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Airline Merger Grounded

Spirit, Burger King, China

Author

GRIT
17 Jan

Good Morning!

We are kicking off a lively Wednesday with top finance news! đŸ« Here’s what’s happening:

👉 Airlines deal is blocked

👉 Burger King makes a huge purchase

👉 China’s numbers are in

Let’s get into it!

AIRLINES: Deal Blocked

A federal judge blocked JetBlue Airways' $3.8 billion purchase of Spirit Airlines on Tuesday, siding with the Justice Department's lawsuit that claimed the merger would raise fares by eliminating a major low-cost carrier. This decision is a significant win for the DOJ's efforts against anti-competitive deals. The merger would have created the fifth-largest U.S. airline, but the DOJ argued it would reduce the industry's ultra-low-cost seats by about half.

Source: Crain’s Chicago Business

Following the ruling, Spirit's shares fell 47%, while JetBlue's stock increased by 5%. Spirit's market value was $1.66 billion, less than half the proposed purchase price. The airline faces operational challenges, including grounded planes and lower travel demand.

🎯 GRIT TAKE: The fact that the DOJ went after this
 upgrade to VIP to read the full GRIT Take. 

ACQUISITION: Burger King Strikes

Restaurant Brands International Inc., Burger King's parent company, is set to acquire its biggest U.S. franchisee, Carrols Restaurant Group Inc., for around $1 billion. The deal, expected to close by the second quarter, includes a $500 million investment to refurbish 600 of Carrols' over 1,000 locations. This acquisition aligns with Burger King's broader strategy to revamp stores, enhance customer experience, and boost traffic, competing more closely with rivals like McDonald’s and Wendy’s.

Source: Adweek

Burger King, which has used half its announced $400 million fund for renovations, aims to complete these upgrades by 2028. After the acquisition, the chain plans to relicense most stores to new or smaller existing owners to increase its U.S. operator base. The purchase price of $9.55 per share for Carrols represents a 23% premium over its recent average price.

CHINA: Numbers Are In

On Wednesday, China reported a lower-than-expected fourth-quarter GDP growth of 5.2%, missing the 5.3% forecast by a Reuters poll. The annual GDP growth also matched this rate, improving from 3% in 2022. Real estate is a key sector for China, making up over 20% of their economy. However, real estate prices in major cities fell by 0.4% in December. Investment in real estate dropped by 9.6% in 2023, while infrastructure and manufacturing investments grew.

Source: NPR

Additionally, China resumed reporting youth unemployment rates. Excluding students, the rate for those aged 16 to 24 was 14.9%, with urban unemployment at 5.1% in December. This follows a temporary suspension of reporting these figures during the summer to review calculation methods after previously hitting record highs above 20%.

Headlines You Need To Know: 🎙

  • UN Chief warns of ‘serious unintended consequences’

  • Tesla slashes car prices in Europe

  • Jim Cramer says the market is ready for a pullback

  • Corporate debt default soared by 80% in 2023

  • Blackstone’s defaulted NYC office loan for sale at 50% discount

  • Japan’s market roars back to life

Warren Buffett and Vegetable Oil

One of Warren Buffett’s greatest trades was due to a massive fake vegetable oil fraud. Warren Buffett is one of the greatest investors ever, always sticking with a core set of investing principles. However, he occasionally throws those out the door to strike a massive deal. Allied Crude Vegetables was in the middle of a major fraud against American Express and other creditors. 

Source: Linkedin

Essentially, the founder of Allied Crude was using their vegetable oil as collateral to receive loans from American Express up to $150 million. American Express received a tip, and they began to investigate. They eventually discovered that Salt Water was being used as collateral instead of Vegetable oil. American Express stock tanked on the news and was in a very bad financial position. A 30-year-old Warren Buffett purchased a 5% stake in the company for $20 million dollars. The stock eventually rose over 400% in the next four years, making Buffett a massive profit.

Chart of the Day

📊 Microsoft Income Statement

Source: App Economy Insights

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Source: @wallstreetbets

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