Monthly Archives: March 2017

European Union Approves Dow, DuPont Merger

European Union Approves Dow, DuPont Merger

The European Union has approved the $77 billion merger between Dow Chemical Co. and DuPont Co. This approval would transform the global agrochemicals industry. There will now be only three giants in this industry. The other major deals in this industry include Bayer AG buying out Monsanto Co. and China National Chemical Corp. buying out Syngenta AG.

Regulators were initially concerned with the DuPont’s sale of its global pesticide business. Du Pont is now willing to divest a big portion of its existing pesticide business arm. This sale would include where the products such as sunflower and oilseed rape are made. In addition, Du Pont will also sell their global R&D organization.

Dow on the other hand will sell its plants that produces co-polymers. These plants are located in Spain and the U.S.

Europe was worried that the merger would lead to reduced research spending and bring prices up which would lead to the economic demise of European farmers.

Dow and DuPont said, “This regulatory milestone is a significant step toward closing the merger transaction, with the intention to subsequently spin into three independent publicly traded companies. The concessions to the EU still ensure the strategic logic and value creation potential of the transaction.”

Syngenta and ChemChina awaits an April 12 deadline for EU to decide on their merger while Bayer seeks to ask for an EU approval of its $66 billion takeover of Monsanto Co.

Environment activists continue to appeal to the EU to disapprove all three mergers as these mergers would lead to a 70% monopoly of the world’s agrochemicals and 60% of the global production of commercial seeds.

Greenpeace and Friends of the Earth Europe said, “Through dominant market share and sheer political power, they would unduly influence our agriculture and food system. These mergers risks major monopoly outcomes that might increase prices for farmers and customers.”

Once the merger is done, the combined entity must split into three independent companies. The companies will be located in Wilmington and Midland, Michigan.

Margaret Vestager, E.U. antitrust chief, said, “We need effective competition in this sector so companies are pushed to develop products that are ever safer for people and better for the environment. The bloc’s conditional approval ensures that the merger does not reduce price competition for existing pesticides or innovation for safer and better products in the future.”

Dow and DuPont said, “Longer term, the intended three-way split is expected even greater value for shareholders and customers and more opportunity for employees as each company will be a leader in attractive segments where global challenges are driving demand for their distinctive offerings.”

The Dow and DuPont merger will still have to be approved by Canada, Brazil and the United States but the victory over at EU is significant and will influence other countries looking at the deal. The expected closure of the transaction is before July.

DuPont is based in Wilmington, Delaware while the headquarters of Dow is in Midland, Michigan.

Nerds Cry Far and Wide, Game Stop Closing Down 150 Stores

Nerds Cry Far and Wide, Game Stop Closing Down 150 Stores

Game Stop has announced that because of plummeting sales and earnings in 2016, it will close down at least 150 of its stores. This represents 2 to 3 percent of its 7,500 stores globally. The main reason for the downward spiral of their sales has been digital downloads. Their customers prefer downloading straight from the game’s online store instead of buying physical copies of the game.

Last year, GameStop’s sales decreased by 14%. In the last holiday season, sales went spiraling down by 19%. The results showed that its 4th quarter profits went down 16%.
Their share prices reflected this steep drop in earnings as the shares of Game Stop went down by 12%.

The stores that were most affected were its U.S. stores, so it is very likely the 150 stores that it will close down will be from the U.S.

As a result of this trend of digital downloads of games, Game Stop will seek to expand its non-gaming businesses such as their collectible stores. It intends to boost its collectible stores by opening 35 this year. This will boost the number of their collectible stores to 121.

The outlook for their non-core business is optimistic. The collectibles division has been doing particularly well. Last year, its sales went up by 59.5% and this year, the sales for collectibles is projected to grow further by 30 to 40 percent. One of its retailer brands in this division is ThinkGeek which posted a 28% increase in sales because of strong interest in Pokemon toys and gear.

