05/2019 Market Commentary

Growth Industry

Life insurance! Boy, have we got something you need! Just kidding.

So this is what the road to a trillion looks like: link. Who would have thought an old industry like life insurance was a growth industry again. Here, Blackstone is not bashful acknowledging their primary motivation is your best interest asset gathering. Beware of what these life insurance companies are selling and how they are selling it. Their objective may well not be the same as yours.

Oil & Gas

On the fritz

Oil prices have fallen dramatically in recent weeks from a high of $66 to as low as $53 (both are WTI). The latest inventory reading showed a major build up. This is sometimes associated with weak demand, which could signal broader economic weakness. WTI price chart:

Pioneer: Cutting to Grow

We have always wondered about the business math behind aggressively growing a negative cash flow business whose asset declines/depletes very rapidly – generally two years or faster and often precipitous in the first twelve months of the wells life. Talk about having to work hard to stand still (keep production up). Investors did not seem to mind and fed the industry more and more capital. With the uptick in oil and gas related bankruptcies and industry stock price declines it seems that capital providers are becoming more discerning (ie the capital comes more expensively or with greater strings attached). The question becomes what companies do with what they have. Pioneer Natural Resources seems to be following a new strategy akin to Tesla’s – cutting their way to growth (for all the criticism Tesla gets there sure is a lot of corporate mimicry going on). Things must be going well in the shale oil patch…

Bankruptcy Squared

Triangle Petroleum filed bankruptcy for a second time in three years. What a proud accomplishment for capital providers in the Bakken shale region!

Big Deal

Elsewhere in the oil patch investors are not afraid of recent rumblings (above and previous) or are at least are trying to catch up with rest. Chevron and Occidental Petroleum competed in pursuit of acquiring Anadarko Petroleum. Occidental has won out that bidding competition and with such sound economics management was certain that shareholders would agree so they tweaked the deal terms in such a way that removed the requirement for a shareholder vote. (That’s sarcasm – we think shareholders should vote on something this big) The deal is valued at $56 billion.


More delay in returning the 737 MAX to flight. Getting these aircraft back in the air is critical to Boeing’s operations. Each delay is very costly to Boeing as its working capital deteriorates – aircraft built but not sold is another way of saying cash goes out but does not come in.


  • Tesla expects global shortage of electric vehicle battery minerals (link)
  • US does not exempt Autopilot “brain” from new tariffs (link)
  • Tesla raises $2.7bn capital (link)
  • Solar factory revolutionary cells are being exported and not finding many US roofs (link)
  • Analyst describes “Code Red” situation at Tesla (link)
    • Stock trades below $200 for first time in 2.5 years.
  • Self-driving trucks begin mail delivery test for USPS (it’s not a Tesla) (link)
  • Bullish analyst talks differently on private call (link)
  • Tesla’s Autopilot requires significant driver intervention (link)
  • Analyst warning sends share prices lower (link)

Tesla stock price chart from Bloomberg:

Tesla bond due 2025 yield chart from Bloomberg:

03/2018 Market Commentary

So much happened during March, so bear with us as we walk you through it all. We’ve got a new Market Commentary format for you too this month. While we hope it is easier for you to find those topics of interest, don’t be shy. It’s all important as you charge into 2018.

Market Correction

Recovery complete: Nasdaq hits new record. Well, that was easy.

March 2018 Nasdaq

Warren Buffett / Berkshire Hathaway

The much-anticipated Berkshire Hathaway 2017 shareholder letter from Warren Buffett was published this month. The following bullet points are key highlights by Ballast.

  • Key qualities we seek […] a sensible purchase price. That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers.
  • Once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase. Subordinates will be cheering, envisioning enlarged domains and the compensation levels that typically increase with corporate size. Investment bankers, smelling huge fees, will be applauding as well. (Don’t ask the barber whether you need a haircut.) If historical performance of the target falls short of validating its acquisition, large “synergies” will be forecast. Spreadsheets never disappoint.
  • The ample availability of extraordinarily cheap debt in 2017 further fueled purchase activity. After all, even a high-priced deal will usually boost per-share earnings if it is debt-financed. At Berkshire, in contrast, we evaluate acquisition on an all-equity basis, knowing that our taste for overall debt is very low and that to assign a large portion of our debt to any individual business would generally be fallacious (leaving aside certain exceptions, such as debt dedicated to Clayton’s lending portfolio or to the fixed-asset commitments at our regulated utilities). We also never factor in, nor do we often find, synergies.
  • Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need. We held this view 50 years ago when we each ran an investment partnership, funded by a few friends and relatives who trusted us. We also hold it today after a million or so “partners” have joined us at Berkshire.

