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The Supreme Court concluded President Joe Biden didn’t have the power to broadly cancel people’s student debt balances, but his administration is using existing regulatory authority to wipe the debts of over 800,000 people.
Here’s what to know about the $39 billion in relief.

The U.S. Department of Education in Washington, D.C.
Caroline Brehman | CQ-Roll Call, Inc. | Getty Images

Just weeks after the Supreme Court struck down President Joe Biden’s plan to cancel up to $20,000 of their debt, some borrowers got good news: The Biden administration announced it would be forgiving loans for more than 800,000 people, for a total of $39 billion in relief.
What was the connection between these two actions? Very little.

Although the Supreme Court concluded Biden didn’t have the power to broadly cancel people’s student debt balances at the end of June, his administration used existing regulatory authority to carry out the latest relief.
Here’s what to know, and how to tell if you qualify.

Qualifying borrowers have been paying for decades

Unlike Biden’s sweeping student loan forgiveness plan that would have impacted the majority of borrowers, the latest debt cancellation applies only to those who have been making payments for 20 years or 25 years (likely since either 1998 or 2003.)
“This adjustment will provide immediate forgiveness for those that have been paying on their loans for two decades or more, yet still have a balance,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.
Those eligible borrowers were mostly enrolled at some point in what is called the “Income-Contingent Repayment Plan,” said higher education expert Mark Kantrowitz. ICR was the first payment plan available that let borrowers pay what they could afford each month. That’s why most of the borrowers were in this plan: it’s been around long enough for them to have made enough qualifying payments.

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Borrowers are actually entitled to loan forgiveness under these income-based plans after they’ve made payments for a certain amount of time, typically 20 years or 25 years.
But issues in the lending system resulted in that not happening.
“The loan servicers weren’t keeping track of the qualifying payments,” Kantrowitz said.
The Biden administration remedied this problem by recounting people’s payments and making a one-time adjustment, giving borrowers credit for months that previously didn’t count, including periods spent in certain deferments or forbearances. Late or partial payments were also made eligible.
This brought 804,000 borrowers over the line for forgiveness.

Many kinds of student loans qualify

When borrowers will hear about debt relief

If you’re not sure if you can expect the aid, the U.S. Department of Education said it would alert eligible borrowers within days.
“It will take up to a month after the borrower is notified for the loan cancellation to occur,” Kantrowitz said.
If you qualify for the debt relief but haven’t received it by the time student loan bills resume in October, you won’t be required to make any payments, the U.S. Department of Education says. More

On Tuesday, the U.S. Department of Education is holding a public hearing on its alternative plan to cancel student debt.
This round, President Joe Biden is relying on a different law to try to cancel people’s debt — the Higher Education Act. The Supreme Court has ruled he didn’t have the power to do so under the Heroes Act of 2003.

People rally in support of the Biden administration’s student debt relief plan in front of the the U.S. Supreme Court on Feb. 28, 2023.
Drew Angerer | Getty Images News | Getty Images

Anyone can join: here’s how

The virtual event is free and runs from 10 a.m. until 4 p.m. Eastern time. You can join the public hearing on student loan relief at Eventbrite.

Speakers will each have 4 minutes

Those who wanted to comment at the hearing had to send an email by noon on Monday to [email protected].
If you didn’t meet that deadline, it should still be an interesting event to listen in on, said higher education expert Mark Kantrowitz.

“They can hear what other people are saying,” he said. Each person should speak for around four minutes.
There will also be a public comment period down the road, Kantrowitz said, during which anyone can submit their preferences and ideas on the subject.

Process could take a year or longer

Tuesday’s hearing should influence Biden’s proposed new rule for delivering people relief. The entire process could take a year or longer, Kantrowitz said.
That’s because unlike with Biden’s first attempt to forgive student debt quickly through an executive order, this time he’s turning to the rulemaking procedure.
“If the Biden administration is successful in providing loan forgiveness under the HEA,” Kantrowitz said, “borrowers could see forgiveness around the time of the election.” More

The number of expat Americans living in Spain grew 13% from 2019 to 2021, according to a Spanish government report.
Among foreign residents, American expats pay the second most for living space per square meter, after the Danes.
Purchasing or living in a home abroad requires a certain level of wealth, given the cost not only of real estate but overseas travel, as well.

