Greed, Ego, Power – Welcome to the world of oil mergers! Google is taking no prisoners – ready to collect 30% revenue share from everyone!

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The Top MarketBites Investment Stories for September 29th, 2020
WHAT IS DRIVING MARKETS TODAY?
Market Commentary –
U.S. stocks continued their bullish trajectory on Monday with banks and energy stocks leading the way. HSBC increased over 10% yesterday after its biggest shareholder raised its stake. Both banks and energy companies are cyclical businesses that tend to perform better during an economic recovery. The advance in global stocks was broad, instead of tech-focused, a sign that optimism about global growth is returning. The market is also benefitting from renewed stimulus optimism and continued liquidity from the Federal Reserve.- The first Presidential Debate will be held today from 9 to 10:30 pm.- U.S. House of Representatives unveiled a new, $2.2 trillion coronavirus relief bill – (click here)Missed our newsletter on stock market bubbles? – (click here)
TOP STORY 1: Greed, Ego, Power: Welcome to the world of oil mergers
What is Happening?
Shale drillers Devon Energy and WPX Energy saw their shares rally 11.2% and 16.3%, after announcing an all-stock merger on Monday. Even after Monday’s bounce both energy companies are down over 60% for the year.
Why does this Matter?
For Devon Energy, the merger reduces the company’s exposure to federal land – cushioning it against possible election risk. For WPX Energy the merger improves credit conditions and leverage. The combined company estimates to cut $575 million of combined expenses. They are also promising a very attractive dividend. They promise to pay out up to 50% of excess free cash flow in dividends, which would be on top of a fixed dividend of $0.11 per share, Devon’s current rate.
“A lack of consolidation in our industry results from social issues, meaning disagreements over who gets which job title in the combined company” according to Devon CEO Dave Hager. 
The Takeaway:
Analysts hope that this merger is a step in the right direction in an industry with hundreds of publicly traded companies that are ripe for deal-making. However, executive ego and greed can continue to impede further consolidation. It turns out that it pays extremely well to be the CEO of an oil and gas company. In the last decade, top executives at the 15 largest oil and gas producers received more than $2 billion in compensation. So it is understandable why these CEOs want to hold onto their positions even when it’s not in the best interest of the shareholders. Is the Devon-WPX merger an exception? Time will tell…

TOP STORY 2: Google is ready to collect: Next year Google will enforce the 30% revenue share agreement it has with all apps that run on Android
What is Happening?

Google is going to start enforcing rules that require app developers distributing Android software on the Google Play Store to use its in-app payment system starting in September of 2021. Google’s Android Play Store takes a 30% revenue cut of all app transactions similar to Apple’s App Store.

Why does this Matter?
Apple might be a big American player, but Google’s Android controls 75% of the global smartphone market. There are a lot of companies like Spotify, Netflix, Fortnite, and Tinder that built a massive business via their smartphone apps. Apple’s and Google’s 30% revenue share policy is a massive fixed cost to these businesses. In-app payments are quick and user friendly, but companies like Spotify are willing to sacrifice that to avoid paying the 30% cut. Google’s move to enforce the 30% policy starting next year further solidifies the existence of this practice.

The Takeaway:
Google’s decision to enforce the 30% revenue share arrangement hasn’t been met with as much public outrage as Apple’s similar policy. Why? Google’s operating system is inherently more open-source than Apple’s IOS. This means that you can download applications to your Android outside of the Play Store. For that reason, this news might not impact app developers as significantly as Apple’s policy. Still, the move by Google confirms how much influence the tech-giant has over companies, industries, and even the political system. (It is pretty cocky to enact a policy like this when a month ago Apple CEO Tim Cook had to testify in front of the House Judiciary Committee over the very same policy.)


DEAL & IPO WATCH:

– Palantir IPO on Wednesday, shares priced around $11.50


– Caesars says $3.7 billion bid high enough for William Hill
– Cleveland-Cliffs to buy ArcelorMittal USA for $1.4 billion to become the biggest flat-rolled steel producer in North America.


WHAT ELSE IS HAPPENING:
– Uber is back in London – (read here)
– Prime Day set to be a two day event again this year – (read here)
– Breakdown: Disney sells TrueX – (read here)
– Virgin Galactic has big day after bullish Wall Street sentiment – (read here)

WHAT’S MOVING AFTER-HOURS:

Bill.com — $BILL is down 4.89% in after-hours trading. Bill Holdings Inc. has been a strong performer as of late. Perhaps this study is a reason behind the slide.

Abbott Laboratories — $ABT is trading 1.86% above closing price in after-hours trading. This movement comes directly off the news of an additional 150M additional COVID tests that are set to hit the market in the coming weeks.

Smartsheet — $SMAR is sliding 3.38% during the after-hours session. This move is interesting given their recent innovation in COVID-friendly HR approvals processes.


ABOUT MARKETBITES:
MarketBites is written daily by the investment staff of Taylor Hoffman Capital Management. Our investment professionals curate the most important stock market, businesses, and investment news in a format that anyone can understand and learn from.
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