HUMANA and Aetna now face an uphill battle persuading antitrust enforcers their planned $37 billion deal won’t harm competition, after high-level talks between the Justice Department and company officials yesterday ended without public word of their outcome. It isn’t clear when the agency will make a final call. Company officials have been preparing for a decision as soon as this month, according to The Wall Street Journal, which cited people familiar with the matter that the newspaper didn’t identify. But officials also disclosed June 24 that they’d extended the deadline for completing the deal until the end of the year.
Humana’s stock has been reeling since news of the negotiations suddenly emerged mid-day Thursday; shares have fallen 11% since the day before. Aetna’s stock has fallen, too, but by a far smaller 2%, reflecting what investment bank JP Morgan said yesterday is the Louisville company’s greater downside risk if the deal collapses (chart, top).
JP Morgan downgraded Humana’s stock to “neutral” from “overweight,” after the probability of a deal approval declined well below a 50/50 chance, analyst Gary Taylor said. If the deal were not to happen, Humana’s shares could fall to a range of as low as $115 to $125. At $115, Humana would have sunk to the lowest level since May 6, 2014, when shares closed at $109.79.
That grim outlook isn’t universal. Wedbush Securities analyst Sarah James told CNBC: “We’re 80 to 90% confident that the Aetna deal is going to go through,” she said (CNBC).
The developments at Humana-Aetna and two other companies also planning a merger — Anthem and Cigna, for $48 billion — “are the latest signs that federal officials are worried about consolidation among health insurers,” the WSJ says. The deals “would reshape the top of the industry, collapsing five large insurers into three giant firms, each with annual revenues of more than $100 billion” (Wall Street Journal).
Humana’s stock has tumbled 12% over last three days.
The probability of the Justice Department approving the deal has now declined well below a 50/50 chance, JP Morgan said in a report today. If the deal bombed altogether, the Louisville insurer’s shares could fall to a range of as low as $115 to $125, the investment bank said.
Humana’s unexpected plunge came as suitor Aetna was to meet with top Justice Department officials today as it seeks to win antitrust approval for its takeover of Louisville-based Humana, multiple media outlets have been reporting. The Hartford insurer’s meeting was to include the DOJ’s No. 3 official, a top-level gathering that signals the review is entering a final, make-or-break stage, according to Bloomberg News, which cited sources it didn’t identify.
“We have long held that only HUM shares have material downside if the DOJ were to block the pending acquisition by Atena,” JP Morgan’s Gary Taylor said in in his report.
Humana’s stock closed moments ago down 2.7%, or $4.35 a share, to $158.15. It fell another $1.14 in extended trading. Yesterday, it fell a far steeper 10% on sales volume more than six times normal — the biggest one-day drop in four years. It was Humana’s lowest closing price since Feb. 12, when shares hit $160.37.
Aetna’s stock was recently up 1.3%, or $1.43, to $116.89; yesterday, it closed down 4%.
Humana tower downtown.
“The meeting falls two weeks after a similar Justice Department session with Anthem and Cigna, which are pursuing their own $48 billion merger,” Reuters said. “While department officials are concerned that the Anthem-Cigna tie-up may stifle competition, Aetna is arguing that its deal is different: It maintains that its overlap with Humana is small and any loss of competition is easily fixable, according to a person familiar with the insurer’s thinking who, like the others, asked not to be identified discussing a private matter.”
YUM‘sexpansion of its Pizza Hut and KFC international corporate campus in Plano, Texas, will boost total space by 60% to 300,000 square feet, with the addition of two three-story buildings. The pizza and fried chicken chains are opening about 1,000 new locations a year, requiring more space for employees.
One of the two new buildings will house a life-sized mock up of a Pizza Hut restaurant for testing everything from diner traffic flow to consumer reaction to artwork. There will also be a new conference room for all the campus’ 450 employees, twice the capacity of the existing conference space.
Creed
Yum CEO Greg Creed and four other top corporate executives are getting new offices above the conference center, too. The five executives now divide their time between Plano, which is 20 miles north of Dallas, and Louisville, a move in February that raised questions about Yum’s commitment to Louisville. Yum said it was more practical for the top brass to work closer to the company’s two biggest and fast-growing divisions. The corporate campus expansion was disclosed at the time (Dallas Morning News).
The Pizza Hut Division has about 14,000 restaurants in 90 countries and territories outside China. KFC has about 15,000 in 120 countries and territories, also excluding China.
The China Division, based in Shanghai, has about 7,200 restaurants, mostly Pizza Huts and KFCs. Under pressure from an activist investor, Yum is in the process of spinning off the China Division, a process it expects to complete by the end of October.
Pizza Hut and Yum’s international business have been based in Plano since Yum was spun off from PepsiCo in 1997. KFC’s U.S. division remains in Louisville, where the company employs 1,000 workers. Yum’s third division, Taco Bell, is based in southern California’s Irvine. More about Yum in Louisville.
