International Business Machines Corp. is exploring a potential sale of its IBM Watson Health business, according to people familiar with the matter, as the technology giant’s new chief executive moves to streamline the company and become more competitive in cloud computing.
IBM is studying alternatives for the unit that could include a sale to a private-equity firm or industry player or a merger with a blank-check company, the people said. The unit, which employs artificial intelligence to help hospitals, insurers and drugmakers manage their data, has roughly $1 billion in annual revenue and isn’t currently profitable, the people said.
Its brands include Merge Healthcare, which analyzes mammograms and MRIs; Phytel, which assists with patient communications; and Truven Health Analytics, which analyzes complex healthcare data.
It isn’t clear how much the business might fetch in a sale, and there may not be one.
IBM, with a market value of $108 billion, has been left behind as cloud-computing rivals Microsoft Corp. and Amazon.com Inc. soar to valuations more than 10 times greater. The Armonk, N.Y., company has said it’s focused on boosting its hybrid-cloud operations while exiting some unrelated businesses.
in late January that he took out a $20,000 personal loan and used it to purchase shares. Then the buzzy stock plunged nearly 80%.
GameStop’s volatile ride is hitting the portfolios of individual investors like Mr. Vergara who purchased the stock in a social-media-fueled frenzy. These casual traders say GameStop was their “YOLO,” or “you only live once,” trade. They bought around its late January peak, betting it would continue its astronomical climb. While some cashed out before it crashed, others who hung onto their shares are in the red.
‘I thought it could go up to $1,000. I really believed in that hype, which was an awful thing to do,’ Mr. Vergara says.
Photo:
Farrah Skeiky for the Wall Street Journal
Mr. Vergara, a 25-year-old security guard in Virginia, started investing four years ago after deciding he wanted to retire young. To save money, he drives a 1998 Honda Civic, eats a lot of rice and lives with his dad. He stashed his savings mostly in diversified index funds, which are now valued at about $50,000. Then Mr. Vergara, a longtime reader of the WallStreetBets page on Reddit, saw others posting about buying GameStop shares and the stock’s colossal rise.
He didn’t want to touch his index-fund investments, so instead he got a personal loan with an 11.19% interest rate from a credit union and used it to fund most of his GameStop purchase. He bought shares at $234 each.
Price return, year to date, 30-minute intervals
Source: FactSet
GameStop shares started the year around $19, zoomed to nearly $350 (and almost hit $500 in intraday trading) in late January, and then began to spiral back to earth. The shares closed Friday at $52.40, down 85% from the peak close.
“I thought it could go up to $1,000. I really believed in that hype, which was an awful thing to do,” Mr. Vergara said.
He plans to hold on to the shares because he believes in the company’s turnaround, he said, and use his paycheck to cover the monthly payments on the personal loan. Once the pandemic is over, he hopes to move back to his native Philippines, live off savings and start a charity. The GameStop loss set those plans back about six months, he said.
One of the artworks by Tony Moy, whose bet on GameStop stock has lost much of its value, is inspired by ‘diamond hands,’ a phrase used to describe hanging onto your position, no matter what.
Photo:
Matt Moy
Free trading and simple-to-use apps have made it much easier for regular investors to pour money into stocks like GameStop. In a world without international travel, live entertainment and other usual pastimes, brokerage apps such as Robinhood Markets Inc. are drawing hordes of new users looking for both a diversion and a jackpot.
Before the pandemic, Patrick Wesolowski checked his portfolio once a week. Then the clients of his Chicago-area dog-walking business stopped taking vacations and started working from home, crimping his income and leaving him with lots of free time.
SHARE YOUR THOUGHTS
Do you trade individual stocks? Has your trading been influenced by conversations on Reddit or other social media sites? Join the conversation below.
With business sluggish, the 31-year-old started spending more time researching stocks to include in his $15,000 portfolio. He “lurked” on WallStreetBets, reading about other investors’ wild bets but not posting much himself. “It’s like reading ‘Florida Man’ news headlines with a Wall Street twist,” he said.
In recent months, Mr. Wesolowski found himself picking up his smartphone to check his Fidelity Investments brokerage-account balance more often. He followed the frenzy around GameStop, and when shares were approaching $300 decided to put in $3,000. Afterward, he checked his portfolio on his phone every 10 minutes. At first, watching the stock drop made him feel queasy, but then he got used to it.
“If I lose it, I lose it. I’m OK. It’s like going to Vegas,” Mr. Wesolowski said. If he still had that money, he said, he might have put it toward a personal splurge like a vacation.
Patrick Wesolowski spent more time researching stocks after the pandemic hurt his dog-walking business and bought $3,000 of GameStop shares.
Photo:
Ola Wazny
For many, GameStop represented more than just an investment. When Tony Moy bought about $1,200 of the shares, two at $379 and two more a few days later at $228, “I knew it was, intrinsically, the wrong move,” he said.