A real estate agency window in Alicante, Spain.
Sopa Images | Lightrocket | Getty Images

More Americans are flocking to Spain for longer, whether as so-called digital nomads working abroad or to enjoy a new life in retirement.The number of Americans living in Spain grew by 13% from 2019 to 2021, and home sales to Americans jumped 88% from the first half of 2019 to the first half of 2022, according to a report by the General Council of Notaries in Spain.
Among expat groups buying in the sun-washed country, Americans paid the second most, after the Danes, shelling out up to 2,837 euros, or $3,119, per square meter. In addition, the home prices that grew the most in the same period were paid by Americans, according to the report.

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Purchasing or living in a home abroad requires a certain level of wealth, given the cost not only of real estate but overseas travel, as well, said Alex Ingrim, a Florence, Italy-based private wealth manager and senior investment analyst at global financial services firm Chase Buchanan.
According to the General Council of Notaries report, American buyers are focusing on urban areas like Madrid — as with any big city, people are attracted to its job opportunities and amenities, said Ingrim.

While the southern coastal region of Andalusia has always been a popular location for Americans, there’s a “strong word of mouth” for the city of Valencia, an urban area on the beach farther north on the Mediterranean coast with a large expat community, among them many Americans, said Ingrim.However, Americans who want a different retirement or remote work experience and an adventure by relocating to Spain should take a few factors into consideration.

Property taxes in Europe are different

Most tax on property purchased in Spain is paid upfront in a stamp duty, or “AJD” in Spanish parlance, rather than in annual property tax payments like in the U.S.”The stamp duty can run from 1% to 2.5%, and then there is [value-added tax] on new construction or transfer tax on pre-owned homes,” said certified financial planner Jude Boudreaux, partner and senior financial planner with The Planning Center in New Orleans. “It’s all substantially more than in the States.”

It must be paid by the buyer at the treasury office of the appropriate autonomous region in Spain within 30 business days after the property is bought.
“You pay a lot of the taxes upfront rather than on an ongoing basis, so the purchasing costs and the purchasing process are a lot different,” said Ingrim, who advises interested buyers to get in touch with local estate agents and property lawyers early on in the process.

If you are looking to retire in Spain, consider the financial and tax implications, and seek help from an advisor before setting into the idea, he added.
Additionally, make sure your taxes are in order. Although you are rarely taxed on the same income twice, look at the different streams of income and assets you may have in order to understand “who gets to tax what first, whether Spain or the U.S.,” said Ingrim.For instance, an American citizen working in Spain will have a higher tax rate, but those taxes become a deduction when they file their federal tax return in the U.S., said Boudreaux, who is a member of CNBC’s Financial Advisor Council.
On the other hand, the U.S. taxes your global income, so if an American earns an income from rental properties in Spain, or anywhere else in the world, “the U.S. will gladly tax your income from Spain,” he added.
For his part, Ingrim noted that “while you might have a liability to both systems, you rarely pay tax on the same income stream or asset base twice.”

Liabilities in the U.S. don’t just go away

It’s important to remember your debts in the U.S. doesn’t just go away when you move abroad, he added. “You need to still have a plan to deal with your American liabilities while you’re living abroad.”
Some countries, like Portugal, may ask foreign residents for a credit report from their home country when they take out a mortgage or try to establish credit. Keep your debts in mind and plan to keep up with your payments.
“Keep repaying your student loans, your car payments, mortgages, whatever it may be, and try to [keep up] your U.S. credit history because it may impact your going forward in your new country [of residence],” said Ingrim.
Keep an American bank account tied to a U.S. address open before you move so you can pay your bills through automatic transfers from that account, said Boudreaux, to save on exchange rates and monthly wires.Additionally, you may need a Spanish bank account to pay your daily living expenses in euros and avoid being regularly at the mercy of fluctuating exchange rates. The U.S. government imposes bank reporting rules on every bank that does business with U.S. citizens. Find a Spanish bank that complies with these rules, “so they can do all the proper reporting when and as necessary,” added Boudreaux.

