The Weekly Scan May 30, 2022

Welcome to the Weekly Scan. Here’s what we’re following for the week of May 30, 2022.

Cloudy with a chance of making it rain. Broadcom is purchasing cloud-computing business VMware for $61 billion, making it the biggest acquisition by a chipmaker. At that figure, Broadcom will pay a 44% premium on VMware’s closing price on May 20, 2022. As part of the acquisition, investors in VMware can either receive $142.50 or 0.2520 of a share per share they own. If VMware decides to pursue a superior deal before July 5, it will have to pay a $750 million breakup fee. After that point, the fee will increase to $1.5 billion. Broadcom is also liable to pay a $1.5 billion fee if the deal falls apart due to regulatory concerns or if Broadcom wants to terminate the acquisition. 

• The takeaway: This merger is part of a larger series of acquisitions made by Broadcom’s CEO Hock Tan. In an effort to diversify its offerings, Broadcom previously bought corporate-software manufacturer CA Technologies in 2018 and enterprise security business Symantec Corporation in 2019. Broadcom makes the parts necessary to build technologies such as iPhones and industrial equipment. But the company has also reportedly seen success in data centers, which require cloud-computing services to function. Acquiring VMware is one way Broadcom can support its data center growth. Broadcom’s news follows a few other big tech acquisitions this year, such as Microsoft’s purchase of Activision Blizzard.

Bloomberg

Makes cents. Both Dollar Tree and Dollar General delivered better-than-predicted earnings, despite record inflation putting pressure on consumers. Dollar Tree’s same-store sales increased 4.4% for the quarter ending April 30, 2022. Profits also increased. As a result, Dollar Tree inflated its full-year sales and earnings estimate. The news may have come as a surprise since Dollar Tree made the controversial choice to hike prices from the $1 standard in September 2021. Also during the most recent quarter, Dollar General’s same-store sales fell 0.1%, but quarterly profits still managed to beat expectations. Dollar General increased its same-store sales growth prediction. Dollar Tree and Dollar General’s share price shot up in response to the earnings news. 

• The takeaway: The strong earnings follow less optimistic reports from big retailers like Walmart and Target a week earlier. Target reported that its profits fell 52% in the first quarter of 2022, and the company’s share price decreased 25% in response. Walmart’s first-quarter earnings also failed to meet expectations, with earnings per share totaling $1.30 per share, versus the expected $1.48. Walmart and Target, as well as many other businesses, have been hit by supply-chain disruptions, and inflation causing customers to pinch pennies. Discount stores like Dollar Tree and Dollar General tend to perform well during periods of economic stress, according to the Wall Street Journal. Consumer spending is still strong, but customers are looking for lower prices, which dollar stores can offer. 

Wall Street Journal

Jobless drop. Jobless claims fell by 8,000 to 210,000 for the week ending May 21, 2022. While some analysts are blaming the recent spike in unemployment on seasonal factors, others are saying that layoffs are on the rise, due to inflationary pressures and lower-than-expected profits. Meanwhile, the GDP actually fell at a sharper rate than previously thought. The government revised its assessment, saying the GDP actually declined at an annualized rate of 1.5%, not 1.4% as had previously been reported. One reason for the shrinking GDP is the trade deficit. Imports into the U.S. have remained high, but exports to other countries are falling as many importing economies struggle to grow. Still, final sales to private domestic purchasers increased 3.9%, higher than previously thought, demonstrating strong consumer spending.

• The takeaway: These numbers could be representative of an uncertain economic future. Companies like Walmart and Snapchat have cut down earnings predictions for the year because of inflation. Corporate profits for the first quarter of 2022 fell $66.4 billion, at a 2.3% rate. One way to cut spending for big tech companies could be laying off employees. 

Reuters

Bye bye bye. Justin Timberlake sold the rights to his entire catalog of songs to Hipgnosis Song Management in a deal estimated to be worth more than $100 million. The catalog includes hits like “Cry Me a River” and “SexyBack,” as well as NSYNC songs like “Bye Bye Bye.” Hipgnosis Songs Capital is backed by private equity firm Blackstone. The deal does not reportedly affect Timberlake’s future songs. 

• The takeaway: Timberlake is the latest in a series of musical artists to sell their catalogs. In December 2021, Bruce Springsteen sold his catalog to Sony for $550 million. Bob Dylan also sold his catalog of recorded songs to Sony for a price between $150 million and $200 million in January 2022. In December 2020, he sold his songwriting library to Universal Music Publishing Group. In October 2021, Tina Turner sold her catalog for $50 million. 

CNBC

Other stories we’re following:

Elon heads to court, again? Twitter shareholders are filing a class-action lawsuit against Elon Musk over his attempted acquisition of the social media platform. 

Fired up. Eleven Chipotle workers were arrested at a protest in midtown Manhattan, where employees were calling for a higher minimum wage and better working conditions. 

 Here’s what we covered last week in the Scan: 

• Earnings reports from big retailers including Walmart and Target showed that supply-chain issues are cutting into profits.
• President Biden launched Operation Fly Formula, invoking the Defense Protection Act to ramp up production and ship more formula into the U.S. from overseas. 
• JetBlue launched a hostile takeover bid for the low-cost air carrier Spirit, offering shareholders $30 per share, weeks after Spirit chose a merger deal with Frontier.
• In the ongoing saga of Elon Musk’s attempt to acquire Twitter, Musk tweeted that his acquisition plans won’t move forward unless the social media company discloses how many accounts on the platform are spam bots.

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