In this issue of the peel:

• 📈 Goldman CEO David Solomon is predicting a massive rebound in IPO and M&A activity for 2025.

• 📊 Markets are getting some last-minute jitters out of the way before a big CPI report today.

• 🚫 After years of painstaking effort, a judge officially blocked the merger of grocery chains Albertsons and Kroger.

Market Snapshot

Banana Bits

• Super Micro Computer tries to inspire confidence among investors in the face of delayed financial reporting.

• Walgreens is talking to potential bidders for a sale of the struggling pharmacy chain.

• Google makes a huge leap for humanity with the introduction of Willow, its new state-of-the-art quantum chip.

• Trump’s presidency is inspiring a flurry of deal-making activity, and Lina Khan is trying to put a stop to it.

• Energy experts see a small global oil deficit on the menu for 2025, a sharp reversal from earlier forecasts.

The Daily Poll

Previous Poll:

Is Boeing Getting What It Deserves?

Hold them accountable: 44.7% // This could destroy them: 17.1% // Too big to fail: 25% // Inexcusable negligence: 13.2%

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Macro Monkey Says

European Stocks Play Second Fiddle

You’ve probably heard the hype about the U.S. stock market. The tech bros are rolling in cash, and the S&P 500 has been hitting high notes like it’s auditioning for a Broadway show.

Meanwhile, European stocks have been hanging out in the back row, trying to figure out why nobody’s paying them much attention. Spoiler alert: there are a few reasons. Let’s break it down.

A Tale of Two Economies

First, let’s hit rewind. Post-2008 financial crisis, both the U.S. and Europe were left reeling. But while America popped some Red Bull and got to work with aggressive stimulus measures, Europe looked more like it was sipping chamomile tea. 

The Federal Reserve slashed interest rates, unleashed quantitative easing, and basically said, “Whatever it takes to juice this economy.” 

On the flip side, Europe’s response was slower, more conservative, and complicated by the fact that 19 countries share the euro. It’s like trying to order pizza for a group of friends, but no one can agree on toppings.

Fast forward to today, and the U.S. economy has grown at a much faster clip. European GDP growth has been sluggish, weighed down by an aging population and structural inefficiencies. 

The result? U.S. companies are growing faster, making more money, and driving stock prices higher.

Here’s the thing: the U.S. stock market is like a tech party, and everyone’s invited. Apple, Microsoft, Amazon, Tesla, and their friends have been throwing down massive gains for years. 

Meanwhile, Europe’s stock market feels like it’s still rocking to the greatest hits of 2005. Sure, there are some solid players in luxury goods (think LVMH) and energy, but there’s no European equivalent to the big tech dominance you see stateside.

This matters because tech companies tend to grow like crazy and rake in high margins, making them the darlings of investors. 

Europe’s markets, on the other hand, are heavy on banks, utilities, and industrials—solid sectors but not exactly the growth rockets that tech is.

Central Bank Showdown: Fed vs. ECB

The Federal Reserve and the European Central Bank (ECB) have been playing very different games. The Fed has been proactive, adjusting rates and policies to keep the U.S. economy on track. 

When inflation popped up like an uninvited guest at a party, the Fed tackled it head-on with aggressive rate hikes.

The ECB? Not so much. Europe’s central bank has been slower to act, partly because it’s trying to keep 19 countries happy. 

This indecision hasn’t helped boost confidence in European stocks. Plus, lower interest rates for longer in Europe have made bonds less attractive, but the spillover benefits to equities haven’t been as strong as you might expect.

Political Drama and Geopolitical Headaches

Europe’s political landscape is like a soap opera—Brexit, Russian energy dependency, and an ongoing struggle to keep the European Union cohesive. These issues create uncertainty, and investors hate uncertainty almost as much as they hate losing money.

Let’s not forget the Russia-Ukraine war, which has been a massive economic disruptor. Energy prices in Europe soared, hitting consumers and businesses hard. 

The U.S., by contrast, has been relatively insulated from these shocks, thanks to its own energy production capabilities.

Corporate Culture: The Shareholder vs. Stakeholder Debate

American companies have a reputation for putting shareholders first. If you’re an investor, this is music to your ears. 

European companies, however, often take a stakeholder approach, balancing the needs of employees, customers, and communities alongside investors. While that’s great from an ethical perspective, it doesn’t always translate to juicy stock returns.

The Currency Conundrum

The U.S. dollar has been flexing its muscles against the euro for years. A strong dollar makes American assets more attractive to international investors, further fueling the U.S. stock market’s dominance. 

Meanwhile, a weaker euro hasn’t been enough to make European stocks look like a bargain, especially given the other challenges they face.

