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Posted by Barney Whistance August 23, 2016
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ESOPs Create Wealth and Encourage Job Dedication for Millions of U.S. Employees

ESOPs Create Wealth and Encourage Job Dedication for Millions of U.S. Employees

ESOPs Create Wealth and Encourage Job Dedication for Millions of U.S. Employees

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In the U.S. there are an estimated 10,000+ Employee Stock Ownership Plans, or ESOPs, making business owners out of some 11 million employees. Not only do these companies tend to outperform other comparable companies that aren’t employee-owned, but their workers are able to build up retirement savings at rates far surpassing the national averages.

 

 · Just ask Aaron King

King is a 60-year-old truck driver for Lowell, Arkansas-based Central States Manufacturing Company. In the 23 years he’s been driving for the Central States he’s seen the company steadily weather the recession, grow rapidly, and become solidly profitable for its employees. Additionally, King’s been able to save up about $1.25 million in his company retirement account.

Because of the ESOP model, and desire to maximize profits, King, known as the millionaire truck driver, has observed that much of the common wasteful and dangerous behavior is minimized by employee self-policing. “We hold one another accountable,” he says. “Somebody leaving a bundle of metal where it could be run over – a $3,000 bundle – we go and get the guy and talk to him. It’s going to come out of all our paychecks.”

Another employee at the Central States, 33-year-old production supervisor Marcus Hedrick, has worked with the company since he was 17. He’s already amassed $250,000 and is well on his way to an Aron King-like early retirement. Hedrick says of his friends doing similar work, “most of them don’t have anything for retirement.”

Central States’ open-book management approach does more than just turn workers into owners, “We teach people to be business people – what capitalism is,” says Rick Carpenter, chairman and former majority owner of Central States.

Business models like these and employee-owner stories like King and Hedrick prove that the so-called “retirement crisis” in America is manageable – if companies are willing to profit-share with their employees. However, what it will also take is a collective interest in making businesses benefit everyone long-term – including the employees.

Lakeland, Florida-based Publix Super Markets, a well-known grocery store chain and the largest employee-owned company in the world is far surpassing their competitors by creating a corporate culture of respect and advancement from within. With an annual voluntary turnover rate of only 5% – they are certainly doing something right.

ESOPs are the answer to our country’s retirement woes and can help fight high turnover in industries known for their quickly burnt out employees. The trucking firms are good candidates because employee turnover at some firms is as high as 100% – well above the national average of 16.4 percent across industries.

When employee-owners have a say in important company decisions, like whether to open a new store or close an underperforming branch, or even whether to purchase used trucks or new for their transportation needs, they feel more engaged and connected to the day-to-day workings of the business and more dedicated to their jobs and missions.




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Posted by Martin August 21, 2016
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What is a rationale behind trading Jade Lizards and trade management?


Jade LizardJade lizard is a popular strategy yet not so very known among traders. I myself learned about this strategy just about a month ago although Tasty Trade performed studies on this strategy in 2013. But after I studied the strategy, I immediately fell in love with the strategy for benefits it provided.

If you have never heard about Jade lizard strategy, here is a quick review:

A Jade lizard consists of a short, naked OTM put and an OTM bear call spread. Let’s say, you want to trade this strategy against WYNN, then it would look like this:

 
Jade Lizard trade
 

In the example above I am selling 95 strike naked put and at the same time, selling 98/98.5 bear call spread.

 · When do you put on this trade?

  • This trade works best with high Implied volatility.
  • The stock was beaten down recently

  • It’s OK to trade this strategy during low IV if the premium is high enough to justify the trade.

 · Why to trade Jade Lizards?

There are a few benefits for trading Jade lizards compared to naked put trade only:

  • You collect higher premium
    Collecting higher premium does twofold service to you – it lowers your breakeven price on your put side, more than a naked put, and you get more money if the trade ends as a winner.
    If you take a look at the option chain above, you can see that opening a naked put only I would collect $4.10 premium while with the Jade Lizard I can collect $4.45 premium (+8.54% better result).

 · How to trade Jade Lizards?

