Category: personal_noteS

Occidental Petroleum (4): Agreement With Carl Icahn, Oil Price Plunge

According to the 13F-HR, Icahn held 33,244,429, 26,332,388 and 22,571,854 shares of Occidental as of June 30, September 30 and December 31, 2019.

Icahn’s fifth message on February 12, 2020.

Things evolved fast in 2020.

Oil prices plunged in March as COVID-19 developed and a price war started.

Line chart of Brent crude ($/barrel) showing Oil price crashes 30% after Saudi Arabia launches price war

Oil plunges 24% for worst day since 1991 after OPEC deal failure ...

Occidental’s stock price closed at $12.51 on March 9, dropping 53.4% from March 6 and 60.3% from March 5. The ex-div date was March 9, with $0.79 dividend per share announced in February.

The following day (March 10), Occidental reduced to quarterly dividend to $0.11 from 0.79, effective July 2020.

It also reduces 2020 capital spending to between $3.5 billion and $3.7 billion from $5.2 billion to $5.4 billion and will implement additional operating and corporate cost reductions.

Meanwhile, Icahn boosted its ownership close to 10% of Occidental.

On March 25, both parties reached agreement. Occidental will add three new Icahn designated directors to Occidental’s Board.

The Icahn Group has withdrawn its slate of director nominees and stockholder proposals at the 2020 Annual Meeting and agreed to vote in favor of the Board’s director nominees and amendments to Occidental’s restated certificate of incorporation that enhance Occidental’s corporate governance.

Under the agreement, the Icahn Group will petition the Delaware Supreme Court to withdraw its pending appeal before the Court relating to the Icahn Group’s books and records request under Section 220 of the Delaware General Corporation Law.

At the same time, Occidental further cut the capital spending to between $2.7 billion and $2.9 billion from its original 2020 guidance of $5.2 billion to $5.4 billion. The Company also announced it will reduce 2020 operating and corporate costs by at least $600 million compared to the original 2020 plan, including significant salary reductions for executive leadership. Operating cost reductions are expected to lower 2020 domestic operating costs to approximately $7.00 per BOE.

To further reserve cash, on April 15, Occidental elected to pay a quarterly $200 million payment it owes Warren Buffett’s Berkshire Hathaway Inc. in common shares, at a 10% discount. Occidental could choose to pay Berkshire differently in future quarters.

Occidental 2019 full year financial result | Earnings call transcript

Occidental Petroleum (3): Sweetened Bid, Carl Icahn

The Sweetened Winning Bid

On May 5, 2019, as part of the financing plan, Occidental entered into an agreement with Total to sell Anadarko’s African assets for for $8.8 billion , contingent on successfully completing the acquisition of Anadarko.

The assets to be sold to Total represent approximately 6% of the expected net production and approximately 7% of the cash flow after capital expenditures of Occidental in 2020 pro forma for the acquisition of Anadarko.

At the same time, Occidental increased the cash portion of its $76-per-share offer to a level that would allow it to make a bid that does not require the approval of its shareholders. Under the new terms, the offer comprises $59 in cash and 0.2934 shares of Occidental common stock per share of Anadarko. (78% Cash and 22% Stock)

This modification (of not requiring a shareholder vote) would become one of the major arguments brought by Carl Icahn later on.

Vicki Hollub, CEO of Occidental, also explains in her letter to Anadarko’s Board,

Our revised proposal does not require an Occidental shareholder vote, which has been repeatedly cited as the explanation for why you previously chose Chevron’s $65 offer over our $76 offer

Plus, the $1 billion breakup fee would be borne by Occidental after the acquisition.

The bidding war didn’t escalate.

On May 9, 2019, Occidental won the battle for Anadarko as Chevron exited bidding.

“Costs and capital discipline always matter,” Mr. Wirth said. “An increased offer would have eroded value to our shareholders.” Shares in Chevron rose 3.1% on Thursday. Occidental’s stock fell 6.4%, while Anadarko’s shares declined 3.2%.