This last point should settle in. Leverage can help you get somewhere, but reducing leverage will allow you to stay there.

If you heed Mr. Buffett and have been an excited equity investor in the recent year, we would encourage you re-read the first bullet point above. The other points provide excellent expert perspective of general activities we are seeing in the market place.


We have commented on Netflix in previous newsletters. An analyst at UBS upgraded Netflix recommendation, and the stock price and company market capitalization set new records. Speculators may play, but the gravitational pull of cash flows and earnings will eventually have its way.


Speaking of speculators… Tesla has its work cut out for it.

General Electric

We discussed GE in our January newsletter. In it, we explained an adverse scenario that we had heard from a hedge fund manager. We had disagreed on it and sought comment from GE, as well as the hedge fund, for clarification. The hedge fund never responded, but GE Investor Relations talked to us about recent insurance charges in the Capital unit, as well as the long-term service agreements, the importance of credit ratings to sales, and company commitment to deleverage.

A GE related headline hit the press in March. General Electric – industrial conglomerate and manufacturer of electricity generation turbines, jet engines, healthcare equipment, oil & gas equipment, and a lot more – market capitalization fell below that of each of the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) for the first time. What GE produces is the backbone of the economy.

We continue to monitor GE with interest.

Dollar Tree

The economy is strong, and inflation is about to rise – or so popular market narrative goes. However, Dollar Tree (the owner of chains, Dollar Tree and Family Dollar) shares fell as much as 15% on March 7 due to a weak outlook that was provided during the company’s latest reporting to investors. The company is not exactly the bellwether for the stock market, but how can things be looking down for Dollar Tree while inflation, wage, and earnings expectations continue to rise and drive the narrative? We wonder. To us, this would suggest one of two scenarios: 1) that low-wage earners are doing well and upgrading consumption or 2) that they are not doing well and tightening belts. Gas prices and rent (key expenses for most households) have increased in the past year (CPI was +2.2% in February), while average hourly wages increased 2.5% y/y.

Dollar tree

Oil Market

Many seem to have an opinion on which direction oil is going. In fact, last summer, Ballast said, “our opinion is for status quo or lower near-term” but that was back when oil (WTI) was $50. Now it is $65. While we feel somewhat the same today, we’ve seen a few industry leaders make some points that are difficult to ignore.

Mark Papa, an industry titan and former CEO of EOG Resources, was recently recruited out of retirement to run a new company formed by private equity to acquire shale assets out of the energy distress in 2016. We think he is worth listening to. Mr. Papa has made waves with public comments about the promise of the shale revolution. His point is that it’s not as promising as many think – the low hanging fruit has been picked, and it gets worse from here. The article linked above highlights, among Papa’s points, the best drilling locations in both North Dakota and South Texas have been tapped, rivals are being too optimistic, operational challenges abound, and high returns now demanded by investors are leading to squeeze. Papa expects the US will not fulfill oil production projections. The bottom line, according to this thinking, is that oil prices are set to go higher – and soon. If correct, it seems like significantly higher oil prices would choke US economic growth prospects.

Cigna & Express Scripts

More mind-bending activities in the health care markets… In December, CVS announced it would acquire Aetna, a major health insurer. This March, Cigna, another major health insurer, agreed to acquire Express Scripts, a pharmacy benefit manager. We won’t layout the background of each here, only that our immediate reaction to the news was, “huh!?” and our reaction was matched by the equity markets. Cigna’s stock promptly fell in price. The price began the month at $195, and it has settled to around $167 now. In fact, Cigna’s stock price reached its apex of $225 in late January 2018. The Express Scripts acquisition will represent a major leveraging event, and we see no clear value in the combination. To the contrary, we suspect there will be value destruction. We shall steer our clients clear of this heap.