You may qualify for different kinds of visas

Spain launched its digital nomad visa earlier this year, making it easier for foreigners to move to and work there. The visa is tailored for “international teleworkers,” and applicants must comply with a set of requirements, such as accreditation or professional experience of at least three years.
“Prior to having this visa, it was difficult to work in Spain because the tax rates were so high and there wasn’t a clear-cut immigration regime, other than the ‘golden visa’ that allowed you to move to Spain and work,” said Ingrim.The golden visa, which you only obtain if you purchase a property for more than 500,000 euros — or about $550,000 — allows you to live, work and earn a larger set of rights once you’re residing in Spain, he said.
Nonlucrative visas, meanwhile, are meant for people who are no longer employed, including retirees, who can rely on a passive income. This type of visa allows you to live in a new country but prohibit you from working. “The first step would be engaging with a Spanish immigration lawyer and understanding if you meet the requirements,” said Ingrim.
However, before you make your bid on a property, consider renting first to see if the area meets your preferences and needs, added Ingrim.
Some Americans already living in other countries, namely Portugal, are conscious about how arrangements like the golden visa can exacerbate housing problems for locals. That ought to be a consideration for buyers in Spain, he said.
In Ingrim’s experience, incoming U.S. buyers express concerns around the issue, saying “We don’t want any part in contributing to that.” As a result, many prefer to initially rent, as a precaution. More

In the face of higher costs, more restaurants are tacking on extra charges.
Although most diners don’t like the added expenses, these fees are likely here to stay, according to the National Restaurant Association.
This year, 15% of restaurant owners added surcharges, according to the National Restaurant Association’s restaurant business conditions survey.

Restaurants are getting squeezed

This year, 15% of restaurant owners added surcharges, according to the National Restaurant Association’s restaurant business conditions survey.
Unlike other small businesses, it can be hard for restaurants to absorb or pass on price increases. A restaurant’s typical pretax profit is about 5% of sales. “It’s a very thin margin to begin with,” said Hudson Riehle, the National Restaurant Association’s senior vice president of research.
At the same time, most costs, including food, labor and rent, are higher now than they were before the Covid-19 pandemic and show no signs of coming back down.

“It’s a situation that really is unprecedented,” Riehle said.
As a result, restaurant operators have come up with different strategies to stay afloat, he added, and “some have elected to add on to a typical check certain fees.”
Although such surcharges are unpopular among diners, Riehle expects this new business model “will become permanent.”

Diners are pushing back

Hamei Hamedi, the owner of El Patio in Berkeley, California, added a 2.4% credit card fee in 2021 after raising the prices on some menu items.
“We operate on such small margins and people expect us to eat the credit card fee too,” he said.
So-called swipe fees, which companies such as Visa or Mastercard charge businesses every time a credit card is used to make a purchase, have more than doubled over the past decade, forcing more small businesses to feel they have no choice but to pass on the fees to consumers. 
Still, some diners have taken to social media to express their distaste for the proliferation of additional costs now tacked on to a bill.

Brand New Images | Getty Images

“Surcharges rub people the wrong way,” said Ted Rossman, senior industry analyst at Bankrate. Like tip prompts, it’s seen as “a hidden tax that pushes more of the cost burden on customers.”
Others are sympathetic to business owners feeling squeezed, particularly when it comes to inflation and rising health-care costs.
“On the face of it, people may believe in these causes, but they don’t like the line item,” Rossman said. “People want to pay one price.”
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The conservative Supreme Court justices found that President Joe Biden’s plan would hurt Missouri’s bottom line, and that the president didn’t have the power to cancel so much debt.
Liberal Justice Elena Kagan disagreed: “The majority overrides the combined judgement of the legislative and executive branches, with the consequence of eliminating loan forgiveness for 43 million Americans.”

Supreme Court justices listen to arguments.
Artist: Bill Hennessey

1. Conservative justices found states had standing

The biggest obstacle for those who wanted to legally challenge President Joe Biden’s student loan forgiveness was showing they’d be harmed by the relief policy, which is typically a requirement to gain the right to sue.
That need to prove so-called legal standing is designed to prevent people from using the judicial system to work out policy differences that are considered more appropriate for elections.
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The six GOP-led states — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — that were successful in getting Biden’s plan nixed by the justices had argued that the policy would lead to a loss of profits for the companies in their states that service federal student loans.

