The AT&T Mega Deal With Time Warner Might Go Bust, Plus The Golden Age Of Start-Ups Could Be Behind Us

By 10.25.16

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“We’re taking action. We’re renewing our commitment to you” — Wells Fargo, in a commercial debuted last night as it attempts to woo customers back after opening bank accounts without their consent.

Market Snapshot

  • U.S. markets hit a two-week high as solid earnings reports and a number of major deals spurred optimism amongst investors

Hold Your Horses, AT&T and Time Warner

…This $85 billion mega-deal (check out yesterday’s Brew for the deets) is no sure thing. In fact, investors aren’t confident the deal will pass the sniff test—aka those pesky anti-trust authorities, whose presence has already helped break $700 billion in deals this year alone.

There’s reason to be skeptical

It’s rare for Trump and Hillary to agree on anything, yet Trump has already vowed to block the deal because it would concentrate too much power in one company. Clinton’s campaign is also concerned, and Hillary would be under pressure to follow through after vowing to be more aggressive than Obama with large mergers.

And then there’s the regulators themselves

Specifically, the Justice Department, which must approve the merger. So what’s the worry? Well, AT&T (-1.68%) owns the pipes that distribute Time Warner’s (-3.06%) content (don’t forget: AT&T owns DirecTV and U-Verse). But if AT&T were to own Time Warner, it could restrict all that good stuff—HBO, CNN, you name it—to only its own distribution channels, or raise prices. Of course, before we get too pessimistic, remember that Comcast successfully picked up NBCUniversal in 2011 in a fairly similar deal. This one’s far from over.

‘Tis the Season of Acquisitions

…AT&T and Time Warner aren’t the only two tying the knot. TD Ameritrade (-4.37%) has agreed to acquire privately-owned Scottrade. The deal is valued at $4 billion (not $85 billion, but still big) and would combine two of the largest online brokerages. Unfortunately, it’s not your typical love story. The move is a sign of the times: the online brokerage industry is struggling mightily—thanks in part to weak trading volumes as more investors move towards cheaper, passive funds that track the market. And as with any acquisition of this magnitude, the deal is expected to draw heavy scrutiny from regulators, since it would combine two of the “big five brokerages” in the U.S. Don’t sleep on Uncle Sam.

And Speaking Of Acquisitions

…Thanks to its slowing economy, China is satisfying its appetite for growth elsewhere…and elsewhere just happens to be the U.S. For starters, China’s HNA Group, a shipping and aviation company, just announced that it’s buying a 25% stake in Hilton (+0.13%). The deal comes hot on the heels of HNA’s acquisition of Radisson owner Carlson Hotels earlier this year—so it’s not a stretch to say HNA is making moves in hospitality. On top of that, finance and real estate conglomerate China Oceanwide is buying insurance company Genworth Financial (-8.06%). With these two deals in the works, Chinese acquisitions overseas have surpassed $181 billion in 2016 alone. What a year.

Don’t Forget About Earnings

…Visa’s big month culminated in a solid earnings report. It started last week with its CEO resigning, an increased dividend and even Visa dropping a flame bitcoin-style network. Yesterday, Visa (-1.09% after hours) put the craziness behind it for a moment to smash earnings, fattening its bottom line by 28% through increased payment volume, lower expenses and a clutch lower-than-expected tax rate. Nice. So why’s the stock down after hours? A case of high expectations: Visa has only missed earnings twice in the last five years, so an earnings beat just doesn’t seem to do it for investors anymore.

Other Stories

Economic Calendar

  • Monday: Visa (+), Kimberly-Clark (-) Earnings; PMI Manufacturing Index (+)
  • Tuesday: Apple, AT&T, General Motors, Sprint, Under Armour, Chipotle, Fiat Chrysler, Panera, Pandora, Procter & Gamble, Merck, 3M, Eli Lilly, Caterpillar Earnings; Consumer Confidence; Case-Shiller Home Price Index
  • Wednesday: Coca-Cola, Tesla, Comcast, Boeing, Texas Instruments, Southwest Airlines, Hilton, GrubHub, Buffalo Wild Wings Earnings; New Home Sales
  • Thursday: Alphabet, Amazon, Twitter, Baidu, Amgen, Altria, UPS, Celgene, Dow Chemical, Ford, Barclays, Nokia, Aflac, Blackstone, Deutsche Bank, Expedia Earnings; Weekly Jobless Claims; Durable Goods Orders; Pending Home Sales
  • Friday: Exxon Mobil, Anheuser-Busch, Chevron, Mastercard, UBS, Phillips 66, Hershey, Xerox Earnings; U.S. Q3 GDP; Consumer Sentiment

Our Golden Days Are Behind Us

Sad and true: it may come as a surprise, but U.S. startups are, well, starting up at historically low rates. There’s plenty of buzz around startups being “hot” and “new” but the rate of startup formation has steadily declined since the 1970s and ‘80s. This slowdown in entrepreneurship has weighed on the U.S. economy—especially the labor market. Here are the facts:

  • In 1977, 16% of private U.S. firms were less than one year old. Now, it’s down to 8%. Is that bad? It’s certainly not good.
  • The lag in startups is weighing on the jobs market and economic growth. 40 years ago, nearly 6% of the American labor force worked at new startups. In 2014, that share had dropped to 2.1%. If the U.S. currently had the same startup formation rate it had in the ‘80s, that would translate to more than 200,000 startups and 1.8 million jobs per year.
  • What about those famously successful startups like Instagram and Uber? They seem to be exceptions to the rule: CB Insights tracked over 1,000 tech companies that received seed funding in 2009-2010. By the end of 2015, only nine of those companies had reached a value of at least $1 billion. To be fair, a billion-dollar startup is an inordinately successful one, even by standards of successful established firms. But if we’ve learned one thing, you’ve got to set those sights high. A Brew can dream.

Interview Question of the Day

What are the differences between regressive, proportional and progressive taxes? (Answer)

Business Person of the Day

Shaquille O’Neal is up to something. What is it this time? One word: donuts. Yesterday, Shaq was named a global spokesperson for Krispy Kreme. He’s also taking ownership in the company’s iconic store in Atlanta. Eat up, Shaq.

Food for Thought

When it comes to car reliability, Asian brands have always seemed to outperform the competition. Two Asian namesakes, Lexus and Toyota, still lead the pack. But for the first time ever, an American competitor has cracked the top three of Consumer Reports’ annual reliability list. Give it up for GM’s Buick.


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