Newsletter Sign-up
Markets
A pre-markets primer packed with news, trends and ideas. Plus, up-to-the-minute market data.
Mr. Moy wasn’t surprised when the stock quickly lost much of its value. A casual reader of WallStreetBets, he was mostly excited about the push to stick hedge funds with losses. Some hedge funds that shorted the stock—betting the price would fall—suffered big losses, though others managed to make money during the turmoil.
The trade was an outlet for Mr. Moy’s frustrations after an abysmal year, a “virtual protest” of sorts, he said. In 2020, after the pandemic shut down large gatherings, the Chicago-based artist lost most of his income from selling his work at comic conventions. He also came down with a bad case of Covid-19 that left him coughing for months. He said his more successful investing endeavors have helped him get by financially.
One of Mr. Moy’s most recent works of art is inspired by “diamond hands,” a phrase used on Reddit to describe hanging onto your position, no matter what. He is keeping his GameStop shares as a memento. “It’s going to be a little reminder to me,” he said, “of how 2020 was the year when hedge funds had a great year and everyone else was struggling.”
The recent run-up in GameStop and other stocks involved investors in opposing camps: traditional Wall Street firms and small investors bucking the system. WSJ asked the same questions to one of each about the role of WallStreetBets in the trading frenzy. Photo Illustration: Carlos Waters
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
ORYOL, Russia—Around 200 miles southwest of Moscow, Oryol is a world away from the bright lights and prosperity of Russia’s capital city. To understand the tens of thousands of demonstrators who turned out across the nation to protest the detention of Kremlin critic Alexei Navalny, look here.
Industry in Oryol never fully recovered from Russia’s post-Soviet collapse. Once-proud factories sit abandoned. Parts of the city lack indoor toilets and running water. With few job prospects, many young people feel they have no choice but to leave.
The treatment of Mr. Navalny may have lit the fuse for protests, but the rallies quickly became an outlet for Russians’ widespread grievances about falling living standards, collapsing infrastructure and chronic corruption, and mark a tectonic shift in relations between ordinary citizens and the Kremlin.
“People don’t go out to protest for someone, they go out against something,” said Artyom Prokhorov, a marketing manager in Oryol who shares a two-bedroom apartment with his ex-wife and their two children. “Navalny simply served as a trigger. People are tired of what’s happening here.”
For much of President Vladimir Putin’s 20 years in power, oil prices were high and economic growth solid. Russian military interventions abroad stirred national pride. And Russians largely stayed out of opposition politics and protests.
Here’s what we’re watching ahead of Friday’s trading action.
—U.S. stock futures edged lower Friday, putting the S&P 500 on track to end the week with muted gains after notching its ninth record closing high for 2021.
Futures tied to the S&P 500 slipped 0.3%, pointing to a drop after the opening bell. Contracts linked to the Nasdaq-100 Index edged down 0.3%, suggesting that technology stocks may also slip. Read our full market wrap.
What’s Coming Up
—The University of Michigan’s consumer sentiment index for the opening weeks of February, due at 10 a.m. ET, is expected to inch up to 80.8 from 79.0 at the end of January.
Market Movers to Watch
—All hail Baby Yoda. Walt Disney shares were up 0.9% ahead of the bell after the entertainment giant reported a first-quarter profit, as its flagship streaming service, Disney+, added more than 21 million new subscribers during the period. But the pandemic continued to zap results in the company’s movie-distribution and theme-park segments.
An executive at Tencent Holdings Ltd. , China’s most valuable publicly listed company, has been held by Chinese authorities, part of a probe into a high-profile corruption case involving one of the country’s former top law-enforcement officials, people familiar with the matter said.
Zhang Feng has been under investigation by China’s antigraft inspector since early last year for alleged unauthorized sharing of personal data collected by Tencent’s social-media app WeChat, the people said. They said Mr. Zhang was suspected of turning over WeChat data to former Vice Public Security Minister Sun Lijun, who is being investigated by Beijing for undisclosed violations of Communist Party rules.
Investigators are looking at what type of data Mr. Zhang allegedly might have shared with Mr. Sun and what Mr. Sun might have done with it, the people said.
Hong Kong-listed Tencent, which has a market capitalization of about $900 billion, confirmed Thursday that Mr. Zhang is under investigation. The case “relates to allegations of personal corruption and has no relation to WeChat or Weixin,” a spokesman said in a statement to The Wall Street Journal. Weixin is WeChat’s sister app for the Chinese market.
Mr. Zhang was referred to as a Tencent vice president in a statement released by the municipal government of Zhangjiakou, a city near Beijing, in which he was described as having met the city’s mayor in October 2018.
LONDON—A Covid-19 vaccine developed by the University of Oxford and
AstraZeneca
PLC is effective against a variant of coronavirus that is spreading rapidly in the U.S. and around the world, according to a new study, a reassuring sign for governments banking on mass vaccination to bring the pandemic to an end.
