Godzilla vs. Hollywood Behemoth

Plus: Nestlé made peanuts curing peanut allergies ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

November 30, 2022

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TOGETHER WITH

Good morning.

Just another day at the office.

An unnamed pilot recently crashed a twin-tailed pusher-propeller plane near Durst Mountain in Utah before hiking six miles to call for help. Fire Chief Brian Brendel told KSL News, “He just kind of got out of his plane, dusted himself off, and walked himself down this ATV road until he got into cell phone range.” Something tells us this wasn’t the pilot’s first crash.

Morning Brief

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HSBC is taking another step back from the global stage.

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Nestlé will dump its peanut treatment.

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Warner Bros. may be reaping what it sowed.

Banking

HSBC is Bidding Farewell to its Canadian Customers

British bank HSBC used to bill itself as “the world’s local bank,” but the emphasis is increasingly on local and less on the world part of the equation.

On Tuesday, the gigantic financial institution agreed to sell its Canadian business to the Royal Bank of Canada for a hefty cash sum worth roughly $10 billion, HSBC’s latest step back from the global arena.

The East-West Bank Shot

HSBC calls London home, but the bank traces its roots all the way back to its founding in Hong Kong in 1865, and today its largest shareholder is Chinese insurer Ping An. The firm took the world by a storm entering the 21st century, expanding to 7,500 locations across 87 countries by 2011. But such a massive operation has proved difficult…and costly. The issue came to a head last year when it jettisoned loss-making mass retail banking arms in both the US and France, taking a $3 billion haircut on a sale to Cerberus when exiting the latter. Worse, regulators in both the EU and Brexit-ed UK barred banks from paying dividends as a means to conserve capital.

Shrinking global status aside, the bank — and its shareholders — are expected to receive a healthy premium from the sale. As for RBC, the deal is a chance to fortify its position in one of banking’s most tightly cornered markets:

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Pending regulatory approval, RBC is set to inherit 130 bank branches and over 780,000 retail and commercial customers. With roughly C$1.8 trillion in assets, RBC is already top dog in the densely packed Canadian market, where the country’s top six lenders control about 80% of outstanding loans. That makes Canada one of the world’s most concentrated banking markets.

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According to some analysts, the deal’s $10 billion price tag is roughly 30% more than the value of HSBC’s Canadian business. The deal overall is expected to net HSBC a $5.7 billion pre-tax gain, with some of the proceeds expected to flow to shareholders via a one-off dividend or buyback, the company said.

Oh, Canada: While RBC’s acquisition would mark the biggest banking deal inside of Canada since the Bank of Nova Scotia sold its local operations to ING for roughly $3 billion in 2012, Canadian banks have been wheeling-and-dealing outside of the country, particularly in the US. This year, Toronto-Dominion Bank acquired the Memphis-based First Horizon National for $13 billion, and last year Bank of Montreal scooped up the SF-based Bank of the West for a staggering price tag of $16 billion. Dear Canada, you can have our banks — we’ll take a berth to the knockout round of the World Cup. Sorry we won’t see you there.

Health

Nestlé to Sell Off Peanut Allergy Treatment, Not the Blockbuster They Hoped

Ah, nuts. They should’ve stuck to Baby Ruths and Butterfingers.

Nestlé announced Tuesday it will unload the world’s only approved peanut allergy treatment just two years after acquiring the company that developed it. Potential patients must’ve found it easier to just not eat at Five Guys and Texas Roadhouse.

Tough Nut to Crack

At its core, Aimmune Therapeutics’ Palforzia is innovative for anyone who’s ever had to sit at the nut-free lunch table in school. While it’s not a cure, it does lessen the reaction. Clinical trials found that two-thirds of patients who took the medication could safely handle 600mg of peanut powder — roughly two whole peanuts. That doesn’t sound like a huge leap in progress, but for those who constantly carry an Epipen, it’s a world of difference. Unfortunately for Nestlé, it’s a niche market — less than 2% of the US suffers from peanut allergies, and sales reflected that.

Another problem with Palforzia is it’s time-intensive compared to the traditional method of just avoiding peanuts. Patients need to visit an allergist every two weeks for four to five months, which includes an extra hour for observation just in case they go into shock — an extra hour that doctors can’t get paid for:

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Nestlé first invested in Aimmune in 2016, eventually building a stake of more than 25%. In 2020, it purchased the rest of the company at $34.50 a share, representing a 174% premium of its closing price that week. The whole deal was roughly $2.6 billion.

