shareholders and regulators, will have 2,400 stores, more than 250,000 employees and $60 billion in annual sales. The combined company will include brands such as Tom Thumb, Randalls, United Supermarkets, Market Streets, Amigos, Safeway, Vons, Pavilions, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaw's, Super Saver and Star Market.
Men's Wearhouse Buying Jos. A. Bank
On March 11, 2014, Men's Wearhouse Inc. said that it would buy Jos. A. Bank Clothiers Inc. for $1.8 billion to become nation's fourth-largest menswear retailer (after Macy's, Kohl's and JCP). Men's will pay $65 a share for Jos. Jos. announced in October 2013 that it would suit for larger rival Men's for $2.3 billion, an offer rebuffed by Men's Wearhouse. But, Men's Wearhouse turned the table and pursued to acquire Jos. for a price of $1.54 billion, then for $1.6 billion, and eventually for $1.78 billion. In the midst of back-and-forth, Jos. announced in February 2014 that it would buy the parent company of Eddie Bauer, Everest Holdings LLC. After March 11, 2014, announcement of Men's and Jos.' merger, the Eddie Bauer transaction will become void.
AT-and-T to Buy DirecTV
In a bumper acqusition deal that has potential to change the content and conduit landscape in years to come, AT-and-T Inc. said on May 18, 2014 that it would acquire the largest satellite TV company DirecTV for $67.1 billion. The transaction involves partly stock swap ($66.50 in AT-and-T stock for each share of DirecTV) and partly cash transaction ($28.50 in cash for each DirecTV share). The telephone company's CEO Randall Stephenson called the last six years as an era of data-driven growth while the next six years would be the era of video-driven growth. DirecTV CEO Mike White called the transaction "transformative".
Final Approval for the Merger Given
Dallas-based AT-and-T crossed the final regulatory hurdle on July 24, 2015 to close the $67 billion acquisition of DirecTV after it had received okay from FCC.
FOOD FIGHT AMONG TYSON, HILLSHIRE AND PILGRIM'S PRIDE
Couple of days after Pilgrim's Pride offered to buy Hillshire Brands, the maker of Ball Park hot dogs and Jimmy Dean sausages, for $6.4 billion, involving $45 per share plus assumption of debt, much larger Tyson Foods on May 29, 2014 offered to buy Hillshire Brands for $50 a share plus assumption of debt, raising the total purchasing price to $6.8 billion. However, Tyson's offer is contingent of Hillshire abandoning its own bid announced earlier this month to buy Pinnacle Foods, the maker of Vlasic Pickles and Birds Eye frozen vegetables, for $4.6 billion. Tyson sees the value in meat line of business for Hillshire instead of a company burdened by vegetables and other non-meat products which was clearly the aim of Hillshire behind its bid to acquire Pinnacle Foods. The lure of Tyson is more than Pilgrim's Pride, owned by the Brazilian food conglomerate JBS, as the market value of Tyson ($15 billion) is more than twice the market value of Pilgrim's Pride ($6.5 billion).
JBS Boosts the Purchase Price
The owner of Pilgrim's Pride upped the bidding war on June 4, 2014 by boosting the offer price by an additional $10 to $55 a share.
Hillshire Gives up Pinnacle to Clear the Way for Tyson to Acquire
Hillshire on June 15, 2014 announced that it would forego its earlier offer to buy Pinnacle Foods for $5.7 billion to comply with Tyson's requirements to buy the maker of Ball Park hot dogs and Jimmy Dean sausages with a superior offer of $63 per share, or $7.7 billion.
MEDTRONIC TO BUY COVIDIENT
Medical Device Makers Announce Marriage
Minneapolis-based Medtronic on June 15, 2014 announced $42.9 billion of acquisition of Ireland-based Covidien. Part of the lure of buying Covidien is to relocate the corporate headquarters to Ireland to reduce corporate tax rate, an action called the Inversion. Medtronic will pay $35.19 in cash and 0.956 of a share for each share of Covidien.
AbbVie to Acquire Shire
In the largest-ever inversion, AbbVie, a recent spinoff from Abbott Laboratory, announced on July 18, 2014 that it would buy its European pharmaceutical rival Shire Inc. for $54 billion and move its corporate domicile to the British island of Jersey. The market value of the combined company will be $137 billion, and triumph corporate behemoths such as Cisco, McDonald's and Boeing. By moving its headquarters from the U.S. to Jersey, AbbVie will lower its corporate tax rate to 13 percent in 2016 from 22.6 percent last year.
In early 2015, AbbVie called off its $54 billion acquisition of Shire as the Obama administration was mulling over making rules affecting corporate inversion stricter.
Discount Retailers Join Hands to Realize the Economy of Scale
In a sudden, but expected, move, Dollar Tree Inc. on July 28, 2014 agreed to acquire larger rival, Matthews, NC-based Family Dollar Stores Inc. for about $8.5 billion. The Chesapeake, VA-based Dollar Tree will pay $74.50 a share for Family Dollar's stocks, nearly 23 percent premium of previous day's (July 25) closing price. Activist investor Carl Icahn divulged last month that he had acquired nearly 9 percent stake in Family Dollar, and pressed for the chain's sales to unlock the buried value. Both companies' boards approved the transactions, and the deal that will create a 13,000-store operation with $18 billion in annual revenue will be closed by early next year.
New Twist in Dollar Market Mania
In a surprise move to leverage an economy of scale, the largest discount retailer Dollar General on August 18, 2014 moved to acquire Family Dollar Stores Inc. for $8.95 billion trumping the July 28, 2014, $8.5 billion bid by Dollar Tree Inc. One of the reasons the Dollar General-Family Dollar merger is attractive to investors is due to their complementary market dominance as Family Dollar has strong presence in metropolitan areas where Dollar General dominate the rural markets. This has been emphasized by Dollar General Chairman and CEO Rick Dreiling during a conference call on August 18, 2014.
Family Dollar Rejects Dollar General Bid on Antitrust Concern
On September 5, 2014, Family Dollar board of directors rejected an upwardly revised Dollar General bid to acquire Family Dollar on antitrust concern, and instead favored the rival bid by Dollar Tree Inc.
Family Dollar Rejects Dollar General's Third Bid
Dollar General's recent move to take its increased offer straight to shareholders didn't sit well with Family Dollar's board of directors. On September 17, 2014, Family Dollar rejected for the third time a revised bid offered by Dollar General and also decried its approach to go straight to shareholders. Dollar General's revised bid included a price tag of $9.1 billion, $500 million break-up fee and divestiture of 1,500 stores from the combined portfolio of the merged company. Meanwhile, Family Dollar CEO Howard Levine's hands were strengthened by a major shareholder, Trian Partners, in opposing the Dollar General's bid.
Online Real Estate Service Providers to Merge
To realize the vast potential of online marketplace with a combined economy of scale, Zillow Inc. will acquire Trulia for $3.5 billion. According to the announcement on July 28, 2014, Zillow will pay Trulia shareholders 0.444 shares for each Trulia share, and have two-third stake in the combined company. Trulia shareholders will control the remaining one-third.
Burger King's Inversion Strategy Via Acquisition of Canadian Donut Chain
Florida-based Burger King on August 26, 2014 announced acquisition of Canadian chain Tim Horton for $11 billion that would create a behemoth in breakfast, lunch and dinner segments of fast food category with more than 18,000 outlet and $23 billion potential revenue. The combined company will be incorporated in Canada, another corporate move in recent time toward inversion.