The preliminary findings, published in a study online Friday that hasn’t yet been formally reviewed by other scientists, follow similarly positive results from other manufacturers.
Preliminary studies from
Pfizer Inc.
and
Moderna Inc.
found their Covid-19 shots continued to offer protection against new virus variants that have contributed to a fresh surge in cases in the U.K., Europe, South Africa and elsewhere.
Vaccine makers are nevertheless readying new shots that zero in on the new variants more precisely, underlining how mutations in the virus risk morphing the year-old pandemic into a long-running cat-and-mouse game between scientists and a shifting enemy. The virus behind Covid-19 has so far been linked to almost 2.3 million deaths worldwide and more than 100 million cases.
The study published Friday looked at the AstraZeneca vaccine’s effectiveness against a new variant of coronavirus first identified in the U.K. last year.
As new coronavirus variants sweep across the world, scientists are racing to understand how dangerous they could be. WSJ explains. Illustration: Alex Kuzoian/WSJ
The variant has now displaced older strains to become the dominant version of the coronavirus in Britain and is spreading in many other countries, including the U.S., where public-health officials have said it could become the dominant version of the virus.
Preliminary estimates suggest the variant from the U.K. is 50%–70% more transmissible than earlier versions of the virus. U.K. scientists said recently that early data suggested it could also be deadlier.
Researchers examined blood samples from around 256 participants in an ongoing clinical trial of the vaccine in the U.K. who tested positive for Covid-19.
Genetic sequencing allowed them to identify which participants were infected with the new variant and which had an older version. A little under a third had the new variant.
By testing antibody levels and other markers of immune system activity against the virus, the researchers found the vaccine triggered an effective immune response against the new variant in 75% of cases that showed symptoms of infection, and in around two-thirds of cases if those that didn’t show symptoms were also included.
The U.K. Coronavirus Variant
The small-scale study showed the vaccine works slightly better against older, more established versions of the virus. For those with the older strain, the vaccine was effective in 84% of symptomatic cases and 81% of all cases.
The researchers reported sharply differing antibody responses among the two groups, saying certain types of antibodies induced by the vaccine were up to nine times less effective at neutralizing the new variant than the old. Overall protection was similar, however, suggesting other parts of the immune system are playing a key role.
Andrew Pollard,
director of the Oxford Vaccine Group at the University of Oxford, said it isn’t entirely clear which biological mechanisms are most important. It might be infection-fighting T-cells or other types of antibodies, he said.
“We don’t know the answer,” he said.
Almost 120 million doses of vaccine have been administered worldwide, according to figures compiled by the University of Oxford’s Our World in Data project. Roll-outs have been patchy, with some countries such as Israel and the U.K. moving rapidly to inoculate their most at-risk citizens and others, including in Europe, lagging behind due to supply and other issues. The U.S. has so far given at least one dose of vaccine to 35 million people, around 10% of its population.
Vaccine makers say the technology behind Covid-19 vaccines should allow them to swiftly retool their production lines to produce shots targeted more precisely at new and emerging variants.
Some studies have suggested a variant first identified in South Africa might be less susceptible to existing vaccines than the U.K. variant. Companies including Moderna, Pfizer and its partner
BioNTech
SE,
Johnson & Johnson
and
Novavax Inc.
are designing new vaccines to specifically target the South African variant.
Babak Javid,
associate professor of infectious diseases at the University of California, San Francisco, said small differences in how vaccines perform against new variants compared with established versions isn’t a major concern provided those vaccinated are protected against severe illness and hospitalization. That will be critical to determining when countries relax lockdowns and other public health restrictions, he said.
Consulting giant McKinsey & Co. has reached a $573 million settlement with states over its work advising OxyContin maker Purdue Pharma LP and other drug manufacturers to aggressively market opioid painkillers, according to people familiar with the matter.
The deal, reached with 47 states and the District of Columbia and expected to be publicly announced Thursday, would avert civil lawsuits that attorneys general could bring against McKinsey, the people said. The majority of the money will be paid upfront, with the rest dispensed in four yearly payments starting in 2022.
McKinsey said last week it is cooperating with government agencies on matters related to its past work with opioid manufacturers, as state and local governments sue companies up and down the opioid supply chain. At least 400,000 people have died in the U.S. from overdoses of legal and illegal opioids since 1999, according to federal data.
The consulting firm stopped doing opioid-related work in 2019 and said in December its work for Purdue was intended to support the legal use of opioids and help patients with legitimate medical needs.
While some companies have reached deals with individual states to avoid trials, the McKinsey settlement marks the first nationwide opioid pact to come from the flood of litigation that began in 2017. A much larger, $26 billion deal with three drug distributors and Johnson & Johnson has been in the works for more than a year but is still being negotiated.
The Wall Street Journal reported last week that McKinsey was close to a settlement with states and that a deal could be worth hundreds of millions of dollars. The negotiations occurred as hundreds of exhibits describing McKinsey’s work to boost OxyContin sales were made public in recent months during Purdue’s chapter 11 bankruptcy case in White Plains, N.Y.
