Content provided by Paul Vaaler of the Carlson School

This week brought our first wintry blast to Minnesota. It won’t be our last. A December storm and aftermath of shoveling, ice-scraping and snarled traffic remind us that Holidays are approaching and Holiday shopping is here in full force. Local-area retailers like Target and Best Buy are counting on that full shopping force to get a sizeable share of the more than $680 billion in retail sales that November and December 2017 are supposed to ring up –an increase of about 4% over last year’s total retail sales nationally. The fastest growing slice of that $680 billion is on-line (not in-store) sales which appear to be increasing at a much faster 16% rate over last year. The increase is so substantial that it’s overwhelming delivery firms like UPS: https://www.wsj.com/articles/ups-overwhelmed-by-online-orders-warns-of-some-delivery-delays-1512496479. Last week’s Cyber Monday saw the biggest online share go to so-called mobile (e.g., Smart Phone) device-based sales. Consumers bought about $2 billion of the total $6.6 billion sold on-line via mobile devices that day with Apple IPads and Sony PlayStation VR headset core system leading the sales way: https://www.theverge.com/2017/11/28/16711216/cyber-monday-sales-hit-6-billion-mobile-sales. What does this mean for Target and Best Buy? It may actually be positive if they can get Millenials to use their company mobile apps to order the goods for delivery or pick-up at a nearby store. Mobile on-line purchases could lead to new profits (not losses) for both Minnesota-based big-box chains.

Consumers are not the only ones with open wallets. So are business executives, who seem to have unlimited credit at low interest rates to use when acquiring business targets of small, large, even gargantuan size. That’s what appears to have allowed CVS CEO Larry Merlo to announce last Sunday that the Woonsocket, Rhode Island-based drug store chain was acquiring Hartford, Connecticut-based Aetna Insurance for a whopping $69 billion: https://www.nytimes.com/2017/12/03/business/dealbook/cvs-is-said-to-agree-to-buy-aetna-reshaping-health-care-industry.html. That’s the GDP of Kenya. CVS’ Merlo thinks that the acquisition will position CVS as the “frontdoor” for everyday healthcare services: it’ll have healthcare insurance services, healthcare insureds, and all sorts of data on how best to put the two together profitably. CVS stockholders responded with a “meh” when markets opened on Monday and CVS stock fell $2/share (from $74 to $72). CVS has a habit of merging and acquiring to improve performance. In the 1990s and 2000s, it acquired a series of smaller drug store chains to get national heft and rival Walgreens. In the 2015, it has “acquired” a new store channel by taking over Target’s pharmacy operations. Now it wants to acquire Aetna to acquire a stream of patient-consumers for its “back-of-the-store” medicines in the hope that maybe they’ll also buy some things in the front of the store like cosmetics. Target and other Minnesota-based companies like hospital and clinic chain Allina are already mixed up with CVS. They’ll be asking Merlo questions about how this proposed acquisition will affect their CVS collaborations. And I’m pretty sure that the US Department of Justice Antitrust Division and various state insurance commissions will want a say about this potential deal. Stay tuned. If this deal looks likely, then think of what’s next: Walmart buying Aetna’s erstwhile merger partner, Humana?

Here’s another corporate wallet opening in progress. Marshall, Minnesota-based frozen food retailer Schwan’s Company also looks to be in play. Last week, they reportedly retained the Piper, Jaffray investment bank to help them find a buyer: http://www.startribune.com/report-schwan-s-considering-options-that-could-include-sale/461355443/. A private company with at least11,000 employees and at least $2 billion in annual sales –it’s a private, secretive company– Schwan’s apparently thinks the time is right to find a buyer that can help it grow and diversify into other food products such as organic rather than just frozen entree offerings. Again, there’s so much liquidity and more than a little corporate confidence (or hubris) out there among potentially-acquiring firms. It’s worth thinking about what Schwan’s acquisition might mean for Marshall. It’s the biggest private employer in Western Minnesota, where the green and yellow delivery trucks fan out across the state, region and nation on a daily basis. Most potential suitors for Schwan’s would likely seek to consolidate headquarters and operations elsewhere. It’s a private, family-run company with Marvin and then Alfred Schwan (brother of Marvin) serving as chairmen. In 2009, Alfred Schwan was replaced by longtime board member and former president of Ecolab Allan L. Schuman. The current leadership team still includes two Schwan family members, Lorrie Schwan-Okerlund and Paul, Schwan who is also a Carlson School graduate. It may be that the family is looking for an out just as the company looks for a new locale. Stay tuned. This potential deal matters for the business, the family and the surrounding community.

Finally, it’s worth noting how the brewery giant, Anheuser-Busch InBev (A-B), let a little local competitor know that its latest product’s name infringed on one of A-B’s trademarked phrases: http://www.chicagotribune.com/business/ct-biz-modist-bud-light-dilly-dilly-20171204-story.html. Minneapolis-based Modist Brewery recently rolled out a new product called “Dilly Dilly” Mosaic Double IPA. Well, A-B found out and thought it infringed on its “Dilly, Dilly” trademarked phrase used to promote its Bud Light brands: https://www.youtube.com/watch?v=9mGNhvkVT8Q. So how did A-B let Modist know that they were infringing and should desist? Did they send them a letter or a serve them with a summons and complaint? No. A-B sent a man dressed up as a medieval town crier to Modist’s headquarters in Minneapolis. He unscrolled and read aloud from a parchment A-B’s request that Modist cease and desist from marketing their beer with the Dilly, Dilly name after a “one-time-only run” or risk “a private tour of the pit of misery” That’s what I call business law with class.

Dilly, Dilly to you all this week.

Paul

Listen to this weeks segment right here!
http://minnesota.cbslocal.com/audio/business-by-carlson/

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