What trade war? Investors shrugged off worries about tariffs due to go into effect tomorrow, and the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) both posted hefty gains.
Today's stock market
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European stocks joined U.S equities in moving higher on rumors that an agreement on auto tariffs may be in the works; the Vanguard FTSE Europe ETF (NYSEMKT:VGK) closed up 1.3%. Emerging markets stocks, however, continued recent weakness, with the Vanguard FTSE Emerging Markets ETF (NYSEMKT:VWO) losing 0.1%.
Boeing wants to buy Embraer's commercial aircraft business
Boeing and Brazilian aircraft manufacturer Embraer announced that the two companies will form a joint venture, 80% owned by Boeing, that will comprise the commercial aircraft and services business of Embraer. Boeing was flat on the news, but Embraer shares lost altitude, falling 10.3%.
According to the joint press release, the transaction values Embraer's commercial aircraft operations at $4.75 billion, and therefore Boeing's stake at $3.8 billion. The companies also said that they would be forming another new joint venture to promote and develop new markets and applications for defense products, especially the Brazilian company's KC-390 transport plane.
Few financial details of the commercial jet deal were provided, and in fact the press release said, "Finalization of the financial and operational details of the strategic partnership and negotiation of definitive transaction agreements are expected to continue in the coming months." Not only are the terms of the long-rumored deal yet to be worked out, but it will also face a potentially big hurdle in the approval of the Brazilian government. The companies expect the transaction won't close until "the end of 2019, 12-18 months after execution of the definitive agreements."
The agreement comes just four days after Canadian jet maker Bombardier closed on its own joint venture deal with Airbus for a competing commercial airframe platform. The fact that the deal values Embraer's commercial business, 38% of revenue in the most recent quarter, at more than its entire market capitalization probably reflects the uncertainties in the deal, but may present an opportunity for patient investors who watched the stock jump 31% in one day last year when a report of just such an agreement surfaced.
Micron on China patent dispute: No big deal
Shares of Micron Technology rose 2.6% after the company issued a press release responding to news two days ago that a Chinese court had granted a preliminary injunction against Micron, halting sales of certain Micron products in China due to a patent dispute with United Microelectronics Corporation.
According to Micron's statement, the court action enjoins the company from selling certain Crucial and Ballistix-branded DRAM modules and solid-state drives in China, and those products only make up slightly more than 1% of Micron's annual revenue. The company expects the injunction to lower the current quarter's revenue by about 1% and it reaffirmed its prior guidance for full-year revenue between $8.0 billion and $8.4 billion.
Micron intends to dispute the claims, which it says were made in retaliation for criminal indictments filed by Taiwanese authorities against UMC and three of its employees and a civil lawsuit filed by Micron against UMC for alleged misappropriation of Micron trade secrets. "We strongly believe that the patents are invalid and that Micron's products do not infringe the patents," said Joel Poppen, Micron's general counsel.
Earlier reports seemed to imply that the injunction covered far more of Micron's products, hence the sigh of relief from investors today.
Jim Crumly owns shares of Micron Technology and has the following options: long January 2019 $50 calls on Micron Technology. The Motley Fool recommends Embraer Brazilian Aviation Co. The Motley Fool has a disclosure policy.