Greetings from the home office, where I promised myself that I wouldn't write a newsletter today. So, yeah, this is what procrastination looks like. We'll be back Monday with our regular format at our regular time. Have a great weekend!
We're all about to find out if trade wars are easy to win.
China today hit the U.S. with $34 billion in retaliatory tariffs, which are expected to take particular aim at states that voted for President Trump in the 2016 election.
- China has not yet released a list of what U.S. products will be affected, but an earlier list included such things as soybeans, lobsters, bourbon, cotton, tobacco and liquified propane.
- New U.S. tariffs on Chinese imports include such products as airplane tires, oil and gas drilling platform parts, lithium batteries, ball bearings and medical equipment like X-ray machines
Why it matters: For U.S. businesses, this trade war creates both short-term and long-term complications.
- In the short term, some export orders will be canceled, thus leading to an immediate loss of revenue.
- In the longer term, the uncertainty could make it harder for companies to properly plan. For example, bourbon makers in Kentucky effectively have to invest now for what demand will look like years into the future, while soybean farmers need to buy seed for future growing seasons.
China may not be finished, as detailed in The Washington Post. It could go beyond tariffs and increase the cost of custom inspections, while China's citizens could end boycott U.S. products — as happened last year to South Korea's Lotte Group.
Bottom line: Trump had promised that such actions would be met with additional U.S. tariffs, which means the two countries may be staring down the black hole of a tit-for-tat trade war. It's also possible that Trump could revisit the idea of tougher investment restrictions, beyond the CFIUS-strengthening bill that is expected to come out of Congress.
M&A hits record highs
Global and U.S. M&A activity both hit all-time highs during the first half of 2018, driven by mega-deals, according to data from Thomson Reuters.
The value of global M&A rose 64% over the first half of 2017, but the actual number of deals fell by nearly 10%.
- This dichotomy was made possible by a massive increase in deals valued at $5 billion or more (+98%) and deals valued at $10 billion or more (+306%).
- The U.S. saw a similar split, with deal value up 79% but the number of deals down 13%.
- The only region with rising deal value and deal volume was Asia-Pacific (both inclusive and not inclusive of Japan).
- Africa was the only region to see both numbers fall, while Canada was among the individual countries that saw a dip.
Private equity-backed deals came in at $215 billion. That represents a 46% boost over the first half of 2017, although private equity's piece of overall M&A fell from 9.5% to 8.6%.
Energy and power was the first half's busiest sector in terms of deal value, followed by media/entertainment and health care.
Morgan Stanley took the top spot in terms of M&A advisory work, flip-flopping with Goldman Sachs.
- This also played out in the U.S., where other notable moves included Citi dropping from #3 to #10.
What to watch: Many dealmakers fear that an all-out trade war could severely slow new M&A activity in the second half.
Ride-hail merger mania
Kia reports that Uber and Lyft each held talks to acquire Skedaddle, a startup that creates group bus rides by matching customers headed in the same direction (e.g., charter buses to sporting events).
- Lyft says it's currently "not in discussions to acquire Skedaddle," and it's unclear if conversations with Uber remain active. Both Skedaddle and Uber declined comment.
Also in ride-hail: Uber reportedly is in merger talks with Careem, a Middle East-focused ride-hail company most recently valued at $1.5 billion. This would be in keeping with what Uber has done in other foreign markets where it has significant homegrown competition — including Southeast Asia, where Singaporean regulators are threatening to unwind Uber's deal with Grab.
- All of this comes against the backdrop of Uber CEO Dara Khosrowshahi's push for a 2019 IPO. I've no doubt it's a sincere plan, but I am a bit surprised by how how public he's been about it. If things change, or he's unable to hire a CFO in time, he's put Uber in a bit of a expectations box.
- Non-farm payrolls: +213k
- Unemployment rate climbs from 3.8% to 4%
- Hourly earnings up 0.2%.
- Primary sources: Get all the data
- No, Trump didn't tweet out a preemptive hint this time.
- Bottom line, per NYT's Neil Irwin: "A whole lot of people entered the labor force, but not all of them found jobs. That bodes well for the months ahead."
It's (not) a gusher
“Everyone is almost certain it is not going to happen.”— Anonymous Saudi Aramco exec to the WSJ, in reference to the company's IPO.
- J.P. Morgan and the German government are denying a German media report that it has interest in acquiring a stake in Deutsche Bank.
- Colony Capital may be facing investor resistance to its planned takeover of several Abraaj Capital funds. Meanwhile, Abraaj founder Arif Naqvi has been suspended from the board of Interpol Foundation.
- Boeing is looking to muscling into the smaller passenger jet market, via a $4.75 billion joint venture with Brazil's Embraer, creating a challenge to Airbus and Bombardier.