Deals Emerge As Earnings Roll

They say professional investors have strong opinions, loosely held. Well, that certainly seems to be the case with their commentary. 🙃

Less than three months after declaring he was betting against U.S. Treasuries, Bill Ackman was back on X, revealing that he is now out of the trade. 💸

We covered our bond short.

— Bill Ackman (@BillAckman) October 23, 2023

Replying to his post above, he explained his flip-flop by saying that “there is too much risk in the world to remain short bonds at current long-term rates.” and “The economy is slowing faster than recent data suggests.”

At surface level, this seems to be a prudent idea. After all, when he initially put the trade on in August, the Israel-Hamas war was not a risk anyone was actively anticipating. However, the timeframe of this move doesn’t make a lot of sense to investors. 🤔

When he initially outlined his bearish thesis, he focused on longer-term structural factors happening globally that would keep inflation persistently high. He cited de-globalization, higher defense costs, the energy transition, growing government entitlements, and the historically tight labor market.

And all of those factors still exist today. Not much has changed with the economy or the Fed’s forecast, and if anything, they’re expected to keep rates higher for longer than they anticipated this summer.

Maybe it’s because bonds moved very quickly to the downside since August, giving him pause about near-term sentiment and positioning in the market. That would certainly be fair. But as usual, we mere mortals are left with a concerning lack of clarity on what these “masters of the universe” actually think about the market. 🤷

Nevertheless, another Bill was also in the headlines today. PIMCO’s Bill Gross took to X to express his view that the U.S. economy is likely headed for a recession by the end of the year, stating:

Regional bank carnage and recent rise in auto delinquencies to long-term historical highs indicate U.S. economy slowing significantly.
Recession in 4th quarter.
Best investments are equity arbs (CPRI and SGEN. VMW a long shot). I’m seriously considering regional banks again. 1/2

— Bill Gross (@real_bill_gross) October 23, 2023

With the Atlanta Fed’s GDP tracker indicating a third-quarter expansion of roughly 5.4% and economists looking for a 4.5% annualized growth rate, a fourth-quarter downturn would be a quick turnaround. But apparently, Gross has enough conviction to post about it publicly, also sharing how he intends to play it.

Overall, he’s betting that the Treasury curve will continue to steepen and investing in some merger-arbitrage plays. He’s also considering getting long regional bank stocks as they remain in significant drawdowns this year and have continued selling off as earnings season unfolds. 🏦

What people say and what they do in their portfolios don’t always align, and public statements are almost always self-serving. Nonetheless, when big-name investors tout their ideas publicly, there’s generally fanfare around them for a bit. For now, investors will be watching Treasury bonds as we wait with bated breath for the Bills to update their theses. 😬

As is usually the case, there was a lot of weekend news regarding mergers, acquisitions, partnerships, and more. So, let’s review the biggest ones. 👇

First up is oil giant Chevron buying its U.S. rival Hess for $53 billion, marking the second-largest deal in decades. The all-cash deal comes just weeks after Exxon Mobil purchased Pioneer Natural Resources for $59.5 billion to expand its reach in the Permian Basin. It also purchased Denbury this summer for $4.9 billion.

The deal makes Chevron a partner with Exxon in Guyana’s oilfields, which are expected to generate roughly 1.2 million barrels of oil per day by 2027. While it still needs to clear U.S. and international regulatory reviews, analysts see limited anti-trust concerns given the breadth of the industry. And with oil prices staying elevated and the oil majors coming off years of record profits, it’s expected that further industry consolidation is ahead. 🛢️

Next up is Disney, which continues to sell off some of its non-core assets as it refocuses its overall business strategy. The company is reportedly nearing a $10 billion deal to sell a controlling stake in its Indian business to conglomerate Reliance Industries, its largest rival in the country. It had been exploring other options with billionaire Gautam Adani, Sun TV Network owner Kalanithi Maran, and private equity firm Blackstone. Final details are expected next month if talks go smoothly. 🐭

The global shipping industry saw a major buyout as Stonepeak acquired one of the world’s largest lessors of intermodal containers, Textainer Group Holdings. The investment firm specializing in infrastructure and real assets will pay $50 per share in cash, giving the company an enterprise value of about $7.4 billion. 🚢

Customer engagement software and payments solution company EngageSmart confirmed Vista Equity Partners is acquiring it in a $4 billion all-cash deal. It represents a roughly 13% premium to Friday’s closing price and includes a 30-day “shopping” period during which EngageSmart can solicit other buyout bids. 💰

A Pfizer and Roivant Sciences company, Telavant Holdings, is being acquired by Swiss healthcare company Roche for $7.1 billion. The immunology firm produces drugs for patients with inflammatory and fibrotic diseases and is currently developing a “promising new therapy” for patients with Crohn’s disease.

Roche will use its resources to begin global Phase 3 trials, expanding clinical testing of Telavant’s drugs to hundreds of thousands of patients. The deal includes a $150 million milestone payment and gives Roche the option to collaborate with Pfizer on a new inflammatory bowel disease drug. 💊

Lastly, fertility firm INVO Bioscience jumped nearly 300% after agreeing to an all-stock reverse merger with oncology and regenerative medicine company NAYA Biosciences. Once the deal closes later this year, INVO shareholders will own roughly 12% of the combined company. 🤝