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Holy cow! Did you get a load of the latest mega-deal in Corporate America?
News broke today that media firm 21st Century Fox (FOX, Weiss Ratings: B) bid a whopping $80 BILLION for Time Warner Inc. (TWX, Weiss Ratings: A). The price would come to $85 a share, paid in a combination of stock and cash.
Fox’s move is just the latest that media titan Rupert Murdoch has pursued over the last several years to build his television, newspaper, and studio empire. It would combine Fox’s FX and Fox News businesses with Time Warner’s HBO and Warner Brothers units, among others. To offset antitrust concerns, Fox would look to auction off the CNN news business.
Time Warner reportedly rejected Fox’s overtures. But the company’s stock price soared after news of the potential deal broke. That will put substantial pressure on management and the board of directors to take action because the firm’s shareholders won’t want to see those gains evaporate.
|Rupert Murdoch is behind the latest mega-deal in corporate America.|
Now it goes without saying that the biggest merger ever involving Time Warner was a disaster. The firm sold out to America Online (remember them?) for a whopping $165 billion right at the peak of the dot-com bubble, and the ensuing bust and economic recession cratered the combined companies’ businesses.
So is this latest deal the sign of a fresh financial apocalypse? Or is it just the latest in an M&A wave that has more room to run?
Well, the cheap money that’s fueling these deals is still there. That’s because Federal Reserve Chairman Janet Yellen has (so far) done nothing more than bloviate about cheap leveraged corporate lending and super-low junk bond yields. She hasn’t actually raised rates to eliminate the financial incentive to do megadeals.
Moreover, we haven’t seen a mega deal fail yet. Nor have we seen a truly, historically HUGE mega-deal like the AOL-Time Warner transaction that signaled the top in 2000. So it’s entirely possible we’re not yet done with this trend.
One way to profit from it is to try to identify companies that are likely to become acquisition targets. More and more activist funds are pressuring companies to buy back stock, sell underperforming divisions, or sell themselves entirely.
“Now it goes without saying that the biggest merger ever involving Time Warner was a disaster.”
One of my favorite investments in the Safe Money Report foots the bill. Its share price surged to fresh all-time highs in early June after news broke that an activist fund was pushing management to take a series of shareholder friendly actions.
We’re already sitting on open profits of more than 25 percent as a result, but I believe there’s even more gas left in the tank. So if you want more details, just click here or give my customer service staff a call at 800-291-8545.
Meanwhile, what are your thoughts about this move by Fox? Is this the top of the M&A boom, or do you anticipate seeing a $100 billion-plus transaction before long?
Also, what does this say about Fed policy and the economy? Is it just easy money fueling all these deals? Or is it a sign the economy is expanding and confidence in corporate board rooms is rising for legitimate, fundamental reasons? Let me know at the Money and Markets comments section here.
|OUR READERS SPEAK|
In the wake of Yellen’s comments yesterday, and her follow-up testimony today before the House Financial Services Committee, there was some debate about what exactly she meant with her comments, and what the real state of the economy is.
Reader Allan said: “The economy and employment situation are much softer than Yellen indicated. I’m not sure what she actually believes. Blaming the poor first quarter GDP numbers on the weather is shallow and too convenient. And the CEO of Wal-Mart said he has seen no increase in sales or revenue.
“Make up any unemployment number you want. The fact is the smallest percentage of the working age population since Jimmy Carter have jobs and no one except the wealthy and government has any ‘disposable'” income to spend. This feels more like the beginning of the next leg down, than a recovery.”
On the other hand, Reader Mike said: “There is some reason to believe the economy might pick up because the money supply is beginning to increase due to increased lending. The Fed can only plant the seeds for expanding the money supply. It is actually lending institutions that really control the levers along with government lending standards. Note the money supply is increasing even as the Fed ends its bond buying program.”
As for Yellen, Reader Brenda S. said: “When Yellen talks I don’t have a clue what she said. She should stay home and concentrate on her knitting. I really am not impressed with her at all.”
And Reader Richard H. took issue with the Fed’s calling out of sectors like biotechnology and social media for overvaluation, saying “What the hell is the Fed chairman doing commenting on the price levels of specific market sectors?”
Finally, Reader Don asked about my recommendation to sell bonds, and whether it pertains to foreign bonds and bond funds. The short answer is that foreign long-term bonds are vulnerable to rising interest rates just like domestic bonds. If the dollar rises in value against the foreign currencies, those bonds are denominated in, you will take an even bigger hit in currency-adjusted terms.
So I would say stay domestic … stay short term or floating rate … and reduce your exposure to bonds entirely.
If you have any other thoughts on bonds, Fed policy, the economy, or anything else, don’t forget to share them here!
|OTHER DEVELOPMENTS OF THE DAY|
Apple (AAPL, Weiss Ratings: A-) inked a deal with IBM (IBM, Weiss Ratings: C+) to jointly develop apps aimed at business customers. IBM will also sell Apple’s phones and tablets to its customers, potentially expanding Apple’s reach into the corporate arena. It has traditionally focused on the consumer marketplace.
Love it or hate it, the Obamacare program is going to reduce bad debt expenses for hospitals and result in more insured patients seeking out care. So you might as well go along for the ride!
The Producer Price Index rose 0.4 percent in June, more than double the 0.2 percent increase that economists expected. Core wholesale prices gained 0.2 percent, showing that it’s not just rising energy and food costs driving the inflationary trends I’ve been highlighting.
Meanwhile, industrial production gained 0.2 percent in June. That was a bit less than the 0.3 percent increase that was expected but still the fourth gain in the past five months. Capacity utilization held at 79.1 percent, well off its 66.9 percent low at the depths of the 2009 recession.
Reminder: You can let me know what you think by putting your comments here.
Until next time,
P.S. Charles Goyette is filling in for Laura Ingraham on her national talk show tomorrow morning. It’s one of the biggest talk shows in the nation.
It’ll be three hours of Freedom and Prosperity radio with provocative conversation and some outspoken guests including Ron Paul, former Reagan Budget Director David Stockman, “America’s Toughest Sheriff” Joe Arpaio on the border crisis, and others.
In most markets The Laura Ingraham Show airs 9 AM – 12 N ET; 6 AM – 9 AM PT.
To find Laura’s home station in your market, go HERE.