Moody’s Point

MARKETS

• Trade: Or is it Fed:? Either way, President Trump said yesterday that China has an advantage in the trade war because it’s not dealing with a central bank that is “very destructive.”
• U.S. markets: Stocks rose for a sixth session now that tariffs on Mexican goods are off the table and D.C. has “full confidence” in its neighbors to the south.

TAX

Corporations Hit the ATM

PIN: 2 - 0 - 1 - 8.

Moody’s Investors Service said yesterday that the 928 U.S.-based, non-financial companies it covers claimed $1.7 trillion in cash and liquid investments at the end of 2018.

• That’s an eye-popping number. But it’s also down 15.2% from a record $2 trillion in corporate cash a year earlier.

Driving the news: 2018’s drop in cash hoards serves as a master class in chain reactions.

1. Cash piles shrank because companies funneled record amounts toward share buybacks, M&A, dividends, and capital spending…
2. And all that happened because of the late-2017 Tax Cuts and Jobs Act. The tax overhaul dropped levies on foreign income so companies could put it to use instead of letting it collect dust in European banks like Gringotts.

And put it to use they did. Last year, capital expenditures leaped 12% to $851 billion, dividends climbed 6.7% to $412 billion, and net share buybacks almost doubled to $467 billion.

The top five cash-holders last year—Apple, Microsoft, Alphabet, Amazon, and Facebook (heard of ’em?)—held 33% of the total balance in 2018. Apple alone laid claim to 14.5%, a balance larger than the aggregate amount for every other non-tech U.S. sector.

Before the tax overhaul…

U.S.-based companies had slowly built up giant cash reserves in foreign countries, keeping profits at arm’s length from the frightful 35% corporate tax they faced when bringing it home.

Then in 2017, changes in the tax code opened the floodgates for what’s known as “repatriation.” The Commerce Department said companies sent $664.9 billion in foreign earnings back to the U.S. as dividend payments in 2018, up from $155.1 billion a year earlier.

Looking ahead...Moody’s Point is that companies will continue to put money to use paying down maturing debt, boosting buybacks, and upping dividends until there’s a reason not to. Look for those piles of to keep shrinking.

ANTITRUST

Congress Doesn’t Trust Big Tech

An antitrust subcommittee of the House Judiciary Committee will hold its first hearing in a broad technology probe this afternoon. Their focus? You’re looking at it: the news.

The committee will put a legal magnifying glass to Facebook and Google’s dominance in digital advertising. Specifically, it'll analyze whether the pair threatens the free press by drowning out local journalism.

• Facebook and Google will capture nearly 60% of all U.S. digital ad spend in 2019, per eMarketer.

A quick primer: When the news moved from print to online, Google and Facebook became intermediaries between publishers and advertisers. That meant a huge hit to news outlets; a 2018 report from the University of North Carolina found more than one in five U.S. newspapers had closed over the last 15 years.

So Congress is trying to decide whether:

1. They’re legitimate middlemen.
2. They’re violating antitrust law.
3. Antitrust law needs to be updated.

Bottom line: Congresspeople are out for blood and approval ratings on this issue. Bashing tech might be the only thing they can agree on.

ENVIRONMENT

Canada Asks Some Plastics to Kindly Leave, If You Don’t Mind

Taking a stand against flimsy forks that can’t handle Montreal poutine, Canadian Prime Minister Justin Trudeau announced yesterday that his government will ban “harmful” single-use plastic products as early as 2021.

• Canadians throw away about 3 million tons of plastic waste each year and less than 10% of that is recycled, per the BBC.
• Trudeau introduced “targets” for companies that sell or make plastic products to address the waste they produce.

Why now? China said it would stop importing plastic waste at the end of 2017, leaving many countries scrambling for an alternative destination—or a plan to stop producing so much waste.

Now, plastic bans are in vogue. The European Union and New York State have announced similar measures in recent months. Hawaii and California get virtue points—they banned plastic bags years ago.

Zoom out: Canada may be fixing an image problem. Last month, the Philippines sent back about 100 shipping containers of Canadian trash a private company had tried to leave north of Manila a few years ago.

M&A

You Look Tableautiful to Salesforce

Salesforce (-5.23%) just made the biggest acquisition in company history, buying data analytics platform and vowel advocate Tableau Software for $15.7 billion in an all-stock deal.

The news confirms our suspicions that Salesforce co-CEO Marc Benioff doesn’t eat food, he eats companies. The software firm has acquired more than 60 companies in the last 20 years.

With a market cap of nearly $120 billion and revenue still growing over 25% annually, Salesforce is indeed a monster. But it wants to become Godzilla. Adding Tableau, which gives companies tools to visualize data, will allow Salesforce to tap into the growing market of “business intelligence.”

• Context: While Benioff is known for making acquisitions with his gut rather than with his head, Tableau has been on Salesforce’s radar for years. In 2016, Tableau appeared on a leaked Salesforce internal presentation as a potential M&A target.

This space is heating up. Google said it will buy data analytics platform Looker for $2.6 billion just a few days ago.

RESTAURANTS

From Four Seasons to None

By suppertime tonight, the renowned birthplace of the American power lunch—Manhattan’s Four Seasons Restaurant—will get a “permanently closed” on Google Maps.

It’s the end of an NYC era. The tony Four Seasons first opened in 1959 and benefited from Midtown’s movers and shakers and their deep affinity for fluke tartare. When lease drama pushed it out of its original location, the Four Seasons spent $40 million last year to reopen three blocks away.

Rising Manhattan rents and higher wages are conspiring to make life difficult for NYC restaurateurs. But what makes the Four Seasons’s closing feel so...symbolic?

• The “death of the power lunch.” Today’s business leaders rarely take a break from their screens for the meal, let alone three hours.

Zoom out: According to a recent Morning Brew report, 46% of readers said you eat lunch at your desk. That's helped lead to the downfall of what the NYT considers "probably the most important New York restaurant of the 20th century."

WHAT ELSE IS BREWING

• Slack admitted it’s bracing for slowing revenue growth ahead of its planned June 20 direct listing. That slowdown means growth of about 52% instead of 67%.
• Insys (-51.45%), the opioid manufacturer facing a Justice Department kickback probe, filed for bankruptcy protection.
• Hudson’s Bay (+44.45%) Executive Chairman Richard Baker has set out with a group of investors to take the retailer/Saks owner private.
• Deutsche Bank (+1.85%) can’t stop Deutsche Banking. Now, it’s admitted to flaws in its anti-money laundering and sanctions controls.
• Private equity firm Apollo Global Management (+0.64%) will buy Shutterfly (+2.66%) in a take-private deal valuing the photo sharing service at $2.7 billion.

BREAKROOM

A Table, a Cat, and a Turtle
How tall is the table?

Breakroom Answers