Neiman to Change Hands
A Los Angeles-based private equity firm, Ares Management LLC, and Canada's largest pension fund, Canada Pension Plan Investment Board, on September 9, 2014 announced to buy Dallas-based luxury retailer Neiman Marcus Group for $6 billion from its current owners, TPG and Warburg Pincus. The retailer runs 41 Neiman stores, 2 Bergdorf Goodman stores, 36 Last Call stores and six Cusp stores beside a strong online presence under brands such as Neiman Marcus, Bergdorf Goodman, Last Call and Horchow. The two new owners will hold equal stakes, with Neiman management--including CEO Karen Katz--holding minority stakes. The transaction is poised to go through during the fourth quarter.
With Neiman purchase Ares and Canada Pension now hold opposite spectrums of the retail worlds as they have completed the purchase of 99 Cents Only Stores in 2011 for $1.55 billion. Paradoxically luxury space in the US retail is now exclusively owned by Canada-based entities as Hudson's Bay is in the process of acquiring Saks Inc. Hudson also owns New York-based Lord and Taylor.
In 2005, Warburg Pincus and TPG took Neiman to private through a leveraged buyout transaction valued at $5.1 billion, with combined initial investment of $1.2 billion. During the present transaction, the firms are poised to reap a windfall of $2.75 billion--a 150% profit--on the top of $400 million disbursed last year as a one-time dividend. Part of the payment will go to pay the debt although the company will not be debt-free.
Hewlett-Packard to Split into Two
Amid falling sales of personal computers and increasing embrace of mobile devices, iconic computer maker Hewlett-Packard charted out a new course of action on October 6, 2014 by splitting into two distinct businesses--H-P Inc. would have computer and printer businesses and Hewlett-Packard Enterprise would house the business software, commercial tech products and cloud services. CEO Meg Whitman will lead the enterprise business unit.
Banana Supplier in the Midst of a Bidding War
Chiquita Brands International's proposed acquisition of Ireland-based fruit importer Fyffes and planned inversion to incorporate in Ireland to reduce tax rate faces serious hurdles as Brazilian companies Cutrale and Safra have increased their bid on October 23, 2014 to $681 million.
Chiquita Agrees to Brazilian Firms' Acquisition Deal
Charlotte, North Carolina-based banana supplier on October 27, 2014 changed its strategic course, and opted for acquisition by Cutrale and Safra .
Oilfield Services Companies Halliburton and Baker Hughes to Merge
In light of falling oil prices, two big players in oilfield services area announced on November 17, 2014 that they would merge as part of their strategic goal to drive efficiency through economy of scale. Houston-based Halliburton will spend $34.6 billion in cash and stock to acquire cross-town rival, and the third-largest oilfield services company, Baker Hughes. Halliburton CEO and Chairman Dave Lesar hoped that the combined company would reduce costs as much as $2 billion per year. Halliburton will pay 1.12 of its shares plus $19 in cash for each share of Baker Hughes. Baker Hughes shareholders will own 36 percent of the combined company that would become a strong number two in the industry after Schlumberger Ltd. Boards of both companies approved the merger expected to close in the second half of 2015 subject to approval by the shareholders and regulators.
Justice Files Suit to Block the Merger
The Department of Justice filed a lawsuit on April 6, 2016 to block the merger.
Merger Breaks Down
The Justice Department on May 1, 2016 said that the proposed merger was called off by Halliburton.
MERGER ANNOUNCEMENTS IN 2015
Office Chains to Merge in More than $6 Billion Deal
In a fast consolidating office supply marketplace, USA's largest office supply chain Staples Inc. on February 4, 2015 announced to buy the only national chain remaining, Office Depot Inc., for $6.3 billion. Staples will offer $7.25 in cash and 0.2188 shares for each share of Office Depot. The merger is partly the result of the pressure exerted by the activist investor Starboard Value that has stakes in both companies. Office Depot itself bought Office Max in 2013.
Office Depot Shareholders Approve the Merger
On June 19, 2015, the more than $6 billion merger between Staples and Office Depot received a boost as Office Depot shareholders approved the deal.
Feds Files Lawsuit to Block the Merger
Federal Trade Commission in December 2015 filed a lawsuit to prevent the merger between Staples and Office Depot from going ahead on the ground that the post-merger marketplace would lack meaningful competition and result in increase in prices of office supplies for large corporations that usually buy in bulks.
Judge Blocks the Deal
Responding positively to FTC's petition, the U.S. District Judge Emmett Sullivan on May 10, 2016 ruled against the originally valued $6.3 billion merger of the nation's largest two office chains. Hours after U.S. District Judge Emmett Sullivan's verdict, Staples and Office Depot announced that they would abandon their merger bid.
AbbVie to Acquire Pharmacyclics
Pharmaceutical giant, North Chicago, IL-based AbbVie that has bumper drug Humira in its product portfolio on March 6, 2015 announced that it would acquire Pharmacyclics for $21 billion, or $261.25 per share. The merger will help AbbVie to increase its revenue stream from Pharmacyclics' top-notch cancer drug Imbruvica.
Shell to Acquire BG Group
To effectively combat collapsing oil prices since July 2014 and play in liquefied natural gas (LNG) domain, Royal Dutch Shell on April 8, 2015 announced that it would buy British oil giant BG Group for $69.7 billion. The acquisition involves Shell to give $20.34 in cash and stock for each share of BG Group.
Verizon To Acquire AOL
The May 12, 2015, announcement that Verizon would buy AOL for $4.4 billion was somehow a natural outcome of continuing mobile-and-media consolidation in the marketplace. As AOL CEO Tim Armstrong has put it, the future of advertising is shifting to mobile platform, and the proposed merger would marry the broad mobile footprint of Verizon with rich content of AOL, thus opening an opportunity to crack on a duopoly in $42.6 billion worldwide mobile advertising market, according to eMarketer, 55 percent of which is exclusively controlled by Google and Facebook.
Verizon Completes AOL Buyout
Verizon on June 23, 2015 completed the $4.4 billion AOL acquisition.
CVS to Acquire Omnicare for $12.7 Billion
CVS Health Corporation announced on May 21, 2015 that it would buy pharmacy service provider Omnicare for about $12.7 billion, including debt. The merger will bring Omnicare's pharmacy services for long-term care and assisted care centers under the umbrella of CVS. In addition to long-term care and assisted care footprint in dispensing pharmacy services, CVS will gain from Omnicare's expertise in specialty-pharmacy segment that usually carries a much higher margin. The deal involves CVS to give $98 per share of Omnicare in cash, plus assuming $2.3 billion in debt.
Charter to Acquire Time Warner
After regulators blocked the merger of Comcast and Time Warner, Charter Communications Inc. made its own bid to buy Time Warner. On May 25, 2015, Charter announced a three-way deal in which it would buy Time Warner for $55 billion and a smaller competitor, Bright House Networks, for $10 billion.