The Takeaway

So, why have European stocks been underperforming? It’s a combo platter of slower economic growth, less tech exposure, central bank indecision, political drama, and a corporate culture that doesn’t always prioritize investors. 

Meanwhile, the U.S. has been riding the tech wave, backed by a more dynamic economy and a stronger currency.

If you’re looking to invest, don’t write off Europe entirely. There’s value to be found, especially if some of these headwinds start to ease. But for now, the U.S. stock market remains the main stage, while Europe is still figuring out how to steal the spotlight.

Career Corner

Question

I was wondering if you are allowed to use paper on IB technical interviews.

Answer

I was always given paper/pen in IB super days for math/analysis pieces (I also brought my own in case, but typically, for a case study, they would give me a specific deal/pitch deck to look at and analyze so that they would provide that).

However, if it’s an easy question (like walk me through $100 deprecation), I’d expect someone to do that without pen and paper. It will show more polish and confidence if you’re able to get to the answer using just mental math.

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

Walgreens Boots Alliance (WBA) 17.74% 

• Walgreens had its biggest single-day gain since the first “Star Wars” movie was released—a much-needed shot in the arm for stockholders who have seen their investments lose 66% over the course of the year. The company has been no stranger to negative headlines. The pharmacy chain has struggled financially since being hit with charges related to the opioid crisis and has closed 1,200 outlets after posting a $3 billion loss.

• Now Walgreens is turning to the last resort if they want to remain alive. The company is in talks with PE firm Sycamore Partners about going private through an LBO. This is essentially like a celebrity getting canceled, going away to rehab for a year or two, and then rebranding via a soft launch on IG.

• Going private would allow the company to fix its issues while removing the stress of being in the public markets. Stocks generally get a nice bump on M&A rumors, given the fact that any buyer would have to pay a premium for 100% control of the company. Both companies are targeting 2025 for the deal to be completed, but don’t hold your breath. Walgreens also tried to go public back in 2019 before that deal fell through.

Alaska Air Group (ALK) 13.16% 

• Alaska Airlines’ stock took flight yesterday after the company outlined ambitious medium-term financial targets. The presentation, which was released at its 2024 Investor Day, comes at a pivotal point after the acquisition of Hawaiian Airlines.

• Investors were keen for updates on the $1.9 billion all-stock deal, which closed in September. Alaska plans to benefit considerably, doubling its projected cost synergies and driving massive earnings growth. Initiatives like nonstop flights to Tokyo and Seoul in 2025 and putting in more premium seats per plane are helping to woo new and existing customers.

• Alaska seems to be hitting on all cylinders, especially when you consider the bankruptcy of Spirit Airlines and the embarrassing struggles of Frontier. Scale is extremely important in the industry, and taking out the competition through acquisition looks like a genius idea for Alaska.

What's Rotten

MongoDB (MDB) 16.92%

• MongoDB’s stock got a kick in the nuts despite posting great earnings. They were not “just okay” earnings; I mean, they actually crushed expectations. The database software company started the day off well, with the stock rising on the initial announcement. But then, investors started reading the fine print and reversed course.

• MongoDB grew 3Q sales by 22% year-over-year. Earnings came in at $1.16 per share, with the average analyst expecting $0.67. This initially led to a 10% jump until investors realized the company had made a sneaky change at the CFO and COO positions. Not a definite problem in and of itself but the sneaky nature of the reveal raised some eyebrows.

• It seemed that investors were less spooked about the news than they were about the timing and the way in which the information was disseminated. Trying to bury the fact that two of your biggest C-Suite executives are leaving in the middle of posting financial results is a mistake that not even a 1st year PR Analyst should make.

Sirius XM Holdings (SIRI) 12.25%

• Shares of the country’s only satellite provider were down on disappointing financial updates and guidance. Oh, and the company hired a new COO who will be responsible for getting the company back on track. Investors decided to take their ire out on this poor chap yesterday.

• When was the last time anyone under the age of 40 listened to satellite radio? Don’t worry, I’ll wait. Yeah, I didn’t think so. Makes sense that their growth rate is struggling. And when companies can’t do anything with the growth side of the equation, they tend to focus on the cost side of the equation, which is much more controllable.

• SiriusXM plans to slash $200 million of costs in 2025 by shifting away from streaming, focusing on the auto market, and firing employees. Doubling down on a strategy that involves radios within vehicles doesn’t seem exciting, nor would it get me jazzed up to purchase shares, but we’ll see what happens.

