(DIR) Home
Boeing And Volkswagen Enter Deals With Uncertain Payoffs
(HTM) Source
----------------------------------------------------------------------
### _This is the published version of Forbes' CFO newsletter, which
offers the latest news for chief finance officers and other leaders
focused on the budget._ _Sign up here_ _to get it delivered to your
inbox every Tuesday._
* * *
Following a contentious Senate hearing last month and reports of
imminent criminal charges, **Boeing is making news for something
positive: the** **planned acquisition** **of Spirit AeroSystems**. The
all-stock deal purchases the manufacturer for $4.7 billion. The total
transaction value, which includes debt, is $8.3 billion.
**This isn't a quick ploy to distract the public, even though the
timing—when there is a lot that Boeing would like people to forget
about—is fortuitous**. Boeing first announced in March that it was
working toward an acquisition of Spirit, which the company said at the
time "would further strengthen aviation safety [and] improve
quality"—two areas that Boeing has needed to work on in light of a
door plug blow out on an Alaska Airlines jet earlier this year, and
legal repercussions from two fatal plane crashes that killed a total
of 346 people in 2018 and 2019.
Spirit AeroSystems had actually been part of Boeing up until 2005. At
the time, Boeing saw itself as a company that would be the integrator
of parts made by different manufacturers. As Boeing spun off what
became Spirit nearly 20 years ago, _Forbes_ , some **industry watchers
warned that the move might actually deplete expertise that had grown
and matured at Boeing** , leaving the airplane manufacturer with holes
in its technical ability. _Forbes_ that the initial spinoff wasn't
necessarily a bad idea, but it required more attention and direct
oversight on the part of Boeing to be a success.
_Forbes_ that **the merger is unlikely to solve any of the problems
that either company is facing**. The two companies have diverged in
their management and practices in the last 19 years, and the contract
with Spirit's machinists union may complicate things. Spirit's largest
weakness, Bogaisky reports, is likely the large number of assembly
line workers who didn't return after initial shutdowns during the
early days of the Covid-19—just 20% to 30% of all aerospace industry
workers came back.
**It's an** **expensive move** for a company that has seen its public
reputation—and cash—dwindling this year. The deal gave both Boeing and
Spirit AeroSystems' stock a slight bump after it was announced on
Monday. The rest, it seems, may be up to Boeing keeping that promise
of strengthened aviation safety.
## ECONOMIC INDICATORS
Federal Reserve Governor Michelle Bowman.
ERIC BARADAT/AFP via Getty Images
Inflation is slowly decreasing, but **it's not yet to the point in
which the Federal Reserve is likely to cut interest rates**. The
personal consumption expenditures index, which is the Fed's favored
inflation metric, was at 2.6% in May, which is the lowest level since
March 2021. This figure is moving down slowly—it was 2.7% in April—but
still quite a ways off from the Fed's long-term inflation target of
2%.
While there has been broad hope that interest rate cuts will happen in
the coming months, **Fed governor Michelle Bowman** **said last week**
**that she doesn't expect lower rates until "future years."** At a
question-and-answer session at London think tank Policy Exchange,
Bowman said, "I remain willing to raise" rates "should progress on
inflation stall or even reverse." Bowman is considered one of the more
hawkish members of the board, but as progress on inflation reduction
has slowed, predictions of rate cuts this year have also been slashed.
**Sticky inflation is also keeping the consumer confidence level
down**. Figures released last week by the Conference Board show that
elevated prices for food and groceries continue to have a negative
impact on how people see the economy, causing their consumer
confidence score to dip to 100.4 from 101.3 in May. Their expectation
index—based on short-term outlooks on income, business and labor
market conditions—is also down this month compared to May. This index
has been at a level below 80, which often signals a coming recession,
for five months. (According to S&P Global figures, there's a 25% to
30% chance of a recession in the next 12 months—more than regular
times, but it is not imminent.)
However, ___Forbes_ , economists and policymakers tend to miss this
impact on regular consumers because **they're in a bubble of research
and relative financial comfort**. Median wage growth hasn't been
keeping pace with inflation, and prices aren't all coming down as a
result of inflation easing its grip. Looking at the economic situation
more from an ordinary person's perspective may help policymakers
better understand how Americans are actually thinking about the
economy.
## LEGAL ISSUES
The Supreme Court Building.
Robert Alexander/Getty Images
Using administrative law judges in the Securities and Exchange
Commission to rule on questions of securities fraud violates a
person's constitutional right to a trial by jury, the Supreme Court
ruled last week. It means **disputes need to go before regular judges
and juries** —not the administrative courts that often exact deeper
penalties.