Aetna to Acquire Humana in a $37 billion Deal
As uncertainty over the future of Affordable Care Act has been cleared late June 2015 by a landmark U.S. Supreme Court ruling that has upheld the constitutionality of providing subsidies to consumers irrespective of the state- or federal-run marketplaces where they buy insurances, the merger spree among insurers expected to heat up has its first result on hand: a $37 billion merger between Aetna and Humana. According to the merger plan announced on July 3, 2015, Aetna will pay Humana shareholders $125 in cash and 0.8375 Aetna share for each share of Humana, marking an almost 29 percent premium over the Humana share prices before the merger talks came out in public and making it a $230 a share equivalent value. The combined company will be run by Mark Bertolini, CEO and Chairman of Aetna, who will hold the same positions once the merger is completed.
Snapshot of Two Companies
(1) AETNA
CEO and Chairman: Mark Bertolini
Headquarters: Hartford, Connecticut
2014 Revenue: $58 billion
Customer base: 23.7 million
(2) HUMANA
CEO and President: Bruce Broussard
Headquarters: Louisville, Kentucky
2014 Revenue: $48.5 billion
Customer base: 9.8 million
Founded: 1964
Major Source of Revenue: 73% of premium (2014) from federal government programs such as Medicare
Aetna and Humana Call off the Merger
A month after January 2017 ruling by a federal judge, U.S. District Judge John Bates, that the proposed merger would likely to lessen competition in the Medicare Advantage market in more than 350 counties, Aetna and Humana on February 13, 2017 called off the merger. Judge Bates' ruling was a victory for the previous Obama administration.
Anthem to Acquire CIGNA
Anthem, nation's second-largest insurer by revenue and parent company of Blue Cross and Blue Shield in 14 states and Medicaid plan Amerigroup in 19 states, on July 24, 2015 announced that it would pay $54.2 billion to acquire Cigna. The acquisition will reduce the number of insurance giants from 5 to 3 (Anthem-Cigna; Aetna-Humana and UnitedHealth Group). Anthem will pay $154 in stock and cash for each share of Cigna. The merged company with customer base of 53 million will exceed that of UnitedHealth Group's 45 million customer base and Aetna-Humana merged company's 33 million customer base. The Anthem-Cigna merger will have a large footprint in the commercial insurance market, while Aetna will get a significant foothold in Medicare Advantage segment if acquisition of Humana goes through.
Appeals Court Blocks Anthem-CIGNA Merger
The U.S. Court of Appeals on April 28, 2017 ruled 2-1 against the Anthem's acquisition bid of CIGNA. The U.S. DOJ argued that Anthem did not have a sound plan on how it would save $2.4 billion in medical costs and lower the consumer premium. Instead, according to the U.S. DOJ, the proposed merger may lessen the competition. Separately, a soured CIGNA is fighting in a second lawsuit against Anthem, claiming $1.85 billion in termination and other damage-related fees.
Oil Services Giant to Acquire Gear Maker
Schlumberger Ltd, nation's largest oil services company, on August 26, 2015 agreed to buy Cameron International Corp. for $14.8 billion, implying that the oil prices might have bottomed out thus creating an opportunity for cheap acquisition. The merger will create an one-stop shop where gears such as blow-out preventer (BOP) and relevant services will be disbursed to clients. Cameron shareholders will receive 0.716 Schlumberger share and a cash payment of $14.44 for each Cameron share.
Energy Pipeline Behemoth to Acquire Competitor
Dallas-based Energy Transfer Equities led by billionaire Kelcy Warren on September 28, 2015 announced that it would pay $37.7 billion, including $4.2 billion in debt assumption, to acquire Tulsa-based Williams Co. The merger will increase the footprint of ETE as the nation's largest energy pipeline company with a combined asset of 100,000 miles of network, exceeding the current leader, Houston-based Kinder Morgan.
ETE Pulls the Plug on Merger
As the oil prices further deteriorated since the announcement of the merger in September 2015, both companies' handling of the merger had descended from skepticism to name-calling to corporate equivalent of Cuban Missile Crisis. At the end, days after a Delaware Chancery Court judge cleared the hurdle, Energy Transfer Equities on June 29, 2016 announced to walk away from the merger.
Beer Giants to Merge
Faced against a declining taste for beers among consumers and challenge being posed by craft brewery in advanced nations, Anheuser-Busch InBev on October 13, 2015 was able to persuade SABMiller, after five tries, to sell itself for $106 billion.
In a colossal merger that will change the landscape and leadership of worldwide beer market, Inbev and SAB Miller on November 11, 2015 agreed for Inbev to acquire owner of Miller brands for a whopping $107 billion.
Walgreens to Acquire Rite Aid
To enlarge its footprint in prescription drugs, leverage over PBMs over price negotiation and customer base in the backdrop of firming up of Affordable Care Act, Walgreens on October 27, 2015 announced a $9.4 billion acquisition bid for the pharmacy chain Rite Aid. The all cash deal will involve $9 per share of Rite Aid plus assumption of debt.
Merger Off the Table
Facing a possible anti-merger regulatory scrutiny, Walgreens in late April 2017 pulled off the plug for acquisition. Now, Walgreens is on the hook of paying out more than $300 million in termination fee.
Marriott, Chinese-led Consortium Vie to Acquire Starwood for $12.2 billion
After Starwood Hotels and Resorts Worldwide, parent of Sheraton, W and Westin, put itself on the sales block in April 2015, most of the analysts speculated on Intercontinental Hotels Group, Hyatt Hotels Corp. and a few Chinese companies to be the suitor. However, surprising them all, Marriott International on November 16, 2015 announced its $12.2 billion bid for Starwood.
Chinese Insurer's Flirting with Starwood on Acquisition Bid
Then Chinese insurance giant Anbang Group led a group of investors to chip in the bidding war for Starwood. Not to be left behind, Marriott sweetened its bid for parent company of Sheraton, W and Westin. However, the latest bidding onslaught came from Anbang on March 28, 2016 with a substantially inflated value with a price tag of $15 billion.
Anbang Quits Starwood Bid
Faced with the possibility of near-certain regulatory blockade, Anbang-led consortium on March 31, 2016 dropped the bid to acquire Starwood.
Obama Administration Announces New Rules to Clamp Down on Inversions
Obama administration's Treasury Department and Internal Revenue Services in November 2015 unveiled new rules clamping down corporate inversions that cost treasury billions of dollars.
Pfizer and Allergan to Merge in a $150 billion Deal
Pfizer and Botox maker Allergan have agreed to merge in a $150 billion deal that would trigger another corporate inversion, or headquartered in overseas to realize cost savings by lowering corporate tax rate. The Wall Street Journal reported the deal, to be announced on November 23, on November 22, 2015. As part of the merger,
* 11.3 Pfizer share will be swapped for each share of Allergan
* A small cash component will also play a role
* Pfizer CEO Ian Read will lead the combined company with Allergan CEO Brent Saunders to become second-in-command
* The combined company will be headquartered in Dublin, where Allergan is currently incorporated
* The combined company will exceed the largest drug maker Johnson and Johnson with an annual revenue of more than $60 billion and a significant breadth of drug portfolio including Botox, Celebrex, Viagra and pneumonia drugs
The merger announcement will be made a week after Obama administration's Treasury Department and Internal Revenue Services unveiled new rules clamping down corporate inversions that cost treasury billions of dollars. Legally this merger and resulting corporate inversion is likely to go forward unhindered pending normal regulatory scrutiny as Allergan, already incorporated in Ireland, is the suitor here. Last year (2014), Pfizer paid corporate taxes at a rate of 26.5 percent, while Allergan paid at a rate of 4.8 percent. This year, though, Pfizer will pay 25 percent corporate rate, while Allergan's will rise to 15 percent. Pfizer's current market value is $199 billion and Allergan's $123 billion.
