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Market Update

Heinz and Airline Deals Highlight Return of Mega Deals

Author: Bikram Pandey
Last Update: 2:37 PM ET February 14 2013

2:30 PM New York – Stocks trade sideways on weak economic data from the euro zone and Japan. Deal making was in full swing after four large deals signal improving business confidence. World markets were on the defensive. Gold and copper eased but natural gas and gasoline were on the rise.

Deal making dominated market news in morning trading. Heinz agreed to an all cash deal worth $23 billion and AMR and U.S. Air agreed on an all-stock $11 billion merger.

Cardinal Health offered to buy AssuraMed for $2.07 billion. Anheuser Busch InBev NV offered to sell its U.S. distribution rights for Corona beer to Constellation for $2.9 billion in a bid to salvage its deal to acquire Grupo Modelo.

Heinz deal is the largest ever in the food industry and the Warren Buffet controlled Berkshire Hathaway and 3G Capital are paying top premium for the well known consumer brand at 14 times operating earnings.

Berkshire Hathaway and 3G Capital will each provide $4 billion in cash for equal ownership in Heinz. Berkshire will also provide additional $8 billion for preferred shares that is reported to pay 9% interest. The rest of the financing will be provided by JP Morgan Chase and Wells Fargo and the rollover of the $5 billion of existing debt.

Large deal making returned to Wall Street as corporations pile cash and business confidence improves and consumers continue to increase spending and the pace of uneven economic expansion continues.

On the earnings front, ABB fourth quarter net declined 27% and Apache first quarter net plunged 45%. Cisco second quarter net surged 44%. DirecTV fourth quarter net climbed 31% and General Motors net surged 89%.

PepsiCo fourth quarter net soared 17%. PPL fourth quarter declined 21%. Weight Watchers plunged 17% after the company estimated annual earnings between $3.50 and $4 a share and TripAdvisor Inc dropped 7% after the online travel message board operator estimated lower than expected earnings.

European markets declined across the region after the economy in the euro zone shrank in the final quarter by 0.6%. In 2012, the economy in the region fell 0.5%. However, in the quarter the decline deepened in Greece, Spain, Portugal and Italy. Nestle reported lower than expected increase in sales.

Stocks in Tokyo traded higher and the Bank of Japan left its asset purchase program unrevised. Economy contracted for the third quarter in a row and weakness in international traded negatively affected the growth. Asahi Group estimated higher earnings.

In India, market indexes fell 0.5% but several companies reported better than expected earnings.

Aditya Birla Nuvo third quarter net climbed 28.1% and Bharat Petroleum net declined 47.5%. Coal India net jumped 8.9% and Dr. Reddy’s net dropped 29.2%. Hindustan Oil Exploration net swung to a loss. Wockhardt net surged 101%.

The largest bank in India, State Bank of India controlled by the government said quarterly net rose 4.1%.

Australian stocks traded higher and the dollar held firm. Wesfarmers, a conglomerate of coal mining, retailing and insurance operations said its retail division Coles drove the earnings in the quarter.

Separately, the mining giant Rio Tinto reported a loss after taking $14.4 billion write down against its failed Alcan purchase in Canada in 2007 and coal miner Riversdale in Mozambique in 2011.

However, the underlying earnings were ahead of expectations and the company increased dividend.

Commodities, Bonds and Currencies

U.S. treasury yield on 10-year bond increased to 2% and on 30-year bond closed unchanged at 3.18%.

The U.S. dollar inched lower to $1.334 to a euro and increased against the Japanese yen to 93.07 yen.

Immediate delivery futures of Texas crude oil increased 31 cents to $97.32 a barrel and Brent crude fell 4 cents to $117.90, futures of natural gas decreased 0.15 cents to $3.19 per mbtu and gasoline traded up 6.5 cents to 309.90 cents a gallon.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc