Coin Flip

Merck leaps at major M&A opportunity ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

July 8, 2022

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Good morning.

On Thursday, the Dutch parliament voted to legally enshrine the right to work from home. Under the new legislation, employers will be forced to provide a credible reason for denying an employee's work-from-home request.

Now to see how many Goldman Sachs bankers request a transfer to the firm's swank new Amsterdam office, where they will surely turn up every day.

Morning Brief

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Copper prices are signaling a recession warning, it might mean nothing.

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Biotech giant Merck could drop $40 billion in the hopes of protecting its future in the drug market.

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The hunt is on for available employees.

macroeconomics

Economic Bellwether Copper Warns Recession, History Says It's Complicated

Is it possible to use the price action of one, single commodity to predict the future direction of the entire economy? Probably not, but that doesn't stop academics and analysts from trying.

Welcome to the story of copper. The red metal, which some consider an economic barometer, flashed warning signs this week as it continued its declining trajectory. It could mean everything or nothing, depending on who you ask.

Conversation Copper

Copper has as many nicknames as a star NFL wide receiver. Last year, Goldman Sachs called the highly conductive metal "the new oil," owing to its crucial role in electric vehicles and renewable energy infrastructure. Market analysts, meanwhile, refer to it as "Dr. Copper," because the metal is seen as a leading economic indicator due to its usage in such a wide variety of industries (and thus, they joke, has a Ph.D. in economics).

And they're right, sometimes. Copper prices rebounded in advance of the economic recovery during the pandemic, after hitting multi-year lows in the trench of March 2020. More recently, copper prices are down 22% in the second quarter, the sharpest drop since 2011. But what that means depends a lot on who you ask:

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This week on the metals market COMEX, Copper futures for September delivery hit $3.40 per pound, the lowest since November 2020 — signaling a potential slowdown. "The present day focus in copper is all about expected demand destruction from recessionary forces," John Caruso, or RJO Futures, told Marketwatch.

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On the flip-side, copper's recent decline can at least be partly attributed to governments scrambling to resolve energy market disruptions caused by Russia's invasion of Ukraine. Some governments have temporarily deprioritized renewable investments in favor of quick, fossil fuel relief, thus diminishing the outlook for copper demand.

Professor's Bad Grade: Whether or not copper has a Ph.D., no professor is always right. Marketwatch columnist Mark Hulbert noted this week that, from 2011 to 2016, copper prices fell nearly 60%, while the S&P doubled over the subsequent four years. Meanwhile, on Thursday, the S&P 500 and the tech-heavy Nasdaq 100 rose for the fourth straight day, extending a modest winning streak for Wall Street.

Healthcare

In Deal Desert, Merck is Narrowing in on a $37 Billion Seagen Acquisition

Merger and acquisition activity in the United States dropped 40% to $456 billion in the second quarter, according to Dealogic data. It's a stark contrast from the M&A Candyland of years past, where low rates and aggressive corporate strategy meant an inordinate amount of deals (and happy senior bankers).

But Biopharma giant Merck, according to multiple reports, is nearing the finish line of a $40 billion deal for smaller rival Seagen, kicking off what analysts hope will be a bargain bin spree during the market downturn.

The Replacements

Pharmaceutical M&A touched record highs in 2018 and 2019 and even kept rolling during the first year of the pandemic. At the same time, major biotech companies grew accustomed to raising large sums of money from public and private capital markets, only for funding to get swept up in economic uncertainty. Activity hit a five-year low by the second quarter of 2021, in terms of both dollar amount and biotech transaction frequency.

But analysts have expected a revival of biotech M&A as valuations plummet, knowing that large biotech firms are likely to go hunting during the downturn. One such company under considerable pressure to kickstart the M&A frenzy? Merck, which derives a large share of its revenue (too much, some say) from cancer drug Keytruda, one of the most profitable drugs in the world. Keytruda, which saw 20% sales growth last year to $17 billion, will go up against cheaper generic drugs starting in 2028. That's why it's little surprise the company is considering forking over nearly $40 billion for Seagen:

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Based in the Seattle area, Seagen is developing cancer therapies that use antibody conjugates and sugar-engineered antibodies, both of which (unlike chemotherapy) target cancer cells and spare healthy ones. The company has FDA approvals for four cancer treatments and, last year, generated $1.6 billion in revenue.

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Seagen is a rare rising stock, up 13% this year, good enough for a market value of $32 billion. A source who spoke to Bloomberg said Merck is considering a $200 per share offer — good for a 14% premium over its current share price and a valuation of over $37 billion, and may increase the offer even more.

Sharks in the Water: According to Bloomberg, Sanofi, Pfizer, Amgen, Gilead Sciences, and Roche are among the major biotechs out hunting for deals right now. Feeding frenzy incoming?

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An Investment Worth Toasting To

The pandemic tech darlings of 2021 have tumbled. Crypto has collapsed. Even FAANG, once untouchable, might not survive as a meaningful acronym. No one (read: no one) can accurately predict how long bear market conditions will last.

But what we can say with full confidence: one asset class has performed in bear and bull markets alike: fine wine. There are a few simple, yet remarkably powerful, attributes that make investment-grade wine worth your hard-earned capital. Namely:

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Brand equity from estates that can command up to six figures for a single bottle

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Labor

Recruiters Turn to Creative Solutions Amid Labor Shortage

(Help wanted at Golden Corral; Photo by Mr. Blue MauMau)

There are almost more job listings right now than can fit on LinkedIn, Indeed, and ZipRecruiter combined. Unfortunately for employee-seeking companies, it seems everyone already has a job.

To deal with the labor shortage, recruiters across both the public and private sectors are turning to some pretty creative solutions.

Hire Education

Job listings dropped to 11.3 million in May, according to the US Bureau of Labor Statistics, marking the first consecutive decline in openings since April 2020. But openings are still at near-record levels, a fact borne out by the "Help Wanted" signs hanging in the window of nearly every restaurant and storefront. In fact, for every unemployed worker (currently just 3.6% of the workforce) there are 1.9 open positions — down just slightly from a ratio that peaked at 2:1 in March.

Even with a recession looming, companies remain committed to filling open positions. States and local governments are hard at work expanding the labor pool:

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A new law in New Jersey allows 16- and 17-year-olds to work 50-hour weeks during summer months, and simplifies the paperwork for kids to receive employment.

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New York City lifted an obscure law that barred some city employees from serving as lifeguards while off duty, and Washington D.C. is offering a $20,000 hiring bonus to new police officers.

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Meanwhile, a new law in Michigan lowered the alcohol serving age to 17-year-olds to help summer tourism hotspots serve thirsty visitors. Keep tipping well, just don't expect any local beer recommendations.

Lay-Off Spotlight: Ordinarily, one may want to avoid inclusion on a list of recently laid-off workers. But one layoff-tracking site, layoffs.fyi, is quickly becoming a tool for recruiters to find available workers, according to an Axios report. If losing your job has you down, don't fret — a headhunter may be just around the corner.

Here's a Title

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The FAA is giving $1 billion to US airports to upgrade their terminals, though no word on wait times.

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Ouch: British Prime Minister Boris Johnson resigned and the pound went…. up.

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