Future of Rhode Island’s Economy is Now in the Hands of Wall Street
Tuesday, November 14, 2017
Three of Rhode Island’s highest-profile companies are at the epicenter of big moves on Wall Street. The implications of mergers, acquisitions, and downsizing may be profound for Rhode Island.
The players are CVS, Hasbro and General Electric — combined the three companies employ over 400,000 globally.
CVS on Fast Track
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTFirst, a CVS merger with America's third-largest health insurer, Aetna, is being classified as a smart effort by CVS to ward off Amazon’s effort to disrupt the pharmacy industry.
“CVS Health Corp and health insurer Aetna are working toward finalizing merger terms and announcing a deal for more than $70 billion as early as December, according to people familiar with the matter,” reported CNBC on Monday.
Even if the deal is finalized in 2017, the federal regulatory review will continue into 2018.
SEE Saul Kaplan of Business Innovation Factory Discuss All Three Potential Blockbusters Below
For Rhode Island, the stakes are high. Today, CVS is Rhode Island’s largest for-profit employer and it's not close. CVS employs a reported 7,500 in Rhode Island.
The acquisition by CVS of Aetna is expected to cost more than $70 billion. The location of headquarters of the merged healthcare giant could remain in Woonsocket, but in June Aetna announced they were moving its corporate operations out of its 140-year-old home of Hartford, CT and relocating it to New York City. The first step in the relocation of Aetna was to be 250 top corporate staffers and 6,000 corporate workers would continue in Hartford in the short-term.
As GoLocal reported in October, a combined CVS and Aetna company would be the second largest revenue company in the United States — at $240 billion — ahead of Apple ($215B) and Berkshire Hathaway ($223B). The only company in America doing more revenue would be Walmart ($485B).
Hasbro and Mattel — Game Changer
On Friday, the Wall Street Journal reported that Pawtucket-based Hasbro is looking to acquire Mattel -- and both stocks got a boost on Monday. Mattel was up 20 percent and Hasbro was up nearly 6 percent.
If the deal moves forward, it, too, will face anti-trust review by the U.S. government as Mattel and Hasbro are the first and second largest toy companies in the United States. In 2016, Mattel generated $5.46 billion in revenue and Hasbro $5.01 billion. The two companies have been rivals for decades. In the 1990s Mattel tried to consume Hasbro, but an unprecedented move by Rhode Island's legislature assisted the Hassenfeld-led Hasbro to fight off Mattel's bid.
In recent years, Hasbro has been the more profitable and have leveraged its success in gaming and entertainment. For Rhode Island, the implications could be significant. As GoLocal exclusively reported, Hasbro is looking to consolidate its 1,500 plus Rhode Island employees presently located at the headquarters in Pawtucket, the East Providence facility and downtown Providence -- ideally into one creative campus in downtown. One potential location under consideration is the vacant Superman Building.
But, a Mattel acquisition could spark Hasbro to reconsider which coast -- east or west -- is best for an entertainment-focused company.
General Electric
On Monday, General Electric announced a major business restructuring. The GE Board of Directors announced a 50 percent cut to the current quarterly dividend of $.24 a share. This change will be effective beginning with the Board’s next dividend declaration, which is expected to occur in December. It is one of the largest dividend cuts in American business history.
“We understand the importance of this decision to our shareowners and we have not made it lightly. We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation," said John Flannery, Chairman and CEO of GE. The company announced a number of elements of the restructuring of the underperforming company. GE's stock plummeted on the news over 7 percent and closed at an anemic $19.02 per share.
The implication for Rhode Island is unknown -- GE had announced last winter that they would be opening a digital office in Rhode Island in exchange for $5 million in taxpayer subsidies.
Reuters reported Monday:
GE’s Digital unit, on which Immelt bet billions of dollars, would focus on selling apps to customers in its core businesses, Flannery said. He confirmed that the shift meant sales staff were being let go, as Reuters reported last week.
GE also will cut spending on the digital unit to $1.1 billion in 2018 from $1.5 billion in 2017. GE had previously said it would invest $2.1 billion in its digital unit in 2017, but that tally included money not tied to Predix, GE’s industrial-internet platform, GE said.
GoLocal reached it to GE's spokesperson for the digital division and who said in an email, "We do not have anything to add beyond what was said in the investor meeting today." Listen to the investor call HERE.
See Saul Kaplan discuss CVS, Hasbro, and GE on Business Monday on GoLocal LIVE.
Big opportunity and Big Risk
For Rhode Island, decisions made in boardrooms in Woonsocket, Pawtucket, and Boston could mean one of the greatest periods of growth for Rhode Island in decades. CVS and Hasbro combined -- if their deals are completed -- could literally add tens of thousands of jobs to Rhode Island. Or, the two companies could move headquarters to New York and Los Angeles and devastate the state's morale and economy.
Related Slideshow: Pawtucket’s Hasbro Celebrates GI Joe’s 50th Anniversary
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