Memos McKinsey sent Purdue executives in 2013 that have been made public in bankruptcy court filings included recommendations that the company’s sales team target health care providers it knew wrote the highest volumes of OxyContin prescriptions and shift away from lower-volume prescribers. McKinsey’s work became a Purdue initiative called “Evolve to Excellence,” which the U.S. Justice Department described in papers released last year in connection with a plea agreement with Purdue as an aggressive OxyContin marketing and sales campaign.
According to bankruptcy court records, McKinsey sent recommendations to Purdue in 2013 that consultants said would boost its annual sales by more than $100 million. McKinsey recommended ways Purdue could better target what it described as “higher value” prescribers and take other steps to “Turbocharge Purdue’s Sales Engine.”
Stamford, Conn.-based Purdue pleaded guilty in November to three felonies, including paying illegal kickbacks and deceiving drug-enforcement officials. The drugmaker filed for chapter 11 protection in 2019 to address thousands of opioid-related lawsuits brought against it. Purdue said in a lawsuit filed last week against its insurers that creditors have asserted hundreds of thousands of claims in the bankruptcy case and collectively seek trillions of dollars in damages.
McKinsey also advised other opioid makers on sales initiatives. The firm’s work for
Johnson & Johnson
came up in a 2019 trial in a case brought by Oklahoma against the drug company for contributing to the opioid crisis in the state through aggressive marketing of prescription painkillers. The trial ended with a $572 million verdict against Johnson & Johnson, which was later reduced to $465 million and is still on appeal.
The vast majority of the money McKinsey will pay in the settlement will be divided among the participating states, with $15 million going to the National Association of Attorneys General to reimburse it for costs incurred in the investigation, one of the people familiar with the deal said.
The settlement also includes some nonmonetary provisions, like requiring McKinsey to create a repository of documents related to its work for opioid makers, the person said.
The holdout states include Nevada, which said Wednesday night that its investigation into the consulting giant continues “and we are conversing with McKinsey about our concerns.”
Purdue has been negotiating with creditors, which include states, since filing for bankruptcy, but finalizing a deal has been slowed by demands from some states that the company’s owners, members of the Sackler family, contribute more than the $3 billion they have agreed to.
States have been keenly focused on ensuring any settlement money from the opioid litigation goes toward helping alleviate the impact of the crisis, including through beefing up treatment programs and helping overstretched law enforcement. The states are looking to avoid the outcome of the 1990s tobacco litigation, when a $206 billion settlement was often spent to fill state budget holes. The McKinsey settlement documents say the money is intended for abatement, the person familiar with the deal said, though state laws differ widely on how settlement funds can be earmarked.
Write to Sara Randazzo at sara.randazzo@wsj.com and Jonathan Randles at Jonathan.Randles@wsj.com
MOSCOW—Russia’s homegrown Sputnik V vaccine showed high levels of efficacy and safety in a peer-reviewed study released Tuesday, a potential boost for the Kremlin’s aim to promote the Covid-19 shot abroad and curb the pandemic at home.
The findings, from a preliminary analysis of a large-scale clinical trial published in the British medical journal the Lancet, demonstrated that the two-shot vaccine was 91.6% effective against symptomatic Covid-19 and offered complete protection against severe cases. There were no serious side effects, the paper said. The vaccine was also found to be similarly safe and effective in elderly people.
The study could be a significant milestone for Moscow in the global vaccination race, potentially offering President
Vladimir Putin’s
government geopolitical clout in the developing world and the chance to tap into the lucrative global vaccine market. Russia—the world’s fourth worst-hit country with nearly four million cases—has also banked on Sputnik V to avoid new costly lockdowns as authorities plan to vaccinate 60% of the domestic population by the end of the year.
The shot, which was approved by Russian authorities in August before undergoing large-scale clinical trials, has stirred questions in light of its fast-tracked development and lack of published trial data. So far, Sputnik V has been administered to more than two million people world-wide, including in Argentina, Serbia and Algeria, according to Russian authorities.
The Sputnik V Vaccine
Type: Two-dose viral vector vaccine
Efficacy: 91.6% (91.8% among people older than 60 years)
Price: Less than $10 a shot
Storage and transportation temperature: 36º-46ºF
Approved for use in: Russia, Belarus, Serbia, Argentina, Bolivia, Algeria, Palestine, Venezuela, Paraguay, Turkmenistan, Hungary, UAE, Iran, Guinea, Tunisia and Armenia
Sources: The Lancet, Russian Direct Investment Fund
Tuesday’s results could help clear doubts surrounding the Russian shot.
“The development of the Sputnik V vaccine has been criticized for unseemly haste, corner cutting, and an absence of transparency,” virology professors Ian Jones at the U.K.’s University of Reading and Polly Roy at the London School of Hygiene & Tropical Medicine wrote in the Lancet. “But the outcome reported here is clear and the scientific principle of vaccination demonstrated, which means another vaccine can now join the fight to reduce the incidence of Covid-19.”
