Mixed Markets and Mergers & Acquisitions

Markets

For the week of Monday, February 11, 2013 through Friday, February 15, 2013:

• Standard & Poor’s 500 Index: 0.12%
• Dow Jones Industrial Average: -0.08%
• NASDAQ Composite: -0.06%

The big news of the week came Thursday when Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital agreement to buy H.J. Heinz Co. (NYSE: HNZ) in a deal for about $23 billion. The stock saw a 20% bump in price as a result of the news.

However, the week began slow with a pullback in energy stocks, which had been one of the strongest-performing sectors this year. On Tuesday, Financial shares led major U.S. stocks indexes to five-year highs, putting the Dow Jones Industrial Average 1% away from its record close. By mid-week, McDonald’s decline helped lead the Dow lower, while strength in industrial companies like General Electric pushed the Standard & Poor’s 500-stock index to another multi-year high. U.S. stocks expected to open down Thursday, as a result of weak growth data from Europe and Japan. News of the Heinz agreement led some investors to see additional value in the market even after its recent gains.
Stocks closed mixed on Friday. Blue chips drove the Dow up, but the broader market dipped. A mixed bag of earnings reports and U.S. economic data gave investors little direction ahead of the three-day weekend.

Economic Data

• Chain Store Sales Snapshot:
  • The ICSC chain store sales index fell 2.5% to its lowest level in nearly a year.
  • The loss offsets the prior week’s gain that was similar to the year-over-year gain.
    • Therefore, year-over-year growth only fell from 2.6% to 2.1%.
• MBA Mortgage Applications Survey:
  • Mortgage interest rates moved upward for the third straight week reaching their highest level since the second week of September.
    • The mortgage applications composite index fell by 6.4%;
    • The purchase index fell 9.5%, and
    • The refinance index was down by 5.5%.
• Retail Sales:
  • Retail sales rose 0.1% in January; however, year-over-year growth fell to 4.4%.
    • Excluding autos, sales were up 0.2%.
    • General merchandise stores, including department stores, and non-store retailers were the sales leaders.
• Jobless Claims:
  • Initial claims for unemployment fell 27,000 to 341,000.
  • The four-week moving average was up by 1,500 to 352,500.
  • Continuing claims in the prior week fell 130,000 to 3.1 million.

Earnings:

• Loews Corporation (NYSE: L)
  • Loews Corporation reported a fourth quarter loss of $32 million, or $0.08 per share, compared to $271 million, or $0.68 a share one year ago.
    • Revenue was $3.7 billion, up from $3.5 billion year-over year.
      • Much of the loss was due to insurance losses at CNA Financial Corp. (NYSE: CNA), the insurance company it controls.
      • CNA normally provides approximately two-thirds of Loews’ revenue; however, they had losses of $171 million during the quarter because of Hurricane Sandy.
  • For the full year, Loews posted $568 million in net profit, which was down significantly from the $1.1 billion it netted in 2011.
• Comcast Corporation (NASDAQ: CMCSA)
  • Comcast Corp. reported net income rose 18%, earning $1.52 billion, or $0.56 per share, compared to $1.29 billion, or $0.47 per share, a year earlier.
    • Adjusted earnings were $0.52 per share, and
  • Revenue rose from $15.04 billion to $15.94 billion.
    • These results fell short of analysts’ estimates of $0.54 per share and $16.01 billion.
  • However, shares rose on the announcement that the company would buy the remaining 49% stake in NBC Universal and also increase its quarterly dividend.
• Cisco Systems, Inc. (NASDAQ: CSCO)
  • The networking giant reported net income climbed 44% from a year earlier, while revenue increased 5% for its fiscal second quarter ended Jan. 26.
    • Overall, Cisco reported net income of $3.1 billion, or $0.59 per share, compared with $2.2 billion, or $0.40 per share, a year earlier.
    • Cisco’s bottom line was boosted by $926 million.
    • This was as a result of a tax settlement and the reinstatement of a tax credit for research and development.
  • Revenue was $12.1 billion, up from $11.5 billion a year ago.
• Lorillard, Inc. (NYSE: LO)
  • Lorillard, Inc. reported fourth quarter earnings of $0.79 per share, compared to $0.73 per share last year, beating the $0.76 analysts’ estimates.
    • Net sales were up 5.3% year over year to $1.70 billion.
    • Revenues beat analysts’ estimates of $1.17 billion.
• PepsiCo, Inc. (NYSE: PEP)
  • PepsiCo, Inc. said fourth-quarter profit rose 17%.
    • Net Income was $1.66 billion, or $1.06 a share, up from $1.42 billion or $0.89 per share one year ago.

M&A Activity and More:

• Berkshire and 3G Capital to Buy Heinz in $23 Billion Deal:
  • Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital agreed to buy HJ Heinz Co. in a deal for about $23 billion.
    • The buyers will pay $72.50 a share, compared with the previous closing price of $60.48.
    • Berkshire will spend between $12 billion and $13 billion on the deal for the maker of condiments and Ore-Ida potato snacks.
  • The deal will be financed with cash from 3G affiliates, plus the rollover of existing debt.
• Anheuser-Busch InBev Revises Bid for Grupo Modelo:
  • Anheuser-Busch InBev revised its $20.1 billion deal for Grupo Modelo, the Mexican maker of Corona beer.
    • Under the revised terms, the company offered to sell the rights to Corona and other Grupo Modelo brands in the United States to Constellation Brands, the world’s largest wine company, for $2.9 billion.
    • Constellation had agreed to pay $1.85 billion for the 50% stake it did not already own in Crown Imports, a joint venture with Grupo Modelo, as part of Anheuser-Busch InBev’s original terms of its proposed takeover of the Mexican brewer.

Interest Rates

• The two-year Treasury rate rose two basis points to 0.27%.
• The five-year Treasury rate increased more than five basis points to 0.88%.
• The 10-year Treasury rate climbed seven basis points to 2.03%, above the 2% level.
• The 30-year Treasury yield continued moving up, rising three basis points to 3.21%, setting new 6-month highs.

Disclosures

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