What YGCC is Reading #135

Apple-Target McLaren Is a Tech Company Disguised as a Carmaker (Bloomberg)
Apple Looking to Bolster Car Project (WSJ)
Apple Kicks the Tires at McLaren (NYT)

Apple is looking for some outside help for its automotive arm. Project Titan, the car-making arm of Apple, has closed several projects and phased out several dozen employees at a time when many rivals Google, Ford, etc. have expanded their smart car investments. Now, Apple has been in talks with racecar developer McLaren for investment opportunities or even acquisition. At first glance, the two companies seem to have fundamentally different value propositions: Apple sells handheld technology to the masses while McLaren has best been known for its high-performance Formula One racecars and ultra-luxury cars. However, many believe that instead of investing wholesale into all of McLaren’s projects, Apple will instead leverage McLaren’s cutting-edge car technology software and analytics, while turning to other companies for manufacturing.

  • Consider the upcoming trends in the automotive industry (self-driving cars, ride-sharing, electric powertrains, etc.). What other companies could Apple invest in/partner with and what potential synergies could be derived as both companies move forward with smart cars.

What YGCC is Reading #134

HP Agrees to Acquire Samsung Printer Business for $1.05 Billion (WSJ)
Why HP Inc.’s Deal With Samsung Could Be a Game Changer (Motley Fool)
HP Inc. Goes Old School With Plans to Sell Copy Machines (Fortune)

HP Inc. recently announced a deal to purchase Samsung Electronics Co.’s printer business for $1.05 billion in an effort to bolster HP’s product line in the high-volume office printing and copying business. This transaction is a part of HP’s attempt to “disrupt and reinvent” the $55 billion office copier industry by replacing traditional office copy machines with multifunction printers. While HP is the leader in the desktop printer business with 36% of the market share, this is its first foray into the office copier industry (known as the A3-printing category), whose major players include Xerox Corp., Canon Inc., Ricoh Co. and Konica Minolta Inc. With this deal, HP will acquire Samsung’s business selling desktop printers and A3 machines, as well as 6,500 printing patents, 6,000 employees (including 1,500 researchers and engineers), and the technology to manufacture printing engines, which are crucial mechanisms inside laser printers. HP had so far been using external suppliers for this component, which can account for 10% to 15% of the cost of a printer.

  • The overall market for A3-printing has been shrinking steadily as usage of paper has been increasingly supplanted by digital documents. Brainstorm how a new entrant such as HP can develop a competitive edge in such an environment. (Hint- product/price differentiation, innovative technology, tighter integration with existing products/channels)

What YGCC is Reading #133

Hanjin Bankruptcy Causes Global Shipping Chaos, Retail Fears (NYT)
Hanjin Group to Provide 100 Billion Won for Shipping Line (Bloomberg)
Hanjin Shipping gets U.S. court order, cash to unload ships (Reuters)

The Hanjin Group, the seventh-largest global shipping company, has filed for bankruptcy. Without necessary funds from creditors, dozens of Hanjin ships have been left just outside of ports unable to offload their goods. The unloading freeze raises concerns of starting a negative feedback loop of fees: the longer the goods are stranded, the more likely Hanjin’s retailer clients will sue for delays and damaged goods, thereby further exacerbating Hanjin’s financial woes. Hanjin has been able to raise some funds from its shareholders to unload some of the ships, but many retailers are worried that this disruption during peak shipping times will delay the Thanksgiving and Christmas holiday sales.

  • How will the Hanjin bankruptcy affect the rest of the world’s international shipping prices? How might it affect other distribution and transportation companies (ie. trucking, train, etc.)?
  • Hanjin has suggested that some of its clients—LG and Samsumg being some of the largest—pay for their goods to be unloaded. Besides significant pushback from LG and Samsung, how might these added costs affect both manufacturers (LG and Samsung) and end-consumers?
  • The Hanjin Group’s bankruptcy has illuminated the often invisible global forces which shape our everyday lives. Map out the value chain of any given retailer (Apple, Nordstrom’s, etc.) and identify key chokepoints which may affect the entire chain.

