Corporate America’s Overseas Cash Stash, Plus Two Cable Giants Have Teamed Up

By 05.09.17

morning brew

Today we learned our regular ol’ salt shakers won’t cut it anymore. In case you can’t afford a connected condiment crusher, let today’s Brew for May 9th spice up your morning instead.

QUOTE OF THE DAY

“50% of inner-city school kids do not graduate from high school. That is a national catastrophe. We should be ringing the alarm bells. It’s not fair” — JPMorgan Chase CEO Jamie Dimon, at a community event in the South Bronx on Monday.

Market Snapshot

  • Stocks didn’t move much at all on Monday, but the major indexes are all sitting just below record levels. Thank you earnings season.
  • U.S. treasury yields rose a bit after volatility plummeted thanks to Macron’s victory in France—a win that didn’t seem to affect European markets, which slipped alongside the euro.

Coach Purse-ues a Deal

Coach is buying millennial favorite Kate Spade (+8.22%) for $2.4 billion, in the 76-year-old luxury brand’s second attempt at staying relevant. Kate Spade shareholders will need a big purse for all that cash.

 

It’s all about millennials (again)

You’ve probably noticed that young people really love the internet. Well, 60% of Kate Spade shoppers are between the ages of 18 and 35. Plain old stores aren’t cutting it anymore—our generation wants WiFi, personalization, customization and more.

What’s more, the rise of e-retail has shortened handbags’ shelf life, and it’s had the whole industry running scared for a while.

Luckily, this is something Kate Spade is totes good at—it was an early digital adopter, and well over a fifth of its bags are sold online thanks to flash sales and pinterest-ing marketing moves.

Of course, capturing young hearts goes beyond being internet savvy. Coach just finished up a years-long rebranding effort (complete with dinosaurs) that has its wares looking more like Kate Spade’s cool-girl leather than its old-school billboard bags full of pattern C’s from yesteryear.

 

So what’s in it for Kate Spade?

For the namesake? Nothing. Katherine Noel Frances Valentine Brosnahan Spade (her full legal name…really) and husband Andy Spade cashed out over ten years ago.

The Kate Spade brand, however, can expect help pushing into regions like Europe and Asia, where Coach is already active. As for the surprise sales? Those will probably come to an end, so stock up now.

Two Heads Are Better Than One

At least, that’s what Comcast (+0.49%) and Charter (-3.28%) are counting on. The two cable giants are putting aside their differences from their intense bidding war to acquire Time Warner Cable (spoiler alert: Charter won last year to the tune of $56.7 billion) and have teamed up to enter the mobile market.

For now, the move only means the two won’t do any mobile-related deals without telling the other, but it sets the stage for a bigger acquisition to compete against industry powerhouses like Verizon (-0.13%) and AT&T (+0.03%). Watch your back, Sprint (-3.60%).

Stocks Up, VIX Down

Markets have been breaking records left and right as of late, but there could be danger lurking beneath the surface. Last week, the Chicago Board Options Exchange (CBOE)’s Volatility Index (VIX) sunk to levels not seen since 1993. That’s longer than many Brew readers have been alive!

Why is this a big deal? Investors consider the VIX a “fear gauge.” Historically speaking, low VIX numbers have paralleled negative returns, so last week’s drop is making some investors wary of the current bull market.

Hedge Your Bets

Investing bigwigs met in Manhattan Monday for the annual Sohn Investment Conference. Sure, the billionaires were there to support the Sohn Foundation’s mission to cure cancer, but the business stories go well beyond scientific research. Here are some of the biggest storylines:

  • Bill Ackman had a bullish pitch for Howard Hughes (+3.75%), saying it’s “one of the most attractive times” to invest in the real-estate developer.
  • David Einhorn sent shares of Core Labs (-2.36%) plummeting when he said the energy stock is extremely overvalued.
  • Larry Robbins of Glenview Capital gave us three stocks to watch this year: DXC Technologies (+0.03%), crop-science firm FMC (-0.60%) and health data company QuintilesIMS (+0.53%).

What Else Is Happening…

Economic Calendar

  • Monday: Marriott (+), Pandora (-) Earnings
  • Tuesday: Electronic Arts, News Corp, Tripadvisor, Valeant Pharmaceuticals, Walt Disney, Yelp Earnings; Job Openings and Labor Turnover Survey
  • Wednesday: Snap, Symantec, Time, Toyota, Whole Foods Earnings; Treasury Budget
  • Thursday: Macy’s, Nordstrom Earnings; Producer Price Index; Weekly Jobless Claims
  • Friday: Baltia Air Lines Earnings; Consumer Price Index; April Retail Sales

Water Cooler

Corporate America’s Overseas Cash Stash

The U.S. corporate tax rate is the highest of any country in the Organization for Economic Cooperation and Development (OECD) at 35%. But that could soon change if the President’s tax proposal becomes law.

Either way, the high tax rate has led many companies to store trillions of dollars abroad in order to avoid paying taxes. Here are the numbers:

  • $2.4 trillion: how much cash is currently stored overseas by American companies. Half of that stockpile comes from the top 20 companies that increased their unrepatriated profits by over $100 billion in 2016.
  • $123 billion: Microsoft’s (-0.09%) share of the overseas cash pie—the highest of any company on the list. It’s up roughly 15% from 2015. Apple (+2.72%) is runner-up with almost $110 billion stashed abroad.
  • Berkshire Hathaway (-1.14%) is already planning for changes. Warren Buffett said it preferred to take a tax loss in the first quarter because a similar loss would be less valuable if taxes are lowered.

The Breakroom

Interview Question of the Day

Tell me something that’s true, that almost nobody agrees with you on.

It sounds a little controversial, but it’s Peter Thiel’s favorite. And it’s pretty G-rated considering some of the Palantir founder’s other schemes.

Here’s the answer he wants to hear.

Business Person of the Day

Did you know In-N-Out’s President is a 35-year-old billionaire? Lynsi Snyder joined the big B club this weekend after inheriting full control of the burger chain. Impressive, but we’ll stick to Shake Shack(+0.19%).

Stat of the Day

70% — That’s how much control Amazon (+1.59%) will have on the voice-controlled speaker market by the end of this year. Clearly, Alexa is beating Google, but Jeff Bezos shouldn’t get too comfy…Siri is coming (maybe).


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