Hello fellow Finimizer, you're reading the 🌍 Global edition for April 6th.
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EUROPE IS LAGGING AMERICA (AGAIN)

rook76 / Shutterstock.com

What's Going On Here?

Some important economic data came out for both Europe and the US on Tuesday. Europe’s recovery remains pretty tepid but the US appears to be doing slightly better than feared.

What Does This Mean?

In the US, a major measure of “services” (i.e. things like insurance, shopping and eating out) showed that activity is picking up more quickly than any month since October of last year. That’s quite good news, given services account for roughly 80% of the US economy.

In Europe, the data showed its service economy has been expanding at the weakest pace since January 2015. Also, German factory orders, which are, unsurprisingly, defined as “orders from German factories,” fell to their lowest level in six months. The UK is experiencing a slower expansion in services activity as well, although some of the weakness is being attributed to the upcoming Brexit referendum and, therefore, might be only temporary.

Why Should I Care?

The bigger picture: The trend is your friend (when it comes to analysis). No individual piece of data is all that important but, rather, it’s the overall picture that matters. Tuesday’s data fits with the narrative that Europe’s economic growth is recovering from the financial crisis but not accelerating like one would hope. But perhaps the more interesting news was from the US data, which suggested that “services” are not struggling as much as many feared earlier this year.

For you personally:  Sorry continentals, you’re still lagging. Unemployment in Europe remains above 10% while it’s around 5% in the UK and US. The only (major) bright spot in Europe remains Germany (5.3% unemployment).

Do you have questions or comments on this subject? Join the discussion here (anonymously if you'd like).

QUOTE OF THE DAY
"If you’re offered a seat on a rocket ship, don’t ask what seat! Just get on."
- Sheryl Sandberg (An American author, activist, and COO of Facebook.)
Tweet us your recommendation with #FinimizeQuote and you will be featured in one of our next newsletters!

OBAMA TACKLES A TAX ISSUE IN M&A

Joseph Sohm / Shutterstock.com

What's Going On Here?

The Obama administration is changing the rules to make it harder for companies to complete so-called “inversion deals.” Such deals involve a US company buying a smaller foreign company and headquartering the combined entity outside of the US. That allows the company to pay a lower tax rate than it would in America.

What Does This Mean?

The location of a head office is very different than, say, a company’s factories. American jobs are lost when Ford moves some of its car-making production to Mexico. But when a corporation changes its headquarters, not that many jobs necessarily move abroad (it’s amazing how slim a “head office” can be). But the corporation pays tax overseas at a lower rate - and therefore the US government loses important tax revenue.

Why Should I Care?

For the markets: It’s bad for some stocks. The biggest immediate impact is on the deal to combine massive US drugmaker Pfizer with Dublin-based Allergan. Allergan shares, which had increased when the deal was first announced, fell 15%. The merger now appears unlikely to proceed (it hadn’t completed the various steps, like a shareholder vote, required for it to be final). The new regulations could also depress the value of mid-size companies (especially in pharmaceuticals) that are based in lower-tax jurisdictions like Britain and Ireland since their profits could be impacted (it’s kind of complicated) and they’re now less likely to be bought by big American rivals.

For you personally: Taxation of companies is a big political issue – do you care? It’s a bigger deal than just jobs and tax income. For example, many American companies are currently leaving a ton of their profits in overseas bank accounts (e.g. what Apple makes in Europe doesn’t come back to the US to be spent on things like R&D). If they returned that money to America it might be spent creating more US jobs or buying American companies (i.e. you’re more likely to get a new, higher paying job or have your startup acquired). But not everyone thinks companies should pay less tax - and so it’s a tough pill for politicians to swallow (pharma pun intended...).

Do you have questions or comments on this subject? Join the discussion here (anonymously if you'd like).

Q&A

Question?

Jan asked: "I was wondering, how does a bidding war leading to a takeover of a publicly traded company work in practice?"
(regarding: Virgin And Alaska Fly Away On Their Honeymoon)

Finimize's answer:

"Bidding wars often happen in different ways. In this case, it took place largely behind closed doors. Reportedly, offers for Virgin America were due at some point late last week - and the highest bidder, Alaska Air, ended up winning (it’s not clear if there was more than one bidding round). Other deals take place in a more public view, like the recent 'bidding war' between Marriott and Anbang over Starwood Hotels: the new bids became public knowledge as Starwood 'agreed' to them, only for the other bidder to come back with a higher offer (in a weird twist, Anbang walked away, but that’s a different story.)"

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