Salesforce, Royal Mail accepts bid, BHP quits pursuit of AAL, Chevron-Hess, ConocoPhillips-Marathon, Ambercrombie, Dick’s – Markets Defused

Markets Defused aims to give an easy-to-understand and straightforward recap of the day’s most engaging business and stock market news.

 

• Salesforce plummets as financials fall short of expectations
• Royal Mail takeover to run regulatory gauntlet
• BHP ends takeover pursuit of Anglo American
• Chevron gets greenlight from Hess shareholders
• ConocoPhillips strikes deal with Marathon
• Abercrombie & Fitch upgrades after record sales quarter
• Dick’s impresses Wall Street as sales beat expectations

 

Salesforce plummets as financials fall short of expectations

Salesforce Inc (NYSE:CRM, ETR:FOO) stock plummeted, down 16%, after its first quarter financial results disappointed compared to market expectations.

Revenue did increase 11% year-over-year, to $9.13 billion, but was shy of the $9.15 billion that Wall Street analyst consensus predicted.

Net income amounted to $1.53 billion, or $1.58 per share, up from $199 million and 20 cents per share a year ago. Analysts had expected Salesforce to report $2.37 per share.

Salesforce said its operating cash flow for the quarter was $6.25 billion, an increase of 39% year-over-year, while free cash flow reached $6.08 billion, up 43% year-over-year.

“Our profitable growth trajectory continues to drive strong cash flow generation,” chief executive Marc Benioff.

He added: “We are at the beginning of a massive opportunity for our customers to connect with their customers in a whole new way with AI.

“We’re incredibly well positioned to help companies realize the promise of AI over the next decade.”

In New York, the stock was down $44.07 or 16.2% changing hands at $227.53 in Wednesday’s ‘afterhours’ dealing.

Royal Mail takeover to run regulatory gauntlet

The takeover bid for Royal Mail parent International Distributions Services PLC (LSE:IDS) looks set to run the political and regulatory gauntlet in the UK, as the postal company’s board has now backed the offer from Daniel Křetínský.

Křetínský, bidding via an ‘EP Group ‘ vehicle, proposes to pay 370p per IDS share which pitches the transaction at a premium of around 73% to the prevailing share price immediately before the initial approach in mid-April.

The announcement from the IDS board, that it had recommended the EP Group bid, comes on the final day deadline under the UK takeover code.

As the deal now progresses it is expected that the deal will go through a phase of regulator diligence, further complicated by the British general election due to take place on 4 July 2024.

Chief among the concerns for regulators and politicians will be the protections for the universal mail provision, a legacy of Royal Mai’s heritage as the national postal service which mandates a number of delivery standards and operational KPIs which, if missed, result in fines from the government.

Additionally, UK Chancellor of the Exchequer Jeremy Hunt has recently warned that the government would also review any transaction from a national security standpoint.

Křetínský, today, commented: “The EP group has the utmost respect for Royal Mail's history and tradition, and I know that owning this business will come with enormous responsibility - not just to the employees but to the citizens who rely on its services every day."

BHP ends takeover pursuit of Anglo American

BHP Group Ltd (LSE:BHP, ASX:BHP) has ended its takeover pursuit of Anglo American PLC (LSE:AAL) after the proposal failed to find the backing of Anglo’s board.

It comes just hours after Anglo’s management declined to extend today’s deadline for BHP’s bid.

BHP confirmed, in a statement just before Wednesday’s market close in London, that it will now not make a firm offer to buy its London-listed mining peer.

“While we believed that our proposal for Anglo American was a compelling opportunity to effectively grow the pie of value for both sets of shareholders, we were unable to reach agreement with Anglo American on our specific views in respect of South African regulatory risk and cost and, despite seeking to engage constructively and numerous requests, we were not able to access from Anglo American key information required to formulate measures to address the excess risk they perceive,” BHP chief executive Mike Henry said.

“We remain of the view that our proposal was the most effective structure to deliver value for Anglo American shareholders, and we are confident that, working together with Anglo American, we could have obtained all required regulatory approvals, including in South Africa."

Anglo, which continually spurned all advances from BHP, previously called the takeover approach “opportunistic” and said there were “disproportionate execution risks” in the proposed takeover structure.

BHP’s third approach for AAL came earlier this month, with the deal price pitched at £29.34 plus certain concessions that included a potential 'reverse break fee' and other perks for existing AAL shareholders including a distribution of share in a spin-off of certain assets into a new company.