Buying things that “might be” is not generally a good policy. It’s especially not a good policy at high prices. A few years ago, there was an “arms race” of sorts for companies to buy potential block buster drugs in the pharmaceuticals industry before peers did. At the beginning of 2018, that arms race seemed to have kicked off again with big acquisitions by Celgene (Juno and Impact) and others as risks have mounted in existing drug portfolios. These risks have become pronounced with big headlines of drugs failing in trials or being pulled. Biogen and Abbvie took their multiple sclerosis drug off the market after patients were suffering severe complications from the treatment. Not long after, Abbvie announced that a key drug in its pipeline had disappointed in drug trials. Both Biogen and Abbvie stock prices have suffered greatly in March. Several other pharmaceutical companies have too. We only highlight this here as risks lurk, and in our opinion, many investors have not been paying attention.

Insurance & Reinsurance

Continuing previous comment pieces on the insurance and reinsurance market, here we point out the AXA acquisition of XL Group for $15.3 billion. Now, Aspen Insurance Holdings may be placing a “for sale” sign up. The reinsurance market is clearly consolidating, but there is no evidence yet that capital is leaving. This means high competition and status quo of undesirable profitability.

02/2018 Market Commentary

Market Risk and Volatility

The life insurance industry is being blamed for the market volatility experienced in February due to their volatility-controlled products. Much of this rests on variable annuities, which experienced trouble during the financial crisis. Since then, life insurance companies have acted to “de-risk” products so as to minimize their balance sheet risks. But risk is only transferred and/or not correctly evaluated (bottled up even). Sure, volatility-controlled products and practices erupted in February, but it is hard to blame what happened on the life insurance companies alone. They exasperated the results, but they did not cause them. It is akin to blaming sellers for lower prices  (it is a required condition of lower prices but not a fundamental cause). The cause, as we will find out, is that market values are high, and investors became fickle.

Insurance and Reinsurance

Two large insurance and reinsurance groups have received takeover interest. Swiss Re has been approached by a large Japan-based investment vehicle about a substantial minority investment. On the other hand, XL Group has received strong interest of possible acquisition from Allianz. Much of recent mergers and acquisitions were between small and mid-sized insurers and reinsurers. Swiss Re and XL Group are mid- to large-sized. Such continued acquisition interest underscores the amount of capital that remains committed to the sector. As previously noted, Ballast does not believe broad insurance market hardening will occur until capital is flushed. This can come in two forms (1) capital market losses (investments on balance sheet) and (2) insured losses. More than likely, this insurance market will require both, but we remain tuned in as opportunities are likely to arise along the way.

General Electric

We wrote about GE previously, and February proved to be another interesting chapter for the company. The SEC announced that an investigation, management cut forecasts on accounting changes, and a major board shake-up are all in the works.


We read a hedge fund piece suggesting that a fundamental business shift would be triggered by a credit ratings downgrade. GE sells long-term service contracts on its industrial products. Purchasers are sensitive to long-term credit ratings because they want the counter party to be around in X number of years to perform on the contract. The hedge fund suggested that a downgrade would be catalyzed by recent deterioration at GE, and sales would suffer following downgrade, creating an air pocket. The implication was that GE now needs to raise equity capital (something GE does not want to do) to prevent a rating downgrade. The case presented was interesting, but we disagreed. To better understand, we contacted the hedge fund and investor relations of GE. Neither have responded yet but we continue to follow GE with interest.

China / Anbang

Many are not likely to recognize the name Anbang, but it is one of the largest finance and insurance groups in China. It was fast growing thanks to the help of Wealth Management Products, a risky financial product used across the country to finance China’s rapid growth. During February, Anbang was taken over by China’s insurance regulator because of market risks it posed on the economy. Observers called it too big to fail. Either way, we see this as an important moment. As one of the largest insurers in China (and certainly not the only one to extensively use the risky products) we think China is crossing over into challenging waters as they attempt to wring out the market excesses while maintaining stability. We are not convinced that an insolvent market as big as this one can be made solvent without reverberations elsewhere.


Another month, another takedown by Amazon. Walmart reported disappointing online performance, and the stock price reacted by falling 10% in a day, which is a very large move for a company as big and stable as Walmart. This caught our attention, but like our commentary on the broad market pullback, Walmart’s price drop was hardly meaningful. It reversed price gains back to November 2017 levels, at which time the stock price jumped 11% on encouraging online sales. The market giveth and the market taketh away… We are still interested in Walmart so long as the price continues to decline and the dividend yield becomes more attractive.

Inflation & Interest Rates

Popular narrative right now is for rising inflation and, as a result, much higher yields. We disagree with the former and doubt the latter.