Chief Justice John Roberts, in the majority opinion for Biden v. Nebraska, wrote that MOHELA, or the Missouri Higher Education Loan Authority, would lose around $44 million a year in fees it earns from servicing federal student loans after Biden’s forgiveness. As a result, Roberts found that at least Missouri had successfully proven legal standing. He said the court didn’t need to consider standing for the other states.

U.S. Supreme Court Chief Justice John G. Roberts poses during a group portrait at the Supreme Court in Washington, U.S., October 7, 2022. 
Evelyn Hockstein | Reuters

Legal experts and consumer advocates were skeptical that Biden’s plan would reduce MOHELA’s bottom line. They pointed out that the lender’s revenue was actually expected to rise because of some student loan servicers recently leaving the space and it picking up extra accounts. 
“I was surprised the court found Missouri had standing,” said higher education expert Mark Kantrowitz. “The debts of MOHELA are not the debts of the state. And MOEHLA is able to sue on its own, so why didn’t it bring its own lawsuit?”
Luke Herrine, an assistant professor of law at the University of Alabama, said he was confused by the fact that Roberts didn’t pay much attention to the issue of standing at all. The requirement has long been defended by conservative justices, especially former Justice Antonin Scalia.
“I don’t think they actually took the standing issues all that seriously,” Herrine said. “And I have no idea if that will be a precedent, or if it’s just a one-off so they could get to the merits, because they didn’t like this case.”

They are classic ideological plaintiffs.

Elena Kagan
liberal justice

Liberal justice Elena Kagan strongly disagreed that Missouri had standing, pointing out that the lender was financially independent from Missouri, “as corporations typically are.”
“The revenue loss allegedly grounding this case is MOHELA’s alone,” Kagan wrote in her dissent. “The state’s treasury will not be out one penny because of the secretary’s plan.”
“We do not allow plaintiffs to bring suit just because they oppose a policy,” Kagan said.

2. Heroes Act doesn’t allow for broad debt cancelation

When the president rolled out his plan in August 2022 to forgive as much as $20,000 in education debt for tens of millions of Americans, he pointed to the Heroes Act of 2003 as his legal justification. That law was passed in the aftermath of the 9/11 terrorist attacks, and grants the president broad power to revise student loan programs during national emergencies.
The Covid pandemic was such an emergency, the administration said. The U.S. Department of Education warned that the crisis had left millions of borrowers in a worse off financial situation and that there could be a historic rise in delinquencies and defaults without its loan cancellation.

But Roberts took the sides of the states, saying the Heroes act didn’t permit the kind of sweeping student loan forgiveness the president was trying to deliver.
″’Can the Secretary use his powers to abolish $430 billion in student loans, completely canceling loan balances for 20 million borrowers, as a pandemic winds down to its end?'” Roberts wrote. “We can’t believe the answer would be yes.”
Kagan once again disagreed.
“The statute, read as written, gives the secretary broad authority to relieve a national emergency’s effect on borrowers’ ability to repay their student loans,” she said.
In the end, it was the Supreme Court that exceeded its authority, Kagan said.
“The majority overrides the combined judgement of the legislative and executive branches, with the consequence of eliminating loan forgiveness for 43 million Americans,” she wrote. More

A logo of Meta Platforms Inc. is seen at its booth, at the Viva Technology conference dedicated to innovation and startups, at Porte de Versailles exhibition center in Paris, France June 17, 2022.
Benoit Tessier | Reuters

The second half has kicked off in earnest, and earnings are revving up.
Investors tracking the action may garner useful insights from Wall Street experts’ top stock picks, and this can help them make informed decisions as they seek solid returns over the long term.

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Here are five stocks for investors to consider, according to Wall Street’s top professionals on TipRanks, a platform that ranks analysts based on their past performance. 