Shareholders’ Discontent & Carl Icahn Coming

Along the bidding process, on the day (April 30) that Occidental secured Berkshire’s money, T. Rowe Price Group, one of the largest shareholders of Occidental Petroleum, says it opposes the energy company’s proposed merger with Anadarko Petroleum.

We think there is significant execution risk with the Anadarko deal and it would increase Occidental’s financial leverage significantly as well.

– John Linehan, manager at T Rowe Price Equity Income fund

On May 3, Bloomberg reported that Carl Icahn had built a small stake in Occidental Petroleum Corp.

Some investors expressed their intention to vote against approving Occidental’s Board.

At Occidental’s annual meeting in Houston on Friday (May 10), a proposal cutting the percentage of shareholders required to call a special meeting (from 25% to 15%) was backed by investors speaking for 60% of the shares voted, in defiance of opposition from Occidental’s board.

On May 30, Carl Icahn sued Occidenta over its acquisition of Anadarko, calling its $38 billion deal to buy Anadarko Petroleum Corp. “fundamentally misguided”.

Icahn argus that the Purchase is a Levered Bet on the Price of Oil, as Occidental’s debt (and debt-like preferred stock) increases from approximately $10 billion to over $45 billion.

The Icahn parties estimate that if the price of oil declines to approximately $45 per barrel or below for an extended period of time, Occidental might be forced to cut the common dividend. The warrants given to Berkshire alone were worth approximately $1.2 billion on the day the preferred deal was announced. And the singular focus to win the Anadarko bid at any cost prevented Occidental from
maximizing value in its sale of Anadarko’s African assets. [Court Document]

However, the complaint was to seek certain books and records relating to the Anadarko acquisition, etc. And eventually, in September 2019, the court ruled in favor of Occidental.

On June 26, in a preliminary copy, Icahn called for a special shareholder meeting where he plans to oust and replace four Occidental directors and change the company’s charter through a stockholder consent solicitation to prevent it from ever engineering a similar takeover again. [Icahn Solicitation Statement – Preliminary] [Icahn Solicitation Statement – Definitive]

On July 22, Icahn published an open letter to Occidental shareholders, four days after the definitive proxy statement was filed.

On August 8, Occidental announced that it has completed the acquisition of Anadarko.

[Icahn’s second and third open letters on August 13 and August 28]

In the third letter, Icahn opposed the two new board members (not in Icahn’s slate) proposed by Occidental.

On November 8, in his fourth open letter,

Earlier this year we owned over 33 million shares of OXY, but recently we reduced the size of our investment.  I still own almost 23 million shares, valued at almost $900 million, but this has become a very risky investment and without changing the incumbent Board and potentially the CEO, and in the absence of accountability for the OxyDarko Disaster, I am very concerned.

We fully intend to run a proxy fight, and if elected, work to right this teetering ship.

Buffet’s Shareholder Letter In Feb 2020

While the market is volatile and uncertainty is ahead, I went back to read Buffet’s 2019 annual shareholder letter, issued in February 2020.

[More letter could be found here]

Some ket takeaways:

  • Berkshire’s earnings has 3 components (operating earnings, realized capital gains, unrealized capital gains) and indeed becomes more volatile under the new accounting rule
  • The 3 criteria for purchases/investments:
    1. First, they must earn good returns on the net tangible capital required in their operation.
    2. Second, they must be run by able and honest managers.
    3. Finally, they must be available at a sensible price.
  • Per the accounting rules, earnings from controlled companies fully flow into “operating earnings”; but for noncontrolled companies, only the dividend portion of their earnings is reflected in Berkshire’s operating earnings.
  • There is a large part of companies’ value that is embedded in their retained earnings
    • some may argue the changes in stock prices (thus the unrealized gains) capture it; but it’s a poor reflection I think.
    • “Overall, the retained earnings of our investees are certain to be of major importance in the growth of Berkshire’s value.”
  • “What we see in our holdings, rather, is an assembly of companies that we partly own and that, on a weighted basis, are earning more than 20% on the net tangible equity capital required to run their businesses. These companies, also, earn their profits without employing excessive levels of debt.”
  • “In all, I estimate that it will take 12 to 15 years for the entirety of the Berkshire shares I hold at my death to move into the market.”
  • “It would be an interesting exercise for a company to hire two “expert” acquisition advisors, one pro and one con, to deliver his or her views on a proposed deal to the board – with the winning advisor to receive, say, ten times a token sum paid to the loser. Don’t hold your breath awaiting this reform: The current system, whatever its shortcomings for shareholders, works magnificently for CEOs and the many advisors and other professionals who feast on deals. A venerable caution will forever be true when advice from Wall Street is contemplated: Don’t ask the barber whether you need a haircut.”
  • Board independence is unlikely to be real for many companies.
  • Berkshire is going to repurchase shares when price-to-value discount is meaningful and Berkshire is left with ample cash; but, value is somewhat subjective.

Live stream for the annual meeting on May 2nd: https://finance.yahoo.com/brklivestream

Reading Notes For Thomas J. Barrack’s Medium Posts

Two of Mr. Barrack’s recent posts:

March 22 – Preventing Covid-19 From Infecting the Commercial Mortgage Market

March 28 – Unpacking the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to Support Small and Medium Sized Real Estate Tenants and Owners