What YGCC is Reading #132

Mylan Faces Scrutiny Over EpiPen Price Increases (WSJ)
The EpiPen Drama Shows What’s Wrong With How Drugs Are Priced (Bloomberg)
Mylan Tries Again to Quell Pricing Outrage by Offering Generic EpiPen (NYT)

Mylan Inc. recently raised prices of its epinephrine auto-injector EpiPen (used to treat severe allergic reactions) to more than $600 for a pair of injectors right before an expected back-to-school sales surge. Mylan, which bought the marketing rights for the EpiPen from Merck in 2007 and contracts the manufacturing of the injector to Pfizer, had been raising EpiPen prices by 20 percent annually in recent years, but accelerated the increases to 32 percent in the last two years. At the same time, it has also invested heavily in a successful marketing and lobbying campaign to make EpiPens more widely available, especially in schools. Mylan has defended the regular price hikes in three main ways: (1) necessary recompense for its investment in the product, (2) most end customers are insured and therefore never pay the list price, and (3) middlemen, such as pharmacy benefit managers, realize a majority of the list price of the product. However, this latest price hike has triggered severe public and political backlash. In response, Mylan first offered coupons and discounts to some customers, and then followed up with the unprecedented move of introducing a $300 generic version of the EpiPen to compete directly with its own branded product.

What YGCC is Reading #131

Pfizer to Buy Medivation for $14 Billion (WSJ)
Pfizer boosts cancer drug roster with $14 billion Medivation deal (Reuters)
The Flaws in Pfizer’s Plan to Acquire Medivation (NYT)

After months of intense bidding between the world’s top pharma companies, Pfizer has bought Medivation for $14B. Medivation’s major source of revenue is Xtandi, a leading prostate cancer treatment, and many believe Pfizer is generally trying to bolster its high-margin cancer drug portfolio through this acquisition. This would align with Pfizer’s plan to potentially split into two companies: one focused on lucrative branded medicine and another specialized in marketing off-patent drugs. Still, some analysts are left debating whether Pfizer has overpaid for Medivation given the expected growth for the prostate cancer treatment market.

  • What are the synergies between Pfizer and Medivation beyond just their drug portfolios?
  • Brainstorm drivers of the sales for cancer treatments. Consider how external factors like regulation and new markets may affect potential revenues for Pfizer.
  • Consider growth strategies for Pfizer’s two potential companies (the branded medicine and the generic drugs).  How would you maximize revenues for each?

What YGCC is Reading #130

Uber and Volvo to develop self-driving cars (FT)
Ford Developing Fully Driverless Car (WSJ)
Self-Driving Car Race Sees Flurry of Partnerships (NYT)

Ride-sharing company Uber announced that it will begin testing the world’s first autonomous taxi-fleet in the next few months in Pittsburgh. The fleet is part of a partnership between Uber and Swedish carmaker Volvo that will see the companies jointly invest $300m to develop a self-driving vehicle, the Volvo XC90 SUV. This is just the latest in a series of announcements regarding autonomous vehicles made this year by automakers. General Motors Co. invested $500M earlier this year in Uber’s rival, Lyft Inc., and is also developing an autonomous electric taxi fleet. Fiat and Google are working together to build 100 self-driving Chrysler minivans. BMW has formed a joint partnership with Intel and sensor-maker Mobileye to develop a fully driverless vehicle by 2021. Nissan and NASA are partnering up to develop autonomous driving systems for applications in both cars and planetary rovers. Ford has acquired several machine learning, laser sensing, and vision procession startups in order to introduce a fully self-driving car to the market in 2021.

  • Brainstorm the challenges, financial or otherwise, facing automakers in achieving widespread adoption of self-driving cars.
  • If you were Uber, how would you set the price of a ride in an automated taxi? (The announced pilot program in Pittsburgh will be free for passengers.)

[Additional reading:A fork in the road for driverless cars (FT)]

What YGCC is Reading #129

Macy’s to Close 100 Stores as E-Rivals and Discounting Hit Legacy Retailers (NYT)
Macy’s Fix for Department Store Woes: Fewer Stores (WSJ)
Why Macy’s Plan to Close 100 Stores Is Brilliant (Motley Fool)

After six successive quarters of declining overall sales, Macy’s, the country’s largest department store, announced it was closing 100 outlets in 2017 (15% of its 675 department stores), on the basis that these stores were worth more as real estate than retail outlets. By closing these stores, Macy’s expects to lose up to $1 billion in sales, but hopes to offset this through cost cutting and concentrating financial power and talent on its remaining best performing locations. It also plans to reinvest the capital freed up from these closures into upgrading its merchandise, adding sales staff, and improving its logistics and back-office technology. These store closings are just the latest in a wave of closures by legacy retailers who are struggling to adjust to swiftly changing consumer spending patterns and compete against online options such as Amazon and off-price retailers such as TJ Maxx and Marshalls. Along with Macy’s, struggling retailers such as Kohl’s, JC Penney, Office Depot, Sports Authority, and Wal-Mart have all announced hundreds of closures this year.

