Wall Street may have had its worst day in 2014 on Monday, but that wasn’t the fault of dealmakers in Asia and the US with over $US80 billion of deals announced by the likes of Charter/Liberty Media (controlled by billionaire media mogul, John Malone), Google and Suntory of Japan.
However two other possible deals – valued at over $US10 billion, failed to make the grade in drug distribution and in cable TV (the same industry as the Charter bid for Time Warner Cable).
Most US market measures fell by around 1% or more (the Dow was down 179 points, the S&P 500 was off 1.26%). The TWC and Google deals came too late to help the market in regular trading hours. The Suntory deal was revealed in the morning, but had no positive impact except on Beam Inc shares which rose sharply.
It was the S&P’s biggest fall for two months. Some US analysts said the markets fell as a continuing reaction to Friday’s weak jobs report – but that is at odds with the feeling that if the weak report (just 74,000 new jobs created) was accurate, then the Fed would hold off on easing the pace of its spending, which investors would take as being ‘positive’.
More likely was the view from other analysts that the jobs report was influenced by the cold weather in December (as will the January report) and won’t influence the Fed’s decision last month to start slowing its easing spending. There was also the feeling that the market is overbought and looking to reverse to ease the pressure.
Certainly the trio of big deals might have been helpful for sentiment a few months ago as they repeated the now familiar pattern to investors of using Mondays to announce big deals and help the market start the week on a positive note, but not yesterday.
Google’s deal was the most interesting. It said it is buying home automation company Nest Labs Inc. for $US3.2 billion in cash. Nest Labs is best known for new home products, such as energy-efficient thermostats and smoke/carbon dioxide alarms.
In a statement, Google Chief Executive Larry Page described Nest as a company that is "delivering amazing products you can buy right now–thermostats that save energy and smoke/CO alarms that can help keep your family safe."
Google’s statement indicates that the huge tech group is looking to move from your computer or smart device deeper into the home via products that have networking potential – eg security and home safety – via its much talked about phrase the ‘internet of everything.’
Nest was started by two former Apple engineers and Google was the company’s major financial backer. Other Apple executives joined the company and the thermostat product was originally and Apple exclusive product.
The products are able to be monitored via smartphone or other mobile devices via an app, which is why google is very interested. Next an Android version of the Apple app? There are more Android phones around the world (Android is Google mobile phone operating system).
Suntory of Japan said it would pay $US13.6 billion in cash, plus debt, to buy beam. That values the US group at around $US16 billion, a huge sum for the makers of Jim Beam bourbon whisky. It will make the merged group the third largest distilled drinks company in the global market.
That saw shares of Beam leap 25% on the news.
The deal is expected to create a global group with annual sales of more than $US4.3 billion and a combined portfolio that includes Courvoisier cognac and Midori liqueur. As well, the merged company will also include the Maker’s Mark bourbon whiskies, the Teacher’s and Laphroaig Scotch whiskies with Suntory’s Japanese whiskies – Yamazaki and Hakushu – and Bowmore Scotch. Beam also owns Sauza tequila and Pinnacle vodka, while Suntory has a large portfolio of soft drinks.
The deal is the latest (and biggest) in a growing line of Suntory buys. Last year it bought the softdrink/sports drinks, Lucozade and Ribena for 1.35 billion pounds (around $US1.3 billion) from GlaxoSmithKline and acquired France’s Orangina Schweppes in 2009.
Suntory says it will pay $US83.50 cash a share for Beam, a premium of 25% on the Friday close.
The major deal was the long mooted move on Time Warner Cable (TWC) by Charter, which is controlled by Malone’s Liberty Media.
The price, at $US132.50 a share, offers virtually no premium for TWC, the No. 2 cable operator whose shares closed Monday at $US132.40.
Time Warner Cable shares have risen by around 15% over the last six months as it became evident that Charter and Liberty Media, were preparing to make an offer.
Charter is offering $US83 in cash and $US49.50 in Charter stock for each TWC share. That would give TWC shareholders a 45% stake in Charter. TWC management reportedly wanted a higher offer, and more cash.
But two other deals collapsed – McKesson Corp. shares fell 5% after the drug distribution giant said it had failed to get the 75% votes necessary from shareholders to complete the takeover of European rival drug distributor, Celesio AG. McKesson had offered $US8.3 billion for Celesio.
And the Charter move on TWC failed to spark other activity in the US cable TV business, as many analysts had said it would.
Scripps Networks Interactive Inc lost 7% on Monday following reports that it ended merger talks with Discovery Communications Inc. Negotiations between the two sides had not proceeded beyond early stages and Discovery did not make an official offer, according to media reports in New York.
