High volatility returned to the markets during the last quarter as the United States and China vacillated on whether the countries would reach a trade deal or not. Trade tensions, exacerbated by additional tariffs and currency manipulation charges,are triggering a global economic slowdown due to heightened uncertainty. In response, central bankers around the world are lowering interest rates. We believe the U.S. and China will eventually reach a trade deal since it is in the best interest of both countries. However, the timing and the extent of the deal remains up in the air.  
 
Meanwhile, many of our high-quality companies have been announcing or completing their own big deals. With any deal, questions arise as to whether the deal makes sense for shareholders. Corporate history is replete with bad deals. Often the bigger the deal, the worse the outcome. Just think back to the following disastrous mega-deals: America Online and Time Warner; MCI and Worldcom; and Sears and Kmart.  
 
The $36 billion Kraft Heinz deal completed in 2015 also appears like a blunder with more than $16 billion taken in subsequent impairment charges. Berkshire Hathaway (BRK-A, BRK-B) owns 27% of Kraft Heinz (KHC). While Warren Buffett, chairman of Berkshire Hathaway, initially described the deal as “my kind of transaction,” he has since acknowledged that “we overpaid for Kraft.” When even the Oracle of Omaha occasionally stumbles on a big deal, it makes us ever more cautious about the wheeling and dealing of our HI-quality companies.  
 
Walgreens Boots Alliance (WBA), a merger of Walgreens and Boots Alliance, recently announced plans to close about 200 locations in the U. S. following the Rite-Aid acquisition. The company currently estimates that it will incur cumulative pre-tax charges of approximately $1.9 billion to $2.4 billion as part of its transformation initiative. During the upcoming fourth quarter conference call, we will carefully evaluate management’s outlook for fiscal 2020 as we gauge whether we need a new prescription.  

Following the $71.3 billion acquisition of 21st Century Fox, Walt Disney (DIS) reported fiscal third quarter sales increased 33% to $20.2 billion with net earnings declining 51% to $1.4 billion and EPS falling 59% to $0.79. These results include charges of $1 billion, or $0.56 per share, from goodwill amortization related to the 21st Century Fox and Hulu acquisitions, restructuring and integration charges plus impairment charges. 
 
Thor Industries reported third fiscal quarter sales motored ahead 11% to $2.5 billion with net income skidding 76% to $32.8 million and EPS dropping 77% to $0.59 due in part to the acquisition of Erwin Hymer Group for $2.2 billion.  
 
During the past quarter, AbbVie (ABBV) announced a $63 billion agreement to acquire Allergan (AGN). Allergan’s best known product is Botox. This big deal created frown lines for Mr. Market and us (see p. 4 for more details). 
 
Raytheon (RTN) and United Technologies (UTX) have entered into an agreement to combine in an all stock merger of equals. The new company will be worth about $121 billion and will be named Raytheon Technologies Corporation. Raytheon shareowners will receive 2.3348 shares in the combined company for each Raytheon share held. Upon completion of the merger, United Technologies shareowners will own approximately 57 percent and Raytheon shareowners will own approximately 43 percent of the combined company. The merger is expected to close in the first half of 2020, following completion by United Technologies of the previously announced separation of its Otis and Carrier businesses. The combined company expects to return $18 billion to $20 billion of capital to shareowners in the first 36 months following completion of the merger. As shareholders in both companies,we will watch carefully how this merger flies. Individually, both stocks still appear attractively valued.  
 
Deal or no deal? It all depends on the terms of the deal. However, all deals should receive special scrutiny by stakeholders!