  • Depressed revenues will increasingly depress, and when combined with hiccups in the credit markets, borrowing costs will continue to skyrocket, further compounding the inability of businesses to support jobs.
  • Without jobs, Americans will be unable to make payments on their mortgages, rent, credit cards, and automobiles; to acquire goods and services; and, to spend money at restaurants and coffee shops and in support of the gig economy
  • … loan repayment demands are likely to escalate on a systemic level, triggering a domino effect of borrower defaults that will swiftly and severely impact the broad range of stakeholders in the entire real estate market, including property and home owners, landlords, developers, hotel operators and their respective tenants and employees.
  • At a moment when liquidity is essential to avert public panic and to facilitate investments that respond to rapidly-changing and unprecedented economic conditions, the real estate financing market is in danger of inciting a liquidity freeze.
  • In particular, the banks, mortgage REITs and debt funds must agree on a collaborative solution — implemented with the reinforcement and support of federal government policy — to ensure stability moving forward.
  • Among other measures that may be taken, a key element will be averting rushed and widespread margin calls and other “mark-to-market” measures for a period of time under the real estate whole loan and commercial mortgage-backed securities (CMBS) repurchase agreements that lenders rely on to provide liquidity in the market.
  • In recent years, publicly-traded mortgage REITs and debt funds have taken on an increasing role in providing commercial real estate financing. This increase is due in part to federal regulatory measures taken in response to the 2008 financial crisis, as financial regulations taken at that time were designed to reduce exposure of banks to certain categories of commercial mortgages, such as construction or bridge loans, by making these loans more expensive from a capital perspective and imposing more stringent and burdensome underwriting standards.
  • Repurchase financing arrangements, through which banks purchase a portfolio of commercial mortgage loans from mortgage REITs or debt funds who agree to buy back the loans at a future date, have enabled banks to provide liquidity for commercial real estate borrowers while complying with the new regulations. Repurchase facilities also offer banks protection through the cross-collateralization of a diverse loan pool that spans multiple asset classes, mitigating exposure in the event of a downturn in a particular segment of the commercial real estate market.
  • Central to the fundamental credit structure of repurchase arrangements is each bank’s ability to “mark-to-market” the loans or CMBS the bank is financing and require the mortgage REIT or debt fund to satisfy any resulting “margin call” by partially paying down the advances on the affected loans
  • it is imperative that real estate lenders are not forced by their financing sources to meet their borrowers with rigidity during this time of heightened need. Under most repurchase arrangements, bank consent is required for mortgage REITs and debt funds to grant material waivers, concessions and modifications requested by their borrowers in order to adapt to the changing economic landscape, ultimately enabling a return to pre-pandemic operations.
  • From January 2008 to January 2009, hotel occupancy dropped to less than 60%. Currently, in the dawning hours of the COVID-19 crisis, hotel occupancy rates are approaching 0% and are likely to remain at those levels for the foreseeable future. Even assuming an optimistic estimate of 25% hotel room occupancy in the coming months, job losses are projected to total between 2.8 and 3.5 million — a roughly eight-fold increase compared to the 2008 financial crisis.
  • If unchecked, margin calls will take hold of the repurchase financing market and the liquidity constraints of lenders will force borrowers and their tenants to divert scarce capital resources towards loan and rent payments — a particularly grave concern in a pandemic context when capital must be allocated towards ensuring that businesses stay solvent and that health-related needs are met.
  • Faced with an unimaginable economic catastrophe, the White House, Congress, Federal Reserve, FDIC and supporting regulatory institutions can work to mitigate this crisis by bringing the banks, public REITs and private debt funds together to reach a solution that provides the liquidity necessary to sustain the commercial real estate market and broader economy.
  • the first week of April will be America’s first payment cycle since the implementation of our ambitious Health response and the first time the vast majority of interest, rental, and other payment obligations will be unmet by Americans and American businesses alike.
  • The Federal Reserve has many roles in the economy, but none of them is to take on credit risk.
  • Here’s how: The Federal Reserve will insist that Treasury contribute money from its new pot of $454 billion to a joint Fed-Treasury lending fund. The Treasury’s contribution you can think of as “equity” — that is, Treasury will stand in a “first loss” position on every loan made to corporate America. The Fed will contribute the “leverage” — the money that will help make loans but which is never put at actual risk. The loan fund will then make loans to businesses.
  • The overall size of the Fed-Treasury loan fund depends on how much risk-averse Fed money will be supplied for every dollar Treasury contributes.
  • Liquidity is how easily a business can convert a thing of value into cash. A liquidity problem is when that conversion process encounters friction.
  • This non-bank capital is critical to the support of consumer lending (installment, credit card, student, and auto loans), business lending, and real estate financing (i.e., commercial real estate (CRE) not guaranteed by Fannie and Freddie).
  • The lender either directly or indirectly bundles, or securitizes, the book of loans and sells different slices of the overall revenue stream from the bundled loans. These slices are called ABS — asset- backed securities — because they are securities that are backed by assets (which are the loan revenue streams).
  • Investors in these ABS are insurance companies, banks, asset managers, pension funds, and other large institutional investors. Their investments — especially investments by regulated entities like insurance companies — are in the investment grade tranches of these ABS (BBB and higher).
  • How do investors in ABS get the money to buy the ABS? Often by entering into liquidity transactions called repurchase agreements (or “repos”) with banks, who advance the cash to the investors and hold the ABS as collateral. The investor promises to repay the repo loan upon maturity (technically this is a sale-and-repurchase but it is viewed as a loan), which is usually short term (but is often rolled over into a new repo loan).
  • Imagine what happens to the value of ABS collateral (including commercial mortgage-backed securities, or CMBS) when: (i) students stop paying back loans; (ii) consumers stop paying down credit card or installment debt; (iii) mall tenants stop paying rent; (iv) nobody is paying to stay in hotels; etc. Two things happen: one, the ABS loses actual value (but on a big scale, not much value as it is only one month of payment missed); but two, and much bigger, nobody wants to buy those securities when the underlying contracts are not performing.
  • The market asks “who knows how long people will continue to not pay?” Values plummet, not because the underlying assets are not healthy (they are) but because there is a complete loss of confidence in these securities by the market.
  • Plummeting ABS values means plummeting repo collateral values, which means margin calls and repo foreclosures.
  • What is desperately needed is two actions: (i) for the Fed to step in and create a market for investment grade ABS and CMBS at pre-COVID advance rates to restore confidence and pricing in the market; and (ii) a margin call holiday or forbearance period (described below).
  • America needs the immediate cooperation and support from our banking sector from JP Morgan to Wells Fargo, who need corresponding regulatory relief, in order to successfully combat COVID-19.
  • In order for lenders to grant American businesses a “time-out” by forbearing rent payments, they need to be able to get forbearances from their lenders, the banks and other forms of credit such as commercial mortgage backed securities. Furthermore, these banks need to grant real estate lenders in the non-bank sector a “mortarium” on repo margin calls.

