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Today in the Market (12/4/2023)

Good Evening! On Monday, U.S. stocks retreated after a strong run in November as investors awaited the release of important monthly employment data.

It was red all day, with the Dow Jones almost up but falling short by 0.11%, while the S&P 500 was down by 0.54%. The Nasdaq had it the roughest, sliding by 0.84%.

ALASKA OR HAWAII? WHY NOT BOTH?

Alaska Airlines (ALK) and Hawaiian Airlines (HA) have reached a final merger agreement that lets Alaska acquire Hawaiian via a cash transaction for $18 per share, which makes the total value of the acquisition, including debt, $1.9 billion. After the agreement, the two airlines will own a combined fleet of 365 aircraft and operate flights to a total of 138 locations.

How will this shake up the market? United and Delta, two prominent airlines, own around 950 aircraft each in their fleets. As a result, the merger between Alaska and Hawaiian, though relatively minor, will enhance their competitive edge, particularly in the extensive Western US market, with a specific emphasis on Hawaii.

What else was in the agreement? Although Alaska will buy Hawaiian Airlines, both airlines have decided to retain their own identities in order to leverage Hawaiian Airlines’ strong brand awareness and popularity throughout the islands. This is a different take from Alaska’s previous merger with Virgin Airlines, where the Virgin name vanished when Alaska incorporated its fleet into its operations.

THIRD TIME THIS YEAR?

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Spotify (SPOT) terminated around 17% of its workforce, which amounts to over 1,500 people, making this the company’s third wave of layoffs in the current year. Daniel Ek, chief executive officer of Spotify, claims that a sharp decline in economic growth has overshadowed the streamer’s efforts to increase profit margins. This decline is mostly due to increasing borrowing rates, which are reducing earnings while capital costs are on the rise.

What else helped in making this decision? The most recent round of employment reductions follows the streaming service’s attainment of profitability in the third quarter. This marks its first quarterly profit in more than a year, which was achieved via recent pricing increases and lower-than-anticipated expenses associated with staff and marketing expenditures. However, Daniel Ek said that due to the disparity between the company’s financial objectives and operational expenses, he concluded that taking significant measures to reduce expenditures was the most effective course of action to achieve the company’s goals.

How much will this cost Spotify? Based on an SEC filing, the business projects that it will face charges ranging from about 130 million euros to 145 million euros ($140 million to $157 million) in the current quarter. These costs will mainly be attributed to severance-related payments and the devaluation of real estate assets as a result of the personnel reduction.

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