First, inflation. Inflation has fallen and barely budged since the financial crisis despite herculean efforts of central banks. The only major inflation evident was through asset prices but not very much through consumer or producer prices. The collapse of commodity prices was no help, nor has it created deflation. So, now that the commodity complex appears to have been stabilized, fears have renewed at the (slightest) advance in inflation metrics that inflation will take hold, and interest rates will have to rise dramatically. For a variety of reasons, we think this line of thought is unfounded, and such commentary is inconsistent.


Then, rates. The Federal Reserve appears to be determined to raise rates at the front-end of the curve (includes overnight loans or t-bills) and will no doubt accomplish this. The Federal Reserve will get much help from the Treasury, which now must issue a lot of debt in coming years to fund the US Government’s deficit – expected to be close to $1 trillion (that’s a ‘T’) in 2018. The Treasury has indicated much of this funding will be done with short-term debt. But the long-end of the curve (includes 10- and 30-year bonds) are less likely to move substantially higher. (They could, but we are skeptical.) The major bond market participants in the long-end of the curve are pensions, insurance companis, et al, and their business and underlying demographic situation is unlikely to change near-term – (That is, pensions still need to be invested with the long-term stability of fixed income and life insurance companies continue to grow retirement & income protection products that rely heavily on the security fixed income provides.) If it exists anywhere, the supply and demand imbalance in fixed income markets that could drive rates higher, in our opinion, rests on the front-end of the curve. This is not worrisome to us.


Despite our beliefs that rising inflation is not yet around the corner and that long-term rates are unlikely to rise substantially in the near-term, we are adding positions to portfolios that we think provide protection against either condition, while still rewarding the investor in the interim.


We have discussed Teva nearly every month of the newsletter. February should be not different. Two things occurred (1) Teva reported full-year 2017 financial results that showed revenues falling faster than many analysts expected and (2) Standard & Poors finally joined peers Moody’s and Fitch in junking the credit ratings. S&P downgraded the credit ratings two notches from BBB- to BB. The shift to “junk” ratings is important because it leads to greater constraints on raising capital, and Teva is highly leveraged.


One other noteworthy Teva event during February was that Berkshire Hathaway purchased a chunk of Teva’s stock. When Berkshire (as equity holder) is subordinate to Ballast (as bond holder) we feel even better about our thesis.

01/2018 Market Commentary


Moody’s downgraded a story we’ve covered in previous posts to below-investment-grade ratings, aka “junk” or “high yield”. This is the second such rating agency to downgrade Teva to junk. That means the bonds now officially transition to the high yield markets, typically making bond yields more attractive. This is the next leg of our thesis playing out. Remember, we think there is long-term value in a large generic pharmaceutical company like Teva.

Microchip Security Flaws (Intel)

Intel has a been a stock we’ve kept an eye on recently, as it is a high-quality company with industry leading technologies and a high probability of remaining a key force in the tech industry for years to come. To boot, Intel pays a dividend, which seems ever rare in this new technology growth wave.


In early January, a researcher discovered a major security flaw to chip architecture called ‘x86’. There were many manufacturers impacted, but none more so than Intel. The flaw impacts computers dating back to the mid-90s and the fix, if there is one, could dramatically slow computers – a costly proposition. Intel and the tech sector fell in price on the news. Ballast perked up even more on the pull-back of Intel’s price, but investors quickly brushed off the news, and the price ran away from sensible levels. It didn’t help us that Intel released strong, estimate-beating earnings figures that sent the stock rallying an additional 10% higher.

TV Programming (Netflix)

Netflix stock has been invincible and continues to defy traditional valuation methods. With no (to little) earnings and a massive negative cash flow, the stock price continues to rise. Market capitalization for Netflix increased by $10bn as the price jumped from $225 to $250 after the company announced 2 million new subscribers, which was higher than expected. As one commentator put it, and we paraphrase: “that is $5,000 per subscriber, or that $5,000 would hit the top line after just 35 years at today’s subscription pricing”. Let that settle in. That represents revenue [not income] over 35 years’ time. Are investors valuing this company correctly?


Here are a couple additional thoughts regarding Netflix. Between 2010 and 2016, original TV shows have more than doubled. Netflix original content is fifth most popular on its own platform behind CW (owned by CBS & Time Warner), Fox, Disney, and CBS. On its own platform! Each of those named leaders is already working on building their own platform or partnering to do so.


