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Deal or no deal

Published 2024/05/30, 11:35

Market scorecard

US markets fell on Wednesday as bond yields reached their highest level in a month. All eleven sectors of the S&P 500 were in the red, and the tech-heavy Nasdaq Composite also dipped from the record high it hit the day before. The S&P 500 remains up 10% for the year, with a 4.6% gain in May alone.

In company news, Salesforce (NYSE:CRM) is down 16% after-hours as the software company issued earnings that were in line but its second-quarter outlook missed expectations. Elsewhere, ConocoPhillips (NYSE:COP) is down 3% after it offered to acquire Marathon Oil (NYSE:MRO), which closed up 8.4%. Meanwhile, America Airlines (NASDAQ:AAL) tumbled 14% after the carrier cut its revenue outlook as operating margins dropped.

On Tuesday, the JSE All-share closed down 0.44%. Yesterday, the S&P 500 shed 0.74%, and the Nasdaq was 0.58% lower.

One thing, from Paul

Vestact does not invest in commodity stocks, so we've had little interest in the bid by Australia's BHP (NYSE:BHP) to take control of Anglo American. I see from the news wires that it's all fallen apart without an agreement being reached.

To be quite honest, I was sceptical that anything would happen between these two mining giants, given the messy regulatory framework for mining companies in South Africa. There was no enthusiasm from our thin-skinned politicians. The idea that SA-based Anglo Platinum (JO:AMSJ) and Kumba (JO:KIOJ) might need to be spun off first, just sounded too complicated.

By contrast, two commodity mega deals seem to be advancing in the USA this week. ConocoPhillips has agreed to buy Marathon Oil for $22.5 billion as mentioned above, and Chevron (NYSE:CVX) is advancing in its plan to gobble up Hess (NYSE:HES) for $53 billion.

Deals can get done where there are common legal structures and grown-up regulators. The operating environment for US corporations is so much more transparent and predictable. That's why we invest over there.

Michael's musings

Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) had their AGMs yesterday, and climate activists clashed with company management. Climate activists want the oil majors to cut back oil production to decrease their carbon footprint, but management says the proposals are extreme.

There are three levels of emission targets to consider. Scope 1 are emissions generated by company facilities. Scope 2 are emissions from energy purchased to operate facilities. Scope 3 are emissions generated from the entire supply chain. This last category includes emissions from cars, so Exxon would be considered accountable for the burning of petrol made from their oil.

I understand holding Exxon and Chevron to scope 1 & 2 standards, but going as far as trying to push a scope 3 standard is extreme. The oil majors can't control the number of cars on the road. I don't agree with the strategy of targeting companies and banks involved in mining as a way to slow climate change. The world needs 100 million barrels of oil a day. That won't change, regardless of whether Exxon is pumping oil or not, because if Exxon doesn't sell oil someone else will.

We have already seen this play out in the coal industry. Large mining companies raced to disinvest from coal, so other companies were able to buy coal mines on the cheap. The new owners are now printing money, but the absolute quantum of coal burnt each year hasn't changed. So was the pressure on banks and global miners to ditch coal worth it? Probably not.

Climate activists should focus on the demand side of the equation, not the supply side. If consumers don't want to drive combustion engine cars anymore, then Exxon will automatically reduce the amount of oil pumped each year. The only way to change demand patterns is to have viable alternatives.

Bright's banter

The Adam Neumann-WeWork saga is finally over, with Neumann abandoning his plan to repurchase the co-working space company he co-founded.

Neumann played a significant role in WeWork's (OTC:WEWKQ) rapid ascent, with the company once valued at $47 billion. However, he was famously ousted after the company's IPO failed in 2019.

He's been trying to rescue WeWork from bankruptcy and regain control. However, much of the interest in WeWork now ties to his latest venture, Flow.

One major reason Neumann couldn't buy back WeWork is that the company found a different lifeline. It managed to have $4 billion in debt wiped out in court and secured $450 million in new funding from SoftBank. Currently, WeWork is focused on renegotiating leases and reducing its $11 billion in rent obligations.

Signing off

Asian markets are down this morning. Benchmarks fell in India, Hong Kong, Japan, mainland China, and South Korea.

Locally, Reinet's net asset value hit EUR6.2 billion, up 8.1% year-on-year, thanks to the rising value of its largest investment in Pension Insurance Corporation and the Pound strengthening against the Euro. Anglo American's share price is expected to fall after it walked away from a $49 billion offer for the third time.

All our focus has been on yesterday's election. Today, there is an MPC interest rate decision. It is almost certain that interest rates will remain the same, given the post-poll confusion. The Rand is trading at around R18.46 to the US Dollar.

US equity futures are slightly lower pre-market. Today, Birkenstock (NYSE:BIRK), Costco (NASDAQ:COST), Dell (NYSE:DELL), Dollar General (NYSE:DG), Ulta Beauty (NASDAQ:ULTA), Zscaler (NASDAQ:ZS), and Autodesk (NASDAQ:ADSK) will report their earnings.

Enjoy the last two days of May.

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