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Segment

Consumer Discretionary, Industrials Topped 2017 Job Cuts In Most Populous States

Capital Markets

S&P Global - Data Services

Disney Ups Its Bid For Fox Assets To $84.97 Billion

Energy

Power Forecast Briefing: Natural Gas And Coal Dynamics, Pressure On Nuclear, And Southwest Capacity

Bidding War Over Fox Could Spur Titans To Take A Look At Paramount Pictures

Sectors
Consumer Discretionary, Industrials Topped 2017 Job Cuts In Most Populous States

Highlights

Consumer discretionary, industrials topped 2017 job cuts in most populous states

The year of 2017 was one of historically low layoff rates. U.S.-based employers announced 418,770 layoffs, the lowest annual total since 1990, according to a report released by outplacement consulting firm Challenger, Gray and Christmas Inc. Concurrently, hiring announcements were the highest on record with employers stating plans to hire over 1,100,000 new employees, a 27% increase from the 868,702 announced in 2016.[i]

Amid the broad-based expansion, there are often ‘winners’ and ‘losers.’ To gauge the sectors that may be running counter to the trend, S&P Global Market Intelligence examined discharge notices filed under the Workers Adjustment and Retraining Notification (WARN) Act.

WARN notices are helpful for evaluating mass layoff trends and performing labor market assessments. The federal WARN Act requires business enterprises with 100 or more employees to provide a 60-day advance written notice of a plant closing or mass layoff affecting 50 or more employees at a single location. Those who have worked fewer than six months in the last 12 months and those who work an average of fewer than 20 hours a week are generally excluded from the tally. [ii] Each state has a designated office in which federal WARN notices must be filed, and several states, including California, Illinois, and New York, have additional notification requirements.

Consumer discretionary, industrials feel layoff pain

According to S&P Global Market Intelligence’s analysis, the consumer discretionary and industrial sectors announced the largest percentage of total mass layoffs in the 10 most populous states – California, Texas, Florida, New York, Illinois, Pennsylvania, Ohio, Georgia, North Carolina, and Michigan – in 2017. [iii]

Consumer discretionary companies announced the largest percentage of total layoffs in six of the 10 most populous states — Michigan, Ohio, Florida, North Carolina, Pennsylvania, and California — and the second-highest percentage in the remaining four — Illinois, New York, Texas, and Georgia. Industrial companies saw the highest percentage of layoffs in two of the analyzed states — New York and Georgia — and the second-highest percentage in six others — Ohio, North Carolina, Michigan, Pennsylvania, Florida and California. Meanwhile, financials, real estate, utilities, and telecommunication services announced the smallest percentage of total job cuts across the board.

Figure 1: 2017 most populous states layoff announcements

Healthy firms eye layoffs as cost-cutting moves

On a company-level, S&P Global Market Intelligence assessed the credit health of the firms announcing mass layoffs by examining probability of defaults (PDs) with its PD Fundamental model, a statistical model that predicts the likelihood of a firm defaulting on its debt or entering bankruptcy protection over a one-to-five year horizon.

The analysis found that many job cuts announcements came from financially healthy firms with one-year PDs under 0.5%, which is approximately the threshold between investment grade and speculative grade equivalents. [iv] Sears Holdings Corp. with a PD of 25.37% and the bankrupt Central Grocers Inc. were among the exceptions.

Figure 2: 2017 largest layoff announcements

Labor market expectations cool amid rate hike worries

One of the major questions for 2018 is whether tax reform and robust economic growth will lead to the Federal Reserve hiking rates and the labor market cooling. With the economy nearing full employment, a slowdown in job growth is inevitable. Retail will continue to find its standing in 2018 through the means of store closure and layoffs, while the industrial workforce will steadily fall short to automation. Uncertainty surrounding the future healthcare landscape can also spur healthcare companies to reduce their workforce to remain cost competitive.

The following people contributed to analysis for the blog: Mrinal Vij, Ishita Mishra, Salman Samee, Ashleigh Cotting, Bryan De Las Salas, Chris Hudgins, Tom Manzella, Andrew Barnes and Imran Tahir.

[i] Challenger, Gray & Christmas, Inc. (n.d.). 2017 Year-End Job Cut Report: Lowest Annual Total Since 1990 [Press release]. Retrieved March 07, 2018.

[ii] Plant Closings & Layoffs. (2016, May 06). Retrieved March 07, 2018.