Our final thought regarding Netflix is from David Einhorn, a respected manager of hedge fund Greenlight Capital. We thought he framed it succinctly when he wrote in a recent letter to investors:


“[Time Warner] and Netflix now have roughly the same enterprise value, despite [Time Warner] having a better library, an exciting content creation engine and substantial current profitability.”


Time Warner owns Warner Brothers, HBO, TNT, TBS, CNN, Cartoon Network, etc. and an exhaustive list of accompanying TV and Movie content.


Speaking of highly valued stocks defying traditional valuation methods, Tesla is now among the largest car manufacturers by market capitalization. However, they hold this ranking with no profit, with only a fraction of the vehicle production/sales, and with unproven ability to meet targets and scale production. We like a successful visionary and innovative company as much as the next person, but we offer caution against pricing for perfection. Are “investors” renting or owning this stock?


Last year was a bad loss-year for insurance and reinsurance companies. January 1st was a big day for the industry because much of the property catastrophe reinsurance business is (re)priced on that day each year. Pricing increases or decreases can give indication as to whether the insurance market is hardening (as with price increases) or softening (as with price decreases). Overall, the news delivered modest price increases, and so, we think the industry could be in for a status quo of a soft market. We continue to monitor.

General Electric

GE, as it is commonly known, has been in downsize mode ever since its financial unit nearly collapsed the company during the financial crisis. The company has shed countless assets in effort to reduce risk and boost stock price performance that has been anemic going back to the days of Jack Welch. GE was considered a model company under Jack Welch and his six-sigma regime. (GE was practically considered a management university.) However, this may have been a facade given the long poor share price performance. A recent announcement highlights that management may have been good at window dressing too. GE announced its reinsurance unit would take a $15 billion reserve charge and require statutory capital contributions. GE will accomplish this by suspending GE Capital’s dividend to the parent company, allowing for contributions to the financial unit. This was disappointing, but not very surprising given the poor financial health of Genworth, the life insurer that the GE unit reinsures. GE’s share price has suffered from this and other announcements, and management has reduced the dividend to shareholders. Investors have been fleeing, but Ballast sees opportunity. After all, GE remains a leading industrial group, manufacturing aircraft engines, locomotives, power generation turbines, healthcare equipment, and oil & gas equipment & services. We continue to monitor GE.

Howard Marks on Market Risks

There is much to be said about investing and risks, especially given the recent years’ runup in asset values. Rather than presenting more of our thoughts here this month, we offer a few quotes from a recent memo to investors by Howard Marks, a respected investor and founder of Oaktree Capital. (Bold type as presented by the author).


[Re: today’s market prices] Most valuation parameters are either the richest ever (Buffett ratio of stock market capitalization to GDP, price-to-sales ratio, the VIX, bond yields, private equity transaction multiples, real estate capitalization ratios) or among the highest in history (p/e ratios, Shiller cycle-adjusted p/e ratio).  In the past, levels like these were followed by downturns.  Thus, a decision to invest today has to rely on the belief that “it’s different this time.”

It appears many investment decisions are being made today on the basis of relative return, the unacceptability of the returns on cash and Treasurys, the belief that the overpriced market may have further to go, and FOMO [“fear of missing out”].  That is, they’re not being based on absolute returns or the fairness of price relative to intrinsic value.  Thus, as my colleague Julio Herrera said the other day, “valuation is a lost art; today it’s all about momentum.”

The potential catalysts for decline that we have to worry about most may be the unknown ones.  And although I read recently that bull markets don’t die of old age or collapse of their own weight, I think sometimes they do (a dollar for anyone who can identify the catalyst for the collapse of the bull market and tech bubble in 2000 – it’s not easy)


For one thing, I’m convinced the easy money has been made.  For example, the S&P 500 has roughly quadrupled, including income, from its low in 2009.  It was certainly easier for the p/e ratio to go from the low teens in 2011-12 to 25 today than it would be for it to double again from here.  Thus, the one thing we can say for sure is that the current prospects for making money in U.S. equities aren’t what they were half a dozen years ago.  And if that’s the case, isn’t it appropriate to take less risk in equities than one took six years ago?

