Fired & Hired

QUOTE OF THE DAY

This is going to be the largest bubble of our lifetimes.”

Market Snapshot

• The S&P and Nasdaq finished higher, despite Yellen’s warning about raising rates “too gradually.”
• The Dow had its first four-day losing streak in three months.
• Asian markets continued to fall after North Korea accused the U.S. of declaring war.
• Gold dropped as investors jumped from safe havens.



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Fired & Hired

Fired

With any massive data breach that jeopardizes the personal info of 143 million Americans, someone has got to pay. That someone is Equifax (+0.91%) CEO Richard Smith, who will pack his bags and leave without a bonus. First world, chief executive problems…

Smith took the wheel in 2005 after 22 years at GE and quickly turned into a Wall Street war vet, boosting Equifax’s market cap from $4 billion to $18 billion. In Atlanta (the home of Equifax HQ), Smith even became a hometown hero, spearheading the city’s winning bid to host the 2019 Super Bowl.

But that celeb status appears to be disappearing overnight. Now, the spotlight will shift to interim-CEO Paulino do Rego Barros Jr. (president of Equifax’s Asia-Pacific region).

Hired

It was a better day for Michelle Gass, who is set to take over for Kevin Mansell as Kohl’s (+0.13%) new CEO.

She joined Kohl’s in 2013 after two impressive decades at Starbucks. Gass quickly took the reins of Kohl’s businesses in the Middle East, Europe, and Africa in addition to launching cost-cutting programs that will save the company $250 million over the next three years. It’s no daily business newsletter, but it is a pretty impressive resume.

That said, Kohl’s shares are down 6.4% this year and Ms. Gass will be responsible for 1,100 stores and over $19 billion in annual revenue. Outgoing CEO Kevin Mansell believes she’s up to the task.

Loeb Takes Nestle’s Lunch Money

Nestle (+1.79%) is caving into the schoolyard bully (that would be activist investor Daniel Loeb) and accelerating its $20.8 billion share buyback plan over the next three years. The move may artificially boost Nestle’s stock price, but by taking out debt to do so, it could hurt its credit rating.

Ever since Loeb planted his 1.3% stake in Nestle back in June, it has been quick to meet the hedge fund manager’s demands.

• Accelerate share buybacks? Check.
• Set margin targets? Nestle also announced yesterday it would raise operating margins from 15.8% this year to 18.5% by 2020 (Unilever hovers around 20%).
• Growth through M&A? Nestle just purchased Blue Bottle ($425 million)—the cold brew coffee your hipster friend recommended—along with fresh food startup, SweetEarth.

Nestle’s one sticking point has been its 23% stake in L’Oreal. Loeb wants to ditch the haircare brand, but Nestle’s 12% YoY return for the last 42 years has kept the decision a simple one: lather, rinse, repeat.

Airball

Another day, another scandal in the NCAA. Consider us (un)surprised.

The FBI arrested 10 people on fraud charges, including four assistant basketball coaches at major programs (USC, OK St., Arizona, and Auburn) and an Adidas employee.

Here’s the gameplan that drew the foul: assistant coaches received bribes ($10,000+) from sportswear execs, financial advisers, and agents to “steer” basketball players into contracts.

And that scheme seeped into the highest level of sports business. Adidas director Jim Gatto allegedly funneled $100,000 to a college basketball player (presumably at Louisville) he hoped would sign an agreement with the apparel company.

The charges are just another blow to the NCAA’s battered reputation. And as far as sports organizations go, we might be encroaching on…*cringes*…FIFA territory.

Talking Trade

It’s the busy season for globetrotting U.S. trade representatives. And that means we’re also busy keeping tabs on their whereabouts. Today we head to Canada and China.

Ottawa

U.S. Trade Representative Robert Lighthizer is finishing up the third round of NAFTA negotiations alongside counterparts from Mexico and Canada.

