December 21, 2021

The Build Back Deader Act

Good morning traders,

Welcome back to The Daily Setup. Markets were down bad yesterday, with all three major US indices falling over 1.1%. Here’s what’s on the docket today:

  • Oracle acquires Cerner
  • Bank of Montreal acquires BNP’s US unit
  • Things don’t look pretty for the US’s GDP if the BBB doesn’t pass

Let’s get to work.


Verso, Oracle, and Bank of Montreal


All about that paper – Verso gets


Shares of Verso Corp surged over 31% yesterday on news that the company will be bought by BillerudKorsn AB. They do words differently in Sweden. BillerudKorsnas will pay $27/share, which is a 35% premium on $VRS stock. The deal, which amounts to $825M, is expected to close in Q2 2022.

  • Verso is a North American producer of printing paper and specialty paper, and a direct competitor of Dunder Mifflin.
  • This is huge for Verso, which has had a rough couple years. After filing for bankruptcy in 2016, it closed several mills, aborted plans to reopen them, and then paid a settlement to the state of Maryland for polluting the Potomac river. No wonder its board unanimously approved this deal.
  • BillerudKorsnäs plans to spend $1B converting Verso’s Escanaba Mill facility– the company’s largest– into a sustainable paperboard production site while keeping Verso’s other mill open to service North American markets.

One of BillerudKorsns’ main motives in acquiring Verso is to take advantage of its physical location (read: North America), which gives it better shipping routes to Asia and parts of Europe. This is promising for long-term growth prospects, but those also depend largely on how the world recovers from the pandemic, because demand for paper is highly dependent upon whether workers are back in the office and children are back in schools. Maybe written letters will make a return.


For your health – Oracle acquires


It has been quite the month for software giant Oracle. After experiencing one of its biggest gains in 20 years last week, the company continued its tear by announcing that it will be acquiring medical-records systems provider Cerner Corp for $28.3B. Oracle is flexing a bit of its financial prowess by making the deal an all-cash transaction, paying $95 per share, a 20% premium over Cerner’s Market value last Thursday when the talks went public. By this point one doesn’t need to read the tea leaves to know that Oracle has some serious momentum and is acting upon it.

  • Oracle had been the second-biggest software producer by revenue in 2020, but has been lagging behind major competitors like Amazon and Microsoft (ever heard of ’em?) when it comes to cloud computing and data solutions. Its acquisition of Cerner is meant to address this deficiency while also giving them a foothold in the healthcare industry.
  • This deal also comes on the heels of Cerner appointing former Google Health VP, David Feinberg, as its CEO on October 1st. Feinberg’s stated goal was to pivot Cerner away from the legacy health records business and focus more on data-driven strategies. Goal: achieved.
  • With Oracle paying a serious premium of $95 per share of Cerner, the company’s own stocks slid 5.14% by market close Monday. Meanwhile trading of shares in Cerner was halted for the time being.

After the impact that its earnings report made last week, it was clear that the decision-makers behind Oracle were looking deep into the future. They had already experienced real success with their cloud-based solutions, but this move to acquire Cerner really fills out their options. With the healthcare sector expected to spend upwards of $15.8 billion on cloud-infrastructure it appears to be a moment of adept insight from the all-knowing Oracle.


I go to America – Bank of

Montreal to acquire BNP Paribas’

Bank of the West

Dropping mentos into coke has nothing on the shakeup that just occurred in the banking world. The Bank of Montreal announced Monday that it will be purchasing BNP Paribas’ US unit, Bank of the West, for $16.3B. The Bank of Montreal will now have a presence in 32 US states, and gain 1.8M new customers, while BNP Paribas can now concentrate its efforts within Europe (and will have a cool $16.3B to mess around with).

  • The US has been an unattractive market for non-American banks. This move by BNP Paribas follows sales made by other European banks like BBVA who sold off their US operations in 2020.
  • The deal is being hailed as accretive by the executives of both banks, with BNP emphasizing that the move will allow them to fuel more share buybacks and finance future acquisitions. This would give them a lot more flexibility than other European banks.
  • The deal will also increase the US contribution to BMO’s pre-provision, pre-tax earnings from 36% to 44% in fiscal year 2021.