REITs Coronavirus Responses Roundup

Park Hotels & Resorts (PK)

    • March 9 – Withdraws 2020 Outlook
    • March 16 – Business Update
      • Withdraw guidance
      • Suspend and scale down operations
      • Draw $350 million from revolving credit facility
      • Pay one consistent dividend ($0.45/share), suspend all other dividends until year-end
      • Cancel / defer $130 million of $200 million CapEx
    • March 26 – Additional Update
      • Draw $650 million revolving credit facility
      • Alternative sources of revenue from applicable government authorities and hospitals such as providing temporary lodging for first responders, other medical personnel, military personnel, displaced guests and residents of communities where Park’s hotels are located
    • 2019 Q4 Presentation

Starwood Property Trust (STWD)

    • March 13 – Update
      • withdrawn its full year 2020 outlook
    • March 20 – Actions to Mitigate Impact of COVID-19
      • Currently all of Apple Hospitality’s hotels remain open and operational; implemented cost elimination and efficiency initiatives at each of the Company’s hotels by reducing labor costs and tempering certain services and amenities.
      • Postpone all non-essential capital improvement projects planned for 2020; a reduction of approximately $50 million in capital improvements
      • Suspend monthly distributions
      • Has recently drawn on its credit facility and currently has approximately $300 million of cash on hand. Current availability on the Company’s revolving credit facility is $145 million. The Company has no scheduled debt maturities for the remainder of the year and approximately $34 million in scheduled maturities in 2021.
      • Executive pay cut
    • 2020 Feb Presentation

Apollo Commercial Real Estate Finance (ARI)

    • March 25 – Open letter to stockholders & Investor Presentation
      • Pay one consistent dividend ($0.4/share)
      • ARI has secured borrowing facilities with six counter-parties with remaining terms ranging from six months to over three years, assuming the exercise of our extension options
      • ARI holds only two positions in commercial real estate securities totaling $68 million, neither of which are financed
    • 2019 Q4 Presentation

TPG Real Estate Finance Trust (TRTX)

    • March 18 – Declare Cash Dividend and Company Update
      • Consistent dividend ($0.43/share)
      • More than half of liabilities are comprised of term financings, including CLO’s
      • Less exposure to hotel (13%) and retail (0.6%), less than the 22% average of mREIT peers
    • March 23 – Update
      • Postpone previously announced Q1 dividend for one quarter, payable on July 14, 2020 to stockholders of record as of June 15, 2020
      • CRE debt securities portfolio – as of March 22, 2020, has an aggregate face amount of approximately $960 million, pledged as collateral under daily mark-to-market secured revolving repurchase facilities in the amount of approximately $760 million. Fluctuations in the value of CRE debt securities portfolio, including as a result of changes in credit spreads, have resulted in the Company being required to post cash collateral with its lenders under such facilities
      • If the requirements to post additional cash collateral continue to be material, there is no certainty that the Company will be in a position to continue to fund such payments.
    • 2019 Q4 Presentation

KKR Real Estate Finance Trust (KREF)

Restaurant Chains Coronavirus Responses: McDonald’s

McDonald’s (MCD)