Pfizer-Allergan Merger Plan Falls Wayside
Two days after the Obama administration's Treasury Department issued new rules over corporate inversions, the first casualty was the $160 billion merger between Pfizer and Allergan in which Pfizer planned to buy Ireland-based Allergan and move its corporate address to save hundreds of millions of dollars in annual taxes. On April 6, 2016, Pfizer and Allergan announced that they would chart independent courses going forward, and Pfizer would pay $150 million in break-up fees.
The Wall Street Journal Reports Pending Merger between DuPont and DOW Chemical
The Wall Street Journal reported on December 8, 2015 that DuPont and DOW Chemical were in advanced talks to merge their companies to create the world's second-largest chemical company behind BASF SE. According to the report, the post-merger company will be split into three units focused on agriculture business, specialty chemical business and materials business. Both DOW and DuPont have market capitalization of at least $60 billion each, and employs 50,000 and 60,000 people, respectively.
A Historical Snippet of DOW and DuPont
* DOW Chemical (based in Midland, Michigan): Established by Canadian-born chemist Herbert Dow in 1897 to produce bleach using new technology he had developed to extract chlorine from brine.
* DuPont (based in Wilmington, Delaware): Established by French immigrant E.I. DuPont in 1802 as a gunpowder manufacturing operation along the Brandywine River in Wilmington, Delaware.
On December 11, 2015, the merger announcement between DOW and DuPont was made, and it was clear that the merger was a classical example of "merger of equals". After the merger, the combined company will be called DowDuPont, and will be led by DOW's CEO and Chairman Andrew Liveris, who will assume the role of Executive Chairman, and DuPont's CEO Edward Breen, who will assume the role of CEO. Subsequently, DOWDuPont will be split into three entities focused on agriculture business, specialty chemical business and materials business. On the pro-forma basis, the revenue of the combined company is $83 billion and market capitalization is $130 billion. According to merger announcement, DOW shareholders will get a share of DOWDuPont for each share of DOW and DuPont shareholders will receive 1.282 shares of DOWDuPont for each share in their company, valuing the all-stock merger at $61.7 billion.
MERGER ANNOUNCEMENTS IN 2016
Alaska to Acquire Virgin America
Alaska Air Group, parent of Alaska Airlines, on April 4, 2016 announced to acquire Virgin America for $4 billion, resulting in consolidation of domestic air traffic market in future in the hands of four largest airlines with a combined share of approximately 80 percent.
Verizon's Bid to Revive Yahoo's Lost Glory
After four years of a failed turnaround plan that had never taken hold, leave alone achieving any success, Yahoo's CEO Marissa Mayer and the company's board at last threw their hands and announced on July 25, 2016 that the iconic internet company would be sold to Verizon for $4.83 billion. Yahoo will be part of the business unit that includes AOL that the telecom giant has bought last year for $4.4 billion.
TOBACCO MERGER: BAT to Acquire Reynolds America Inc.
Weeding out the excess in the shrinking tobacco market in the advanced world, British American Tobacco on October 20, 2016 announced that it would pay nearly $47 billion in cash and stock to acquire 58 percent of Reynolds America Inc. that it currently didn't own. The deal, valued at $56.50 a share, will help the London-based tobacco company to:
* Penetrate the American market without additional significant scrutiny
* Become an instant player in a growing U.S. e-cigarette market
* Broaden and balance its focus on its existing markets in the developing world, where there is much less regulatory hurdles, with aggressively competing with a very few companies in the U.S. market that still remains very profitable
AT-and-T to Acquire Time Warner for $108.7 billion
AT-and-T Corporation on October 22, 2016 announced that it had reached a definitive agreement to acquire Time Warner Inc. for $108.7 billion. Both companies' boards of directors approved the merger during the day. The transaction includes stock components ($53.75 in AT-and-T stock per Time Warner stock), cash components ($53.75 in cash per Time Warner share) and assumption of Time Warner's debt. The stock and cash components total about $85.4 billion. Drumming up the support for the merger, the CEOs of both companies, Randal Stephenson of AT-and-T and Jeff Bewkes of Time Warner, have highlighted the benefit that a superb content company and a pipe company should be able to deliver to customers who will be able to see anything they choose on any device they have. Many analysts see this merger to go through the regulatory review process with conditional approval as the merger is deemed to be a vertical merger instead of a horizontal merger.
AT-and-T and Time Warner Merger in Jeopardy
Although AT-and-T and Time Warner merger is one of a vertical merger and there is no anticipated regulatory hurdle given the precedence of a similar merger between Comcast and NBC Universal, the $108.7 billion deal announced on October 22, 2016 hit a hurdle during a November 6, 2017, meeting between AT-and-T CEO Randal Stephenson and the telecom company's general counsel, David McAtee, on one side and Trump administration's new anti-trust official, Makan Delrahim, Assistant A.G. on the other. The merger is sure to end up in court. Immediately afterward, there was allegation of political manipulation as Trump administration was rumored to have insisted the sale of CNN, often ridiculed by president as source of "fake news", as a pre-condition of merger.
AT-and-T Begins a Full-Scale War for Merger
AT-and-T on November 20, 2017 mounted a legal battle to pursue its merger with Time Warner after U.S. Justice Department sued to block the merger.
Iconic Trial Begins
DOJ and AT-and-T lawyers launched the opening volleys of argument on March 19, 2018 at the U.S. District Court of Judge Richard Leon.
Judge Rules in Favor of Merger
In a historic judgment, Judge Richard Leon on June 12, 2018 rejected Trump administration's bid to block the merger between AT-and-T and Time Warner, paving the way to Dallas-based telecommunications giant to achieve the coveted business domain of primary content, distribution and mobile players. Closing of the $109 billion deal will give the AT-and-T CEO Randall Stephenson three significant business victories: tax cut, repealing the Net Neutrality rules and marriage between content and distribution. The combined company will create its own targeted ad platform that is likely to fetch more revenue than traditional ads. Judge Leon also cautioned Trump administration's lead anti-trust lawyer Makan Delrahim not to hinder the merger.
AT-and-T Begins Merger; Renames Time Warner; Buys Ad Platform
In a whirlwind speed, AT-and-T began merging the Dallas-based telephone company with the New York-based media company after June 12, 2018, verdict by Judge Richard Leon clearing the way for marriage between the companies. AT-and-T renamed Time Warner as Warner Media. On June 25, 2018, it bought a digital ad company, AppNexus, to tailor custom-made ads by marrying Warner Media's content with telecom company's consumers.
History of AT-and-T's Journey of Evolution
* 1984: The "Ma Bell" has been split into seven Baby Bells--Ameritech, Bell Atlantic, Bell South, Nynex, Pacific Telesis, Southwestern Bell and U.S. West.