Thought Banana

In The End, It Doesn’t Even Matter

When the Kroger-Albertsons merger was first announced, it sounded like a retail power move. Two grocery giants joining forces to create a supermarket juggernaut that could go toe-to-toe with industry behemoths like Walmart and Amazon. 

Sounds like a plan, right? Unfortunately for Kroger and Albertsons, regulators and consumers weren’t buying it, and the deal just got canned. Here’s why.

What Happened?

Kroger and Albertsons wanted to merge into a $24.6 billion grocery powerhouse, controlling over 5,000 stores and employing hundreds of thousands of workers. 

The companies pitched this as a win-win for everyone. They claimed the merger would create efficiencies, lower costs, and give them the muscle to compete against Amazon’s Whole Foods and Walmart’s grocery dominance.

But regulators weren’t convinced. Critics argued that instead of benefiting consumers, the deal would lead to higher prices, fewer choices, and potential store closures. That’s not the kind of PR either company was hoping for.

This isn’t the first time a big retail merger has hit the skids. Remember when AT&T tried to buy T-Mobile back in 2011? That deal got blocked over antitrust concerns. 

Or when Staples and Office Depot couldn’t close their deal because regulators feared it would crush competition? The pattern here is clear: if a merger threatens to limit consumer choice, it’s probably going to face serious scrutiny.

In this case, Kroger and Albertsons faced an uphill battle from day one. Combined, they would control nearly 20% of the U.S. grocery market, and in some regions, their market share would be even higher. Regulators saw this as a red flag for potential monopolistic behavior.

The Federal Trade Commission (FTC) has been cracking down on deals that could hurt competition, especially under the Biden administration. 

FTC Chair Lina Khan has made it clear that preserving market competition is a top priority. For Kroger and Albertsons, this meant facing intense scrutiny over how their merger would impact everything from local grocery prices to labor markets.

One of the biggest concerns was store closures. When two big players merge, there’s often overlap in locations, which can lead to shuttered stores and layoffs. 

Kroger and Albertsons tried to address this by proposing to spin off some of their stores into a separate company. But critics weren’t sold on the idea, arguing that the spin-off wouldn’t be strong enough to compete effectively.

Another sticking point was the potential impact on workers. Combined, Kroger and Albertsons employ over 700,000 people, many of them unionized. 

Labor unions feared the merger would lead to job cuts, reduced benefits, and weaker bargaining power for employees. With the grocery industry already under pressure from automation and cost-cutting, these concerns didn’t help the merger’s case.

For shoppers, the big question was: “Will this make my groceries cheaper or more expensive?” Critics argued that reducing competition in the grocery space would lead to higher prices, especially in areas where Kroger and Albertsons already dominate. 

Proponents of the deal countered that it would give the companies more leverage to negotiate better deals with suppliers, theoretically leading to lower prices. However, many consumers were skeptical, given the current environment of rising food costs.

Retail mergers have a spotty track record. When Albertsons previously merged with Safeway in 2015, the fallout included store closures and layoffs, fueling fears that history could repeat itself. 

Regulators and industry watchers cited this as a cautionary tale for why the Kroger-Albertsons deal might not be in the public’s best interest.

With the deal officially dead, both Kroger and Albertsons will have to rethink their strategies. For Kroger, the focus will likely shift to growing through smaller acquisitions or investing in technology to improve efficiency. 

Albertsons, meanwhile, may look to streamline its operations and shore up its competitive position.

For consumers, the news is a mixed bag. On the one hand, blocking the merger will keep more competition in the grocery space, which could help keep prices in check. 

On the other hand, both companies argued that the merger would have given them the scale to lower costs—and now we’ll never know if that would’ve been true.

The Takeaway

The Kroger-Albertsons merger was always a long shot, and its failure underscores the growing resistance to big corporate deals in today’s regulatory environment. 

While the two companies painted a rosy picture of what their union could achieve, regulators, labor unions, and consumers weren’t convinced.

For now, it’s back to business as usual for both grocery giants—and a reminder that bigger isn’t always better, especially when it comes to your local supermarket.

The Big Question: What alternative strategies can Kroger and Albertsons adopt to remain competitive against giants like Walmart and Amazon without relying on a merger?

Banana Brain Teaser

Previous

City X has a population 4 times as great as the population of City Y, which has a population twice as great as the population of City Z. What is the ratio of the population of City X to the population of City Z?

Answer: 8:1

Today

A manufacturer of a certain product can expect that between 0.3% and 0.5% of the units manufactured will be defective. If the retail price is $2,500 per unit and the manufacturer offers a full refund for defective units, how much money can the manufacturer expect to need to cover the refunds on 20,000 units?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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