Cava Group 

First on this week’s list is the Mediterranean restaurant chain Cava (CAVA), which made a blockbuster public debut last month. The rally in CAVA shares since its initial public offering reflects investors’ optimism about the fast-casual restaurant chain’s growth prospects. Cava has expanded to 263 locations since it opened its first restaurant in 2011.  
Stifel analyst Chris O’Cull initiated a buy rating on Cava with a price target of $48. The analyst sees robust growth potential, given the company’s plan to expand to at least 1,000 restaurant locations in the U.S. by 2032. Cava’s expansion plans include a foray into new markets in the Midwest region next year.  
O’Cull expects the company’s growth plans to be backed by a healthy balance sheet. He noted that following the IPO, Cava had about $340 million in cash on hand and no funded debt. The analyst estimates annual revenue growth of 20% during the next four years, driven by at least 15% growth in Cava’s footprint. He projects adjusted earnings before interest, taxes, depreciation and amortization to almost double to $112 million in 2026 from $58 million this year and the company to generate positive free cash flow starting in 2026.  
“In our view, the stock’s premium valuation can be justified by its AUV [average unit volume] and unit count growth opportunity and the potential for solid operating momentum to cause upward revisions to near-term estimates and long-term earnings potential,” said O’Cull.  

O’Cull is ranked 349th among more than 8,400 analysts tracked by TipRanks. His ratings have been profitable 62% of the time, with each rating delivering an average return of 12.3%. (See CAVA Technical Analysis on TipRanks)        

Apple  

Tech behemoth Apple (AAPL) is known for its innovative products, including the iPhone and iPad. That said, the company’s higher-margin Services segment has rapidly grown over recent years and has enhanced the firm’s revenue and profitability.  
Evercore ISI analyst Amit Daryanani, who ranks 258th out of more than 8,400 analysts tracked on TipRanks, recently revealed the results of the annual Apple Services survey conducted by his firm. The survey indicated that Apple Services continues to experience increased adoption across the board. In particular, Apple Pay, Music and TV+ saw the most notable rises in adoption compared to last year’s survey. 
The survey revealed that Services’ average revenue per user (ARPU) in the U.S. is $110, which is much higher than Daryanani’s global estimate of $81. The analyst contends that ARPU growth is the major catalyst for the Services business, given that smartphone penetration has likely reached peak levels.  
“We continue to see Apple Services as well positioned to maintain double digit growth through FY27 and beyond driven by increasing ARPU coupled with new product launches,” said Daryanani.  
Daryanani reiterated a buy rating on AAPL with a price target of $210. He has a success rate of 60%, and each of his ratings have returned 11.5%, on average. (See AAPL Insider Trading Activity on TipRanks)  

Meta Platforms 

Next on our list is social media giant Meta (META), which recently launched Threads, a social media app challenging Twitter.
Tigress Financial Partners analyst Ivan Feinseth thinks that the Thread launch was well-timed to take advantage of Twitter’s sliding popularity. He said that the introduction of Threads has created an additional growth catalyst that could further drive Instagram’s engagement.  
Feinseth also expects Meta’s ongoing artificial intelligence investments and integration to continue to enhance engagement and advertising revenue across all its apps. The analyst highlighted that Meta’s solid balance sheet and cash flows help support its growth initiatives, including investing in the Metaverse, strategic acquisitions, and share repurchases.  
Feinseth reiterated a buy rating on Meta and raised the price target to $380 from $285. The analyst said, “Increasing AI integration, better cost management, and increased operating efficiency will drive a reacceleration in Business Performance trends.” 
Feinseth holds the 205th position among more than 8,400 analysts on TipRanks. Sixty percent of his ratings have been profitable, with an average return of 12.8%. (See Meta Blogger Opinions & Sentiment on TipRanks) 