Alexander Gintsburg,
the head of the vaccine’s developer, the Moscow-based Gamaleya Institute, said that the data demonstrates Sputnik V’s safety and high efficacy against the virus.
This “is a great success in the global battle against the Covid-19 pandemic,” he said.
Sputnik V’s efficacy rate compares to vaccines developed by
Moderna Inc.
and
Pfizer Inc.
and its German partner
BioNTech SE,
which are around 95% effective.
The Lancet study didn’t address the shot’s usefulness against new variants of the virus, amid some early evidence suggesting strains may prove resistant to current vaccines. Russian officials said on Tuesday that they are continuously testing Sputnik V against new variants and they expect the shot to achieve the same level of efficacy. They also expect it to provide long-term immunity of as long as two years, based on early experimental evidence.
The results published on Tuesday were based on an interim analysis of a Phase 3 trial of nearly 20,000 participants, three-quarters of whom received the vaccine while the rest received a placebo. The analysis was based on a total of 78 confirmed Covid-19 cases, 62 of which were identified in the placebo group and 16 in the vaccine group. The clinical trial, totaling 40,000 volunteers, is ongoing.
Researchers found that the Covid-19 vaccine didn’t produce serious adverse reactions, the Lancet paper said. Most side effects included flulike symptoms, pain at the injection site and headaches.
Among the elderly, the vaccine was well tolerated and demonstrated an efficacy of 91.8%, based on a group of 2,144 volunteers older than 60, the paper said.
Like other Covid-19 vaccines, including ones developed by
Johnson & Johnson
and
AstraZeneca
PLC and Oxford University, Sputnik V uses a so-called viral vector approach. It introduces a genetically altered form of a harmless virus, known as the adenovirus, to serve as a vehicle—or vector—for a fragment of genetic material from the coronavirus.
As wealthier countries buy up supplies of Western drugmakers’ Covid-19 vaccines that are still in development, China and Russia are offering their fast-tracked shots to poorer nations. Here’s what they’re hoping to get in return. Illustration: Ksenia Shaikhutdinova
Each of the vaccine’s two shots is based on a different adenovirus vector, which Russian scientists say achieves a stronger immune response. Sputnik V has simpler logistics requirements compared with some of its peers, with a storage and transportation temperature of between 36 and 46 degrees Fahrenheit. The Pfizer vaccine must be kept at minus 94 degrees Fahrenheit before thawing.
With Sputnik V—a reference to the satellite the Soviet Union launched into orbit ahead of the U.S. in the Cold War space race—Russia could gain clout with some countries, analysts say, as well as participate in a global coronavirus vaccine market estimated by Russian officials at $100 billion annually.
Competing on price, Russia is selling the vaccine at less than $10 a dose, lower than Pfizer and Moderna, and is targeting up to 30% market share among Covid-19 shots in the countries buying Sputnik, according to Russian officials.
AstraZeneca has said that it would test whether a combination of its Covid-19 vaccine, which has shown to be between 62% and 90% effective depending on dosage, and Sputnik V can boost efficacy. Clinical trials for a combined shot are expected to start soon in Azerbaijan, the United Arab Emirates and other countries.
Some 15 countries outside Russia have already authorized Sputnik V, and Moscow has received orders or expressions of interest for 2.4 billion doses, including from Brazil, Mexico and India. In a bid to accelerate the global rollout, Russia will also offer a one-dose vaccine, dubbed Sputnik Light, which Russian authorities say would be between 73% and 85% effective.
To produce its vaccine, Russia relies on a global supply chain, including manufacturing hubs in Brazil, South Korea, India and China. Russia has also mounted an aggressive public-relations campaign abroad, including posting weekly video updates in English and maintaining a Twitter account for Sputnik V.
Sputnik V hasn’t been approved by Western health authorities or received authorization from the World Health Organization, which many developing countries rely on for vetting vaccines. Russia is in talks with the European Medicines Agency about approving the shot in the European Union and has applied for WHO authorization.
In Iran, health-care professionals and lawmakers criticized the government’s announcement that it would import Sputnik V, saying that the vaccine had not been approved by international bodies and that the purchase was politically motivated. Government officials said on Tuesday that Tehran would buy up to 1.5 million doses, with the first batch arriving as early as Saturday.
The domestic rollout has also faced challenges, including production delays and a skeptical populace.
Authorities have recently said that manufacturing is now being ramped up following initial equipment problems. They now expect to produce 11 million doses this month, up from seven million in January.
Around 46% of Russians said they would get a vaccine in a January survey by British polling firm Ipsos MORI, up 5 percentage points compared with December. Still, Russians were among the most reluctant to get inoculated globally, compared with 55% in France, 63% in the U.S. and 86% in the U.K.
Russia doesn’t publish daily vaccination rates, but regional data shows that at least 1.3 million Russians have received a dose so far.
