Weekly Business Roundup
Publication 8- Musk and Twitter Fall Out Over Purchase Agreement, Boris Johnson Set To Resign As U.K Prime Minister, and U.S Job Market Cools
Published Sunday, 10th July 2022
This week, Tesla chief executive Elon Musk and Twitter Inc. look set to enter legal battle over deal collapse, mortgage rates in the U.S fell, but are still historically high, and the labor market cools- yet remains redhot
Business
Twitter and Elon Musk Set for Unprecedented Legal Battle Over Deal Collapse
With Elon Musk attempting to terminate his $44 billion takeover of Twitter Inc. and the company vowing to force him to follow through, the social-media powerhouse and the world’s richest person appear headed for a messy courtroom battle.
Tesla Chief Executive, Elon Musk
The company says it plans legal action and is any day expected to file a lawsuit in the Delaware Court of Chancery, arguing he is required to close the agreed-upon deal.
Corporate law experts say Twitter appears to be on sounder legal footing than Mr. Musk, who accused the company of breaching their contract. The bigger question, they say, is if Twitter succeeds in court, is it really possible to force the eccentric billionaire—known for eschewing norms even when it gets him in legal trouble—to buy a company he doesn’t want to own?
“What are they going to do if there is a judgment and he says, ‘Well, I’m still not going to buy it’?” said Zohar Goshen, professor of transactional law at Columbia Law School. “They don’t really have tools to force him to go through with it. You don’t put people in jail because they don’t buy something.”
There is little precedent to draw on. Though there have been a handful of examples of buyers being forced to follow through with purchases under the “specific-performance” clause that Mr. Musk agreed to, most were small deals. Never has the concept been tested on such a big scale.
Mr. Musk in a Friday filing moved to terminate the deal, with his Skadden, Arps, Slate, Meagher & Flom LLP lawyer Mike Ringler arguing that Twitter breached their contract. Mr. Musk alleged that the company appears to have misrepresented the number of spam accounts on its platform, didn’t provide his team with all the information requested, including data to examine the issue, and fired executives and made other changes to its business without permission.
“They don’t really have tools to force him [Musk] to go through with it. You don’t put people in jail because they don’t buy something”
Boris Johnson Resigns Amid Scandals but Says He Will Remain U.K.’s Prime Minister Until Successor Is Found
Boris Johnson said he would step down as British prime minister after a wide-scale rebellion in his party, capping an astonishing fall from grace for a politician who once looked poised to dominate U.K. politics for years.
U.K. Prime Minister, Boris Johnson
The step bookended an extraordinary 36 hours in British politics in which more than 50 ministers and senior government aides resigned, leaving the British government in a state of paralysis. Mr. Johnson said Thursday he would appoint a new cabinet as he stays in office until a successor was found, a process that is expected to conclude by September.
Flanked by remaining members of his cabinet, his wife and senior officials while standing outside Downing Street, Mr. Johnson was unapologetic and didn’t refer to the scandals that brought him down.
“I want you to know how sad I am at giving up the best job in the world. But them’s the breaks,” he said.
After a string of scandals, five cabinet members and a wave of more junior members of government quit over the past week, saying they no longer had confidence in the British leader. Mr. Johnson attempted to cling to power amid frenetic plotting by rebels to unseat him and a push by a group of cabinet members to have him resign. Until recently he had spoken of his intention to stay in office until the 2030s. But as his authority withered, and with the growing threat that the Conservative Party would change its internal rules to hold a vote to oust him, he agreed to step aside.
The pound rose on news of Mr. Johnson’s decision to resign, but remains near its weakest level in years. The U.K. economy has struggled with soaring inflation, an energy crisis and Brexit-related supply-chain disruptions.
Mr. Johnson ultimately was felled because his lawmakers could no longer trust him to tell them the truth. Earlier this year, Mr. Johnson was fined by British police for breaking Covid-19 lockdown rules by attending a party in Downing Street. He had spent weeks assuring Parliament no such parties took place. Most recently, Mr. Johnson had to apologize for appointing a deputy chief whip despite knowing he had a history of allegedly making unwanted advances toward men, a debacle that proved a final straw for many in his party.