They’re talking cars. Right now, a law known as the “rules of origin” states that for a car produced in NAFTA countries, 62.5% of its total value must originate in those countries. BUT there aren’t any country-specific mandates. Expect the U.S., which feels like it’s getting stiffed in vehicle manufacturing, to demand a minimum level of U.S.-made parts.

Beijing

Halfway around the world, Commerce Secretary Wilbur Ross held a series of meetings with senior Chinese officials whom he continued to press on trade issues.

The Trump administration has notched a few minor wins (like opening up China to U.S. rice exports) following a Mar-a-Lago beach luau between the two countries’ leaders. But U.S. officials remain unhappy with certain Chinese trade practices like IP theft and steel dumping. Not to mention a trade deficit that reached $347 billion in 2016.

They’ll have another go when President Trump visits China in November. Beach weather’s not in the forecast.

What Else Is Happening…

• AMC is investing $20 million in a Spielberg-backed virtual reality startup, and will install the technology at select cinemas next year.
• Alibaba took a majority stake in logistics affiliate Cainiao, pledging up to $15 billion to expand its global network.
• Fallout from Harvey, Irma, and Maria continues: U.S. home sales dropped to an eight-month low and consumer confidence is down.
• Yahoo Finance is becoming a trading platform, allowing users to link their existing brokerage accounts to its app.
• Twitter is trying out a new 280-character limit.

Economic Calendar

• Monday     Earnings: No Events

                    Economic Events: Chicago Fed National Activity Index (-), Dallas Fed Mfg Survey (+)

• Tuesday    Earnings: Nike (+)

                  Economic Events: Case Shiller HPI (+), New Home Sales (-), Consumer Confidence (-), Richmond Fed Mfg Index (+)

• Wednesday    Earnings: No Events

                        Economic Events: Durable Goods Orders, Pending Home Sales, Petroleum Status

• Thursday   Earnings: Accenture, McCormick, Rite Aid

                   Economic Events: GDP, International Trade in Goods, Jobless Claims

• Friday       Earnings: No Events

                 Economic Events: Personal Income and Outlays, Chicago PMI, Consumer Sentiment

Brewified Term

Activist Investor

In the newsletter, we mention that Daniel Loeb is an activist investor in Nestle. Let’s take a closer look at what that means.

What is it
An activist investor is an individual or company that invests money in another company it believes could be performing better. The activist then attempts to make a major change to the company through tactics like influencing shareholders and obtaining board seats.

With any luck, it turns that investment into a healthy return by helping the company operate more efficiently.

Why it’s important
This is a strategy increasingly used by outspoken hedge funds and hedge fund managers. Nelson Peltz (of Trian Fund Management) is trying to make significant changes at Procter & Gamble. And Mick McGuire (of Marcato Capital) was successful at removing Buffalo Wild Wings CEO Sally Smith.

Let’s see an example
Back to Loeb (Third Point) and Nestle. He saw that Nestle was down on its luck in 2016, suffocated by changing consumer preferences and a declining operating margin (15%). He then bought a 1.3% stake for $3.5 billion, and is slowly (but surely) influencing management. See above for details…

Let’s take it one step further
Sometimes these relationships can get sticky. If a company doesn’t agree with the changes, it might push back and attack a hedge fund with negative PR. At that point, the hedge fund may fight to win board seats (aka company voting rights) via a proxy vote among shareholders.

If you’re interested in diving any deeper, check out what happened with Buffalo Wild Wings and Marcato Capital!

The Breakroom

Question of the Day

In how many ways can the letters of the word ABACUS be rearranged such that the vowels always appear together? (Answers now located at the bottom of the newsletter)

Business Trivia

This one will test how close you read the Brew: Toys “R” Us was the second-largest retail bankruptcy EVER (in terms of assets). What was #1? (Answers now located at the bottom of the newsletter)

Stat of the Day

15%–The proportion of South Korea’s $1.4 trillion economy contributed by Samsung (it reached as high as 20%). The country is practically one giant Galaxy Note 8.

Breakroom Answers

Question of the Day: 72
Business Trivia: Kmart