The executives over at BMO and BNP Paribas must be clinking their champagne over some poutine right now because this deal really does seem to benefit both parties. For the rest of us the deal serves to demonstrate some potential trends in the banking sector. First off, BNP Paribas stated that they’ll use the funds from this deal to fuel share buybacks which gives credence to the theory that we’ll see increased buybacks in the coming year (particularly in banking). It also could indicate that there are to be further shake-ups with European banks shedding their US operations. If this remains the case it may be worthwhile to keep track of other international banks before they scurry back across the pond.

Digital Asset’s wealth inequality is off the (block)chain

Token Talk

^TFW you’re in the top 0.01% of both Bitcoin owners and the U.S. government

According to a recent study, the top 10k bitcoin accounts– the richest 0.01% of BTC owners— hold 5M bitcoins. This amounts to $232B and is over a quarter of the world’s digital currency. By contrast, a similar share of the U.S.’s wealth belongs to the top 1% of earners. You know your income inequality’s f*cked up when it’s 100x worse than in the United States.

  • So it’s not really decentralized, then, is it? digital currency’s champions claim that freedom from government control is one of its main benefits. But it turns out that without their interference, the technology’s future lies in the hands of a tiny group of self-interested individuals with no obligation to the public good who could single-handedly inflate currencies or ignite mass selloffs. Sound familiar?
  • On the other hand, some lawmakers responsible for regulating digital currency own up to a quarter-million USD in digital assets and think that owners of the technology are best situated to regulate themselves. Which is hard to argue with when you remember that the senators charged with investigating Facebook in 2018 didn’t know what the internet was.

The cost of mining is only going to go up. Centralization will continue, and those at the top of the digital asset pyramid will naturally lobby against regulation. What this means is that digital assets’ volatility is here to stay– and maybe gets worse– unless U.S. regulatory bodies take a harder and more progressive line against the technology. And if that happens, coins’ value will probably take a hit across the board. So it’s a tradeoff between uncertain and certain bad news.

Build Back Deader

Rumor has it

Goldman Sachs downgraded their quarterly GDP forecasts for 2022 on Monday after West Virginia senator and coal goblin Joe Manchin withdrew his support for the Build Back Better Act. Congress, which was set to vote on the bill before year-end, will push the vote til January, where it is equally as unlikely to pass unless anything major changes.

  • The news led Goldman to knock their Q1 outlook from 3% to 2%, Q2 estimates from 3.5% to 3%, and the Q3 forecast from 3% to 2.75%. Big Infrastructure meanwhile shed a single silent tear.
  • This hit no one harder than clean energy stocks and ETFs, with some like Invesco Solar and SolarEdge dropping as much as 6.72% and 10.56%, respectively. That’s what we call a Green No Deal.
  • It remains to be seen whether BBB will breathe its last on the Senate floor or pass in some crippled form. Manchin presented Biden with a series of changes that might make him vote for a much smaller, narrower bill. The difference between the two will affect government spending and thus subsequent GDP forecasts.

Personal financial interests aside, one of Manchin’s stated concerns with BBB is how it would exacerbate inflation. Regardless of whether or not some version of BBB survives, the government will be spending less money in 2022 than they would have if BBB went through. This could mean improved market sentiment and a larger appetite for risks but it will also mean stunted growth.

Link Roundup 📿

Other News

Other News Link Roundup

  • Stock Smorgasbord: BofA Picks A Stock in Every Sector for 2022 (Read)

  • “He’s Just Like Me!”: Elon to Pay $11B in Taxes this Year (Read)

  • Companies Go Holiday Shopping: Mergers & Acquisitions Hit $5T in 2021 (Read)

  • So That’s What the Kids Mean These Days: Guide to Tech’s Biggest Buzzwords (Read)

  • Making Cents Sense: SenseTime Relaunches IPO after US Investment Ban (Read)

  • Rocket Fuel: Rocket Companies Acquires Truebill in Major Play (Read)


Back to work, via @xamanap

Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

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