Irina Levashova, a kindergarten teacher in Romodanovo, a small town some 400 miles southeast of Moscow, received her second shot last month along with her husband.
“I have many acquaintances who have been ill or even died from this disease, so I wanted to protect myself and my family,” Ms. Levashova, 58, said, adding that she didn’t experience any major side effects. “As soon as they started talking about vaccinations, I immediately told myself that me and my family would do it.”
—Valentina Ochirova contributed to this article
Write to Georgi Kantchev at georgi.kantchev@wsj.com
Special-purpose acquisition companies—shell companies planning to merge with private firms to take them public—are rising more than 6% on average on their first day of trading in 2021, up from last year’s figure of 1.6%, according to University of Florida finance professor
Jay Ritter.
Before 2020, trading in SPACs was muted when they made their debut on public markets.
Now, shares of blank-check companies almost always go up. The last 140 SPACs to go public have either logged gains or ended flat on their opening day of trading, per a Dow Jones Market Data analysis of trading in blank-check companies through Thursday. One hundred and seventeen in a row have risen in their first week. The gains tend to continue, on average generating bigger returns going out to a few months.
The gains in companies that don’t yet have any underlying business underscore the wave of speculation in today’s markets. Merging with a SPAC has become a popular way for startups in buzzy sectors to go public and take advantage of investor enthusiasm for futuristic themes.
But lately, day traders are even putting money into SPACs before they have revealed what company they are buying. At that stage, they are pools of cash, so investors are wagering that the company will eventually complete an attractive deal.
Despite the risks, many are embracing the trade, underscoring how online investing platforms and social-media groups now send individuals flocking to new corners of markets, including shares of unprofitable companies such as GameStop and
AMC Entertainment Holdings Inc.
AMC 53.65%
That trend also is playing out in everything from shares of silver miners to SPACs, which were relatively rare before last year but are suddenly ubiquitous in finance.
“I would just have a bad case of FOMO if I wasn’t in SPACs,” said
Marco Prieto,
a 23-year-old real-estate agent living in Tucson, Ariz., referring to the fear of missing out that is driving many individuals to put money into markets.
He has a roughly $50,000 portfolio and about 60% of his holdings tied to blank-check companies. Some of his positions are early on in shell firms such as
Social Capital Hedosophia Holdings Corp. VI,
while others are based on rumors tied to possible deals by companies including
Churchill Capital Corp. IV.
Share-price performance of existing SPACs without deals announced*
Amount of cash
held by SPAC:
Biotechnology/Life science/Health care
Share-price performance of existing SPACs without deals announced*
Amount of cash
held by SPAC:
Biotechnology/Life science/Health care
Share-price performance of existing SPACs without deals announced*
Amount of cash
held by SPAC:
Biotechnology/Life science/Health care
Share-price performance of existing SPACs without deals announced*
Amount of cash
held by SPAC:
Biotechnology/Life science/Health care
Shares of that company have more than doubled since Bloomberg News reported on Jan. 11 that it is in talks to combine with electric-car firm Lucid Motors Inc. Trading got so frenzied that the SPAC put out a statement a week later saying it wouldn’t comment on the report and that it is always evaluating a number of possible deals. The stock has still been gyrating in the days since.
Investors betting on SPACs even before such reports is extraordinary because the underlying value of a blank-check firm before it pursues a deal is the amount of money it raises for a public listing. That figure is typically pegged at $10 a share. Still, it has become common for investors to buy at higher prices such as $11 or $12 to back big-name SPAC founders such as venture capitalist
Chamath Palihapitiya
and former Citigroup Inc. deal maker
Michael Klein.
In another sign blank-check firms are now frequently traded by individuals, several SPACs and companies that have merged with them recently joined GameStop and AMC on a list of stocks that had position limits on Robinhood Markets Inc., a popular brokerage for day traders. Those restricted included Mr. Klein’s Churchill Capital IV and a few of Mr. Palihapitiya’s SPACs in the
Social Capital Hedosophia
SPCE 2.74%
franchise.
The flood of money pouring in is a concern for skeptics who worry that everyday investors don’t understand the dangers of the trade. Even recent losses in a few hot companies such as electric-truck startup
Nikola Corp.
NKLA -0.39%
and health-care firm MultiPlan Inc. that merged with blank-check firms aren’t deterring investors because of the gains in other SPACs.
“It’s a tremendous amount of speculation,” said
Matt Simpson,
managing partner at Wealthspring Capital and a SPAC investor. His firm invests when SPACs go public or right after, then takes advantage when shares rise and typically sells before a deal is completed. He advertised an expected return from the strategy of 6% to clients, but last year it returned 20%.
Ninety-one SPACs have raised $25 billion so far this year, putting the market on track to shatter last year’s record of more than $80 billion, according to data provider SPAC Research.