Nvidia  

Semiconductor giant Nvidia (NVDA) is seen as one of the major beneficiaries of the growing interest in generative AI, which is fueling tremendous demand for its GPU chips.  
Goldman Sachs analyst Toshiya Hari noted that Nvidia has already gained from the traditional AI boom for a decade, as reflected in the spike in its Data Center segment revenue from $129 million in fiscal 2013 to $15 billion in fiscal 2023. The analyst increased his revenue and earnings estimates for Nvidia, as he thinks that the company has entered a new phase of generative AI-driven growth. 
Hari projects demand for Nvidia’s products in training generative AI models to represent a cumulative revenue opportunity of about $85 billion (base-case scenario) in calendar years 2023 to 2025. (See Nvidia Financial Statements on TipRanks)     
Meanwhile, he estimated inferencing (comprises key applications that could leverage generative AI like search, productivity tools in enterprise, ecommerce, email, and social media) could be a nearly $7.7 billion revenue opportunity from 2023 to 2025, including $4.5 billion in 2025.     
Hari increased his price target for Nvidia stock to $495 from $440 and reiterated a buy rating. He continues to see “significant runway ahead for the company based on its robust competitive position in what is a rapidly growing (yet nascent) AI semiconductor market.” 
Hari holds the 171st position among more than 8,400 analysts on TipRanks. Additionally, 63% of his ratings have been profitable, with an average return of 19.1%. 

US Foods

US Foods (USFD) distributes fresh, frozen and dry food, as well as non-food products, to food service customers.  
Recently, BTIG analyst Peter Saleh reiterated a buy rating on USFD with a price target of $48, saying, “US Foods is one of the best self-help stories in our coverage, with the majority of the EBITDA growth contingent on operational improvements management has been diligently implementing for the past year.” 
Following a stellar gross profit margin in the first quarter, Saleh raised his second-quarter gross margin estimate by 20 basis points to reflect increased penetration of private brands, stock-keeping unit (SKU) rationalization, reduced waste and improved labor retention. 
The analyst also raised his Q2 EBITDA estimate and expressed confidence in US Foods’ ability to beat expectations, citing the company’s strategic initiatives, stable industry sales and its track record of handily surpassing Wall Street’s EBITDA projections in recent quarters.   
Saleh is ranked 325th among more than 8,400 analysts tracked on TipRanks. His ratings have been profitable 64% of the time, with each one delivering an average return of 12.7%. (See US Foods Stock Chart on TipRanks)  More

While the thought of funding your retirement adequately might be daunting, if you start planning now, you’ll certainly be thankful later. It’s never too early to start thinking about retirement and it might not be as difficult as you think.
Retirement usually entails replacing your annual salary from a workplace with other income sources to maintain your current lifestyle. While Social Security may cover part of your budget, there are understandably reasons to be concerned about how much you could receive from Social Security by the time you retire. The rest of your money will most likely need to come from your savings and investments.

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CNBC crunched the numbers, and we can tell you how much you need to save now to get $80,000, $90,000 and $100,000 every year in retirement, without taking a bite out of your principal.

More from The New Road to Retirement:

Here’s a look at more retirement news.

First, there are some ground rules. The numbers assume you will retire at age 65 and that you currently have no money in savings.
Financial advisors typically recommend the mix of investments in your portfolio shift gradually to become more conservative as you approach retirement. But even in retirement, you’ll likely still have a mix of stocks and bonds, as well as cash. For investing, we assume a conservative annual 6% return when you are working and an even more conservative 3% rate during your “interest-only” retirement.
We also do not factor in inflation, taxes or any additional income you may get from Social Security or your 401(k) investment plan.
We have a full breakdown of how much you need to save now if your goal is to get to $80,000, $90,000 or $100,000 every year in retirement.
Watch the video above to learn more. More

Ignatiev | E+ | Getty Images

Company: Mercury Systems (MRCY)

Business: Mercury Systems is a manufacturer of essential components, products, modules and subsystems. The company sells them to defense prime contractors, the U.S. government and OEM commercial aerospace companies. Essentially, Mercury Systems makes the electronics that go into defense applications. Because it pays for its own research and development, it’s not subject to the Truth in Negotiations Act that requires cost disclosure. This allows the company to have better than single-digit margins.
Stock Market Value: $2B ($34.38 per share)

Activist: Jana Partners

Percentage Ownership: 8.00%
Average Cost: $36.30
Activist Commentary: Jana is a very experienced activist investor, which was founded in 2001 by Barry Rosenstein. The firm made its name taking deeply researched activist positions with well-conceived plans for long-term value. Rosenstein called his activist strategy “V cubed.” The three Vs were (i) value: buying at the right price; (ii) votes: knowing whether you have the votes before commencing a proxy fight; and (iii) variety of ways to win: having more than one strategy to enhance value and exit an investment. Since 2008, the firm has gradually shifted that strategy to one which we characterize as “the three Ss” (i) stock price – buying at the right price; (ii) strategic activism – sale of company or spinoff of a business; and (iii) star advisors/nominees – aligning with top industry executives to advise them and take board seats if necessary.