[iii] Retrieved March 07, 2018, from S&P Global Market Intelligence, as of January 1, 2017.

[iv] Mapping Letter Grade Score to Probability of Default Technical Reference Guide. Published November 2017.

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Technology, Media & Telecommunications
Disney Ups Its Bid For Fox Assets To $84.97 Billion

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Jun. 21 2018 — Walt Disney Co. on June 20 submitted a new bid for 21st Century Fox Inc.'s assets valued at approximately $71.17 billion in equity, or $84.97 billion including assumed debt.

The new bid is $38 per share, a step up from Disney's previous $28-per-share offer made in December 2017, and more in line with Comcast Corp.'s $35-per-share all-cash bid from June 13. In the merger release, Disney said, "Since the original agreement was announced, the intrinsic value of these assets has increased, notably due to tax reform and operating improvements."

Disney's new bid allows Fox shareholders to choose cash or stock, something the management of both companies believe is a better deal than Comcast's proposal. There is a collar on the stock consideration that will ensure that 21st Century Fox shareholders receive a number of Disney shares equal to $38 in value if the average Disney stock price at closing is between $93.53 and $114.32.

The previous Disney bid for the Fox assets had a seller's multiple of 12.8x and a buyer's multiple of 9.0x. The new bid puts the seller's multiple at 15.4x cash flow and the buyer's synergized multiple at 10.8x cash flow.

After six months of integration planning, Disney's management team is confident in its outlook as the company has made progress toward meeting regulatory requirements in countries around the world.

On the investor call to discuss the bid, Disney Chairman and CEO Bob Iger said the combination would allow for the creation of more appealing content while also expanding Disney's direct-to-consumer offerings and international presence, especially in Europe, India and Latin America. He also cited the acquisitions of Pixar, Marvel and Lucasfilm as recent evidence of Disney's ability to effectively integrate cultures across corporations.

Iger said that vertical-integration concerns with Comcast are significant because the Philadelphia-based company is the leading provider of broadband in the U.S. Disney feels it has a much clearer path to the merger, as it is not a leading provider of video or broadband distribution.

Judge OKs AT&T/Time Warner, Opening A Potential Bidding War For FOX Assets

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Bidding War Over Fox Could Spur Titans To Take A Look At Paramount Pictures

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Watch: Power Forecast Briefing: Natural Gas And Coal Dynamics, Pressure On Nuclear, And Southwest Capacity

Jun. 20 2018 — Steve Piper shares his Q1 2018 analysis and power market insights along with guidance from our Power Forecast solution on the Market Intelligence platform. The next guidance report will be released around mid-July 2018.

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Technology, Media & Telecommunications
Bidding War Over Fox Could Spur Titans To Take A Look At Paramount Pictures

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Jun. 15 2018 — Potentially boosting its international portfolio and massively increasing the company's film and television library, Comcast Corp. on June 13 announced a $35-per-share cash bid for most of 21st Century Fox Inc., a 25% premium to the $28 per share offered by Walt Disney Co.

Kagan estimates that the Comcast offer values the Fox filmed entertainment division at $17.76 billion, nearly $4 billion more than the value placed on it in Disney's original bid. The transaction places the most value on the regional sports networks at more than $19 billion, or 24.2% of the total offer, with filmed entertainment coming in a close second at 22.4%.

While 21st Century Fox has close to a 16% share of the box office year-to-date, it has done better in prior years when big franchise films were in release. Comcast's NBCUniversal Media LLC would benefit greatly by adding the Fox studio to its portfolio. NBCU currently has less than a 10% share of the box office versus Disney's more than one-third share for its films.

The question is, who is next? Long-struggling Viacom Inc. missed a chance to sell a 49% stake in Paramount Pictures Corp. to Dalian Wanda Group Corp. Ltd. in 2016 at a valuation of $8 billion-$10 billion, an impressive number given the fact that the filmed entertainment division had negative operating income before depreciation and amortization of $328 million in fiscal 2017 and negative $407 million in fiscal 2016.

With the much-publicized showdown between Shari Redstone and Les Moonves over the future of Viacom, a sale of Paramount Pictures, all of Viacom or even a piecemeal sale of Viacom assets at high prices could help resolve this simmering feud.

Economics of TV & Film is a regular feature from Kagan, a group within S&P Global Market Intelligence's TMT offering, providing exclusive research and commentary.

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