    • March 16
      • for company-owned stores: close seating areas, focus on delivery, drive-thru and walk-in take-out
      • for franchisees: strongly encouraged to adopt similar operations procedures; the guidance is supported by franchisee leadership and is expected to be adopted by the majority of franchisees
      • most crew members with scheduled shifts will be redeployed to support serving customers in the Drive-Thru, carry-out and McDelivery
    • March 20
      • working with franchisees around the world in order to promote financial liquidity (e.g. rent deferrals) during this period of uncertainty
      • providing two weeks of paid leave for employees of company-owned restaurants who are impacted by the virus (announced on March 10)
      • franchisees and partners around the world are are supporting first responders, hospital and healthcare workers with free food and/or drinks in recognition and support of the work they are doing to help others.  
        • In the U.S., some franchisees are providing free lunches to children dependent on free school lunch programs where school is closed, others are providing free meals to healthcare workers and a franchisee in the Midwest is offering up their parking lots for Blood Drives
        • Across Europe, many markets are providing free drinks, coffee and meals to first responders and healthcare workers on the front lines
        • In Guatemala, the restaurants are providing food to workers who are constructing temporary hospitals to support treatment of those diagnosed with COVID-19.
        • In the Philippines, we will be providing food to medical health workers, NGO volunteers and parts of the population that are experiencing challenges accessing food
    • March 20, CEO Interview with CNBC
      • has suspended its buyback program several weeks ago
      • plan is to maintain its quarterly cash dividend of $1.25
      • In China, the epicenter of the virus, McDonald’s has reopened 95% of its restaurants
      • only 50 out of 14,000 McDonald’s U.S. locations have closed due to the pandemic
      • franchisees are working with lenders to restructure loans, and suppliers are extending payment terms
    • March 25
      • from 3/24 – 4/6, McDelivery through both Uber Eats and DoorDash is offering $0 Delivery Fee for any orders with a $15 minimum basket size
    • March 25 (Restaurant Business Article)
      • will temporarily suspend its all-day breakfast menu in the coming weeks as the chain simplifies its operations (still available during the morning)
    • Update: March 26, $1 billion borrowing
      • entered into a 364-Day Revolving Credit Agreement dated as of March 25, 2020; and borrowed the full $1 billion committed amount available under the Agreement
    • Update: March 27, $3.5 billion borrowing
      • On March 27, 2020, McDonald’s issued an aggregate principal amount of $3.5 billion of medium-term notes, pursuant to the existing medium-term notes program filed with the SEC and effective on July 27, 2018
    • Continuously developing thread of messages

Update: MCD 1-month chart as of March 27

Source: Google

Restaurant (Coffee Shop) Chains Coronavirus Responses: Starbucks

Starbucks (SBUX)

