A Marriage Made in Obesity

Shares of Del Taco Restaurants Inc. (TACO) took off in Monday’s trading session after it was announced that Jack in the Box (JACK) will be buying the fast food Mexican chain for $12.51/share in straight cash homie. The stock gained 66.7% on the day and is now up 38.2% for the year. Meanwhile, Jack in the Box saw its shares drop 4.1% on the day which is not unusual for the acquiring company. And in what could only be a direct result of this announced deal, Procter & Gamble, the maker of Pepto Bismol, is up 1.5% on the day. Coincidence? I think not.

• Del Taco is the second largest Mexican fast food chain in the U.S. behind Taco Bell with approximately 600 locations across 16 states. The combined company will have a combined 2.8k U.S. locations across 25 states.
• The deal is valued at roughly $575M and immediately increases Del Taco’s market value from roughly $274M to $450M.
• According to Jack in the Box CEO Darin Harris, the deal is “… a natural combination of two like-minded, challenger brands with outstanding growth opportunities.” Outstanding isn’t the word I would have used, but ok.

I have three questions regarding the announced deal: First off, how the hell do you not announce this on a Tuesday so I could make a Taco Tuesday reference? Second, when will the new entity follow in the footsteps of Dunkin’/Baskin Robbins and Dairy Queen/Orange Julius and open up an absolutely unnecessary combined drive thru? And third, if Del Taco’s execs didn’t like the terms of the deal, would they have told their suitor to go Jack off? I’m keeping $TACO on my watchlist and holding off on buying the stock to see if we get a bit of a selloff once the deal is completed.

BuzzFeed Went Public: You

Won’t  Believe What Happened

Next

Please click through this 27 slide article!

Newly public company BuzzFeed (BZFD) was kicked in the listicles Monday, dropping 11% to close at $8.56. Last week BuzzFeed went public via SPAC and expected to raise $16M from the deal after 94% of the SPAC’s capital was pulled out by investors. Here are the top 11 acquisition candidates that the clickbait peddler will target, number 5 will blow your mind! Kidding, kidding, relax, we wouldn’t do that to you.

• It’s easy to make fun of BuzzFeed with their algorithmic approach to “writing” that features one sentence per page checklist driven articles, but the company did produce $321M in revenue and $31M in EBITDA in 2020.
• BZFD is the first of the major clickbait factories, I mean, digital media companies, to go the SPAC route. Competitors like Vice, Vox, Bustle, and Group Nine are all exploring the possibilities.
• The company is expected to roll up smaller entities under the new umbrella, hoping to achieve scale that builds sustainable advertising revenue.

BZFD could be a good one to watch as an indicator of both the digital publishing space and the SPAC market as a whole. If it succeeds, the other big players could be fast followers into the public markets. If it continues to tank faster than an NBA team out of playoff contention, then we could see many other SPAC companies get hit with big redemption requests.

Feeling the heat

Walmart thanks to its Tesla solar panels.

A couple EV manufacturing companies were feeling the heat Monday, almost as hot as standing next to a burning Walmart. Tesla is under SEC investigation for failing to disclose critical flaws in its solar panel technology. Lucid is also feeling the burn as they are added to the list of EV companies drawing the Commission’s ire due to SPAC mergers. The news hit both companies, with TSLA falling as much as 6.4% on Monday and LCID hitting a one month low.

• In March, the Consumer Product Safety Commission started looking into Tesla after a whistleblower complained about fire risks with their solar panel tech. Well the SEC wanted in on the fun after the same whistleblower issued a complaint that Tesla failed to disclose this with shareholders. When the SEC hounds catch a scent, they come running.
• Lucid became the subject of SEC scrutiny after they went public via SPAC merger with Churchill Capital Corp. IV. This form of IPO has been popular in the industry and it’s possible that the Commission is taking a closer look due to the potential for a SPAC to provide startups some cover regarding their business projections.

It was pretty evident that something was cooking at Tesla considering Walmart sued the Manufacturer in 2019, blaming Tesla’s rooftop panels for SEVEN store fires. What the announcement of these investigations does teach us is two-fold: the golden boys of the EV industry are not infallible, and that the SEC is not afraid to get involved. Perhaps most importantly it reveals that the Commission is skeptical of SPAC mergers (they’ve outright said as much). You might want to start paddling Canoo…

Dogecoin, the OG meme coin, turned 8 on Monday. What’s that in dog years? Originally launched as a joke and a warning about the speculative properties of digital currencies, the coin has a market cap of $22B. DOGE is the 11th biggest digital asset by market cap and is actually used to buy and sell goods and services, unlike many other tokens.

• DOGE is accepted as a payment form at several diverse businesses from the Dallas Mavericks online store, to AMC, to NewEgg, to SpaceX. Using a currency as a payment vehicle, what a concept!
• The digital currency hit an all-time high of $0.74 back in May, but has been a bad boy since, falling 77% since then.
• In 2022, DOGE is quite literally going to the moon aboard the DOGE-1 satellite, carried by, you guessed it, Elon Musk’s SpaceX.

It’s a joke digital currency based on a dog meme but the fact is that DOGE cannot simply be written off. The broad adoption and popularity of the token, as well as it occupying a place in the collective zeitgeist means that we have to at least keep an eye on it. Hopefully, it won’t drag its digital hindquarters across the floor or take a pixelated sh*t in the corner.

-Kohl’s board to Engine Capital…probably

Department store chain, Kohl’s (KSS), saw its shares spike 5.4% Monday following a report that activist investor Engine Capital is pressuring the mediocre retailer to consider a “strategic review” of the entire company. Engine, which owns roughly a 1% stake in the company (not that impressive) says Kohl’s should consider a sale of the entire company or a separation of their e-commerce division to boost the company’s stock price.

• The activist hedge fund believes that Kohl’s e-commerce division could be worth up to $12.4B assuming stated online sales revenue of $6.2B.
• Engine Capital also believes that there are PE firms that would pay $75/share for Kohl’s… showing that they have never shopped at Kohl’s.
• This isn’t its first rodeo, as Kohl’s faced pressure earlier this year from a group of activist investors that raised doubts about the company’s direction.
• They’re not the only ones, as Macy’s was approached in October by activist group Jana Partners in an effort to get the company to spin off their e-commerce division.

Aside from the obvious, which is that activist investors are never happy, it’s apparent there is a strong appetite for the digital divisions of major department stores. While $KSS is up a respectable 25.5% year-to-date following today’s report, that pales in comparison to Macy’s (M) stock price which is up 141.2% over the same period. I have both $KSS and $M on my watchlist as it may make sense for me to buy the lagging company ($KSS) and sell the leader ($M) in what savvy investors refer to as a pair’s trade.

Other News Link Roundup

• I hope he gets coal – Better.com CEO lays off 900 employees over Zoom call 
• Storm Clouds for Sunshine 100 – Chinese Developer Misses $179M Debt Repayment 
• Computer Nerds Crying – Nvidia, AMD, Semiconductor Companies Drop 
• Doubling Down on Digital Future – Salesforce and Zoom lead $580M Investment in Call Center Software 
• While Tesla’s on Fire Rivian Keeps Cool – Wall Street Pretty Bullish on the Stock 
• Oil Vs. Omicron – Saudis Keep Prices Up 

The economic outlook is very #nice via @litcapital