FORD said it sold 577,097 vehicles in China during the year’s first half, a 6% increase from a year ago. Demand for Ford and Lincoln SUVs sales was strong, with combined sales of the Ford EcoSport, Kuga, Edge, Everest and Explorer and Lincoln MKC, MKX and Navigator surpassing 150,000 vehicles, 27% more than a year ago (press release). Ford’s stock closed this afternoon at $12.75, up 1.4% to $12.74.
AMAZON‘s first Prime Day 24-hour sale last year didn’t go off without a hitch. “The company hyped price-breaks on everything from beard growth rubs to nail clippers for large animals, as well as the much-mocked 55-gallon bottle of lube for over $1,000,” says Time magazine. “The overwhelming verdict for the vast majority of Prime Day deals last year was: they kinda sucked.” What to do different for this year’s Prime Day, next Tuesday? Time offers five suggestions (Time). Also, Amazon plans to hire another 1,000 employees in the U.K. at its London head office, research and development centres in Cambridge and Edinburgh and new warehouses in Manchester and Leicestershire — all on top of 2,500 jobs it announced earlier this year (The Telegraph).
In other news, Courier-Journal parent Gannett Co. said it would report second-quarter financial results July 27, followed by a 10 a.m. ET conference call with Wall Street analysts (press release).
AMAZON customers in more than 25 U.S. metro areas will be able to get near-immediate delivery of more than 500 items during the e-commerce giant’s second annual Prime Day, a 24-hour extravaganza of extra savings over the retailer’s usual discounts set for July 12. Louisville isn’t one of the eligible cities; the closest is Cincinnati. 😦 Amazon also announced yesterday that first-time Prime Now customers will get $10 off their order when they use the 10PRIMENOW promotional code on orders placed between today and July 12. They will also receive another code later for another $10 off Prime Orders placed later in the month (Cnet and press release).
Prime Day is a big deal in Louisville. The retailer employs 6,000 workers in the Louisville area at mammoth distribution centers in Jeffersonville, and in Bullitt County’s Shepherdsville. Plus, one of Amazon’s biggest shippers is UPS; with 22,000 workers at its Louisville International Airport hub, it’s the city’s single-biggest private employer.
FORD family scion and director Edsel Ford II won’t face criminal charges after being arrested for suspected misdemeanor domestic violence involving his wife Monday night at their Grosse Point Farms home, according to several news media reports this morning.
Edsel Ford
Ford, 67, great-grandson of founder Henry Ford, spent the night in jail after his arrest, but was released yesterday after the city prosecutor’s decision to not bring charges, according to the Detroit Free Press. He was arrested at about 11:30 p.m. Monday after police were called to the suburban Detroit home he shares with wife Cynthia Ford; alcohol was involved.
Late last night, Cynthia Ford issued a statement denying the incident amounted to domestic violence. “I stand behind true victims of domestic violence and I am not one of them,” she said, the Free Press said in a separate story. “My husband and I ask that you respect our privacy and that of our family. We are working in the right direction to heal from this experience and move forward.”
Winning robot in an Amazon competition picked items off a shelf at a speed of about 100 per hour, much worse than the average 400 by humans.
AMAZON awarded a robotics prize to a team from the TU Delft Robotics Institute in the Netherlands and the company Delft Robotics in the retailer’s second-annual competition to find robots that will someday work alongside humans — or in place of them — in Amazon’s massive distribution centers. At the contest in Germany’s Leipzig, Delft’s robot picked items from a mock warehouse shelf at a speed of around 100 an hour with a failure rate of 16.7%. That’s slow compared to what a human can manage (around 400 items an hour), but a big improvement over last year’s winner, which managed just 30 items an hour. This was the second year for the competition (The Verge). Amazon employs 6,000 workers in the Louisville area at mammoth distribution centers in Jeffersonville, and in Bullitt County’s Shepherdsville.
PIZZA HUT: In South Korea today, another 25 franchisees filed a lawsuit seeking repayment of $657,553 the restaurant chain’s Korean national headquarters charged them for marketing and other services — fees the franchise owners said were unjustified. Their suit came a week after the Seoul Central District Court ruled in favor of 88 other owners who had asserted the came claim. The dispute dates to March 2007, when the headquarters demanded franchises remit 0.55% of their profits on grounds they’d benefited from marketing, operational, and customer-service counseling provided by the head office. In April 2012, headquarters boosted the fee again, to 0.8%, and required owners sign another contract agreeing to pay the charges. It also unilaterally nullified contracts with owners that either failed to pay the fee or delayed payment (Korea JoongAng Daily).
HAIER‘s appliances, electronics and ductless air conditioners were incorporated into one of Cocoon9’s container homes at last week’s Dwell on Design residential trade show in Los Angeles. The prefab “plug-and-play houses” contain smart technology, energy efficiencies and versatile spaces, delivered fully assembled with quality construction and high-end finishes within four months (Twice). Haier bought GE Appliances last month for $5.6 billion and its 6,000-employee Appliance Park in Louisville’s southend.