12/2017 Market Commentary


The cryptocurrency, Bitcoin, had a very active month, and each day we watched in amusement. The month started with Bitcoin climbing to dizzying heights, and by December 18th reached an intraday high of 19,511 (up from 9,654 at the beginning of the month). For anyone that does not want to do this math, that is almost exactly 200% price appreciation. Millionaires were seemingly minted every minute. Does that remind you of markets past? Things have certainly become chaotic price peak. You will recall in our previous month’s commentary we highlighted the introduction of Bitcoin futures, which debuted December 18th on exchange CME. Bitcoin crashed to an intraday low of 10,775 on December 22. That is 45% off the high – Merry Christmas. It has been volatile, to say the least, so we will see what January brings.


December was another major month with big headline for Teva. The company announced that it would move forward with layoffs, cutting 25% of its worldwide workforce, closing manufacturing plants, and suspending its dividend to save a projected $3bn in annual costs. Credit spreads widened (indicating rising risk) over the announcement period while the stock traded higher over the same period. We think one of the groups is thinking about risk incorrectly.


It is not surprising that Israeli workers, citizens, and politicians are not happy. Teva is like a national champion for Israel. Although we do not see Teva as having a choice with the restructure, these conflicting stakeholders could gum-up cost-cutting initiatives, setting the timeline back.


Moody’s followed up by putting the credit ratings of Teva on review for possible downgrade, citing the execution risk, the potential negative ramifications of cost cuts, and the impact of restructuring on cash flows through 2019. The bonds currently have a Baa3 rating, which is the lowest notch of investment grade. Just one notch downgrade would put Teva in “junk” territory. If this happens, combined with Fitch’s current BB+ rating, Teva would likely be considered high-yield, and it could face greater hurdles as it refinances some of its heavy debt burden.


Disasters in Insurance and Reinsurance

As we have previously written, the insurance and reinsurance industry has been in soft market (and lower profitability), marked with excess capital and competitive pricing. Historically, the insurance market moves from soft to hard in cycles. Deficient capital is what pushes the market back to hard pricing (and higher profitability). What typically leads to capital deficiency are record catastrophes (Hurricane Katrina 2005) or major reserve deficiencies (Asbestos in late 1990s).


The current situation may be a little different since many non-traditional reinsurers that were not in previous cycles are now in the market. These non-traditional competitors include hedge-fund and pension-fund backed reinsurance companies and insurance-linked securities and catastrophe bonds. The backers were drawn to higher potential returns not available elsewhere in capital markets. They have indicated commitment to reinsurance even in the face of heavy catastrophe losses. So, it seems that it may take both heavy catastrophe losses and capital market losses to draw the non-traditional capital providers back to their normal state.


The year 2017 added up to be a very expensive year for insurers and reinsurers. According to an FT article, total economic losses are estimated to be at $306bn, and some catastrophes continue to rage on – like wildfires in California. This topic resurfaces in December for couple of key reasons: 1) significant events continue now (the fires mentioned), and 2) January 1st of each year is important for the industry because that is the day most property catastrophe reinsurance policies are re-priced, or renewed (“1/1 renewals”). According to the FT article linked above, “early signs from the negotiations [leading up to 1/1] suggest that prices have not been rising by as much as some insurers were expecting.” The results of the 1/1 renewals will provide clues as to where the market is headed.

CVS + AET and Humana

In early 2017 several major health insurance mergers were blocked by the US Justice Department on anti-competition grounds. The announced acquisitions of Humana by Aetna and of Cigna by Anthem were unwound with billions lost to Aetna and Anthem, but especially the latter. Anthem obliged themselves to pay $1.85bn to Cigna if the deal was called off, and this did not include banker fees for vetting the deal, attorney fees for fighting the Justice Department, attorney fees for merger preparation activities, or attorney fees for lost time in the whole mess. But that is beside the point. A couple of these groups have taken a fresh approach to acquisition, and we are likely to see copycats and investment opportunities.


CVS will acquire Aetna for approximately $69bn in a move that is said to reshape the health industry. Combining the two groups could better address costs by providing basic care and health services at CVS’s existing pharmacies and retail clinics. The move is unlikely to face the same challenges as the Aetna and Humana merger.


Humana has teamed up with private equity to acquire Kindred HealthcareThe Kindred segment for home health, hospice, and community care will be separated from Kindred Healthcare, and Humana will invest alongside private equity partners in the new company. Humana already has significant operations in “home based services” so this acquisition will increase scale and take Humana closer to health care cost drivers.


Will these deals find success or bring copycats? We are watching.