In this episode of MarketFoolery, Chris Hill chats with Motley Fool analyst Bill Barker about the latest news from Wall Street. They discuss an all-stock buyout in the oil and gas sector. And there is news of a spinoff, as an e-commerce giant continues with its shedding of noncore businesses. They also take listeners' questions, finally chat about the start of the baseball season, and much more.
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This video was recorded on July 20, 2020.
Chris Hill: It's Monday, July 20. Welcome to MarketFoolery. I'm Chris Hill, with me today, the one and only, Bill Barker. Good to see you.
Bill Barker: Good to be here.
Hill: We've got Major League Baseball starting up, we're going to talk about affordable luxuries, we have a pending deal for eBay (EBAY 1.97%), but we're going to start with a done deal for Chevron (CVX +0.28%), the oil giant is buying Noble Energy (NBL +0.00%), which is an oil and gas producer, for $5 billion. It is an all-stock deal, and not a big premium for shareholders of Noble Energy, Chevron is paying just 7.5% higher than the closing price for Noble on Friday.
Barker: Yeah, Noble is not selling from strength here. I think there's $8 billion in debt that Chevron is also taking on, and there are questions, I suppose, as to how well Noble can actually cover that, given the price of oil and gas these days. So, I think that they're selling from weakness. Chevron's adding this to their large stock of oil and gas assets, and they have a better balance sheet to actually pull this off.
Hill: Yeah. And this is something that we're probably going to see more of in this industry over the next 6 to 12 months, I would think, particularly when the businesses being involved here are, you know, the giants. It wouldn't surprise me if, at some point in the next couple of months, ExxonMobil (XOM 0.78%) pulls off a deal, sort of, similar size anyway, because Chevron -- look, it's not a great time [laughs] for oil and gas, it's not a great time to be in this business. That doesn't mean that the Chevrons of the world don't have built-in advantages, because they absolutely do.
Barker: Well, the built-in advantages -- and Chevron's certainly well-run, and because of its size is in a stronger position than a lot of the competition, much of which is going to suffer enough that they have to entertain being bought out. But the advantages, such as they are, allow Chevron to pay a healthy dividend, but it's not got a lot of stock returns over the last seven, eight, nine years beyond that. And I would say that they're on the wrong side of history right now. You're seeing more and more entities that are divesting from fossil fuel investment, not only universities, but jurisdictions, states that have, you know, employee pensions they're managing. And I don't know that the science and the climate realities are going to allow Chevron to have a brighter next decade than its past.
Hill: The Wall Street Journal is reporting that eBay is close to a deal to sell its Classifieds Ads division to Adevinta, which is a global marketplace business based in Norway. It is looking like a cash and stock deal somewhere in the neighborhood of $8 billion. Shares of eBay are flat on this report, you know, maybe the investors are waiting for confirmation or maybe this is due to the fact that year-to-date shares of eBay are up just north of 60%. So, [laughs] it's been a nice 2020 in terms of eBay's share price.
Barker: It has. They're continuing to divest the noncore businesses that started with PayPal (PYPL 3.34%) and continued with StubHub. And this will leave, as its activist-investors wanted, eBay easier to understand and its financials more transparent. And if the activist-investors are correct, they've unlocked value by pushing this strategy. And this is part of a winning strategy for the company and the stock, time will tell, but I like what they're holding onto. And I think they're talking about getting $8 billion-ish out of this, and there's some talk about expanding their Payments operation.
Hill: So, as you mentioned, you go back to 2015, they spinout PayPal. At the end of last year, they struck that deal to sell StubHub. And God bless them, they were lucky [laughs] in the timing of that, because I think they got $4 billion in the deal to sell StubHub. And if for some reason that got delayed deep into 2020, there's no way they're getting that amount of money, it's absolutely going to be a lower price. So, eBay got lucky in that regard.
Let's go back to the activist-investors though. So, the activist-investors want eBay to be a business that's easier to understand. I get that there are more parts to the business when they have the Classifieds business, when they had StubHub, that kind of thing, it never struck me as any one of those parts being overly complex. If this deal goes through, they're basically down to the marketplace business, which shouldn't be hard to understand. So, the activists get their wish there. Is that a business that has a particularly bright future? I'm not saying it's doomed, it's not bricks-and-mortar; [laughs] you know, it's not like they're throwing up stores all across America. But I just wonder if the marketplace business in-and-of-itself is an exciting, attractive multiples-growing business over the next decade.
