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Good morning investors!

If this is your first time reading, welcome to The Investor’s Edge — a thriving community of more than 15,000 subscribers striving to be better investors with an edge in the market.

Every Wednesday we publish “The Mid-Week Wrap-Up” — your ticket to being well informed and staying ahead in the investment game!

This report is designed to help investors of all skill levels break down important stories/topics within the stock market. And best of all, we cut through all of the BS and give you exactly what you need to know in easy to digest, bite sized pieces of content.

This article is designed to truly give you that EDGE in the day ahead!

Grab your afternoon pick me up and let’s dive in.

Market Talk

The major indexes were mixed to start the week as we are once again starting to see the divergence between mega caps and the rest of the market.

3 Stories Moving the Market

These are some of the biggest stories so far this week that are having an influence on market action.

Hess shareholders approve $53 billion Chevron deal

Hess Corporation shareholders approved a $53 billion acquisition by Chevron, despite uncertainties caused by a dispute with Exxon Mobil.

Exxon claims a right of first refusal over Hess’ assets in Guyana, under a joint operating agreement for the Stabroek Block, in which Hess holds a 30% stake. Exxon, which leads the development with a 45% stake, has initiated arbitration, potentially jeopardizing the deal.

The completion of the deal now hinges on the arbitration outcome, with a decision expected in the fourth quarter. If Exxon prevails, the Chevron-Hess merger may terminate.

Additionally, the merger is under review by the Federal Trade Commission, with a resolution anticipated soon.

📚 EDGE-UCATION: What are mergers and acquisitions?

Mergers and acquisitions (M&A) are transactions in which the ownership of companies or their operating units are transferred or combined. Here’s a breakdown of each:

1. Mergers: This occurs when two companies combine to form a new entity. Both companies typically agree to merge and create a new organization, often with a new name. The idea is to pool resources, enhance competitive positioning, and achieve greater market share.
   

2. Acquisitions: In an acquisition, one company purchases another company outright. The acquired company may be absorbed into the purchasing company or may continue to operate as a subsidiary. This can happen through buying a majority of shares or assets.

ConocoPhillips to buy Marathon Oil in $17 billion all-stock deal as the oil industry sees a wave of consolidation

ConocoPhillips has agreed to acquire Marathon Oil in a $17 billion all-stock deal, enhancing its shale assets amid a consolidation trend in the oil and gas industry.

This acquisition will add 2 billion barrels of resources to ConocoPhillips' U.S. inventory, extending its presence in Texas, New Mexico, and North Dakota.

CEO Ryan Lance stated that the acquisition fits the company’s financial strategy and will boost earnings, cash flow, and shareholder returns, with share buybacks of $7 billion expected in the first year and $20 billion over three years. The merger, anticipated to close in the fourth quarter, is expected to save $500 million in the first year due to reduced costs.

ConocoPhillips, with a market cap of $137 billion, is the last of the top three U.S. oil companies to make a significant acquisition in this wave of industry consolidation.

Exxon Mobil’s acquisition of Pioneer Natural Resources for $60 billion recently received the greenlight from the Federal Trade Commission. And as mentioned above, Hess shareholders approved the company’s $53 billion merger with Chevron.

📚 EDGE-UCATION: When Do We See Mergers and Acquisitions the Most?

M&A activity is influenced by various factors and tends to increase during certain conditions:

1. Economic Growth: During periods of economic expansion, companies are more likely to have the financial resources and confidence to pursue M&A to accelerate growth, expand market share, and achieve strategic objectives.

2. Industry Consolidation: In mature or declining industries, companies may merge or acquire others to consolidate and reduce competition, achieve economies of scale, and increase efficiency.

3. Access to Capital: Low interest rates and favorable credit conditions make borrowing cheaper, enabling companies to finance acquisitions more easily. Similarly, high stock market valuations can provide companies with the means to use stock as currency for acquisitions.

4. Strategic Realignment: Companies may pursue M&A to realign their strategies, enter new markets, acquire new technologies, or diversify their product offerings. This is often seen in fast-changing industries like technology and healthcare.

5. Regulatory Environment: A supportive regulatory environment can encourage M&A activity. Conversely, increased regulation and antitrust scrutiny can slow down or complicate deals.

6. Competitive Pressure: Companies may engage in M&A to stay competitive or respond to moves by competitors. This can involve acquiring innovative startups or merging with peers to build a stronger market presence.

7. Globalization: As companies look to expand internationally, cross-border M&A can become a strategic tool for entering new geographic markets and acquiring local expertise and assets.

Historically, significant waves of M&A have occurred during periods of economic prosperity and industrial innovation, such as the late 1990s during the tech boom and the mid-2000s before the financial crisis.

T-Mobile to acquire most of U.S. Cellular in $4.4 billion deal

T-Mobile has announced plans to acquire the majority of U.S. Cellular’s assets, including stores, spectrum assets, and customers, in a $4.4 billion deal.

The acquisition involves cash and up to $2 billion in debt, with a portion of the cash contingent on financial and operational metrics. The deal includes about 30% of U.S. Cellular’s wireless spectrum, which T-Mobile will use to enhance rural coverage and connectivity for U.S. Cellular customers.

U.S. Cellular will retain 70% of its spectrum and towers, leasing space on additional towers to T-Mobile, and securing long-term leases on existing ones.

This follows T-Mobile's recent acquisitions, including a $1.35 billion purchase of Mint Mobile, and its 2020 merger with Sprint.

Merck to buy eye-focused drug developer EyeBio for as much as $3 billion

Merck has agreed to acquire biotech company EyeBio for up to $3 billion, including $1.3 billion in cash and $1.7 billion in milestone-based payments.

This acquisition will grant Merck access to EyeBio’s retinal disease drug, Restoret. The move is part of Merck's strategy to bolster growth ahead of the loss of exclusivity for its cancer drug Keytruda by the end of the decade.

EyeBio, based in London with operations in the U.S. and UK, is currently testing Restoret in early-stage trials for retinal diseases and diabetic macular edema, with plans for a mid-stage trial in the latter half of 2024.

The deal is expected to close in the third quarter of 2024.

The Second Half

The second half of the week has a handful of key earnings, but the PCE report will be the major catalyst to end the week.

Earnings Reports

There are several earnings report left this week that we here at The Investor’s Edge we will be watching, including Costco, Salesforce, Dollar General and Ulta Beauty:

Here is the calendar of earnings releases scheduled for the rest of the week:

Economic Reports

Here is the calendar of events scheduled for the remainder of the week:

All eyes will be on the PCE report Friday as investors look to see how the Fed’s preferred inflation metric performed in April. There will also be reports for GDP, initial jobless claims and pending sales tomorrow.

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Thank you for reading this edition of the Mid-Week Wrap-Up.

Until next time investors!

Mark & Chris

The Investor’s Edge

Disclosure

This is not investing advice. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.