* 1993: Southwestern Bell moves its headquarters from St Louise to San Antonio and acquires the cable TV operations in Maryland and Virginia
* 1995: Southwestern changes its name to SBC Communications
* 1996: First overhaul of the country's telecom law in more than 60 years that would pave the way for anyone to enter the telecom business in any market. SBC acquires Pacific Telesis
* 1997: SBC completes acquisition of Pacific Telesis
* 1998: SBC acquires Southern New England Communications (SNET)
* 1999: SBC acquires Ameritech and Comcast Cellular
* 2000: SBC and Bell South merge their cellular operations into Cingular Wireless
* 2004: Cingular acquires AT-and-T Wireless
* 2005: SBC acquires AT-and-T and changes its name to AT-and-T
* 2006: AT-and-T acquires Bell South
DOJ to Appeal against Judge Leon's Ruling
Justice Department said on July 12, 2018 that it would appeal the lower court ruling paving the way for AT-and-T's $109 billion acquisition of Time Warner Inc. Department's veteran anti-trust attorney Craig Conrath did not explain what was the department's ground for appeal to the D.C.-based Court of Appeals. It's such an unusual decision on behalf of Trump administration to contest this merger as the Dallas-based telecom behemoth went ahead in lightning speed to complete the merger, rename Time Warner as Warner Media and name a new leader, John Stankey, to head it, acquire a digital company, AppNexus, to build its own targeted ad platform and launch a new low-priced streaming service, AT-and-T WatchTV. AT-and-T also said that it would keep Turner Broadcasting as a separate entity until February 28, 2019, or conclusion of the case, or appeal, according to a letter sent by the telecom company's chief lawyer, Daniel Petrocelli. There will be a "firewall" between Turner Broadcasting and the telephone company's business unit that owns AT-and-T's U-verse and DirecTV. Government attorneys during six-week trial argued that telecom company would use Turner Broadcasting to stifle competition as it's too much of a hurdle to overcome while running the broadcasting business without reasonable terms for a range of services such as live news from CNN and NBA and MLB playoffs by TNT.
One-year Anniversary of AT-and-T and Time Warner
The historic $108.7 billion merger between Dallas-based telecom behemoth and Time Warner was completed on June 14, 2018, and a year later, this is what people have so far experienced and witnessed about this merger. AT-and-T re-branded the Time Warner as Warner Media, and kept some assets in the media holdings company separate until February 2019 when U.S. Justice Department had exhausted all the legal options to reverse the merger. Now, the "magna carta" of the merger comes down, according to AT-and-T CEO Randal Stephenson, to: "get the most content to the most people at the lowest prices, delivered on any screen, particularly mobile".
In this era, entertainment companies are investing in producing and licensing content, including an estimated $15.1 billion by Netflix this year alone, according to the Bloomberg estimate, making the streaming company as a key competitor to Warner Media that spends about $14 billion a year in producing and licensing content. On the top, AT-and-T launched an advertising and analytics company, Xandr.
The telephone behemoth is also launching a new streaming service, HBO Max, in the Spring of 2020, and a scaled-down version will be in place in the Fall 2019. HBO Max will marry content from Warner Bros. and HBO, and will most likely to cost $15 per month, the existing price for HBO's standalone streaming service HBO Now. However, the competition landscape HBO Max will face gets stiffer by the day as there are other players--big and small--are trying to outperform each other. Amazon and Hulu are fighting each other to catch up with Netflix. Disney's streaming service, Disney+, will be launched in November 2019 at a price of $7 per month. Apple and NBCUniversal want to launch their streaming services soon.
Activist Investor Acquires AT-and-T Stakes, Demands Change
In September 2019, Elliott Management, an activist investor fund, announced that it had invested $3.2 billion to acquire 1% of the Dallas-based telecom giant. Within days, Elliott unveiled its proposal to boost AT-and-T stock price above $60 by the end of 2021. As part of that plan, the activist investor demanded the telecom giant to stop acquisition, and begin execution. It also demanded the offloading of non-core assets such as DirecTV, acquired by the company in 2015, and Mexican asset of its wireless business.
Union Objects Activist Investor's Roadmap
Communication Workers Association in September 2019 took a gut punch at Elliott Management for pressuring the telecommunication behemoth to offload its DirecTV asset and Mexican operation of wireless business, saying that they would lead to thousands of families to be thrown into financial uncertainty and disarray. Both DirecTV asset and Mexican operation of wireless business employ a significant number of unionized employees.
Pipelines Embroiled in Standing Rock Standoff to Merge
Pipeline operator Sunoco Logistics Partner on November 21, 2016 announced that it would acquire Dallas-based Energy Transfer Partner, part of Energy Transfer empire, for $21.3 billion. The combined company will be based in Dallas and Energy Transfer's Kelcy Warren will be the CEO of the new company. Energy Transfer Partner is constructing the Dakota Access Pipeline to bring oil from North Dakota to Gulf, and once built, Sunoco is to operate the pipeline, the operating model that is not going to change after the merger is completed. Energy Transfer Partners already owns 20 percent of Sunoco shares. Under the merger deal announced November 21, 2016, Energy Transfer shareholders will receive 1.5 common unit of Sunoco shares for each unit of Energy Transfer's shares. In addition, Sunoco will assume Energy Partner's outstanding debt.
MERGER ANNOUNCEMENTS IN 2017
Amazon to Gobble up Whole Foods
In an earth-shattering move that's sure to hit the grocery marketplace and its future, Amazon on June 16, 2017 announced that it would acquire Whole Foods Market for $13.7 billion. This is the largest acquisition of the internet retailer, which will pay $42 a share to close the deal. Whole Foods has 460 stores in the USA and the U.K. at some of the prime locations and 365 private labels. Whole Foods' annual revenue is $16 billion, but has yet to get a hold, far less master, the art and dollars of online grocery marketplace.
Shareholders, Feds Okay the Merger
Whole Foods shareholders on August 23, 2017 blessed the merger. On the same day came the apparent positive news from the Federal Trade Commission as the commission announced, after a lengthy review, that it would not stand in the way of merger.
United Technologies to Buy Defense Contractor Rockwell Collins
Jet-engine maker United Technologies on September 4, 2017 agreed to buy aircraft parts maker Rockwell Collins for $30 billion, including debt. The transaction includes $93.33 in cash and $46.67 in United Tech stock.
Northrop to Acquire Orbital ATK
Defense behemoth Northrop Grumman on September 18, 2017 announced that it would acquire Orbital ATK for $7.8 billion, strengthening its portfolio of missile defense and military aircraft technology. Orbital shareholder will receive $134.50 per share, a 22 percent premium.
Broadcom Announces Intent of Acquiring Qualcomm
Consolidating the market of smartphone chip suppliers, Broadcom on November 5, 2017 announced $105 billion acquision of Qualcomm, valuing the transaction to be around $70 a share. Qualcomm is a key chip supplier for the futuristic 5G technology-driven smartphones. Apple sued Qualcomm earlier in the year, accusing the chipmaker of wrongful patent licensing practices. Broadcom's offer to buy Qualcomm may be to buy an iconic semiconductor industry leader by taking advantage of this pending litigation.
Broadcom Raises the Acquisition Price
After weeks of grumblings and a host of skeptical responses ranging from lukewarm support to outright rejection of the offer, Broadcom on February 5, 2018 sweetened the deal by raising the acquisition price tag from $70 a share propsed three months ago to $82 a share. The sweetened deal will peg the acquisition at $121 billion, making it the largest technology merger in recent history.