  • March 4, Open letter to all stakeholders
    • increased cleaning and sanitizing for all company-operated stores
    • pausing the use of personal cups and “for here” ware
      • continue to honor the 10-cent discount for anyone who brings in a personal cup or asks for “for here” ware
  • March 5, Updates on Starbucks China and Impact of COVID-19 on China Business
    • Starbucks China was able to start re-opening doors again. On March 5, the company announced 90 percent of the stores are open again, operating under modified hours and conditions
    • Last week, the Shanghai Reserve Roastery re-opened (Feb 26 in China) after being closed for more than a month
    • During the month of February, Starbucks China’s comparable store sales were down 78% versus the prior year
    • In the last fiscal week of February, relative to the prior week, average daily transactions per store improved 6% and total weekly gross sales in China grew 80%, reflecting the reopening of stores. In that last week, Starbucks China’s mobile orders accounted for approximately 80% of sales mix, with 30% Mobile Order & Delivery and 50% Mobile Order & Pay.
    • currently estimate that comparable store sales in China for Q2 FY20 will be down approximately 50% versus the prior year. Therefore, we expect a COVID-19-related headwind of approximately $400 million to $430 million to China’s revenue in Q2 FY20 versus prior expectations.
  • March 6, Letter to partners
    • First confirmed case: late last night (March 5), we learned one of our store partners at our 1st & University store in downtown Seattle was diagnosed with COVID-19 and is self-isolating at home for a period of time.
      • closed the store and initiated a deep clean overnight, following all recommended guidelines from the City of Seattle and King County public health authorities
      • these officials have encouraged us to reopen the store after further preventative cleaning, which we have already conducted, staffed by partners who have no known impact from COVID-19
      • look forward to welcoming our customers back very soon
  • March 11, Letter to partners
    • temporarily expanding catastrophe pay for COVID-19 partner care, in addition to benefits like sick pay, vacation pay or personal time off as available. Any partner who has been diagnosed with or exposed to COVID-19, or comes in close prolonged contact with someone in their store or household who has, is eligible for up to 14 days of catastrophe pay – whether or not they are showing symptoms
    • if have not had any known contact with someone diagnosed with COVID-19, but are showing symptoms, partners should stay home until remaining symptom-free for 24 hours. Can use temporary, expanded catastrophe pay for any scheduled shifts over a three-day period, and then similarly use additional benefits like sick pay, vacation pay or personal time off
    • certain individuals may consider taking extra precautions. Should they choose to self-isolate, are also eligible for up to 14 days of catastrophe pay with a doctor’s noted recommendation
    • The CUP Fund, started by partners, is always available. The fund is for partners to use when facing an unexpected financial hardship.
      • Starbucks is matching 50 cents for every dollar of partners’ donation
    • Other free mental health/counseling programs, including Employee Assistance Program, Headspace
  • March 11, Letter to customers
    • as we navigate this dynamic situation community-by-community and store-by-store, we may adapt the store experience by limiting seating to improve social distancing, enable mobile order-only scenarios for pickup via the Starbucks App or delivery via Uber Eats, or in some cases only the Drive Thru will be open
    • we will close a store if we feel it is in the best interest of our customers and partners, or if we are directed to do so by government authorities
  • March 12, $1.75 billion note offering
    • completed a public offering pursuant to an underwriting agreement, under which Starbucks agreed to issue and sell to the several underwriters (i) $500,000,000 aggregate principal amount of its 2.000% Senior Notes due 2027 (the “2027 Notes”), (ii) $750,000,000 aggregate principal amount of its 2.250% Senior Notes due 2030 (the “2030 Notes”) and (iii) $500,000,000 aggregate principal amount of its 3.350% Senior Notes due 2050 (the “2050 Notes” and, together with the 2027 Notes and the 2030 Notes, the “Notes”)
    • prospectus
  • March 15
    • Starting today, we will move to a “to go” model across the U.S. and Canada for at least two weeks to help prevent prolonged social gathering
      • pausing the use of all seating
      • Café, Mobile Order & Pay, Drive Thru and Delivery will still be open
    • temporarily closing company-operated stores in high-social gathering locations like stores that are located inside malls or on university campuses
    • In communities such as Seattle and New York with high clusters of COVID-19 cases, we will reduce operating hours or temporarily close select stores
    • invest up to $10 million in the CUP fund
    • temporarily expanding the Care@Work program to provide support for partners needing additional backup childcare options as a result of school closures.
  • March 17, Letter to customers
    • track store hours and closures via our website or the Starbucks app
    • delay the expiration of all Stars scheduled to expire between now and June 1, 2020
  • March 20
    • Today, we are making the decision to close access to our cafés altogether for two weeks and limiting our services to Drive Thru and delivery only.
      • Some exceptions will be made for those cafés serving in or around hospitals and health care centers in our efforts to serve frontline responders and health care workers.
      • changes apply to company-operated stores in the U.S. and Canada; licensed partners will make decisions for their properties
      • Delivery continues to be another option from those Starbucks locations still open through Starbucks Delivers in markets across the United States and Canada through the Uber Eats app.
    • To pay all store partners for the next 30 days, whether come to work or choose to stay home
    • for stores in or around hospitals, or communities with limited food options, will remain open with partners who are explicitly choosing to continue to serve
      • continue to work very closely with local, state and the federal government to continually assess how best to stay open, stay safe, and be part of the solution during this time
  • March 21 (first day after store closure and drive-thru only)
    • partners in every region around the U.S. and Canada showed up before dawn to open drive-thru-only experiences at their stores. They filled in for each other at short-staffed nearby stores. Stores that could open, did.
  • March 22 (Restaurant Business Article)
    • employees who work their shifts Mar.21 – April 19 are eligible for Starbucks Service Pay, worth an additional $3 an hour