When placing Jade Lizard on you must make sure that your collected premium is larger than the entire call spread width. If for example, you trade a lizard, your call spread is $1.00 wide and you collect $0.95 premium only, then such trade is bad and will not work.

If your call spread is 1 dollar wide, it means that you can realize 1 dollar loss on your call side (or $100 total loss). You want to collect at least 1.00 dollar premium or more to cover your upside.

In the example above I can collect 4.45 premium. My call side is only 0.50 wide. The call side is literally risk free. Even if the bear call spread gets in the money, I still will end up profitable.

 

 

 · How to manage Jade Lizards?

When I open a Jade Lizard trade I usually place a closing order right after the trade fill for 50% credit. So ideally, we want the trade to end as soon as possible for 50% of collected premium. It would look like this compared to a naked put only:

WYNN naked put trade opening for 4.10 credit, closing for 2.05 debit, 2.05 credit left
WYNN Jade lizard trade opening for 4.45 credit, closing for 2.225 debit, 2.225 credit left (+8.54% better result)

Let’s take a look at different situations which may occur:

 
 

Stock trades in between short put and short call

 
JL
 

50% credit management: You do not have to do anything as both your puts and calls will be losing value and you will be able to close the trade for 50% credit (+8.54% better result).

At expiration: You do not have to do anything. All your options legs will expire worthless and you will collect full credit profit (+8.54% better result).

Assignment risk: There is no early assignment risk in this situation.

 
 

Stock trades in between short call and long call

 
JL
 

50% credit management: You do not have to do anything. Your puts will be losing value and although your call spread short leg will be in the money, you will be able to close the trade for 50% credit (+8.54% better result).

At expiration: You let your puts expire worthless. Close your bear call spread. You will realize loss on your calls which will equal to the amount of how much the spread is in the money. If the stock ends at $98.30 for example, it is 0.30 in the money and you will see $30 dollars loss. Your overall trade will be $4.15 profit (4.45 – 0.30 = 4.15) or 1.21% better than naked puts only. You want to close the spread manually to avoid assignment fees which are usually high.

Assignment risk: There is no early assignment risk in this situation. No one would ever early assign an at the money option. A risk of assignment at expiration is avoided by closing the spread.

 
 

Stock trades above your call spread

 
JL
 

50% credit management: You do not have to do anything. Your puts will be losing value and although your call spread will be in the money, you will be able to close the trade for 50% credit (+8.54% better result).

At expiration: You let your puts expire worthless. Close your bear call spread. You will realize loss on your calls which will equal to the amount of the spread width. In our example, it is 0.50 or $50 dollars loss (98.5 – 98 = 0.50). Your overall trade will be $3.95 profit (4.45 – 0.50 = 3.95) or -3.66% worse than naked puts only. You want to close the spread manually to avoid assignment fees which are usually high.

Assignment risk: There is no early assignment risk in this situation if the stock is trading fairly close to your spread. If however early assignment happens, then exercise your long call to cover your short stock. Your overall loss will still equal to the width of the spread. A risk of assignment at expiration is avoided by closing the spread.

 
 

Stock trades below your puts

 
JL
 

50% credit management: You still may be able to get out of this trade for a profit by closing it early before gamma kicks in. Generally, however, you won’t be able to do much and the trade will stay open until expiration.

At expiration: You let your call spread expire worthless. Roll your in the money put into the next month and at the same time sell a new call spread against it creating a new jade lizard. Based on where the stock is if at the money but still in the money then roll into the same strike, if deep in the money then roll to a lower strike.

Assignment risk: There is no early assignment risk in this situation if the stock is trading fairly close to your naked put. Again no one would ever exercise at the money put. If the stock sinks too deep and an early assignment happens, then keep the stock and start selling covered calls. A risk of assignment at expiration is avoided by rolling the put away in time.
 

 · Conclusion

If you follow my blog and read regularly you may know that I do not predict the market or stock move. I believe it is a futile work to try predicting the market. Instead of predicting what your stock will do next, make a plan what you will do next.

Above, I tried to show you what everything can happen with a trade once you put it on and my plan what I would do with it. It is all you need to know. You need to know answers to all those situations before you place a trade.

