| | | | | | | Presented By Blackstone | | | | Axios Markets | | By Kate Marino ·Oct 01, 2021 | | Happy Friday and welcome to October. 🍁 Thanks for all the feedback on your personal supply chain nightmares. If you read all the way down in today's newsletter, you'll see some highlights. 👀 🚨 This Sunday, on the return of "Axios on HBO," Afghanistan ambassador Adela Raz sits down with Jonathan Swan for her first exclusive TV interview since the fall of Kabul. See a clip. - Tune in for this and more can't-miss interviews at 6pm ET/PT on all HBO platforms.
Today's newsletter is 1,238 words, 5 minutes. | | | | | | 1 big thing: Stock is hot in pandemic-era deal spree |  | | | Illustration: Annelise Capossela/Axios | | | | Those turbocharged stock gains are coming in handy. More frequently, companies are using their shares as the hot currency to snap up other firms. Why it matters: There's been an uptick in the number of stock M&A transactions during this year's deal frenzy, helped by soaring valuations. But cash still looms large — and the growth in stock deals may be fleeting amid market volatility. What's happening: Video conferencing giant Zoom just called off an all-stock deal with Five9 that was initially worth nearly $15 billion — what would have been one of the biggest tech combinations of the year (behind the Square-Afterpay deal, also all-stock). The cloud-based call center's shareholders shot it down. - One possible factor is a shrinking premium. Zoom's stock — which soared to meteoric heights as a poster child of the "stay at home" trade — lost steam. It's down 28% since the deal was announced (Five9's stock is down about 11% in comparison).
- Influential proxy advisers like ISS recommended Five9 shareholders reject the deal because "it exposes …[them] to a more volatile stock whose growth prospects have become less compelling as society inches towards a post-pandemic environment."
Zoom's (now dead) deal is part of a boom of that sort in the tech sector. Over 160 deals announced so far this year have included a stock consideration — the most since 2004, according to data provided to Axios by Refinitiv. - Tech stocks are the face of the stock market's historic bounceback (and then some), giving those companies an even hotter-than-usual currency to do deals.
 Data: Refinitiv; Chart: Thomas Oide/Axios The big picture: About 6% of year-to-date U.S.-based deals at least partially involve stock, per Refinitiv — a sliver, but still the biggest share in a decade. - Those deals — where the acquirer is a public company — accounted for 41% of the total value, 2 percentage points higher than this time last year.
The bottom line: "Those who are using stock — their currency is highly valued. It's allowed them to meet the pricing demands of those who are ready to sell," Bill Doran, a deal attorney at Benesch, tells Axios. |     | | | | | | 2. Catch up quick | | A vote on the $1.2 trillion bipartisan infrastructure bill was delayed late Thursday night as Congressional leaders continued to work out a deal on President Biden's larger reconciliation package. (Axios) Foxconn is buying Lordstown Motors' Ohio factory and investing $50 million in the electric truck maker via a stock purchase. (WSJ) The Senate confirmed Rohit Chopra to lead the Consumer Financial Protection Bureau in a 50-48 vote along party lines. (NYT) | | | | | | | | 3. The problem with individual stock buying |  | | | Illustration: Megan Robinson/Axios | | | | Buying and selling individual stocks is a hobby for rich people that, over the course of the pandemic, also became a hobby for millions of new investors using free trading apps. But given the number of conflicts involved, it's a hobby that many people should probably give up, Axios' Felix Salmon writes. Why it matters: In recent days we've seen shock headlines about the stock-trading activities of judges and corporate insiders. Two Federal Reserve presidents resigned after they were revealed to be actively trading the markets they were also influencing via monetary policy. - Thanks to the passive-investing revolution, no individual investor needs to pick and choose which stocks they invest in. (Even many institutions don't.) Trillions of dollars are invested happily in low-cost index funds that tend to outperform active investment strategies over the long term.
Context: While recent decades have seen a long-term trend away from active and toward passive investing, the past year has seen a countertrend toward rampant stock-market speculation. - The notional value of options traded this year, for instance, has surpassed total stock market volumes for the first time ever. Billions of dollars worth of those options are short-dated zero-sum bets that expire worthless within days or weeks unless the stock moves dramatically.