Striking a defiant tone in his resignation speech, Mr. Johnson said that his party was just “a few points” behind the opposition Labour Party in the polls but “when the herd moves, it moves.” He added it was “eccentric” for colleagues to turn on him and explained that his attempt to hold onto power was justified by the mandate he won during the 2019 election.
His resignation marks an inglorious end to one of the most tumultuous political premierships in recent British history. Since Mr. Johnson came into office in July 2019 with the largest Conservative majority in over 30 years, his unorthodox leadership style saw him complete Britain’s exit from the European Union, lead the country through the pandemic and push the U.K. to the forefront of supporting Ukraine after the Russian invasion. During his time in office, the 58-year-old also got married, had two more children and was hospitalized after catching Covid-19.
“I want you to know how sad I am at giving up the best job in the world. But them’s the breaks”
Economics
U.S. Added 372,000 Jobs in June
Employers continued to snap up workers in June—though at a slower pace than earlier in the year—in an economy that is otherwise cooling rapidly under the weight of high inflation and rising interest rates.
The U.S. economy added 372,000 jobs in June, the Labor Department said Friday. Hiring gains last month held near the previous three months, when companies added an average of nearly 400,000 workers, but slipped from higher totals early in the year.
“The labor market is cooling from a red-hot pace, but it’s far from going into a freeze,” said Sarah House, senior economist at Wells Fargo. “It’s hard to get a broad retrenchment in activity when you have 372,000 more individuals receiving paychecks.”
Ms. House expects hiring will continue, particularly in services sectors like leisure and hospitality, where demand for vacations and restaurant outings remains strong.
The unemployment rate last month, at 3.6%, was a touch above the half-century low reached before the pandemic hit in early 2020. The jobless rate has held at that level for four consecutive months, a sign worker shortages are easing slightly.
Average hourly earnings grew 5.1% in June from a year earlier, a step down from earlier levels. Still, the strong jobs report could keep the Federal Reserve on track to raise interest rates by 0.75 percentage point at its July meeting.
U.S. stocks slipped on Friday following the strong jobs report but finished the week with gains. The yield on the benchmark 10-year Treasury rose.
Employers hired across industries, with the government the only major category to shed jobs in June. Hiring continued in industries vulnerable to interest-rate increases and shifting consumer habits. For instance, construction firms, susceptible to a faltering housing market and higher mortgage rates, added jobs last month. Transportation and warehousing companies hired workers despite a spring pullback of consumer spending on goods.
Job growth continued, although fewer people were looking for work. The number of people in the labor force fell by 353,000 in June. The labor-force participation rate—or the share of adults working or seeking a job—ticked down to 62.2% in June from 62.3% a month earlier. Participation dropped broadly last month, with declines among women, men, workers in their prime ages of 25 to 54 and baby boomers.
“The labor market is cooling from a red-hot pace, but it’s far from going into a freeze. It’s hard to get a broad retrenchment in activity when you have 372,000 more individuals receiving paychecks.”
Mortgage Rates Fall to 5.30%, Reflecting Recession Fears
Mortgage rates recorded their largest decline since 2008 as investors raise their bets that the economy is headed for a downturn.
The average rate on a 30-year fixed-rate mortgage fell to 5.30%, mortgage-finance giant Freddie Mac said Thursday. That is down from 5.70% last week. Mortgage rates haven’t recorded such a big weekly decline since December 2008, when the rate fell from 5.97% to 5.53%.
Growing fears of a recession in the U.S. stand to further push down mortgage rates as investors pile into U.S. Treasurys, widely seen as safe investments during times of economic uncertainty. Mortgage rates are closely tied to yields on the benchmark 10-year U.S. Treasury, which fell to their lowest level in more than a month this week. Yields fall when prices rise.
Slightly lower borrowing costs could provide some relief for would-be home buyers who have had to contend this spring with double-digit growth in home prices and the fastest acceleration in mortgage rates in decades. Some mortgage lenders are already quoting rates above 6%, pushing some buyers out of the market.
“Because of falling mortgage rates, homes may be more affordable than they were three weeks ago,” Holden Lewis, home and mortgage spokesperson at NerdWallet said in a statement. “There were few, if any, times you could have said that in the first half of 2022.”