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In addition to blaming COVID-19 for disrupting Palforzia’s rollout, CEO Mark Schneider said the treatment came with fixed costs that were hard to justify in the face of minimal sales like continuously collecting and submitting side effects data to the Food and Drug Administration. Now, Nestlé’s health science division will focus more on its bread and butter of food supplements and vitamins.

The Peanut Gallery: It’s not fast enough to save Nestlé’s investment, but peanut allergies are rising. And it’s not just a matter of collecting more data, according to health experts. A 2017 study estimated 2.5% of children in the US may have a peanut allergy, about a 20% increase from 2010. Some medical professionals believe Western diets high in sugar and saturated fat contribute to the influx. On second thought, maybe it was all those Baby Ruths and Butterfingers that got us here.

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Hollywood

Warner Bros is Losing One of its Most Reliable Partners

Look out! Get out of the way! Godzilla is…leaving?

On Tuesday, Legendary Entertainment — the production house behind the giant monster movie franchise and other blockbuster properties — announced it is ending its long-standing relationship with Warner Bros. to team up with streaming-free, theatrical-focused Sony Pictures. Call it a kaiju-sized middle finger to Warner’s HBOMax.

To Stream or Not to Stream

Relations between Legendary and Warner deteriorated when the studio made the pandemic-driven decision to release all of its 2021 movies on HBOMax. The move allegedly occurred with nary a warning to filmmakers and partnered production houses, whose compensation is tied to box office receipts. That drove away respected director and reliable hitmaker Chris Nolan, who delivered the crown jewel “Dark Knight” Batman trilogy and is now shacked up with Universal. Legendary promptly threatened legal action, though it did find relative theatrical success nonetheless last year, scoring over $400 million from both “Godzilla vs. Kong” and “Dune”.

Now Legendary is gone, too, and the timing isn’t terrific for Warner Bros. While Thanksgiving typically marks one of Hollywood’s favorite weekends at the box office, this year it only brought more questions:

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Disney, which is beginning to second-guess its expensive direct-to-Disney+ model, returned to its favored Thanksgiving weekend spot this year with the animated picture “Strange World”… only for the film to completely bomb, possibly costing the House of Mouse upward to $100 million.

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Meanwhile, Netflix stumbled into $15 million worth of box office success with an extremely limited release of “Knives Out” sequel “Glass Onion” (which will hit the streamer just before Christmas). The studio reportedly shelled out $400 million for the rights to two “Knives Out” movies after the original, released by Lionsgate in 2019, earned over $300 million worldwide — and now analysts are wondering just how much money Netflix is leaving on the table by forgoing a wide release.

Better Call Cable: With Legendary on the way out, Warner may be looking for some fresh new IP — and a possible juicy buyout candidate may be emerging. Also on Tuesday, AMC Network (the cable channel, not the movie theater chain) saw its CEO Christina Spade resign after just three months, continuing the network’s struggles to fill the shoes of former CEO Josh Sapan, who resigned last year after 26 years in the job. The C-suite turmoil comes just as AMC sunsets two popular shows “The Walking Dead” and “Breaking Bad” spinoff “Better Call Saul” — leaving the network a bit in the woods. We’ll say this: they sure do know how to build suspense, on-screen or otherwise.

Extra Upside

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Chinese protesters use dating apps to spread their message.

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A record 196.7 million shoppers turned out this Black Friday weekend.

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What’s the secret to paying less capital gains tax? No, it’s not making poor investment decisions — it’s reinvesting gains into Qualified Opportunity Zones. Thanks to a rare IRS regulation that actually helps you, QOZs let you defer taxes until 2027 on certain gains and avoid taxation completely on growth above your original investment. Grab this guide from Caliber and book a Capital Gains Strategy call to learn how to take full advantage before your EOY deadline expires – check it out right here.*

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Meet The Macro Compass— Founded by the manager of a $20 billion macro (duh) hedge fund, this no-cost newsletter gives you expert analysis on a range of complex, but critically important global economic topics. Unlike the old guard in media — whose very existence hinges on squeezing out every last click from big tech algorithms — The Macro Compass thrives by illuminating and clarifying the economic undercurrents shaping the global economy. Delivered to your inbox once a week, it’s the perfect compliment to The Daily Upside. Sign up here.*

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Smooth soaring.

Liftoff.

Written by Griffin Kelly and Brian Boyle.

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