Weekly Reads - January 23, 2023
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The biggest U.S banks are teaming up to launch their own digital payment wallet that can be used for online shopping. This new nameless app will be managed by the company behind direct money transfer service Zelle, Early Warning Systems (EWS). EWS is a joint venture between Capital One, PNC, U.S Bancorp, Truist, Bank of America, and JPMorgan Chase. This new digital wallet launch is a response to the increasing usage of digital payments such as Apple Pay, PayPal, Google Pay, and Amazon Pay. The EWS wallet will work like PayPal, where users can provide an email address that is associated with their bank account during the checkout process and EWS then connects the user and merchant accounts to complete the transaction. Visa and Mastercard will reportedly be on board at launch for the new wallet with the banks looking to enable 150 million credit/debit cards. For the banks the adoption of the EWS wallet will help reduce fraudulent transactions and help maintain their relationship with their end customers and merchants. More importantly, the EWS wallet will help the banks and payment networks retain a larger share of the economics of a transaction versus having to share with other digital wallets. To ensure the EWS wallet sees mass adoption the bank’s first key step will be getting vendors to embed another payment option on their website.
After a brutal year for Salesforce, Elliot Management has built up a multibillion-dollar position in the company. Elliot joins fellow activist Starboard Value who disclosed a stake in Salesforce in October. While it remains unclear on what Elliot’s position on the company is and their exact recommendations it is likely that Elliot will push for margin expansion over topline growth. Salesforce shed $170 bn in market value from its peak in 2021 as the company dealt with heightened expenses from over hiring during the pandemic and turnover in management. Earlier this month Salesforce cut 10% of its workforce with the company expected to incur between $1.4 bn to $2.1 bn in restructuring charges. With Elliot and Starboard pushing for changes we can expect more management turnover and corporate changes in the upcoming few months.
Serta Simmons, the largest mattress manufacturer in the U.S, is seeking bankruptcy protection as it looks to trim its debt following a previous restructuring. Serta is looking to cut its debt to $300 million from $1.9 billion through a deal with its lenders and shareholders. Serta was one of the biggest coronavirus casualties with mattress sales plummeting during the height of the pandemic while the company was dealing with a massive debt load. Insiders reported that Serta had been saddled with debt by a private-equity firm, Advent International, giving the company little flexibility in managing the corona virus crisis. Advent International completed a $3 billion leverage buyout of the company in 2012 leaving the company $2.3 billion in debt. The combination of an unsustainable debt load and a decline in mattress sales led to the company talking about a restructuring plan late last year. As the leader in mattress manufacturing with market share of nearly 40% it is likely that Serta will survive its bankruptcy hearing and come out as a leaner company.