Chevron gets greenlight from Hess shareholders

In the United States, shareholders of Hess Corp (NYSE:HES) last night greenlit the oil firm’s $53 billion merger with Chevron Corporation (NYSE:CVX, ETR:CHV).

If concluded (and there are still significant hurdles ahead) the deal will give Chevron a substantial stake in one of the world’s largest offshore oil projects, as a partner of Exxon in Guyana.

"We are very pleased that the majority of our stockholders recognize the compelling value of this strategic transaction and look forward to the successful completion of our merger with Chevron," Hess chief executive John Hess said.

Exxon and China’s CNOOC are disputing the deal, however, claiming they had “right of first refusal” over the project and assert they were not given the opportunity to buy the stake in the project from Hess instead.

Today, in New York, Hess stock traded at $150.43 which is now some way below the theoretical merger price of $171 per share agreed with Chevron.

The paper-deal envisages around 15% of the enlarged company being held by the  Hess shareholder base.

ConocoPhillips strikes next major consolidation with Marathon deal

ConocoPhillips (NYSE:COP, ETR:YCP) meanwhile brought the market a fresh ‘big oil’ takeover, with an ‘all stock’ paper-deal to acquire Marathon Oil Corp (NYSE:MRO), setting an enterprise value of $22.5 billion – inclusive of some $5.4 billion of net debt.

Valuing the equity at around $17.1 billion the transaction is pitched at a 14.7% premium to Marathon’s share price yesterday.

Marathon shareholders will receive 0.255 new ConocoPhillips for each Marathon share they currently own.

It will, if concluded, take the current round of deal-making in the top-tier of the oil industry to around $250 billion.

Coming against a recent backdrop of heightened fuel pricing and greater scrutiny over carbon emissions, and the ascent of renewable energy and electric vehicles, the trend would appear to suggest that the leaders in the sector are more inclined to consolidate and chase ‘synergies’ rather than pour new capital into new projects for organic growth.

ConocoPhillips told investors it sees at least $500 million of run rate cost and capital savings within the first full year after the transaction.

It meanwhile proposed to increase its dividend payout, with its ‘base’ dividend to increase by 34% to 78 cents per share in the fourth quarter.

After the deal, the enlarged company anticipates it’ll undertake some $20bn of stock buy-backs over three years – with $7bn earmarked for year one.

Ryan Lance, ConocoPhillips chief executive, said the deal deepens the group’s portfolio by adding ‘high-quality, low cost’ inventory adjacent to the company’s unconventional oil and gas resources.

Abercrombie & Fitch upgrades outlook after record sales quarter

Abercrombie & Fitch (NYSE:ANF) reported a record quarter of sales, with revenue up 22% to exceed $1 billion for the three months.

It sent the stock soaring, up 19%  to trade at $181.57, as both revenue and earnings per share metrics comfortably beat Wall Street forecasts.

The fashion company said sales of its Abercrombie & Fitch brand improved 31% year-over-year, while the Hollister brand saw a 12% rise.

Chief executive Fran Horowitz described the financial results as “outstanding” and told investors that the performance reflected the power of the group’s brands and ‘strong execution of a global playbook’.

Abercrombie upgraded its outlook for the full year, in terms of sales and margin, envisaging around 10% net sales growth and a 14% improvement in margin – compared to 4-6% and 12% respectively.

“We remain on track to achieve our 2024 goal of demonstrating sustainable, profitable growth after a defining year for the company in fiscal 2023,” Horowitz added.

Dick’s impresses Wall Street as sales beat expectations

Dick's Sporting Goods (NYSE:DKS) traded 16% higher on Wednesday after impressing Wall Street with its first quarter financials.

The equipment and apparel retailer reported net sales of $3.02 billion for three month period, a 6% improvement last year. It said the growth was driven by higher transaction volumes and improved average ticket sizes.

Revenue and earnings metrics came in ahead of Wall Street forecasts.

"Our strong first quarter results continue to prove that DICK’S is the go-to destination for sport and sport culture in the US," executive chair Ed Stack said in Dick’s statement.

"The product pipeline from our key brand partners and our vertical brand portfolio has never been better."

Upgrading its guidance for the full year, Dick’s now sees sales growth between 2% and 3%, improved from 1% to 2%, and it now expects full-year earnings to come in at $13.35 to $13.75 per share, versus its previous guidance of $12.85 to $13.25.

Dick’s stock was up $31.86, 16.3%, to $226.67.