Once you place a trade and know all the steps you would do, you will be trading with ease and in a comfort zone. You will no longer be worried what would happen with the stock. You will no longer be worried if you open a trade and you will be wrong and the stock tanks.

It is because no matter what happens you have a trading plan for that situation and you know what to do to make that trade still a winning trade.

And then it all comes to your money management instead. You do all these trades and trade adjustments without over-trading your account. If you keep enough cash reserve in your account then you do not have to worry about your margin, early assignment, or anything what jumps on you.

If you over-trade, however, you will not be allowed to do anything with your trade, you will see a margin call, and you will be forced closing your positions at a loss. And you do not want that.
 




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Posted by Martin August 21, 2016
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Option Trader Interview


About a month ago I participated on a series of traders interviews on Amber Tree Leaves blog. I read all of them so far and I was pleased to see other investors and traders involved in options trading. I consider options as a great investing vehicle and excellent tool to supercharge your results. But it must be done right. If you do not trade options properly they can hurt you a lot.

Amber Tree Leaves

Speculation is not what you want to be involved, but consistent step by step trading, small at first, larger later, is what you want. If you start speculating, predicting, betting, then you start gambling and lose money.

I have seen people, my friends – traders, spending hours drawing charts, predicting the next move and convincing themselves that the stock or market was overbought or oversold and then “next week it definitely must reverse” and placing their bets against the market/stock. They lost money.

Trading is not about speculating and predicting the market. Trading is about being aware of what’s going on and being able to adjust and manage your trade accordingly.

Since no one can ever predict the future how do you deal with a trade? That is your goal to make a trading plan which answers this question for you.

I advocate on this blog, that you shouldn’t be predicting and trying to know what the stock or market will do next, but what YOU will do next.

This took me a long time to finally understand. But once you get it, your trading becomes easy, smooth, and consistent. This was my “aha” moment. Since then, I trade with an incredible ease knowing that I do not have to be always right to have winning consistent trades.

Continue reading the interview on Amber Tree Leaves >>>




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July 2016 trading, investing, and dividends results


When I finished June with $2,331.00 income I thought “that was it!” It was a great income and I haven’t expected that I could ever exceed it. I hoped, I could beat it by a thousand and finish July 2016 month at around $3,000 dollar income.

But by July 10 my account was making $2 dollars. Yes, I was making just two dollars and I was thinking what would I do when I start trading for a living and make only two dollars? Will two bucks pay my bills? So I was comforting myself saying that it would be OK to make less in July. That’s why I do not withdraw all I make but only 20% until I reach 1$0,000 monthly income when I start withdrawing 50%. So, if I make less in one month I still will be ahead.

But then it all started coming together and I made even more than in June. I made $5,734.00 in July in premiums trading options!

My dividend income this month was also higher than in June. It was actually the highest month I ever had. The dividend income was $86.21 vs. $81.68 last month.
 

Options Income = $5,734.00 (account value = $10,124.81 +293.04%)
Dividend Income = $86.21 (account value = $20,596.08 +36.04%)
 

If you wish to see details about each account, continue reading below.


 


 
You may be interested in:

 
August 2016 Stock Considerations By Keith with DivHut

 
Promising Canadian Aristocrats Companies By Mike with The Div Guy

 
8 Inexpensive Marketing Tools To Transform to a Business Owner By OCT with One Cent at a Time

 
Let your winners ride and your losers wither By Integrator with Get Financially Integrated

 


 

Read More




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Development of Digital Technologies to Transform Trade and Investments

Development of Digital Technologies to Transform Trade and Investments

With the spread of digital technologies and innovation, it is transforming and changing the traditional dynamics of the stock exchange market as well as the flow of goods, services, investments, money and people. Digital trade is now on the verge to become an essential component in the global flow between international markets. As such technologies give a boost to digital trade as it grows at a fast pace and is asserting new forms to facilitate ways to measure through the development of new customized apps and online platforms for the purposes of production, exchange flow and consumption.

Development of Digital Technologies to Transform Trade and Investments

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More and more large and small companies, as well as entrepreneurs, retailers and consumers are largely affected by such fast-paced developments and constitute opportunities as well as challenges. The rapid transformation of the traditional methods to digital platforms enhances businesses, trade and investment and means of communication which could leverage data security, measurement, and growth.