Fast gains in the shares can result in big payoffs for their founders and the first investors in blank-check firms like Mr. Simpson. These earliest investors always have the right to withdraw their money before a deal goes through. The traders who get in later don’t have those same privileges, but that hasn’t been a deterring factor.
“If you don’t take a risk, there’s really no opportunity at all,” said
Chris Copeland,
a 36-year-old in upstate New York who started day trading on the platform Robinhood with his girlfriend last month. Roughly three-quarters of his portfolio is tied to SPACs such as
GS Acquisition Holdings Corp. II.
Mr. Prieto checks SPACs on his phone. ‘I would just have a bad case of FOMO if I wasn’t in SPACs,’ he says.
Photo:
Cassidy Araiza for The Wall Street Journal
Trading volumes in many popular blank-check firms have increased lately, an indication of investors’ heightened activity. That trend is even drawing attention from some SPAC founders.
“It worries me,” said veteran investor and SPAC creator
Bill Foley.
Trading volumes have surged in one of the SPACs founded by the owner of the Vegas Golden Knights hockey team, especially since it announced a $7.3 billion deal to take
Blackstone Group Inc.
BX 0.21%
-backed benefits provider Alight Solutions public last week.
One reason traders are getting into blank-check firms when they are just pools of cash is that the time it takes for a SPAC to unveil a deal has dwindled. Blank-check firms normally give themselves two years to acquire a private company, but many these days need only a few months.
SHARE YOUR THOUGHTS
Are you investing in SPACs? Why or why not? Join the conversation below.
It also doesn’t take long for investor speculation about a blank-check firm’s acquisition to build, particularly because SPACs can indicate the sector in which they hope to complete a deal.
Excitement can be triggered by a SPAC pioneer like Mr. Palihapitiya, who sometimes hints to his more than 1.2 million Twitter followers when activity is coming. The former Facebook Inc. executive took space-tourism firm
Virgin Galactic Holdings Inc.
public in 2019 and last month reached a deal with Social Finance Inc.
Even though he invests in a number of blank-check firms other than his own—often when SPACs need to raise more money to complete deals—shares of his own companies can climb following such tweets. One example came Jan. 21, when one of his blank-check firms rose about 4% after Mr. Palihapitiya started a tweet by saying “I’m finalizing an investment in ‘???.’”
The SPAC has since given back those gains after no news about an acquisition came out and it was revealed that Mr. Palihapitiya’s investments were in companies unrelated to his own. He declined to comment.
Mr. Palihapitiya also has thrown himself into the frenzy of activity around GameStop trading, publicizing an options trade last week in the stock and taking profits on it.
Reports about possible mergers like those surrounding the Churchill Capital IV SPAC and a possible combination with Lucid Motors also quickly attract hordes of buyers. That blank-check firm is now owned by many individuals, including Messrs. Prieto, Copeland and
Jack Oundjian,
a 40-year-old who lives in Montreal.
“I’m very excited that we have a chance to be able to participate in what could be future unicorn companies,” or startups valued at $1 billion or more, Mr. Oundjian said. He said he views SPACs as long-term investments rather than fast trades, and holdings tied to the sector make up about 30% of his roughly $1.2 million portfolio.
Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
spoke about combining the oil giants after the pandemic shook the world last year, according to people familiar with the talks, testing the waters for what could be one of the largest corporate mergers ever.
Chevron Chief Executive
Mike Wirth
and Exxon CEO
Darren Woods
discussed a merger following the outbreak of the new coronavirus, which decimated oil and gas demand and put enormous financial strain on both companies, the people said. The discussions were described as preliminary and aren’t ongoing but could come back in the future, the people said.
Such a deal would reunite the two largest descendants of
John D. Rockefeller’s
Standard Oil monopoly, which was broken up by U.S. regulators in 1911, and reshape the oil industry.
A combined company’s market value could top $350 billion. Exxon has a market value of $190 billion, while Chevron’s is $164 billion. Together, they would likely form the world’s second largest oil company by market capitalization and production, producing about 7 million barrels of oil and gas a day, based on pre-pandemic levels, second only in both measures to Saudi Aramco.
But a merger of the two largest American oil companies could encounter regulatory and antitrust challenges under the Biden administration. President Biden has said climate change is one of the biggest crises the country faces. In October, he said he would push the country to “transition away from the oil industry.” He hasn’t been as vocal about antitrust matters, and the administration has yet to nominate the Justice Department’s head of that division.
One of the people familiar with the talks said the sides may have missed an opportunity to consummate the deal under former President
Donald Trump,
whose administration was seen as more friendly to the industry.
Darren Woods, CEO Exxon Mobil Corp., at an industry conference in 2018
Photo:
Andrew Harrer/Bloomberg News
A handful of sizable oil and gas deals were completed last year, including Chevron’s $5 billion takeover of Noble Energy Inc. and
ConocoPhillips
COP -2.63%
’ roughly $10 billion takeover of Concho Resources Inc., but nothing close to the scale of combining San Ramon, Calif.-based Chevron and Irving, Texas-based Exxon.
