Financial markets seem to be locked in an epic tug of war between fears of war and optimism due to frenetic merger & acquisition activity.
The week looked like it was off to a rough start…
The White House imposed new sanctions against Russia, adding seven high-profile Russians and 17 companies to the list. All parties included in the new sanctions are banned from entering the United States.
Vladimir Putin certainly doesn’t like to see his friends picked on, so the Russian president has threatened to retaliate against this form of financial warfare.
Geopolitical stresses weren’t the only problem, as the Federal Reserve’s bank “stress tests” made a reappearance in the headlines.
Remember when Bank of America (BAC) announced that dividend raise after getting the green light from the Fed? Well, there’s a problem…
After finding an accounting error, the bank declared that it put dividend hike – as well as the stock buyback program – on hold. The news sent its shares down by more than 6%.
Not to worry, though. Corporate deal-making stoked stock market optimism…
Jeff Immelt, General Electric’s (GE) CEO, talked up the merits of a $13-million buyout of Alstom during his trip to France. Germany’s Siemens (SI) may even throw its hat in the ring soon, creating a potential bidding war for the French power generation and transportation conglomerate.
Meanwhile, healthcare M&A activity continues to be on fire…
Analysts say that Pfizer (PFE) has to beat $100 billion if it wants to get its hands on Britain’s AstraZeneca. Its second proposal was turned down.
The markets responded well to Pfizer, as it reigned as one of the S&P 500’s best performers. AstraZeneca’s U.K.-listed shares have jumped nearly 15% since Pfizer’s interest made headlines.
Concerning other deals…
Charter Communications (CHTR) put in an offer for Time Warner Cable (TWC), but Comcast (CMCSA) beat it to the punch. Comcast agreed to a $7.3-billion, cash-for-subscriber swap with Charter Communications. So in the end, all three businesses made out nicely.
On Monday alone, companies announced more than $150 billion in deals. So what exactly is behind all of this corporate activity? James Lockhart, Vice Chairman of WL Ross & Company, has an idea:
“There’s a lot of cash sitting on corporate balance sheets at the moment, some of which is trapped offshore/in the U.S. They are looking to put that cash to work and acquisitions are one way. The GE deal. There’s a whole series of big ones happening at the moment. Animal spirits are coming back.”
So, the corporate deal-making floodgates are open, while Russian oligarchs’ accounts are frozen. Interesting times.