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🎯 February 2024 Wrap-Up: How Did the Main Asset Classes Perform?

🎯 February 2024 Wrap-Up: How Did the Main Asset Classes Perform?

Howling Markets
March 05, 2024

🐺 Hi pack-mates,

This is Howling Markets, the daily summary that is taking over the newsletter niche!

Today we will be covering:

Education: How Does a Hostile Takeover Work? 🧐
JetBlue and Spirit Airlines’ $3.8 bn Merger Gets Shut Down Due to Competition Concerns 💥
February 2024 Wrap-Up: How Did the Main Asset Classes Perform? 🎯
Equity and Debt Markets Daily Update ⚖️
And more!

Market Watch 👀

Prices as at 7:00 am ET

How Does a Hostile Takeover Work?

Oftentimes, when a company wants to acquire another one or when two companies want to merge, the directors of both firms sit down and decide every aspect of an M&A agreement to let the deal go through. But what happens if one of the two companies doesn’t want to merge?

Well, in the case of private companies the issue does not persist as the owner holds all the decisional power and it will be up to him to sell or not the company. However, if a company is public, the situation is much different.

In this case the company sells its equity (and decisional power together with it) in exchange for equity capital to run the company and finance operations without paying interest expenses. So, in the case of public companies, the most important decisions are still taken by the owners, but in this case the owners are the shareholders.

Because of this, in the case of public companies, it is possible to force a merger through a market practice called hostile takeover.

Since the shares are publicly traded on the markets, an acquiring firm can just start purchasing the target company’s shares in the markets without asking any permission to the counterpart.

Once the buyer has acquired enough shares, they will be able to request an extraordinary shareholders’ meeting and the election of new directors, voting for a set of managers chosen by the acquiring company instructed to propose the merger of the two companies.

However, it is important to remember that every time two large companies are merging, either traditionally or through a hostile takeover, the competition authorities will be alerted and will have the power to stop the deal.

JetBlue and Spirit Airlines’ $3.8 bn Merger Gets Shut Down Due to Competition Concerns

Over the past couple of years, we have had quite a few examples of both successful and unsuccessful hostile takeovers. Probably, the most popular deal has been Elon Musk’s acquisition of Twitter, initiated by buying shares on the market and then concluded through a deal once the founders realized that they couldn’t stop the takeover.

On the other hand, one of the largest failed hostile takeovers is the JetBlue and Spirit Airlines’ deal, worth over $3.8 billion. Everything started at the beginning of 2022 when Spirit was about to merge with Frontier Airlines and JetBlue started to buy Spirit’s shares to win the company over and stop the other merger.

In July 2022 JetBlue’s plan worked out and it was able to secure a merger agreement with Spirit. However, soon after, the Department of justice sued the companies to block the deal for a year and it started a trial that had the objective of determining whether or not this deal would have hurt the airlines’ competition.

In January a federal Judge had sided with the competition authorities and declared that the deal would have restricted competition, prompting the companies to stop the merger. On this date Spirit’s share price fell by almost 50%.

On Monday, the two companies officially terminated their merger agreement, almost a month after the judge’s sentence.

Today’s Howling Question

And now, it is time for our howling question!

If you had to guess, how do you think JetBlue’s share price moved the day the federal judge decided to stop the companies’ merger agreement?

-30%
-15%
-7.5%
0%
+5%

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

February 2024 Wrap-Up: How Did the Main Asset Classes Perform?

Starting from the stock market, February has been a great month characterized by 6 all-time highs and a +5.18% return. These returns were initially carried by the general optimism surrounding a soft landing and the expectations of a series of rate cuts that would have started in March.

Despite the market being completely wrong about the timing of the rate cuts, causing a slight drop in price during the second week of the month, the exceptional Q4 earnings have carried the market higher during the latter portion of February.

Additionally, the market has been a great playground also for US government bond yields, with the US10Y increasing even more than the SPX did. During the month of February, the benchmark gained +8.58% moved by the change in investors’ expectations that had to price higher policy interest rates for longer.

Jumping to gold, instead, this month has been quite a stressful for its holders, but it finally concluded with a happy ending. During the month of February gold’s price got rejected by the horizontal resistance and it concluded the month down -0.61%. However, during the first couple of days of March the price rapidly jumped up breaking the resistance level and setting a new high.

Finally, also Bitcoin had a great month, after recovering from the launch of its spot ETFs, the token gained +41.73%. This rapid growth was mainly motivated by the future halving and the overall cryptocurrency optimism generated by the exceptional trading volume that its new ETFs have reached.

Equity and Debt Markets Update

And now, our daily markets update!

Monday has been quite a slow day for the market characterized by extremely low volatility and a slight bearish performance as the market started to wait for Tuesday’s PMI data release. The S&P 500 closed the trading session -0.12%.

On the other hand, it was a great day for the benchmark 10-year US government bond yield as it recovered part of yesterday’s losses by closing the day up +0.79%. However, the yield still closed below the horizontal resistance level, indicating that over the short term the yield could continue to move downwards.