PAPA JOHN’S: In the U.K.’s Hull, Papa John’s is opening as many as four restaurants over the next year in the Kingdom’s next “City of Culture,” according to a shy franchise owner (the local newspaper says he “asked not to be named at this time”) who says the eateries could create as many as 25 jobs per location. They would be the city’s first Papa John’s (Daily Mail). All about the U.K.’s cities-of-culture program.
HUMANA is moving more than 120 employees in downtown Jacksonville, Fla., to two new separate locations as part of a broader effort to put sales and service workers in retail settings closer to members (Daily Record).
Rae
In New Zealand, a reformed “KFC queen” has gone public about her efforts to lose weight in a newspaper series the paper very awkwardly describes as being about a group “taking responsibility for their own health within a family-based, non-judgmental environment that supports all levels, sizes and ages.” Rachel Rae told the Taranaki Daily News: “I loved junk food, I loved fish and chips, and I was known as the KFC queen. I would go there about three times a week. Whatever was quick, filling and fattening — sounds gross eh?” (Daily Star).
In Japan, KFC is offering all-can-eat-in-45-minutes meals every Wednesday night between July 13 and Aug. 31, further expanding a special promotion once only offered on founder Colonel Harland Sanders‘s Sept. 9 birthday (Rocket News 24).
And in Australia’s Brisbane, KFC told diner Eden Hoffschildt that what she thought was a chicken’s brain cooked into in a recent meal was actually a kidney. “There is no health risk associated,” the fast-food chain said, in a reply to Hoffschildt’s Facebook posting about the incident. “The kidney is actually present in the thigh piece of chicken supplied by most leading Aussie chicken suppliers and can actually be found in cooked chicken bought from most leading supermarket” (Courier Mail). It was the second case in the past week of the wrong chicken part found in a Brisbane restaurant meal, and one of a series in recent years at other KFCs in Australia, the U.K., and the United States.
Australia’s nickname is Oz, which is another reason why this scene from the 1939 classic is so apropos:
In other and less gross news, tonight’s Mega Millions lottery jackpot is now an estimated $449 million. That would be the seventh biggest jackpot of all time, including the even better-known Powerball (WDRB). Blaming the Obama Administration’s energy policies, Murray Energy of Clairsville, Ohio, says it could lay off up to 4,400 coal miners by September in Kentucky, Ohio, West Virginia, Illinois, Utah and Pennsylvania (WDRB, too). In the year’s first three months, statewide coal employment plunged 18%, to 6,900 — lowest in 118 years (Herald-Leader). A 26-year-history of coal losses, county-by-county (WFPL).
HUMANA: Aetna has launched an auction to sell about $1 billion worth of Medicare Advantage assets as it seeks antitrust approval for its planned $37 billion acquisition of Humana. The Hartford insurer will accept bids as soon as next week, according to Reuters, which cited sources it didn’t identify. Wall Street has been less concerned about Aetna making it past antitrust regulators; on Thursday, Leerink Partners analyst Ana Gupte said she believed there was an 80% chance of Aetna closing on its acquisition (Reuters).
UPS is installing another 300 lockers nationwide to make it easier for people to pick up packages. “UPS Access Point” lockers are usually outside of convenience stores and accessible 24 hours a day. The lockers, which began a staggered rollout last month, will initially be in Washington, Illinois, New York, Pennsylvania and Virginia (Seattle Times). AMAZON has had a similar locker program since 2011, where customers can select any location as their delivery address, and retrieve orders by entering a unique pick-up code on the Locker touch screen (Wikipedia).
KFC: In Corpus Christi, Texas, two KFC employees were hospitalized with second-degree burns after a fryer malfunctioned and hot oil spilled out and burned them from the waist up (KRIS). French news media company STP Productions is working on a story about KFC to be aired in September. Reporter Clementine Mazoyer and a cameraman recently visited founder Harland Sanders’ first restaurant at Corbin, Ky., then traveled to Kingston, N.Y., to interview franchise owner Darlene Pfeiffer, who says she personally new Sanders (Kingston Times).
HAIER: China’s largest home appliances maker will continue to be the company where different cultures thrive and innovate, an approach it will use at its newly bought GE Appliances business. Instead of sending employees to manage acquired foreign firms, Chairman Zhang Ruimin said Haier relies on local staff and focuses on how to effectively motivate them. Over the past decade, Haier has downsized by eliminating more than 10,000 middle-level manager jobs, aiming to transform itself into an incubator of innovators. “So far, we have 3,000 small teams that are working on innovative projects, and about 200 of them have raised funds from venture capital firms,” Zhang told the 2016 Tianjin Summer Davos meeting last week. Haier completed its $5.6 billion purchase of GE last month (China Post).
TEXAS ROADHOUSE is building one of its next Bubba’s 33 chicken and burger restaurants at the Midland Park Mall in Texas. The Louisville company had seven of the restaurants at the end of last year and plans as many as five more this year (Reporter-Telegram and Nation’s Restaurant News).
News about business and culture in Louisville, Ky.
TEXAS ROADHOUSE is building one of its next Bubba’s 33 chicken and burger restaurants at the Midland Park Mall in Texas. The Louisville company had seven of the restaurants at the end of last year and plans as many as five more this year (
Boulevard 