Update: SBUX 1-month chart as of March 27

Source: Google

US Delivery System (4): Aircraft & FexEx

Industrialization: Aircraft

The United States Post Office Department created the nation’s commercial aviation industry. From 1918 to 1927, the Post Office Department built and operated the nation’s airmail service, establishing routes, testing aircraft and training pilots.

Airmail in 1924 | Source: Time

The year 1952 brought a separation of airline subsidies from airmail. The Post Office Department paid airmail compensation and the Civil Aeronautics Board made all airline subsidy payments, based on national interests aside from airmail.

The needs of passenger traffic overtook those of mail cargo in the second half of the 20th century. Airline companies organized their routes to maximize passenger needs. By 1975, airmail had become a fundamental part of the U.S. Postal Service’s transportation plan. That October, first class mailers no longer had to pay an extra fee for airmail service.

FedEx

In 1971, Smith incorporated Federal Express with his college idea of an integrated delivery system specifically designed to accommodate time-sensitive shipments with airfreight as the core.

By the end of the 20th century, FedEx operated the world’s largest all-cargo air fleet. And it still is the largest now with over 650 aircrafts.

The average age of its aircrafts is 22 (in 2017) as many cargo aircraft are decommissioned passenger jets, stripped and repurposed for carrying freight.

Nowadays, FedEx is still the busiest cargo airline in the world with volumes improving by 3.8% year on year to 17.5bn freight tonne kms (FTK) in 2018.

From TD Ameritrade To E-Trade: A Wave Of Consolidation

Following the underlying trend of growing Fintech companies grabbing more customers & market shares (also discussed in a previous post about job cuts in banks), traditional financial service providers such as brokerage firms are thinking about their future.

And one answer is to consolidate the industry with mega M&As.

Charles Schwab x TD Ameritrade

In November 2019, Charles Schwab agreed to buy smaller rival TD Ameritrade in a stock-swap transaction valued at about $26 billion. Schwab will issue 1.0837 shares for each TD Ameritrade share.

The deal will create a company with more than $5 trillion in assets under management. TD Ameritrade will contribute approximately 12 million client accounts, $1.3 trillion in client assets.

The press release also says, “on expenses, current estimates are for approximately $1.8 to $2 billion run-rate expense synergies, which represents approximately 18-20% of the combined cost base” – a $2 billion cut in headcount and operating budget.

TD Ameritrade had a LTM revenue of $5.665B as of 2019Q3, thus receiving a roughly 4.6x revenue multiple. Or taking the revenue declines into account, it represents a 5.0x NTM revenue ($5.2 billion) multiple. Also, it’s around $2,167 per client account.

Morgan Stanley x E*Trade

On Feb 20, 2020, Morgan Stanley said it agreed to buy discount brokerage pioneer E*Trade for $13 billion. Also an all stock deal, E*Trade stockholders will receive 1.0432 Morgan Stanley shares for each E*Trade share, which represents per share consideration of $58.74.

Combined platforms will have $3.1tn client assets, 8.2 million retail client relationships and accounts, and 4.6 million stock plan participants. E*TRADE has over 5.2 million client accounts with over $360 billion of retail client assets.

Similarly, the acquisition price represents a 4.5x LTM revenue multiple. Also, it’s $2,500 per retail client account.