Trump Administration Pulls the Plug on Merger
Apprehensive over ceding the leadership in 5G technology space to a foreign company, Trump administration on February 13, 2018 blocked the mega-merger between Broadcom and Qualcomm. The merger plan was withdrawn by the companies the following day.
CVS Caremark to Buy Aetna
In another transaction of vertical merger, pharmaceutical retailer CVS Caremark on December 3, 2017 announced that it would acquire the insurance giant Aetna for $69 billion that would bring the desired efficiency of scale by combining and consolidating 9,700 drugstores, 1,100 walk-in clinics, one of the largest pharmacy benefit managers (PBM) with a volume of 1 billion prescription processing per year for insurers, including Aetna, and an insurance giant with coverage of 22 million people under the same room. The transaction includes a swap of $207 in stock and cash for each share of Aetna, a premium of 29 percent of Aetna's share price on October 25, 2017, a day prior to The Wall Street Journal report on a possible merger.
For CVS, the merger means an expanding array of medical services that will replace shelves and products with services in a significant way and fend off competition from Amazon, if the online retail giant decides to enter the competitive medical services space, and UniteHealth Group Inc., the largest insurer, that also runs its own PBM business and doctor practices and clinics .
MERGER ANNOUNCEMENTS IN 2018
Dr. Pepper Announces End to Its Unique Texas Brand Identity
Dr. Pepper Snapple Group on January 29, 2018 agreed to be acquired by the owner of Keurig Green Mountains for about $18.9 billion. The transaction will give DPS the platform for reaching out to a different segment of consumer base while Keurig gets a vast distribution network from Plano-based beverage company.
T-Mobile to Acquire Sprint for $26.5 billion
In another twist of the shifting dynamic in telecommunication industry, T-Mobile on April 29, 2018 announced that it would acquire Sprint for $26.5 billion in a merger that would sprint the combined company, with a subscriber base of 100 million, over At-and-T (with subscribers of 93.6 million) to make it the number two carrier in the nation behind Verizon that has a subscriber base of 116.3 million. T-Mobile's CEO John Legere will run the combined company while the Sprint CEO Marcelo Claure will join the combined firm's board. T-Mobile's controlling shareholder Deutsche Telekom will own 42 percent of the combined company while the Sprint's controlling shareholder SoftBank of Japan, led by founder Masayoshi Son, will own 27 percent of the combined company and the remaining 31 percent will be owned by public. Four years ago, both companies tried to merge, but after learning that Obama administration had decided to block the merger, companies called it off. However, the industry itself and regulatory environment had changed now as companies such as Comcast had entered the mobile market and Trump administration encouraged companies to roll out 5G wireless technology faster, a feat that would be achieved, both these companies were betting on, if the merger went through. In 2012, SoftBank of Japan bought 72 percent stakes in Sprint for $21.6 billion, and Masayoshi Son had increased it to 85 percent since.
T-Mobile-Sprint Merger Okayed by DOJ
In all but remaining formalities, T-Mobile on July 26, 2019 overcame a big hurdle as the U.S. Department of Justice approved the $26.5 billion merger between the third- and fourth-largest mobile carriers. The combined company will have more than 100 million subscribers, and they have sold the merger on the premise that only with the scale of a merger like this, they will be able to roll out 5G services to cover 97 percent of the U.S. population in the next three years. The July 26, 2019, DOJ approval came with some conditions, including an important one: the combined company needs to sell a critical mass of its business assets to Dish Satellite. Dish has pledged to work as a new mobile carrier and will hit the consumer penetration market of as high as 70 percent of the U.S. population by 2023. Experts are worried about Dish's claim as 5G rollout is significantly more expensive and Dish may not have money in its coffer as it's rapidly shedding assets and losing subscribers. Dish is paying $5 billion to acquire Sprint's pre-paid mobile businesses Virgin Mobile and Boost--about 9 million customers--and will rent T-Mobile's communication network for the next 7 years.
Comcast Tops Disney's Offer to Acquire 21st Century Fox
Comcast on June 13, 2018 offered to buy 21st Century Fox for $65 billion, or giving a premium of about $7 per share to what was on the table from Disney. Disney, which offered an all-stock offer of $52.4 billion in December 2017, is sure to give a counter-offer to buy 21st Century Fox, thus beginning a bidding war with Comcast, nation's largest cable company that also owns NBC and Universal Studio. Disney then counteroffered with a premium, pegging its offer at $71 billion, or $38 per share, about $3 above Comcast's offer and $10 per share above its own December 2017 offer. The Department of Justice approved the deal on June 27, 2018, clearing the merger over the anti-trust hurdle, provided Disney would sell the Fox Sports Regional Networks.
DOJ Approves Disney Acquisition Offer
Disney Acquired 21st Century Fox after shareholders of both companies approved the $71.3 billion merger on July 27, 2018.
M&A ANNOUNCED IN 2020
Trump Okays TikTok Merger with Oracle
Trump administration on September 19, 2020 gave its blessing for U.S. asset of Chinese video app TikTok to be acquired by Oracle. In a three-way transaction among Oracle, Wal-Mart and TikTok, the video app will continue to operate in the U.S where it has millions of users. As part of his broad anti-Chinese trade and political stand, President Donald trump targeted both TikTok and WeChat what many alleged the companies to hand over user information to Chinese authorities. Earlier, U.S. Commerce Department on September 18, 2020 announced that TikTok would lose access to app stores of U.S.-based companies such as Apple and Google as of September 20, 2020, and further restrictions would be imposed on November 12, 2020. With the three-way deal, involving Oracle, Wal-Mart and TikTok, underway, the future--both immediate and long-term--of the video app company does not look to be at jeopardy. However, all the restrictions on WeChat will commence on September 20, 2020.
Federal Judge Sanctions on Justice Plan to Ban WeChat
A federal magistrate court judge, U.S. Magistrate Judge Laurel Beeler of California, in a September 19, 2020, dated order issued injunction on the proposed U.S. Commerce Department ban on a popular Chinese messaging-focused app, WeChat, prohibiting the users from accessing app stores of U.S.-based companies such as Apple and Google. Judge Beeler has agreed with the plaintiffs that users' first amendment right will be curbed by the ban.
Federal Judge Rejects Trump's Ban on TikTok
A
federal judge, opining on an emergency case, ruled on September 27, 2020
that Trump Administration’s ban on TikTok’s access to U.S.-based device
companies’ app stores, scheduled to go into effect on September 27-28, 2020
midnight, would be put on temporary hold as the case would proceed. The lawyers
for TikTok, owned by ByteDance, argued that banning the access
would be tantamount to banning the town square to all townspeople. U.S.
District Judge Carl Nichols of the District of Columbia concurred with the TikTok
lawyers. President Donald Trump in August 2020 announced the ban of TikTok’s
U.S. assets in the coming months.