This blog further explains the use of digital technologies and online platforms to give businesses a global reach to enable digital flows of online money transfers, trade flows, and cross-border e-commerce.

 

The Dynamism of Digital Platforms

Though the transformation towards more digital savvy forms of communication is in its earliest stages, more people are becoming more instantaneous to globally engage with one another. For example, more industrial development is being done on the basis on 3D printing for certain manufacturing parts and equipment in the form of physical objects. As the internet expands, the traditional and outdated forms to conduct businesses across border begin to fade away.

 

The Dynamism of Digital Platforms

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There is no doubt that digitization has lowered the prices in marginal production and distribution costs and given accessibility to global commerce. The cost reductions have occurred in trade, not just for large companies but for small entrepreneurial projects as well. Spurring financial innovations have taken place in light of newly developed apps, social media accessibility, and micro-multinationals and micro supply chains are now able to tap into global opportunities.

 

The Ability to Monitor, Forecast and Manage Objects Digitally

Digitalization has greatly influenced and transformed logistics, retailer management, and supply chain networks. Companies can now collect and track information about a transaction, product, place or time. With operating efficiency increasing in contrast with cost spending, many other industries in the stock market like oil and gas companies, automobile, telecommunication, IT sectors etc. are now seeing the payoff in their operations with the help of digitally savvy platforms. With digitally monitoring machines in the office, business owners or supervisors can track the progress of their shipment order, parcels, and containers as digital technologies help companies to get further ahead out of their physical confinements.

 

The Ability to Monitor, Forecast and Manage Objects Digitally

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The External Factors

There are further implications for the future of trade and investment in order to survive in the emerging markets. Soon, governments too would be forced to adapt to new innovations and deal with the upsurge in digitalization of trade and investments. Policymakers would address and be able to forecast sensitive issues beforehand. Trade agreements would be on the basis of the cross-border flow of data and communication. People, retailers, stock market intelligence would use digital and mobile connections to share ideas, communicate and collaborate to make business to business relations and social connections. An entrepreneur would easily make a product and use a patented idea to sell it globally thus digital platforms would enable a whole new array of revenue streamlines. This would also mean the more people would get the opportunity to outsource online platforms and businesses would start up with less up-front investment and scale up much quickly. Thus the development of digital platforms would strengthen global trade and investment opportunities and generate strategic analysis and recommendations for the stock market as well.




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Posted by Martin July 29, 2016
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$WYNN beat estimates yet gave me a headache


Today, I feel bitter about my WYNN trade.

Last week I decided to take a few trades against WYNN and stretch my account a bit because I was confident that I would be out of those trades before earnings. It was a great opportunity trade!

Brokers were listing that WYNN was going to report earnings on August 3rd. Put premiums were juicy and all set to expire this Friday. I would collect nice premium before earnings.

So I opened three trades and sold 3 put contracts per each trade (total 9 contracts):

-3 WYNN Sep2 87 put
-3 WYNN Jul29 96 put
-3 WYNN Jul29 97.5 put

Suddenly the company announced that they would report on July 28 end of the trading day. Ouch! Suddenly I was holding trades thru earnings!

 
Spooked Trader
 

I knew (expected) that WYNN would report great results but I wasn’t sure how would market react. Today, the market is driven by a crowd of morons. Crowd is stupid and primitive. It can get spooked by falling leaves from the tree in autumn and stampede for exit.

And sure enough. WYNN sold off after hours. It fell from 104 a share to 96 a share. I had a problem.

I had to manage those trades, but since I expected them to expire without being jeopardized by earnings I stretched my account and I was running low on cash. My account ran out of buying power at some point and that meant I couldn’t roll the trades. All I could do was close trades. And closing trades meant closing at a loss!

I had to day-trade and use market fluctuations to adjust the trades. I was successful doing it and I could close majority of the trades and roll two contracts into next week.

Although I closed those trades with profits, moved the last two contracts away in time into the next week I still have a “bad taste in my mouth”.

