Investing

Before the Bell: Tesla, AMC Hammered, DeSantis-Disney Feud Heats Up

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Premarket action on Tuesday had the three major U.S. indexes trading higher. The Dow Jones industrials were up 0.0.22%, the S&P 500 up 0.36% and the Nasdaq 0.46% higher.

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Seven of 11 market sectors closed higher on Monday. Energy (4.91%) and health care (1.08%) posted the day’s best gains. Real estate (−0.95%) and consumer cyclicals (−0.91%) posted the biggest losses. The Dow closed up 0.98% and the S&P 500 up 0.37%, but the Nasdaq closed down 0.27% on Monday.

Two-year Treasuries fell nine basis points to end Monday at 3.97%, and 10-year notes dropped five basis points to a 3.43% close. In Tuesday’s premarket, two-year notes were trading at around 3.99% and 10-year notes at about 3.45%.

Monday’s trading volume was higher than the five-day average. New York Stock Exchange winners outpaced losers by 1,548 to 1,481, while Nasdaq decliners led advancers by about 8 to 7.

The ISM manufacturing index dropped from 47.7% in February to 46.3% in March, the lowest reading in two years. Any reading below 50% indicates a slowdown in manufacturing activity. March was the fifth consecutive month to post an index below 50%. The Job Openings and Labor Turnover Survey (JOLTS) will be released after markets open Tuesday morning. In February, there were 10.82 million U.S. job openings, down from 11.23 million in January.

Monday’s winner among S&P 500 stocks was Marathon Oil Corp., (NYSE: MRO), with a gain of 9.89%. Six of the 10 top finishers were independent oil products, two were oilfield services companies and one was an integrated oil company. The tenth, Humana Inc. (NYSE: HUM), is a health care firm. Both West Texas Intermediate (WTI) and Brent crude prices jumped more than 6%. The two benchmarks have retained their gains in the early going Tuesday with increases of around 0.6%.

Tesla Inc. (NASDAQ: TSLA) was Monday’s big loser, down 6.1% after reporting first-quarter deliveries. While the delivery total was arguably a beat, Friday’s news that a final list of EVs that qualify for the federal $7,500 tax credit for auto buyers is unlikely to include certain versions of Tesla’s Model 3 or its Model Y is far more meaningful. Tesla may be forced to lower its prices — again — in order to compete. General Motors Co.’s (NYSE: GM) Hummer EV is not a particular threat. GM sold two Hummers in the first quarter.

In premarket trading Tuesday, shares of AMC Entertainment Holdings Inc. (NYSE: AMC) were down by about 27.6% at $3.70. AMC’s preferred shares (NYSE: APE) traded up by more than 20% at $1.78. Both stocks closed up about 0.7% on Monday.

The difference is down to a settlement AMC reached with a group of shareholders who opposed its plan to issue more shares and whose lawsuit had stymied company plans to conduct a reverse 10-for-1 stock split. The settlement still needs to be approved by the presiding judge. The dispute involves AMC’s plan to convert the preferred APE shares into AMC common shares, an unusual plan that we described in early February. AMC on Monday agreed to pay its discontented shareholders with one new share of AMC common stock for every 7.5 shares of old AMC common stock they hold after the reverse 10-for-1 stock split.

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According to a federal filing, AMC estimates it will have 156.26 million shares of common stock outstanding after the reverse split, down from nearly 520 million currently. The company would issue 6.92 million shares to the unhappy shareholders, giving them 4.4% of the post-split shares. The malcontents currently own nearly 10% of AMC common stock.

Florida Governor Ron DeSantis is not happy with the way that Walt Disney Co. (NYSE: DIS) punked him in a dispute over who is in charge of the Reedy Creek Improvement District that runs the municipal services at the Disney World site. Two weeks before DeSantis was to sign a new Florida law giving himself the authority to appoint the Reedy Creek board, the existing board adopted new, restrictive covenants on the board’s power.

The new covenants prevent the DeSantis board from using the Disney name without the company’s approval or using Disney characters like Mickey Mouse. The covenants are valid until “21 years after the death of the last survivor of the descendants of King Charles III, king of England living as of the date of this declaration.”

On Monday, DeSantis responded by announcing an investigation into the Reedy Creek board:

These collusive and self-dealing arrangements aim to nullify the recently passed legislation, undercut Florida’s legislative process, and defy the will of Floridians. In addition, based on initial observations of counsel, the [Reedy Creek] board’s actions appear to suffer from serious legal infirmities, including, among other things, inadequate notice, lack of consideration, improper delegation of authority, and ethical violations, such as conflicts of interest and self-dealing.

At Disney’s annual shareholders’ meeting on Monday, CEO Robert Iger responded to a question about the company’s dispute with DeSantis: “Our point on this is that any action that thwarts [business] efforts simply to retaliate for a position the company took sounds not just anti-business, but it sounds anti-Florida.”

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