**Elon Musk and Mark Cuban urged the court to rule against the SEC** ,
writing in a court brief administrative law judges "raise serious
concerns" and "results in unequal results for SEC defendants, an
erosion of trust in public institutions, and a limitation on the
availability of valuable information for the market." The current
system, they said, gives the SEC too much power and gives the
perception that the agency has an "unfair advantage" in its legal
challenges, believing that resolving disputes through a jury trial
would be more fair.
While the ruling is relatively narrow, **it could bring big changes
for administrative law judges in other federal departments**. In 2017,
there were 1,931 administrative law judges throughout the federal
government in departments including the SEC, the Social Security
Administration, the National Labor Relations Board or the Occupational
Health and Safety Administration.
## POLICY + REGULATIONS
getty
Official rules detailing the **new 1% excise tax on corporate stock
buybacks are set to be published** in the Federal Register this week,
writes . This new tax, which was part of the Inflation Reduction Act
of 2022, ends the practice of allowing companies to be able to realize
shareholder-style capital gains benefits from the sale. Instead, all
share buybacks by publicly traded companies will be taxed at the
corporate level, with no other taxes—or incentives—for dividends. The
Joint Committee on Taxation estimates this tax will raise $74 billion
in its first 10 years. The regulations introduce a new reporting form
and set the first deadline for reporting corporate stock buybacks in
fiscal years after Dec. 31, 2022: Oct. 31.
## DEEP DIVE
### **Volkswagen Is Investing Up To $5 Billion In Rivian**
A Rivian electric truck is charging in front of a Rivian service
center in South San Francisco, California.
Justin Sullivan/Getty Images
What goes into a good investment? As a deal last week between
Volkswagen and Rivian shows, **it depends on your perspective**.
Electric vehicle maker Rivian announced the deal with the German
automaker last week, in which **Volkswagen will invest up to $5
billion in Rivian through 2026**. It starts with an initial $1 billion
investment, as well as a new joint venture between the two companies
to develop an automotive software platform based on Rivian's
technology. The platform will bring Rivian's "zonal" hardware design
and focus on functions including integrating infotainment, wireless
connectivity and autonomous driving functions, Volkswagen Group CEO
Oliver Blume said. The remaining $4 billion will come as the joint
venture reaches certain technical milestones.
**Industry watchers hailed the deal as an important one for both
Volkswagen and Rivian**. The electric car maker had been struggling
with high costs—Rivian's gross loss per vehicle in the first quarter
was $39,000, _Forbes_ —and had to pause construction of a new factory.
Meanwhile, **Volkswagen had lofty electric vehicle goals**. In 2021,
it pledged to make 100% of its revenues from battery-operated vehicles
by 2040, and increase revenue from mobility services and software.
It's since stepped back considerably, as the traditional automaker has
had issues producing electric vehicles people will buy. Additionally,
Volkwagen's internal software group, known as Cariad, imploded last
year, replacing most of its C-suite and board, and laying off 2,000
workers in a restructuring move.
**The Volkswagen-Rivian deal brings each automaker something that the
other one needs, but what do investors think?** Rivian has seen its
stock spike, with prices up more than 25% since the deal was
announced. Volkswagen, on the other hand, has seen its stock drop
slightly. Analysts say investors are concerned about the high price
tag for this investment and are not sure if it will pay off.
## FACTS + COMMENTS
Pharmacy giant Walgreens saw its worst day on the stock market in more
than 50 years last week following an **earnings report that missed
expectations** and the announcement of store closings.
**$2.80 to $2.95:** Revision of net earnings per share for the fiscal
year. Previously, the expected EPS was $3.20 to $3.35
**2,000+:** Number of Walgreens stores that could close—about 25% of
its total
**'We continue to face a difficult operating environment':** CEO Tim
Wentworth said
## **STRATEGIES + ADVICE**
The SEC's new disclosure rule for cybersecurity incidents has
**brought CFOs and CISOs together** for reporting. Here are some of
the things learned so far from this process.
**Business partnerships are important, but can be difficult**. Here
are some tips to make your partnerships stronger and more productive.
## VIDEO
## **QUIZ**
Meme stock king Keith Gill—also known as "Roaring Kitty"— **drove a
roller coaster rise and drop of which company's stock** by announcing
he had a sizable stake?
A. Blackberry
B. Chewy
C. Birkenstock
D. Under Armour
See if you got the answer right here.
______________________________________________________________________
Served by Flask-Gopher/2.2.1