The big picture: Back when individuals had no choice but to invest in individual stocks, there was much more tolerance for the conflicts such activities raised. Today, it's more common for those trades to be considered scandalous, evidence that the market is rigged. The bottom line: The recent headlines mostly concern boomers whose formative investment years predate the height of the passive revolution. As apps try to make stock-picking "easier and more delightful," in the words of Robinhood CEO Vlad Tenev, it's becoming increasingly likely that we'll see similar headlines about the boomers' kids. | | | | | | | | A message from Blackstone | | Blackstone invests to help power the modern economy | | |  | | | | Blackstone is investing in the future. That's why we use our resources to support: - Entrepreneurs reshaping digital connection.
- Scientists advancing medical treatment.
- Businesses building a more prosperous, greener economy.
Learn more. | | | | | | 4. One-on-one with Bruce Van Saun, Citizens Bank CEO |  | | | Bruce Van Saun. Photo: Citizens Bank | | | | "When you see strong double-digit increases in major housing markets, that doesn't feel sustainable." The market that Bruce Van Saun, CEO of Citizens Financial Group, is most keeping an eye on for potential valuation bubbles these days: residential housing. The big picture: Rock-bottom interest rates, labor and supply chain pressures affecting homebuilders, and the investor class scooping up homes have all helped drive prices higher, he notes. - Context: The median existing home sale price in August was 15% higher than it was a year ago, marking 114 months in a row of year-over-year growth, according to the National Association of Realtors.
Reality check: Banks are under pressure to extend credit to lower and moderate-income borrowers who have historically been left out of one of America's strongest vehicles for building wealth: homeownership. - That can lead to a balancing act for banks between a desire to increase the flow of credit as well as provide sound financial management for borrowers and lenders, Van Saun says.
"If you're going to wade into that territory, and you think that housing values could be a little overvalued at this point, and could come down as the Fed raises rates, those [loans] will become riskier," he says. Flashback: Residential mortgages, of course, were one of the drivers of the financial crisis. - Key differences in the market this time around: there's not as much pure speculation on homes. Most buyers and lenders have shed the assumption — and commensurate behavior — that prices can only go up, he notes.
| | | | |  | | | | If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. | | | | | | | | 5. Bed Bath & Beyond's crash |  Data: FactSet; Chart: Axios Visuals Bed Bath & Beyond may have just given us a glimpse of things to come. The big-box retailer's fiscal Q2 ended on Aug. 31. When it reported earnings Thursday, it was one of the first companies to disclose results for a month marked by increasing disruptions from the Delta variant and supply chain bottlenecks. Why it matters: Investors didn't like what they saw. The stock ended the day an eye-popping 22% lower. - The company missed Q2 earnings expectations, and revenue fell 26% year over year. More ominously, it slashed third quarter and full-year guidance.
The big picture: In addition to a drop-off in August foot traffic, Bed Bath & Beyond CEO Mark Tritton put the blame on pervasive supply chain challenges and rising transportation costs. - Tritton noted that retailers on different fiscal calendars that haven't yet disclosed August results are likely experiencing the same dynamics.
Yes, but: Tritton also said that Bed Bath & Beyond could have pivoted more quickly to raising prices (a host of other companies have raised prices this year to offset higher costs). The supply chain problems are real. Markets newsletter readers have filled me on the worst of the shortages they're battling — it spans from home-centric items like dishwashers, appliances of all kinds, and even a set of attic stairs ... to Fancy Feast cat food, caffeine-free Diet Pepsi and Salomon sneakers in black. What to watch: As Q3 earnings kick into full swing this month, we'll get a much broader picture of how much Delta and supply chains have pulled earnings back from their record second quarter. | | | | | | | | A message from Blackstone | | Blackstone's partnership helps leaders transform businesses | | |  | | | | Blackstone is investing in the companies and leaders shaping a tech-enabled future. The reason: Supporting visionary leaders as they grow their businesses can help advance the innovations transforming the world. Learn more about Blackstone's partnership. | | |  | | It'll help you deliver employee communications more effectively. | | | | | | Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here.
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