Below is my journal indicating all trades I made this week and today with WYNN to maneuver it out of a problem:

 
WYNN trading journal
Click to enlarge
 

This month, I was able to exceed all my expectation about my trading revenue.

Last month, I made $2,331.00 in collected premiums. I haven’t expected exceeding this number. I hoped for $3,000 revenue at best or at least matching June, mainly when for the first 10 days of July all I made was $2 dollars. Yes, two dollars.

I was thinking that this could be a blow to my plans trading for a living one day. I can’t live off of 2 bucks!

Yet, in July 2016, I made $5,734.00 dollars in collected premiums. This is more that what I make at my 9-5 job working 45 hours a week and having to deal with my boss and unreasonable clients!

But if WYNN ended as planned before they announced earnings reporting in July instead of August 3rd, I would end with premiums way over $6,000 dollars for the month. Maybe this is why I feel horrible.

And that’s wrong. This is emotions. Greed. Emotionally greedy. The best way to lose it all. I think I need to slow down. Yes the revenue for this month is gorgeous, but I stretched my account beyond all my rules. I acted like an idiot. Preach water, drink wine.

Now I will focus more on managing open trades and slow down in opening new trades to only one or two trades per week and considering all rolls as a new trade for that week. I also need someone to slap my hands when I get itchy trying to open a new trade because of an “irresistible one time opportunity right now” feeling. No way grasshopper, there will always be opportunities in Wall Street, no need to rush to all of them.

And the lesson? Even if a trade looks to be the safest trade on the planet, it doesn’t warrant breaking the rules.

Good luck guys and have an excellent weekend!




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How Billionth iPhone Sale May Not Be That Great for Apple


As Apple (NASDAQ: AAPL)reported its financial results for the third quarter of its fiscal 2016, it was also celebrating hitting a key milestone with its flagship iPhone. Its sales topped one billion this month.

While it celebrated that monumental news, the market was digesting something that was unheard of when it comes to Apple – a downgrade. The reason for the downgrade explains many of the concerns some market players are increasingly griping about more.

Before we get into the reasons behind that downgrade, let’s start with the good news first. That news stems from Apple’s earnings report that it released and discussed this week.

Apple posted quarterly revenue of $42.4 billion and quarterly net income of $7.8 billion. That equated to $1.42 per share. These results compare to revenue of $49.6 billion and net income of $10.7 billion, or $1.85 per share in the same quarter of fiscal 2015.

Its gross margin weakened a bit to 38% from 39.7% in the second quarter of fiscal 2015. Of note are Apple’s international sales, which accounted for 63% of the quarter’s revenue.

Apple’s services business segment grew 19% year over year. Its revenue from its app store also grew. In fact, it was the highest it has ever been.
 

 · Shareholder value

 
Apple has been notorious for sitting on piles of cash, as it raked in even more of it from record sales of its iPhone and iPad. Shareholders grew increasingly frustrated with that. In what could be seen as the extension of an olive branch, Apple began paying shareholders dividends in 2012. That put to an end a drought of Apple dividend payouts that reached back to 1995.

Apple has also stepped up its share buyback program over the past few years. However, not all are positive on these repurchases. Earlier this year, Fortune said the company had wasted billions of dollars in buying back its stock.

Fortune found that Apple had paid a 21% premium over the value investors were paying for its stock when it was trading around $95. It closed Wednesday, the day of Apple’s third quarter release, around $104.

BGC Partners, the firm that downgraded Apple, found that Apple’s share repurchases over the last six quarters have all occurred at higher average prices than where the stock is currently trading. The stock has lost approximately $235 billion in value while repurchasing $117 billion is shares, according to BGC.

No matter, Apple’s CFO told investors this week that the company returned more than $13 billion to investors through share repurchases and dividends.

Furthermore, he said the company has completed almost $177 billion of its $250 billion capital return program.

Apple provided the following guidance for its fiscal 2016 fourth quarter:
• revenue between $45.5 billion and $47.5 billion
• gross margin between 37.5% and 38%
• operating expenses between $6.05 billion and $6.15 billion

The $.57 dividend declared by the company is payable on August 11.
 