Barker: Well, it's a business where they're the leader, having acquired all the advantages of first-mover and having done a lot of other things right, not everything right, over the last 20 years. But I think it is attractive. They're very relevant, possibly more relevant, as people need to sell some stuff to get through this period of time. And those with money are looking to add stuff to the houses they're trapped in. So, I think that they're getting more traffic. And I don't see what -- you know, there are other companies that have taken a stab at trying to go after that business and they've really failed for the most part.
Hill: It will be interesting to see what happens with the stock when this deal gets finalized. Also, Adevinta is a publicly traded company, it's not listed in the U.S., it trades over-the-counter. As best I could tell, the overall market cap of this marketplace business based in Norway is about $8 billion. [laughs] So, I always find it interesting when companies are like, yeah, we'll basically come up with the cash and stock equivalent of the complete value of our company to make this deal work.
Barker: Yeah. Well, since it hasn't been announced, we don't know [laughs] what they're going to come up with in terms of some combination of cash and stock. So, eBay may still have, you know, public share interest in the resulting company. It's speculation right now as to what that might look like. But, yeah, it would radically increase the size of the business Adevinta is doing.
Hill: Our email address is [email protected]. We got a note from Philip Frausto, who writes, "I'm interested in your take on stocks that might be considered affordable luxuries. My personal theory is that many folks will be tempted to treat themselves to affordable luxuries versus more costly ones after saving more money and sitting around in leisurewear all-day during COVID. Tapestry (TPR 2.08%) comes to mind, but there are likely many others before reaching the likes of Tiffany (TIF +0.00%). Although the stocks may be beaten down and have potential upside, retail, in general, and mall, specifically, do not ensure a return anytime soon. What's your take on this?"
Philip, kind of, giving both sides of the opportunity there. And I think he's directionally correct in both cases. I think there will be a temptation for people to treat themselves in some way to celebrate being released from lockdown at some point in the future. But these are also a lot of brands that show up in bricks-and-mortar retail and in malls.
Barker: Yeah. So, you mildly edited the letter, you mentioned Tapestry and the other two companies, and you forwarded this to me before the show. So, Essilor (ESLOF 0.02%), which has Ray-Ban, and Samsonite (SEHK: 1910) were also mentioned. So, I'll address what I think about all those. Starting with the phrasing of the very beginning, "my personal theory is that," and I think I was able to identify with that in, oh, yeah, it has crossed my mind. What am I going to do? How am I going to splurge when I'm allowed to splurge again, right? I mean, I think that's a thought that those who have the benefit, as we do, of working for a company that's not suffering the consequences that so many others are right now of lost business, you know, have the luxury of thinking about. Hey, we're not allowed to just go on a vacation, how big am I going to go, right? And it's just a daydream for right now. I don't know, do you have any vacation time coming up -- I mean, you have time, [laughs] but is there something that you can safely do with your family that you're going to do?
Hill: Looking to get away, at some point in August, but not -- you know, typically in the past, we have done a Summer vacation on Cape Cod. That is for a variety of reasons that is not [laughs] happening this year. So, yes, like you, like Philip, I've absolutely had the thought of how am I going to [laughs] splurge when all of this is over?
Barker: Yeah. And when is it all going to be over, we don't know. And what our situation is going to be like when that happens, I don't know. What I would say is, so it's a theory that makes sense to follow your own train of thought with, like, I'm thinking this way, I bet other people are thinking this way. You know, recognizing that not everybody is going to be able to splurge when some other people are.
But the companies mentioned, Tapestry, Essilor, Samsonite, I think of those, although they were put in a group here together, are very differently placed. Tapestry having Coach and Kate Spade, no matter what you want to think, that's a bet on malls, I think. Where it's more of a bet on malls than I want to make because of the number of stores that they have there. They do have some other distribution outside malls, they do have online presence, but if malls don't go the right way, and go the right way by Christmas, I think that's going to create some big holes in sales for this year, and based on the number of stores they've got, going forward as well.
Samsonite, I don't know that the brands have as much relevance in the suitcase. I say that, because all suitcases are now exactly the same, aren't they? They're all ...
Hill: [laughs] I wouldn't say they are all the same, but there appear to be a couple of categories of suitcase, and you can find probably quality items in either category.
Barker: Yeah, I'm just reflecting on hanging around, waiting for my suitcase, and recognizing that once again, my failure to put a little ribbon on it or something of some color does mean that, as warned, it looks exactly the same as everybody else's.