M&A ACQUISITIONS ANNOUNCED IN 2021
AT&T to Spin off TV Assets
Once thought as a lucrative asset that AT&T had spent $67.1 billion to acquire DirecTV in 2015 came sliding down in market value to $16 billion in six years, reflecting a drastically changing industry landscape and a rapid evolution of technology as the Dallas-based communication giant announced on February 25, 2021 a leveraged buyout (LBO) of its TV assets to form a private company that would include the legacy satellite giant, AT&T TV and U-verse assets. The LBO will net the AT&T about $7.8 billion that the telecom giant will use pay down part of its gargantuan debt. TPG will invest $1.8 billion in the new company, DirecTV, which will incur an additional $6.2 billion in debt to its ledger as part of the LBO. TPG will own 30% of the new DirecTV and will nominate two board members while AT&T will own 70% of the new company and nominate three board members in the five-member board of directors. In February 25, 2021, conference call with the reporters, AT&T CEO John Stankey didn't divulge any future plan of DirecTV such as a horizontal merger with Dish Network. AT&T's video LOB chief Bill Morrow will serve in the new DirecTV's board and will become its first CEO.
AT&T To Spin off Entertainment Assets, Merge Them with Discovery
Just about three years after closing a landmark $85+ billion deal to transform and position itself as an entertainment giant, AT&T is planning to divest its entertainment business and merge it with Discovery Inc., Bloomberg News reported on May 16, 2021. The announcement of the deal may come as soon as May 17, 2021, according Bloomberg News. Between Dallas-based AT&T and Discovery, the combined company will have a dozen prime entertainment assets such as Boomerang, Cartoon Network, CNN, HBO/HBO Max, TBS, TNT, TruTV, Turner Classic Movies and Warner Bros. Studio in AT&T's portfolio and Animal Planet, Discovery/Discovery+, Food Network, HGTV, Magnolia Network, Motor Trend and TLC in Discovery Inc.'s portfolio. Through this transaction, AT&T will go back to its roots under CEO John Stankey, focusing on the so called 5G rollout and fiber optics build-out. The strategy being adopted by Stankey is markedly different from his predecessor, Randall Stephenson, who had spearheaded 43 acquisitions over his 13-year tenure and built an entertainment juggernaut under an iconic brand. However, Stephenson's strategy faced scrutiny from many shareholders and criticism from activist investors such as Elliott Management Corporation, which pressed the firm to focus on its core business.
$43 billion in AT&T Entertainment Asset Merger Deal with Discovery Announced
In a strategic shift to focus on its core business, Dallas-based AT&T on May 17, 2021 has decided to spin off its entertainment assets and merge them with Discovery Inc. in a deal valued at $43 billion that would create an entertainment juggernaut to be headed by Discovery CEO David Zaslav. If regulators approve the deal, the still-unnamed combined company will have 80 million subscribers among the brands and will reach almost 1 in 5 TV viewers in the nation. The combined company will pose a formidable competition in the streaming space to Disney and Netflix. AT&T and Discovery spend a combined of $20 billion a year in new content compared to Disney's $14 billion and Netflix's $17 billion. AT&T CEO John Stankey and Discovery CEO David Zaslav both highlighted the shareholder values that this $43 billion transaction would unlock. AT&T, which will basically offload all of its former Time Warner media assets that it has acquired just less than three years ago, will retain a 71% stake in the new company.
M&A ANNOUNCED IN 2022
One of the Largest Tech Acquisitions: Microsoft to Buy Activision
Microsoft on January 18, 2022 announced that it would acquire Activision Blizzard for nearly $70 billion in an all-cash deal that would make the acquisition one of the largest tech merger and acquisitions so far. Once completed, Microsoft will be one of the largest gaming companies of the world.
Frontier to Buy Spirit
In a marriage between two discount airlines, Frontier and Spirit on February 7, 2022 decided to merge in a $6.6 billion deal, including the assumption of debt. The price tag involves cash-and-stock deal worth $3 billion.
****************************** MUSK NEW OWNER OF TWITTER ***************************
Musk's Twitter Acquisition May Hit Roadblock
World's richest person, Elon Musk, on April 4, 2022 revealed that he had begun buying Twitter stocks in January 2022 and he had owned 9.2% of Twitter share. On April 25, 2022, Twitter board of directors approved Musk's $44 billion deal to take the social media platform to private ownership. The deal is yet to close, and Twitter shares are trading far below the offer price. On May 16, 2022, Musk dropped the broad hint that he might renegotiate the price, addressing a tech conference at Miami that as many as 20% of Twitter user accounts were spam or fake. Last week, Musk tweeted that his $44 billion bid "is temporarily on hold" pending a more definitive determination about number of spam and fake Twitter accounts.
Musk Completes Twitter Acquisition
Elon Musk on October 27, 2022 completed the $44 billion transaction, and took the social media platform private. As a first order of his move, he fired top executives, including the current CEO Parag Agarwal.
****************************** MUSK NEW OWNER OF TWITTER ***************************
************************************** JETBLUE-SPIRIT MERGER **************************
JetBlue Announces Spirit Acquisition in $3.8 billion Deal
JetBlue on July 28, 2022 offered a competing deal to Spirit, rivaling an offer from Frontier, that would create the nation's fifth-largest airline with 458 jets and, according to a statement from JetBlue CEO Robin Hayes, "expand our platform for profitable growth".
JetBlue, Spirit Breaking up the Merger
Weeks after a federal judge blocked the JetBlue's acquisition of Spirit on the ground that it would hurt the consumers, JetBlue Airways and Spirit Airlines on March 4, 2024 decided to call it quits.
************************************** JETBLUE-SPIRIT MERGER **************************
CVS-SIGNIFY MERGER
CVS to Buy Signify for $8 billion
Woonsocket, R.I.-based CVS Health Corp. on September 5, 2022 agreed to acquire healthcare technology company Signify Health for $8 billion. CVS will pay $30.50 a share to shareholders of Dallas-based Signify.
$24.6 billion KROGER-ALBERTSONS MERGER
Kroger to Buy Albertsons for $24.6 billion
In a gargantuan consolidation of grocery landscape announced on October 14, 2022, Kroger and Albertson are merging in a $24.6 billion deal to form a grocery behemoth whose combined latest fiscal sales of $209.8 billion rivals that of Walmart's annual grocery revenue, $218.9 billion. The merger will lead to a combined workforce of 710,000 employees working at 4,996 stores in 48 states, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers. The proposed merger will consolidate as diverse brands as Tom Thumb, Albertsons, Market Street and Kroger under the same umbrella. The deal is expected to close in early 2024.
Kroger to Sell 413 Stores, including 26 in Texas
As part of the acquisition of Albertsons, Kroger agreed to sell 413 stores--none of them of Kroger brand--to C&S Wholesale Grocers, a wholesaler, for $1.9 billion in cash. As per announcement from Kroger on September 8, 2023, the merger is on track to be completed by early 2024. The transaction also includes eight distribution centers, two offices and five private label brands in 17 states and Washington D.C. C&S also operates 160 stores, mostly under the brand of Piggly Wiggly in Wisconsin and Grand Union in New York and Vermont.
FTC Sues to Block Kroger-Albertsons Merger
The Federal Trade Commission on February 26, 2024 took steps to block the largest grocery merger, saying that it would harm customers and hurt the companies' workers. Kroger disputed the FTC's assertions, explaining that, to better compete with giants like Amazon and Walmart, it needed better scale and wider reach, and that could only be possible through an effective merger like this.
FTC, in addition to filing complaint to an administrative judge, filed a lawsuit at a federal court in Oregon. The suit--joined since then by California, Arizona, D.C., Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming--seeks a preliminary injunction against the merger from the Oregon federal court.