However, Game Stop is not shutting down its gaming business. It is particularly optimistic with the current consoles on the market, especially the Nintendo Switch. Game Stop’s CEO J. Paul Raines, said, “The Switch has provided a dramatic lift in traffic in stores and has real potential to be Wii-like in its ability to expand the gaming category from core to broad audiences.”

Game Stop is also very optimistic of its Technology Brands Division which has the cellphone retailer Spring Mobile which had a solid 44% sales increase in the 4th quarter of 2016.

Globally, Game Stop had a 13.6% drop in sales. Regarding hardware, sales dropped by 29% while software sales plummeted by almost 20%.

Raines said, “We encountered stiff headwinds as we completed the third year of the console cycle.”

Sales of Nintendo’s hybrid console is on the rage, and this year, Nintendo intends to double their production of it to 16 million units.

Other competitions for Game Stop include Amazon, Walmart, and Best Buy. The plague of digital shopping and downloads have plagued other brick and mortar retailers like Sears and J.C. Penney as they have also announced the closure of many of their branches.

Larry Perkins, CEO, and founder of Sierra Constellation Partners, offers an analysis of the gaming market: “Not only are they getting hammered by the online retailers and big box that have an inherent cost advantage through no retail real estate footprint or a much larger footprint that they can leverage with other products, but the movement to mobile-based games is creeping up mightily.”

Orders for U.S. Durables Beat Forecast

Orders for U.S. Durables Beat Forecast

Last month, orders for U.S. durables goods beat the forecast. This is a good sign for the U.S. economy as it shows that companies have a more confident outlook for the economy.

Commerce Department data showed that durable goods booking rose by 1.7%. The median forecast of economists surveyed by Bloomberg was 1.4%. Durable goods are goods that can last a minimum of three years.

This gain is the 6th straight. This can boost aggregate demand and create more economic growth. The Commerce Department said that the value of last month’s orders for durable goods is $235.39 billion. Also, the data from Commerce Department showed that fixed nonresidential investment had increased slightly but consistently for the past three-quarters.

Should the Trump administration be successful in trimming down corporate taxes and lessening regulations, this statistic has the potential of increasing even more. However, it still faces its first hurdle in getting a healthcare bill passed in Congress.

Transportation equipment demand is often excluded due to its volatility, and when excluded, orders increased 0.4%. However, bookings for non-defense capital goods which excludes aircraft dropped by 0.1%. Economists had forecasted it would increase by 0.5% and in January, they revised their forecast to 0.1%.

Peter Boockvar, chief market analyst at Lindsey Group, said, “…for all the optimism seen in the business confidence figures, there was little sign of that translating into an increase in capital spending in February.”

Last month, shipments of capital goods increased by 1%. This statistic is used in the calculation of gross domestic product. Shipments of capital goods exclude aircraft and military hardware. Bookings for civilian aircraft surged 47.6% last month. Boeing Co. reported 43 orders for aircraft last month. Boeing had 26 orders in January.

Increases in orders were also noted for electrical equipment, computers and electronic products, appliances and components and fabricated metal products.

However, there was a 0.8% drop in orders for motor vehicles and parts. The reason for this is the high inventory in the automobile industry. February figures for car sales in February had little changes.

In 2015 and 2016, the U.S. industrial sector was weak because of low oil prices which hindered their domestic energy industry while the strong dollar diminished demand for U.S. exports.

Despite improving economic conditions, things are expected to have slowed down in the winter months. Fed Bank of Atlanta estimated gross domestic product to have only expanded 0.9% in the first quarter. Last quarter’s gross domestic product was 1.9%.

Macroeconomic Advisers, a forecasting company, estimated gross domestic product growth in the 1st quarter to be 1.2%.

Fed Chair Janet Yellen said, “I think it is fair to say that many of my colleagues and I note a much optimistic frame of mind among many, many businesses in recent months. However, I would say most of the businesspeople that we have talked to also have a wait-and-see attitude, and are very hopeful that they will be able to expand investment and are looking forward to doing that, but are waiting to see what will happen.”