Today’s Market: Companies To Watch For Buyout News
The Shanghai Composite closed down 6.50% overnight as investors trimmed their exposure to equities following news that regulators are asking banks about money flows into the country’s stock markets and a few brokerages made adjustments to their margin programs which will make it tougher for traders who are using leverage right now. The move lower was the biggest one day drop since mid-January of this year, and although it was drastic everyone should be able to agree that a pullback was needed and a correction might be required to keep things from overheating on the stock exchanges in China.
That news drowns out yesterday’s all-time closing high for the Nasdaq Composite (NASDAQ:QQQ), which has finally joined the Dow Jones Industrial Average (NYSEARCA:DIA) and the S&P 500 (NYSEARCA:SPY) in hitting all-time highs this year. We talked about the potential for a potential tech bubble to be occuring in yesterday’s article (located here), but expect the mainstream media to focus on this moving forward now that new all-time highs are being hit.
We have economic news today, and it is as follows:
- Initial Claims (8:30 a.m. EST): Est: 274k
- Continuing Claims (8:30 a.m. EST): Est: 2250k
- Pending Home Sales (10:00 a.m. EST): Est: 1.0%
- Natural Gas Inventories (10:30 a.m. EST): Est: N/A
- Crude Inventories (11:00 a.m. EST): Est: N/A
The Asian markets are higher today:
- All Ordinaries – down 0.21%
- Shanghai Composite – down 6.50%
- Nikkei 225 – up 0.39%
- NZSE 50 – up 0.34%
- Seoul Composite – up 0.16%
In Europe, markets are mixed today:
- CAC 40 – down 0.53%
- DAX – down 0.39%
- FTSE 100 – up 0.18%
- OSE – up 0.11%
More Tech M&A On The Way
Investors have seen a flurry of deals take place in the semiconductor business over the last year, with a few related mergers called off and some long rumored ones, such as Intel’s (NASDAQ:INTC) desire for Altera (NASDAQ:ALTR), apparently still in the works. It is most certainly an interesting time in the industry right now, but with that said yesterday’s talk of a bid from Avago Technologies (NASDAQ:AVGO) for Broadcom (NASDAQ:BRCM) did result in health moves higher for both names. Broadcom rose over 21% on the session after The Wall Street Journal broke the story, and investors apparently liked what they heard because they also pushed shares of Avago higher on the session as well. It is important to note that it was a nearly 8% gain for the acquiring company, and at one point in the afternoon the shares were up even more, which really highlights just how bullish investors are about a potential deal.
The idea that regulators will most likely have very little to say about the merger, due to the businesses not having much of an overlap, is one positive that investors are currently pointing to as they justify their optimism. Investors are also banking on Avago to clean house at Broadcom once they take control and cut costs in a significant manner. Looking at those two points alone paints a pretty bullish picture and with a number of deals having fallen apart in recent years (or even months) due to regulatory issues, it seems that investors are just happy to not have to worry about regulatory risk to the degree that certain cable company and tobacco companies were forced to endure.
Avago does have a meeting today, so if the news release announcing a deal is not out this morning, we suspect that the earliest that the deal would be announced would be after the closing bell.
Pharma M&A Battles Continue
If there has been one industry which has been against takeovers over the past year or so, it has most certainly been the pharmaceutical industry. The phenomenon started when management teams realized that rather than selling out they could do as good or better for shareholders if they could convince the base that patience and long-term discipline could deliver strong organic growth without the regulatory and political risk that proposed deals carried. As management teams scrambled to either fend off firms targeting their companies or find other suitors, it became quite clear that everyone needed a plan to quickly act, much like Allergan and AstraZeneca (NYSE:AZN) did.
The last year pretty much set us up for what is happening right now between Mylan (NASDAQ:MYL), Perrigo (NYSE:PRGO) and Teva (NYSE:TEVA). Teva, the Israeli drug maker, wants to purchase Mylan for $40 billion using a 50/50 split of equity and cash so that it can create the world’s largest generic drug maker. Mylan has no interest in Teva’s offer and instead wants to purchase Italy’s Perrigo for $34 billion, offering shareholders $75/share in cash and 2.3 shares of Mylan for each share of Perrigo. As readers probably already know, Perrigo has turned down Mylan’s offer because the board believes the offer is too low and Mylan has turned down Teva’s offer, worth about $82/share at the time, saying it was too low and that they would only entertain offers above $100/share.
There is a lot of gamesmanship going on in this three-way takeover battle, but Teva announced that they purchased a 1.35% stake in Mylan and there are now rumors that John Paulson, who has built up a sizeable stake in Mylan, could team up with Teva to fight Mylan’s Dutch defense if they hide behind it.
CBS Working With Apple On Streaming Product
Les Moonves, CEO of CBS Corporation (NYSE:CBS), said that his company is working with Apple (NASDAQ:AAPL) to launch its content onto the revamped Apple TV platform. The move would be the latest among traditional content creators who are making the transition to having their content portfolio available for consumers to stream. Based on Mr. Moonves’ comments at the Code Conference, it seems that Apple and CBS are negotiating over fees; with CBS believing that any low priced tier offered to consumers should provide CBS with a greater proportion of the revenues because the company has the top broadcast channel, many of the top TV shows and most importantly the NFL. Any service will need the NFL, which means that CBS and Twenty-First Century Fox’s (NASDAQ:FOX) (NASDAQ:FOXA) Fox will have to be included for sure. Comcast’s (NASDAQ:CMCSA) (NASDAQ:CMCSK) NBC would also probably be necessary and Disney’s (NYSE:DIS) ESPN properties would most likely be the basic sports package.