 · The downgrade

 
BGC downgraded Apple ahead of its earnings report release. The firm cut its rating to “sell” from “hold.” It also cut its price target to $85 from $110.
The reason for the downgrade stemmed concerns that the upcoming iPhone 7 won’t sale as well as the current iPhone SE model in the market now.

The whole “cool factor” thing that propelled iPhone sales in the past may not be “cool” to investors anymore. Yes, it’s great that the new generation phone may have new features that outshine previous models. However, it won’t have those infamous subsidies that made the previous phones attractive, AND affordable.

You may recall the wireless carriers constantly promoting free phones, or heavily discounted phones to attract customers to sign lengthy contracts with them. That practice began to go by the wayside as consumers began to opt for pay-as-you go plans. Many wireless carriers did away with the subsidies, and the like. This meant customers have had to absorb the full price of the phone.

In the minds of many consumers, it is ridiculous and economically foolish, to
shell out $600 on a new phone every few years.

So while Apple pats itself on the back for selling one billion of the phones, it is highly unlikely that it will reach that number within the same time frame in the future.

To BGC’s point, I too believe that Apple must step up its acquisitions. Its buy of a karaoke company of sorts drew laughs among market players this week. That announcement came on the heels of Soft Bank’s revealing that it is acquiring ARM Holdings for $32 billion.
This should have been a company Apple should have gone after to buy.

According to BGC’s note:
Apple acquiring ARM could make so much sense, it’s a high margin business with future growth, plus there is a national security interest benefit. It positions Apple for the growing IoT (Internet of Things) market. So disappointing! Perhaps management was focused on how to remove headphone jacks.

Clearly, all is not loss for Apple. Its resilience is fascinating. Just look at its high revenues despite the drop in its iPhone sales.

The key for the company stock moving forward does not just hinge on iPhone sales. The company must move big in acquiring something Big. While share buybacks generate some investor satisfaction, the programs don’t cause a stock to move higher.




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Posted by Martin July 25, 2016
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Hotels: Occupancy Rate on Track to be 2nd Best Year


From HotelNewsNow.com: STR: US hotel results for week ending 16 July

The U.S. hotel industry reported mixed results in the three key performance metrics during the week of 10-16 July 2016, according to data from STR.

In year-over-year comparisons, the industry’s occupancy decreased 1.4% to 77.5%. However, average daily rate was up 3.4% to US$128.12, and revenue per available room increased 1.9% to US$99.33. Emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotels July

The red line is for 2016, dashed orange is 2015, blue is the median, and black is for 2009 – the worst year since the Great Depression for hotels.

2015 was the best year on record for hotels.

So far 2016 is tracking just behind 2015, and well ahead of the median rate.

Also 2016 is tracking just ahead of 2000 (the previous 2nd best year).

The 4-week average occupancy rate should remain above 70% during the Summer travel period.

This post was originally published at Calculated Risk Blog.

 




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Posted by TwillyD July 24, 2016
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All Eyes on Verizon, Yahoo! Next Week; $5 billion deal on tap

All Eyes on Verizon, Yahoo! Next Week; $5 billion deal on tap

Just over a year after buying AOL, Verizon Verizon (NYSE: VZ) seems poised to buy the last of the remaining Internet providers – Yahoo!.

Word on the street is that the wireless service provider could announce its acquisition of Yahoo! next week. The price being bandied about is roughly $5 billion.

The wireless giant has long been considered the favorite to buy Yahoo’s Internet assets. The point is to combine those assets with those of AOL, which Verizon bought last year form $4.4 billion.
 

 · Reasons for this deal

 
Why would the number one wireless carrier want to add another relic of the early days of the Internet to its portfolio? To compete with Facebook (NASDAQ: FB)and Google and carve out space in the lucrative online advertising space. (Google is now Alphabet, but still trades on the NASDAQ under the GOOGL ticker).
 

 · Yahoo draws many suitors

 
Redcode reported Friday that Verizon had raised the price it was willing to pay in its most recent offer for Yahoo. While it was rumored that Yahoo’s board members barked at Verizon’s offer as being too low, it would be wise for Yahoo to accept it.
 