  • Brainstorm the strategic risks to Macy’s from having a smaller retail footprint nationwide. Hint: What will happen to the $1B in sales that Macy’s is losing out on?
  • Macy’s large department stores have traditionally served as “anchors” at malls. Categorize the impacts, both positive and negative, that these store closings will have on other tenants in these malls, as well as the malls themselves.

[Additional reading: Here’s what Macy’s has to do with the stores it isn’t closing (Chicago Tribune)]

What YGCC is Reading #128

Wal-Mart’s Deal for Jet.com Said to Hinge on Keeping Its Founder (Bloomberg)
Buying Jet.com Could Help Walmart Become A Real Threat To Amazon (Forbes)
Wal-Mart in talks to buy online retailer Jet.com: report (Reuters)

The world’s largest retailer is in talks with Jet.com to acquire the one-year old e-commerce start-up. Wal-mart has been attempting to boost its online sales for the past several years; it opened an analytics arm, @Wal-martLabs, in Silicon Valley to analyze consumer spending behavior and spent $3B in purchasing 15 smaller tech ventures for their software and talent.  These efforts have allowed Wal-mart to post $14B in e-commerce sales. However, in comparison to Wal-mart’s overall sales of $300B and online retail leader Amazon’s $83B, Wal-mart still has much ground to cover. The acquisition of Jet.com and its proprietary “gain sharing” technology—which, among other features, encourages shoppers to buy more products by showing them the optimal basket size for minimal shipping fees—could help Wal-mart leverage its vast distribution and warehouse network to finally break into the e-commerce field.

  • With a price tag believed to be ~$3B, some analysts worry that Wal-mart may be over-valuing a young start-up like Jet.com, which has yet to build a significant customer base. What factors should Wal-mart consider in valuing Jet.com?
  • Compare brick and mortar retail versus e-commerce; which product types (ie. consumer electronics, furniture, groceries) will likely move toward e-commerce or some hybrid of the two?

Extra reading: Perspectives on retail and consumer goods (McKinsey)

What YGCC is Reading #127

Pound’s fall threatens to can AB InBev takeover of SABMiller (FT)
SABMiller: Big money vs. minority shareholders (Bloomberg)
SABMiller board backs AB InBev’s high offer (WSJ)

The path to AB InBev acquiring SABMiller, a $104 billion deal that would form the largest brewing company with 30% global market share, has been fraught with conflict, from Brexit turmoil to shareholder revolt. Budweiser-owned AB InBev is one of many firms which had to re-evaluate its offerings due the Leave vote: the drop in the price of sterling has forced AB InBev to increase its all cash-offer to £45 per share from £44 for the UK-based SABMiller. While this may have placated the SABMiller’s board, many analysts believe that the offer still undervalues the company. Smaller shareholders like Aberdeen Asset Management, which has a ~1% stake in SABMiller, have publicly rejected the revised deal. AB InBev is now hoping that the approval of the larger shareholders, which are likely to greatly profit from the alternative cash-and-share offer from AB, will override the minority and close the deal.

  • The cash-and-share offer gives a lower cash offering, but stocks in the new company which can be cashed out in 5 years. Why might smaller shareholders not be attracted to such an offer relative to larger shareholders?
  • What other non-financial hurdles will AB InBev have to overcome with this mega-acquisition?
  • What other firms or industries have suffered from a fall in sterling? Which would have benefited?

What YGCC is Reading #126

Dollar Shave Club Sells to Unilever for $1 Billion (NYT)
How Michael Dubin built Dollar Shave Club into a $1bn company (FT)
Why did Unilever pay $1B for Dollar Shave Club? (Techcrunch)

In one of the largest ever acquisitions in e-commerce history, consumer packaged goods (CPG) giant Unilever announced last week it had acquired Dollar Shave Club (DSC), a startup which offers an online razor subscription service, for $1 billion. DSC’s business model, which combines direct sales of grooming products to customers for as little as $1 a month with clever online marketing, has resulted in it capturing 5% of total sales and 15% of total volume in the US shaving market. The dominant brand in this space has been Gillette, owned by Unilever’s largest CPG rival, Proctor & Gamble. However, Gillette’s lead in the market has eroded from 71 percent in 2010 to 59 percent last year, primarily in the face of increasing competition from online competitors like DSC and Harry’s, another razor subscription service.

  • Big firms are either acquiring or backing smaller rivals with innovative products or business models in several different sectors of the consumer industry. Such approaches are common, and fairly successful, in the pharmaceutical industry, where big players effectively outsource R&D to smaller independent ventures, and acquire the successful products. Compare and contrast the risks facing larger players in the pharma and CPG industries attempting these acquisitions.

Additional reading: Invasion of the bottle snatchers: The Economist