The Sprint to the finish

MARKETS

  • U.S. markets: Indexes gave an uninspired performance Friday. After surging on strong earnings, tech stocks fell back down to earth.
  • U.S. economy: In Q1, U.S. GDP grew at a 2.3% annual rate. That came in above expectations, but below the previous quarter's growth. Wages are also trending up.
  • Earnings today: McDonald's, Allergan.

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M&A

Sprint and T-Mobile Finally Seal the Deal

Picture
After years of breathless "Will they?" or "Won't they?" intrigue, Sprint and T-Mobile are finally pulling the trigger on a $26 billion deal.

And as far as deals go...this one's big

  • The merger would join the #3 and #4 wireless carriers in the country, creating a $146 billion behemoth. With a combined 127 million subscribers, the new company (called T-Mobile and led by its CEO, John Legere) will pose a direct challenge to the two top dogs, AT&T and Verizon.
  • The race for 5G is heating up, but building out this next-gen wireless infrastructure will require a ton of capital. Combining resources should save billions a year, according to analysts (good news for Sprint—it's $32 billion in debt).
  • The number of Sprint and T-Mobile commercials could drop 75%. Well, one can hope.

Now, let's dive into the details

Deutsche Telekom, the majority owner of T-Mobile, will own 42% of the new company...but more importantly, it'll have voting control. That's not exactly what Masayoshi Son and SoftBank (which owns 85% of Sprint) had in mind originally.

  • Remember, merger talks fizzled last year when Masa was unprepared to lose control to Deutsche Telekom.
  • But he didn't have much of a choice after Sprint's big slump. SoftBank took control of Sprint for $22 billion in 2013...then the #3 carrier. Since then, it's been leapfrogged by the ruthless marketing machine that's T-Mobile. As of Friday, T-Mobile's market cap ($55 billion) more than doubled Sprint's ($26 billion).

But like any wedding, we have to ask: are there any objections?

There might be. Regulators will examine how industry consolidation from four to three wireless companies might affect your phone bill. It's why the FCC squashed Sprint and T-Mobile's first merger attempt in 2014.

But this time is different. There's a new sheriff in town at the FCC (Ajit Pai) who's less jazzed about regulation (he repealed net neutrality). So for Sprint and T-Mobile, it's all about anti-trusting the process.

TECH

Enterprise Software Firms Take Wall Street by Storm

Forget Spotify—there's a new wave of tech IPOs taking a byte out of Wall Street: enterprise software companies. These firms put all your company's antiquated processes on digital platforms.

Meet Smartsheet (up 30%) and DocuSign (up 38%), which both scored a perfect 10 on their dives into the public markets on Friday.

Smartsheet isn't playing NYSE

Smartsheet (but you can call it SMAR) wants to help your company "plan, capture, manage, automate, and report on work" all on its platform. Already, it's got clients in Starbucks and Cisco, and will look to add more after raising $174 million Friday.

DocuSign put its John Hancock on Nasdaq

DocuSign is a leader in e-signatures, bringing in $581.5 million in revenue (while operating at a loss). Valued at more than $6 billion, it raised $629 million in its IPO.

And now that it's public, three things are on CEO Dan Springer's mind: "Growth, growth and growth."

SUPPLY CHAIN

E. Coli Hits Lettuce. Again.

Romaine lettuce stole a page out of Chipotle's playbook, when a bad source of greens led to a nationwide E. coli outbreak. And as of Friday, the FDA tallied 98 cases across 22 states.

Zoom out: This isn't uncommon for the produce industry, which accounted for 46% of foodborne illnesses between 1998 and 2008. And it's especially not uncommon for lettuce. This is the second outbreak in less than 6 months, and in 2006, romaine rumbled through the stomachs of 200 people, killing three.

So I shouldn't eat my greens?