Such a deal would significantly surpass in size the mega-oil-mergers of the late 1990s and early 2000s, which included the combination of Exxon and Mobil and Chevron and Texaco Inc.
It also could be the largest corporate tie-up ever, depending on its structure. That distinction currently belongs to the roughly $181 billion purchase of German conglomerate Mannesmann AG by Vodafone AirTouch Plc in 2000, according to Dealogic.
Many investors, analysts and energy executives have called for consolidation in the beleaguered oil-and-gas industry, arguing that cutting costs and improving operational efficiencies would help companies weather the pandemic-induced downturn and prepare for an uncertain future as many countries seek to reduce their dependence on fossil fuels to combat climate change.
In an interview discussing Chevron’s earnings Friday, Mr. Wirth, who like Mr. Woods also serves as his company’s board chairman, said that consolidation could make the industry more efficient. He was speaking generally and not about a possible Exxon-Chevron merger.
“As for larger scale things, it’s happened before,” Mr. Wirth said, referring to the 1990s and early-2000s megamergers. “Time will tell.”
Paul Sankey,
an independent analyst who hypothesized a merger of Chevron and Exxon in October, estimated at the time that the combined company would have a market capitalization of about $300 billion and $100 billion in debt. A merger would allow them to cut a combined $15 billion in administrative expenses and $10 billion in annual capital expenditures, he wrote.
An abundance of fossil fuels combined with advances in technology to harness wind and solar power has sent energy prices crashing around the world. WSJ explains how it all happened at once. Photo illustration: Carlos Waters/WSJ
Exxon was America’s most valuable company seven years ago, with a market value of more than $400 billion, nearly double Chevron’s. But Exxon has fallen from its heights following a series of strategic missteps, which were further exacerbated by the pandemic. It has been eclipsed as a profit engine by tech giants such as
Apple Inc.
AAPL -3.74%
and
Amazon.com Inc.,
AMZN -0.97%
in recent years and was removed from the Dow Jones Industrial Average last year for the first time since it was added as Standard Oil of New Jersey in 1928.
Exxon’s shares have fallen nearly 29% over the last year, while Chevron’s are down about 20%. Chevron briefly topped Exxon in market capitalization in the fall.
Exxon endured one of its worst financial performances ever in 2020. It is expected to report a fourth consecutive quarterly loss for the first time in modern history on Tuesday and already has posted more than $2 billion in losses through the first three quarters of 2020.
Chevron also has struggled, reporting nearly $5.5 billion in 2020 losses Friday. But investors have expressed more faith in Chevron because it entered the downturn with a stronger balance sheet—in part because it walked away from its $33 billion bid to buy Anadarko Petroleum Corp. before the pandemic, having been outbid by
Occidental Petroleum Corp.
OXY -4.25%
in 2019.
Exxon has about $69 billion in debt as of September, while Chevron has around $35 billion, according to S&P Global Market Intelligence.
Some investors have grown increasingly concerned about Exxon’s direction under Mr. Woods as the company faces a rapidly changing energy industry and growing global consciousness about climate change. Some are also worried that Exxon may have to cut its hefty dividend, which costs it about $15 billion annually, due to its high debt levels. Many individual investors count on the payments as a source of income.
Mr. Woods embarked on an ambitious plan in 2018 to spend $230 billion to pump an additional one million barrels of oil and gas a day by 2025. But before the pandemic, production was up only slightly and Exxon’s financial flexibility was diminished. In November, Exxon retreated from the plan and said it would cut billions of dollars from its capital spending every year through 2025 and focus on investing in only the most promising assets.
Newsletter Sign-up
Deals Alert
Major news in the world of deals and deal-makers.
Meanwhile, the company’s woes have helped draw the attention of activist investors. One of them, Engine No. 1 LLC, has argued that the company should focus more on investments in clean energy while cutting costs elsewhere to preserve its dividend. The firm nominated four directors to Exxon’s board Wednesday and called for it to make strategic changes to its business plan.
Exxon also has been in talks with another activist, D.E. Shaw Group, and is preparing to announce one or more new board members, additional spending cuts and investments in new technologies to help it reduce its carbon emissions.
Rivals such as
BP
BP -2.80%
PLC and
Royal Dutch Shell
RDS.A -3.53%
PLC have embarked on bold strategies to remake their business as regulatory and investor pressure to reduce carbon emissions mounts. Both have said they will invest heavily in renewable energy—a strategy that their investors so far haven’t rewarded.
Exxon and Chevron haven’t invested substantially in renewables, instead choosing to double down on oil and gas. Both companies have argued that the world will need vast amounts of fossil fuels for decades to come, and that they can capitalize on current underinvestment in oil production.
Write to Christopher M. Matthews at christopher.matthews@wsj.com, Emily Glazer at emily.glazer@wsj.com and Cara Lombardo at cara.lombardo@wsj.com