 · Bad, costly choices

 
That’s because Yahoo’s operations are in a mess. There are a countless number of reasons that led to the mess. This includes the high frequency of CEO turnovers, and a slew of costly acquisitions that proved to be worthless.

Gizmodo took the time to highlight 53 acquisitions that took place under current CEO Marissa Mayer’s watch. Gizmodo tallied the acquisitions to be $2.3 billion. Given that many of them are out of business, the $5 billion from Verizon should seem reasonable.

With AOL and Yahoo in its portfolio, Verizon would have two large Internet companies at its disposal. That would bolster its effort to secure market share in digital ad spending, which is currently dominated by Facebook and Google.

Verizon believes that it can use quality consumer targeting to attract advertisers.

Missteps include not selling to Microsoft several years ago.




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Posted by TwillyD July 23, 2016
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Relypsa Just Made a Move That Could Give AstraZeneca Pause


Last month we told you about Relypsa (NASDAQ: RLYP) a biopharmaceutical company that was enjoying being the sole provider of a drug used to treat hyperkalemia, a condition that causes life-threatening levels of potassium in a person’s blood.

At the time we first reported Relypsa, we noted that the company’s stock was up and had even more room to run.

Well, that has proven to be an understatement.

Last week the company announced that the Swiss-based Galenica Group bought it in an all-cash deal, which sent Relypsa’s stock higher by almost 60%. On that day, Thursday, the company’s stock closed at $31.95, which was just shy of the $32 per share offered by the Galencia Group. That amounts to $1.53 billion.

Through this acquisition, Relypsa’s hyperkalemia drug is better positioned to impending competition, especially in the U.S. Specifically the deal is touted as helping Relypsa strengthen its presence in the U.S. cardio-renal market, which is a key area of focus.

It has been benefitting from being the only supplier of a hyperkalemia treatment drug. Its drug, called Veltassa, had been the only FDA-approved drug in the market used to treat the condition.
 

 · Staving off Big Pharma AstraZeneca

 
The Galencia acquisition seems right on time. There was some dustup earlier this year when it appeared that a drug from Big Pharma company AstraZeneca (NASDAQ: AZN) was trying to get its hyperkalemia drug approved by the Food and Drug Administration. Its approval by the FDA was thought to be a slam dunk, and observers thought Relypsa’s days of being the sole treatment provider would be over once AstraZeneca’s ZS-9 was approved. While it was delayed, there’s little doubt among observers that AstraZeneca’s drug will be approved. It’s just a matter of when.
 

 · Long-term growth strategy

 
In the statement announcing the acquisition, officials say the transaction is in line with the Galenica strategy of growth through in-licensing and acquisitions.

Relypsa has developed an extensive specialist commercial organization in the United States targeting nephrologists and cardiologists and focused on developing market access and awareness. The market size of those affected by hyperkalemia totals roughly three million people, which includes people with stage 3 or stage 4 chronic kidney disease (CKD) and/or heart failure.

Offer Recommended by Relypsa Board of Directors
Under the terms of the merger agreement, Galenica will commence a tender offer to acquire all of the issued and outstanding common stock of Relypsa.

The Boards of Directors of both Relypsa and Galenica have approved the terms of the merger agreement, and the Board of Directors of Relypsa has resolved to recommend that shareholders accept the offer, once it is commenced.

The acquisition is structured as an all-cash tender offer for all outstanding issued common stock of Relypsa followed by a merger in which remaining shares of Relypsa would be converted into the same U.S. dollar per share consideration as in the tender offer. The transaction is not subject to a financing condition. All this according to the company statement released about the acquisition.
 

 · Not all analysts happy

 
On the news of the acquisition, there were mixed reactions from analysts. Brean Capital and H.C. Wainwright downgraded Relypsa from buy to hold and neutral, respectively. However, Morgan Stanley upgrades the company from underweight to equal-weight.

Prior to these actions, there were other moves by analysts. Wedbush had restated its outperform rating, while Stifel Nicolaus restated its buy rating. BTIG Research restated its buy rating with a huge $35 price target.

Relypsa is expected to be delisted from the NASDAQ and integrated into Vifor Pharma, which is a unit of Galenica. The transaction is expected to close during the third quarter of 2016.




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