For now, the CDC says, ‘it can't hurt to be careful.' That's because the source of contaminated produce can be difficult to track. Between hundreds of suppliers, shippers, handlers, and grocery stores, it's difficult to know which salad came from which caesar.

Moving forward: In January, the federal government did give produce regulation a makeover, setting standards for packaging and storage. But if you ask Walmart, utilizing blockchain might be the real answer.

MEDIA

Charter Needs to Get Smarter After Q1

Netflix is hot. Charter's...not.

Just take one look at the cable provider's Q1—it lost 122,000 subscribers. Investors got the message, sending shares tumbling 16% to their worst day since 2009.

That puts at least one person in an awkward position: CEO Tom Rutledge. When Charter acquired Time Warner Cable and Bright House Networks in 2016, Rutledge said to expect some customers to drop at first, but it'll be back at it in no time.

Well, it's been quite some time...and Charter's not exactly back at it. Neither is Comcast, which reported losing 96,000 subscribers earlier in the week.

Is there a silver lining? Depends how you define silver lining. Charter did gain 331,000 internet subscribers this quarter, but guess what they might be signing up for?

Netflix.

WHAT ELSE IS BREWING

  • Big oil companies reported earnings on Friday. Chevron soared while Exxon didn't meet production targets.
  • The UK grocery space could get a shake-up, as Sainsbury is deep in talks to merge with Walmart-owned Asda.
  • Avengers raked in $630 million worldwide in its first weekend—a new box office record.
  • Saudi Aramco added its first female board member ahead of its IPO.

WATER COOLER

A CLOSER LOOK

Having trouble staying up-to-date on the latest developments in each industry? We got your back. And this week, we’ve cooked up something really special: we’re working with Chase for Business to celebrate Small Business Week 2018. Check out their one-stop-shop to help manage your business.

Here's an admission: the business world we write about in the Brew isn't really an accurate picture of the business world we live and breathe every day.

Because for every Bezos, Buffett, and Dimon, there are thousands of small-but-mighty Mom and Pops, digital marketing shops, franchisees, consultants, you name it. Small businesses are the meat and potatoes of our economy's hearty stew.

Got any proof?

Well, yeah. Small businesses (those with fewer than 500 employees) account for...

  • 99.7% of U.S. employer firms
  • 49.2% of private sector employment
  • 61.8% of net new jobs (from Q1 1993 to Q3 2016)

And here's our favorite stat: 98.5% of all employers in high-tech industries are small businesses. Innovation comes in all shapes and sizes.

And what about young people? Well, we're not creating as many small businesses as generations past. The rate of self-employment among people age 15-34 has been steadily dropping since 1990.

(Yes, that's a not-so-subtle hint to pull the trigger on that $1 billion idea floating in your head.)

BREAKROOM

PRODUCTIVITY TIP
Don't be so nice at work—Sure, we all want to be best buds with our co-workers (team dodgeball anyone?). But research shows that too much nodding along with our peers results in bad decisions and lower creative output. So what should your team do? According to entrepreneur and author Jonah Sachs, "Invite and listen to someone's unvarnished perspective, even when that perspective contradicts or weakens the positions of others."

THE WEEK AHEAD
Monday: PCE data, Earnings (McDonald's, Allergan)

Tuesday: FOMC meeting begins, Earnings (Apple, Pfizer, Merck, BP, Mondelez, Aetna)

Wednesday: FOMC meeting announcement, Earnings (Mastercard, CVS, Kraft Heinz, Tesla, ADP)

Thursday: Earnings (DowDuPont, Activision Blizzard)

Friday: Jobs report, Earnings (Alibaba, Celgene)

Saturday: Kentucky Derby, Cinco de Mayo

TRIVIA
By number of deals, 2017 was the most active year for IPOs globally since 2007 (EY). How many deals were there?

a) 576

b) 1,624

c) 2,203

d) 3,413

(Answer located at bottom of newsletter)

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Breakroom Answers


Business Trivia
B) 1,624

 

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