Financial Review:
DOW + 13 = 17,647
SPX + 1 = 2041
NAS – 17 = 4671
10 YR YLD + .02 = 2.34%
OIL – .37 = 75.45
GOLD – 2.00 = 1187.50
SILV – .18 = 16.24
Another day, another record on Wall Street. A record high close for the S&P 500. The Dow did not close above Thursday’s record close of 17,652.
The Dow Transports were down today, but Transportation stocks are the best performing names on the market over the past month. Since the market bottomed out on October 13th, the Dow Jones Transportation Average has soared an incredible 18%. So if you thought the S&P’s furious 11% rally has been a sight to behold, you clearly weren’t paying attention to the soaring plane, train and trucks.
Another Merger Monday; Halliburton agreed to buy Baker Hughes for about $34 billion. Actavis agreed to buy Allergan for $66 billion.
The Halliburton (HAL) acquisition of Baker Hughes (BHI) will unite two major oilfield services companies. Halliburton and Baker Hughes began discussions in mid-October; an interesting time as oil prices were falling, raising questions about the viability of expanding oil and gas exploration and development. The acquisition was on again, off again, and briefly turned hostile last week. The deal could still face regulatory scrutiny, even though Schlumberger (SLB) is still the largest oilfield services company, bigger than a combined Halliburton/Baker Hughes. Halliburton has agreed to sell off businesses that generate up to $7.5 billion in revenue to appease the federal government.
Low oil prices tend to trigger consolidation, mainly because the big oil companies do not believe low oil prices will last, so they consider acquisitions as value plays. Buyers with cash to spend aren’t going to let the cheapest valuations in years pass them by and targets threatened by lower prices may become more willing sellers. So, the speculation ramped up with today’s announcement. Possible deals include General Electric (GE) going after National Oilwell Varco (NOV), and there is even speculation that someone might target BP. Some potential smaller targets include Oasis Petroleum (OAS), Pioneer Natural Resources (PXD), and Laredo Petroleum (LPI).
Allergan (AGN) has agreed to sell to Actavis (ACT). The $66 billion deal, or $219 per share in cash and stock, ends months of speculation about a possible hostile takeover led by activist investor Bill Ackman, who had been working with Valeant Pharmaceuticals (VRX) to court the Botox manufacturer. So, the Actavis deal would be the largest of the year; bigger than the $45 billion proposed acquisition of Time Warner Cable by Comcast; bigger than AT&T’s $48 billion purchase of DirecTV; and the third largest health care deal ever in the US. Combining Actavis and Allergan will create one of the 10 largest global drug makers, with about $23 billion in revenues expected next year.