Grocery Merger Headwind: Chains to Divest More Stores
Bloomberg News has reported on April 22, 2024 that Kroger and Albertsons are now ready to divest 579 stores instead of originally announced 413 to placate the regulators.
Kroger Sues FTC on Its Authority for Administrative Filing to Block Merger
Kroger on August 19, 2024 filed a lawsuit at a federal court in Cincinnati, challenging the Federal Trade Commission's authority to file a complaint against the $24.6 billion merger to an administrative judge in February 2024. Kroger's lawsuit is based upon the recent U.S. Supreme Court rulings that curtailed the authorities of federal agencies. In February 2024, when FTC filed an administrative complaint against the $24.6 billion Kroger-Albertson merger, the commission filed a simultaneous lawsuit at a federal court in Oregon, seeking TRO (temporary restraining order) relief against the merger. The hearing for the case pertaining to the preliminary injunction against the merger is scheduled for August 26, 2024 at a federal court in Oregon.
$24.6 billion KROGER-ALBERTSONS MERGER
M&A ANNOUNCED IN 2023
Biogen to Acquire Plano-based Reata for $7.3 billion
Boston-based Pharma giant Biogen on July 28, 2023 announced acquisition of Reata for an all-cash deal valued at $7.3 billion, or $172.50 per share. Reata recently won the approval of its first treatment, Skyclarys, to treat Friedreich Ataxia, a neurodegenerative muscle-destroying disease.
************************* EXXON-PIONEER MERGER *************
Exxon Buys Pioneer in the Largest Deal of the Year
On October 11, 2023, Exxon announced that it would acquire the Permian Basin's prominent player Pioneer Natural Resources for an all-stock deal of $59.5 billion, or $253 per share, marking an 18% boost of the share price on October 5, 2023, when chatters have emerged on a pending deal.
Pioneer Co-founder Barred from Joining Merged Company's Board
Bloomberg News reported on May 2, 2024 that the Federal Trade Commission would give approval for the merger to proceed if Pioneer cofounder and CEO Scott Sheffield was prohibited from joining the board. FTC found evidence that Sheffield colluded with OPEC+ officials to manipulate the oil prices and supply. Bloomberg News reported that both Exxon and Pioneer had agreed to the FTC's condition.
************************* EXXON-PIONEER MERGER *************
Macy's Gets $5.8 billion Privatization Offer
Two private equity firms--Arkhouse Management and Brigade Capital Management--have $21 per share, or circa $5.8 billion, buyout offer to take Macy's private and execute a more precise turnaround plan, according to the December 12, 2023, edition of The Dallas Morning News.
Nippon to Acquire U.S. Steel
The historic U.S. Steel, founded in 1901 and a co-traveler with the nation's industrial might, is being acquired by Nippon Steel in an all-cash $14.1 billion transaction, according to an announcement made on December 18, 2023. With the assumption of debt, the transaction will amount to $14.9 billion.
M&A ANNOUNCED IN 2024
******************* CAPITAL ONE-DISCOVER MERGER
Capital One to Buy Discover Financial Services
The Associated Press reported on February 19, 2024 that Capital One and Discover Financial Services had agreed to merge in a $35 billion deal that would give the acquired entity's [Discover] shareholders $140 in Capital One shares in buyout of Discover shares. Discover shares closed at $110.49 at the end of trading on February 16, 2024.
Key Facts of Proposed Capital One-Discover $35.3 billion Merger
* The combined company will surpass J.P. Morgan Chase and Citigroup in the U.S. credit card loan volume
* Capital One to get a foothold in the world of payment networks, helping it earn money from the merchant transactions
* Discover ranks fourth behind Visa, MasterCard and American Express in terms of total dollar volume of transaction on its network, with the market leader Visa processing $6.8 trillion in credit and debit card transactions while Discover Financial Services only $550 billion, signifying a huge boost for Discover after Capital One is most likely to migrate all its Master and Visa cards to Discover brand
(Source: The Dallas Morning News February 21, 2024)
******************* CAPITAL ONE-DISCOVER MERGER
************************** BOEING ACQUIRES SPIRIT AEROSYSTEMS
Boeing Unwinds the Two-decade-old Damage by Buying back Its Parts Supplier
In business case study, it will be written as one of the best lessons learned on one of the worst decisions of the corporate executives who have set aside long-term values in favor of short-term profits. On July 1, 2024, a full circle is completed, with Boeing deciding to bring in-house Spirit AeroSystems Holdings Inc. for $4.5 billion, 19 years after it has spun off its parts division. The recent manufacturing defects and resulting operational disasters have led Boeing CEO David Calhoun to unwind the corporate unraveling in the "best interest of the flying public, our shareholders and the country more broadly".
The $37.25 a share in all-stock deal will cost Boeing $8.3 billion, including the Spirit's debt. The transaction is more complex than a plain acquisition deal as Airbus will acquire some of the divisions of Spirit which are focused on supplying the European airplane manufacturer. The Airbus transaction component includes Spirit facilities that make A350 fuselage sections in Kinston, North Carolina, and St. Nazaire in France.
************************** BOEING ACQUIRES SPIRIT AEROSYSTEMS
**************************** SAKS FIFTH TO ACQUIRE LUXURY RIVAL NEIMAN ************
Luxury Merger Leads Iconic North Texas Brand to Fade Away
The Dallas Morning News reported on July 4, 2024 that the owner of the Saks Fifth Avenue would acquire Neiman Marcus for $2.65 billion.
New Chief Vows to Grow the Combined Company, Doesn't Anticipate Store Closures
A day after HBC, the owner of Saks Fifth Avenue, officially announced the merger between two upscale retailers, the would-be CEO of Saks Global, Marc Metrick, on July 5, 2024 gave interview to The Dallas Morning News. He envisioned that Neiman and Saks would grow and meet the customer challenge as a combined entity and offer the unique customer journey with a partner at scale like Amazon, which would be a key investor. Metrick, CEO of Saks.com, worked almost all of his professional life in Saks barring a few years in Saks' sister company Hudson's Bay Company.
Neiman Acquisition Hard to Digest for Some Dallas Fashionistas
The Dallas Morning News ran a special front-page article on July 7, 2024 stating the obvious: a natural, but reasonable, uneasiness among the Neiman loyalists. In 1907, Carrie Marcus Neiman, her husband, Al Neiman, and her brother Herbert Marcus opened the first Neiman Marcus in Downtown Dallas. The retailer hit an immediate success, and Stanley Marcus joined the family business 18 years later.
Saks Fifth Avenue was formed in 1924 as a sequel to friendship between businessmen Horsace Saks and Bernard Gimbel. The store turned the Manhattan's Fifth Avenue as a fashion Mecca.
**************************** SAKS FIFTH TO ACQUIRE LUXURY RIVAL NEIMAN ************
Mars to Acquire Kellanova for $30 billion
M&M maker Mars is buying snacks maker Kellanova for $30 billion, according to an August 14, 2024, report by The Associated Press. Kellanova was formed last year as a split of Kellogg Co., with some of the profitable brands such as Cheez-Its, Pop-Tarts, Pringles and Rice Krispies Treats under its portfolio. The merger will enable Mars to expand its international reach significantly.
Subscribe to:
Posts (Atom)
