Disappointing corporate earnings forecasts outweighed a Microsoft surge and increased deal activity to end the week basically flat for the S&P 500, Dow Jones, and NASDAQ. Worldwide stock markets also turned in lackluster performances for the week. The U.S. dollar climbed to a seven-month high while the euro fell to its lowest level since March, after Draghi noted that quantitative easing is unlikely to come to an abrupt end. Bond yields were slightly lower, with the benchmark 10-year Treasury trading at 1.75 percent on Friday afternoon.
Time Warner shares surged as much as 11 percent on a report that AT&T is in advanced talks to acquire the company. Time Warner’s CEO, Jeff Bewkes, has made it known that he is a willing seller if he receives a fair offer, which is expected to be in the $100-plus-per-share range. Time Warner is the beneficiary of newly booked affiliate fee agreements to distribute its Turner Networks CNN, TBS, and TNT content to Comcast, Charter, and Direct TV, which was acquired by AT&T last summer. The deal is attractive to AT&T due to its evolution from a regional phone company to a telecommunications giant in search of content ownership. We would not be surprised to hear of additional offers from Apple, Google or Amazon over the weekend, as all three have been rumored to have interest in acquiring the company. AT&T’s shares sold off about 3 percent on the news.
Qualcomm Inc. is reported to be in talks to buy NXP Semiconductors NV for $110-plus-per-share after a Qualcomm completes a review of NXP’s finances and operations. Qualcomm is targeting NXP for their automotive technology presence. The deal is expected to be announced on October 26, when NXP’s releases their quarterly earnings report. Qualcomm’s price jumped about 3 percent today, while NXP sold off about 3 percent.
British American Tobacco PLC made an unsolicited $47 billion bid for full ownership of Reynolds American today, sending shares of Reynolds up 13 percent. British American Tobacco and Reynolds have recently collaborated to share vapor technology, which is seen as a less harmful alternative to traditional cigarettes. Today’s bid seems to overcome historical reluctance for firms to acquire American companies due to legal liability and may pave the way for further consolidation within the tobacco industry. Philip Morris International, Imperial Brands and Altria are also trading up on the news.
Microsoft Shares Soar
Microsoft shares soared over 5 percent to a record high of $60.45 after announcing first quarter sales and earnings. Microsoft investments in data centers and productivity apps, resulted in stronger-than-expected demand for cloud-based software and services. Strong sales and a lower-than-expected tax rate also added to the results that positively surprised analysts.
Our Takeaways for the Week
- Merger activity has picked up in response to the slow economic environment
- Microsoft was a standout in a mixed earnings season