But Essilor, which does have Ray-Ban, is mostly -- it's EssilorLuxottica, it's a French-European conglomerate -- they really are much more in the business-to-business space than just having a few of the sunglass names you know; you know, if the sunglass came up as, hey, this is what I want to do. I want to go someplace where I need some good sunglasses. But the rest of the business is really in, sort of, not only high performance, but all sorts of progressive lenses and just -- I think it's got a quarter of the world's corrective lens business, so. And it's a phenomenal stock over the long-term, unlike Tapestry and Samsonite. So, that's sort of my take on -- that company stands out to me, of the three, as just being more diversified away from consumer purchases and mall-based purchases.
Hill: Last thing before we wrap up, opening day for Major League Baseball comes later this week. Featured game on July 23, your team, the New York Yankees, playing the defending world champion Washington Nationals. And Las Vegas has already installed your team as the favorite to win the American League pennant. So, since we're just talking about what are we going to do to splurge when COVID-19 passes, how are you planning to celebrate the Yankees winning the pennant in 2020?
Barker: Well, first, one thing, not my team, America's team, the Yankees.
Hill: [laughs] No, no.
Barker: [laughs] Well, right. It says it's America's team, and doesn't reflect just how popular they are around the globe. That if you travel internationally, you'll see Yankees hats everywhere, and rightly so. Because unlike the Boston Red Sox, they haven't been caught cheating. And so, that's one of the many reasons why they're so much more popular than the Red Sox. What was your question? [laughs]
Hill: [laughs] How dare you? Look, I understand you're bitter, because the 21st century, in terms of World Series Championships, is not really what the 20th century was for your team. 20th century, phenomenal for your team. 21st century, eh! I mean, let's face it, you're ...
Barker: I've only seen them win seven World Series in my lifetime, so.
Hill: You're trailing a bunch of other teams, this is about this century, you can go back to, you know, the 20th century if you want, but I'm living in this century.
Barker: I suppose if they cheated more, they might have won more World Series recently. Their competition seems to have had an advantage on them in that regard. And so, the Houston Astros. I think the one thing that all baseball fans can agree upon is that they hope the Houston Astros have a difficult and unpleasant season. Unfortunately, they're not going to have to face the boos that would have greeted them across America. So, they've been, sort of, spared by this, I would say.
Hill: Yeah. You did raise a point earlier today when we were going back-and-forth, and you said, you know, if the Yankees end up playing Houston for the American League pennant, it's going to be the first time in a very long time [laughs] that the Yankees are seen by a majority of people as "the good guys."
Barker: Yeah. Since Babe Ruth, I think, probably.
Hill: Have you watched any of the, sort of, I guess the exhibition games so far where -- I've just watched highlights, I haven't watched an actual game, but I've watched highlights. And every bit is as creepy as I thought it was going to be to watch baseball with empty stands.
Barker: Okay, I have not watched it, so I don't know how creepy it is. I guess I'm prepared for it to be quiet, but I'll experiment very soon and see how creepy it is. But there won't be much difference between the preliminary spring training, whatever we're calling these games, and the regular season in terms of atmosphere, because it'll be the same thing. So, I think I'm looking forward to it. I haven't watched a sporting event, you know, since March, like everybody else. I guess there has been soccer to watch, but I'm not a soccer fan.
Hill: Like you, very much looking forward to it. It will be interesting [laughs] to see, to go back to Houston for a second, because stadiums are piping in noise. So, I was watching some highlights from the game the Yankees were playing against the Mets, and it was a home game for the Yankees, they were hitting some homeruns and they're piping in cheers for the homeruns. It will be interesting to see if any visiting team or, like, any team that Houston goes to play out decides, you know what, we're actually in a pipe-in booing for every single Astor who comes up to bat [laughs] just to see how it goes.
Barker: [laughs] I hope so. I hope so. And that the league agrees that that is justified only for certain matchups, like, only the special rivalries and anybody playing the Astros. For the Red Sox and Yankees to be playing each other and there to be no boos, that is creepy.
Hill: Yeah, that is.
Barker: Or for any team to go to Philadelphia and not be booed would be creepy; my hometown. [laughs]
Hill: Bill Barker, thanks for being here.
Barker: Thank you.
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd, I'm Chris Hill, thanks for listening, we'll see you tomorrow.