Monthly mortgage payments remain at the least affordable level in years. The typical U.S. household will spend an additional $400 on its mortgage payment each month than it would have in January, according to the Federal Reserve Bank of Atlanta. A typical family is a household with an income near the U.S. median that purchases a home near the median purchase price. In April, the typical American household would have needed 41.2% of its income to cover monthly mortgage payments, according to the Atlanta Fed.
“Because of falling mortgage rates, homes may be more affordable than they were three weeks ago”
Investing
Analyst’s Report- Green Brick Partners Inc. (NYSE:GRBK)
By Ben Slye
Business Explanation
Green Brick Partners, Inc. and its subsidiaries is a diversified homebuilding and land development company. They acquire and develop land and build homes through their eight brands of builders in four major markets. Their core markets are in the high growth U.S. metropolitan areas of Dallas-Forth Worth, Texas and Atlanta, Georgia, as well as the Treasure Coast, Florida area.
They are engaged in all aspects of the homebuilding process, including land acquisition and development, entitlements, design, construction, title and mortgage services, marketing and sales and the creation of brand images at their residential neighbourhoods and master planned communities.
By The Figures
As of Friday, 8th July 2022
Price: $21.43
Market Cap: $1.04 billion
P/E Ratio: 4.82
Dividend Yield: N/A
52-Week Range: $16.80 - $32.25
ROE: 24.2%
ROIC: 17.3%
8-Year Revenue CAGR: 24.31%
10-Year FCF CAGR: N/A
10-Year Equity CAGR: 24.72%
Management
James Brickman serves as Chief Executive Officer for Green brick partners. Richard Costello similarly serves as the company’s Chief Financial Officer. Below is a brief history of the two.
James Brickman has served as one of Green Brick’s directors since October 2014. Previously, Mr. Brickman was the founding manager and advisor of each of JBGL Capital LP since 2008 and JBGL Builder Finance LLC since 2010 and is Green Brick’s Chief Executive Officer. Prior to forming JBGL in 2008, Mr. Brickman was a manager of various joint ventures and limited partnerships that developed/built low and high-rise office buildings, multifamily and condominium homes and single-family homes, entitled land, and supervised a property management company. He previously also served as Chairman and Chief Executive Officer of Princeton Homes Ltd. and Princeton Realty Corporation that developed land, constructed single family custom homes and managed apartments it built. Mr. Brickman has over 40 years’ experience in nearly all phases of real estate construction, development, and real estate finance property management. He received a B.B.A. and M.B.A. from Southern Methodist University.
Richard Costello has been their Chief Financial Officer since April 2015. From January 2015 until his appointment as Chief Financial Officer, Mr. Costello served as Green Brick’s Vice President of Finance. Mr. Costello has over 25 years of financial and operational experience in all aspects of real estate management. Since 2007, Mr. Costello has been a private investor. Previously, he worked for 16 years at GL Homes of Florida, one of the largest private developers and homebuilders in Florida. There he served as Chief Financial Officer and Chief Operating Officer as well as in other senior financial management roles. Prior to joining GL Homes, Mr. Costello worked for six years as AVP-Finance of Paragon Group, a regional commercial real estate developer, and for four years as an auditor for KPMG LLP. Mr. Costello received a B.S. in Accounting from the University of Central Florida and his M.B.A. from Kellogg School of Northwestern University.
One of the most important characteristics in terms of having a good management, is integrity and Mr Brickman has it in abundance. They take capital discipline very seriously and stick to their set values ‘HOME’ (Honesty, objectivity, maturity and efficiency). He pays his employees very generously, with the average compensation of an employee being $80,699 a year. He has a modest pay ratio of 63-1 and shows his appreciation to his employees.
Competetion
Green Brick’s main competition includes: Edward Rose & Sons, PEG Companies, Trumark Homes, Centurion American, Amyris Inc, Green Plains Inc, Rex Americans Resources Corp. Only Amyris, Green plains and Rex Americans Resources are public, so they will be the only company’s used in the market share table. The combined revenue of Green Brick and its competitors for 2021 is $4.945 billion