What’s happening?

On July 6, Jana entered into a voting agreement with the company, pursuant to which Mercury Systems agreed to appoint Scott Ostfeld, a managing partner of Jana, to the company’s board as a director. Additionally, Jana agreed to vote its shares in favor of the company’s nomination slate at the 2023 annual meeting, comprised of Gerard J. DeMuro, Roger A. Krone and Ostfeld. Both parties agreed to additional voting commitments. On July 6, Bill Ballhaus, Mercury Systems’ interim president and CEO, was also named chairman.

Behind the scenes

Mercury Systems has been a successful manufacturer of small electronic components with many favorable attributes. For starters, the company’s product is a critical part of larger defense products with the U.S. and other governments as the ultimate purchaser. Further, unlike many peers, it pays for its own R&D, making Mercury Systems more nimble and allowing it to have higher operating margins. This is a business that was growing at an average annual rate of 14% between 2017 and 2020 with earnings before interest, taxes, depreciation and amortization margins as high as 23.2% in 2018. However, management tried to move up the value chain with development programs for more elaborate sub assembly systems, which the company did not have the capabilities to properly execute. At the same time, Covid happened, which brought supply chain issues. This led to inefficiencies in production and delivery delays that led to decreased profits, lower margins and stagnant growth. Now the company is guiding to 16.5% EBITDA margins and -1% growth. 

Jana was not the only activist investor to see this. Jana originally filed a 13D on Dec. 23, 2021 wherein the firm broadly called for a strategic, operational and corporate governance evaluation. Jana’s filing was shortly followed by Starboard’s 13D on the company. In June 2022, Jana and Starboard each won a seat on the company’s board: Bill Ballhaus (Jana) and Howard L. Lance (Starboard). Shortly thereafter, the company ran a strategic review that resulted in 20 interested parties who signed confidentiality agreements and two proposals that the board ultimately determined would undervalue the company. The board terminated the strategic review and decided that there was more value in operating as a standalone entity. Jana exited its 13D in February 2023, and Starboard exited its 13D in June 2023. However, since Jana exited its 13D and before the firm sold down its entire position, the company named Jana’s director nominee Ballhaus as interim president and CEO. That led to Jana rebuilding its position, engaging with the company and getting a board seat for Jana partner Scott Ostfeld. With the addition of Ostfeld and contemporaneous resignations from the board, since 2021, a majority of the board has been reconstituted and the company has replaced the CEO. Moreover, three of the five new directors were identified by Jana or Starboard, and Ballhaus is someone Jana knows very well.
Jana’s relationship with Ballhaus goes back to 2015 when the firm was an activist at Computer Sciences. Jana orchestrated the spinoff and sale of Computer Sciences’ government services unit to SRA, whose CEO at the time was Bill Ballhaus. With all due deference to Ozzy Osbourne and Steven Tyler, Ballhaus is a rock star when it comes to aerospace, defense and technology industries and has extensive experience working as a turnaround CEO for other companies. Jana has already done the heavy lifting of getting Ballhaus into the boardroom. Now that he has also made his way into the C-suite, the path ahead is clear: Clean up the operations of the 12 development programs that have been adversely affecting the company’s performance, build back the company’s lost profitability, cash flow and marketwise predictability, and invest wisely to restore growth.
However, it is important to note that Mercury Systems is still a strategic asset. Despite its operational issues, it had interest from 20 potential acquirers — two of whom made an offer. These suitors have not gone away and will likely continue to watch the company as management turns it around. So, a future strategic or financial acquisition is not entirely off the table.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. More