1% Fall in S&P 500 Leads Global Decline, Charter in Expensive Cable Deal

Nichole Harper
26 May, 2015
New York City

In an expensive deal, Charter Communications agreed to acquire Time Warner Cable Inc for $78.7 billion including debt. The deal is expected to vault Charter to the second largest spot in the industry but the cable company faces several hurdles on cost and restive customer base.

[R]1:25 PM – In an expensive deal, Charter Communications agreed to acquire Time Warner Cable Inc for $78.7 billion including debt. The deal is expected to vault Charter to the second largest spot in the industry but the cable company faces several hurdles on cost and restive customer base.[/R]

Market indexes on Wall Street declined after a 3-day weekend and durables orders fell in April and new home sales in the month rose.

Charter Communication agreed to acquire Time Warner in the second attempt that stretched over a year.

The deal between the two companies is likely to face fewer regulatory hurdles and will catapult the company to the second spot with 17 million customers only to be trailed by Comcast with 22 million customers.

Charter originally offered $132.50 a share in January of 2014 but the deal was rejected by Time Warner because the management felt it undervalued the company and had too much of debt.

The current deal at nearly $196 a share values the company at nine times operating earnings estimate of this year compared to seven times in the previous offer and nearly half of it is debt and no shareholder protection against the highly priced share of Charter.

Cable industry has seen a flurry of activities as most mergers of the past have failed to create value for customers and only led to higher prices on an inflated package of channels that most subscribers do not use.

Durable goods orders in April dropped 0.5% to $235.5 billion and orders declined in two of the last three months, followed by 5.1% increase in March, the Department of Commerce reported.

In a separate report the department said seasonally adjusted new home sales in April jumped 6.8% to 517,000 from the revised March rate of 484,000 and surged 26.1% from a year ago month rate of 410,000.

On Wall Street, Tollbooth Strategy Index slipped 0.9% or 107.66 to 10,728.46.

S&P 500 index dropped 0.9% or 20.14 to 2,105.89 and the Nasdaq Composite Index declined 1.1% or 56.60 to 5,033.07.

Crude oil in New York fell $1.45 to $58.27 a barrel and gold plunged $17.20 to $1,187.70 an ounce.

U.S. Movers

Charter Communications, Inc ((CHTR)) slipped 1.1% or $1.89 to $173.44 after the cable services provider agreed to acquire Time Warner Cable Inc for $55.1 billion.

Charter offered $100 a share in cash and 0.5409 of its shares of a new public parent company ""New Charter.""

Including debt, the deal values Time Warner Cable at $78.7 billion.

The Federal Communications Commission immediately issued the notice that it would closely scrutinize the deal but the deal is likely to face fewer hurdles in getting regulatory approval.

Charter also announced that the key shareholder Liberty Broadband Corporation agreed to buy $4.3 billion of newly issued shares of New Charter at a price equivalent to $176.95 a Charter share, upon closing of the Time Warner Cable transaction.

Liberty Broadband is expected to own between 19% and 20% of New Charter.

EMC Corporation ((EMC)) dropped 2.2% or 59 cents to $26.25 after the information infrastructure provider agreed to acquire privately-held Virtustream for about $1.2 billion in cash.

The transaction is expected to close in the third-quarter.

European Markets

European markets traded lower and market indexes in London declined on the first day of trading after a 3-day weekend.

In London trading, FTSE 100 index slipped 0.5% or 38.01 to 6,993.71 and in Frankfurt the DAX index declined 1.4% or 165.09 to 11,649.92.

In Paris, CAC 40 index fell 7.78 to 5,109.39.

Citycon Oyj climbed 3.2% to €2.79 after the Finland-based retail property developer agreed to acquire Norway-based shopping-center owner Sektor Gruppen for about €1.47 billion or $1.7 billion in cash and assumption debt.

Citycon plan is planning a rights offering of about €600 million and the rest of approx €671 million from an existing bank financing facilities.

The transaction is expected to close in July.

Ryanair Holdings Plc climbed 5% to €11.47 after the Ireland-based low-cost airline reported revenues in the year ending in March soared 12% to €5.65 billion from €5.04 billion in a year ago period.

Net profit in the year surged 66% from a year ago to €866.7 million compared to €522.8 million and diluted earnings per share jumped to €62.46 from €36.86.

Ryanair said traffic climbed 11% to 90.6 million customers from 81.7 million customers a year ago period and load factors jumped to 88% from 83% a year ago.

The airliner said average load factors in the first four months of this year soared 10% and traffic growth is estimated to rise 10% in the current year.

Asian Markets

Nikkei average extended rally to the eighth day in a row and the benchmark index jumped 4.4% in the longest rally since August.

Monex Group said annual operating revenues declined 7%. Kyushu Electric Power jumped 4% after the electric utility said it plans to restart is nuclear reactor in late July.

Nikkei average extended rally to the eighth day in a row but trading volume was thin as many traders were away in the U.S. for a three-day weekend.

Nikkei in Tokyo has jumped nearly 4.4% in the last eight days as corporation report rising earnings and share more with shareholders and a growing optimism for the domestic economy.

However in Tokyo, investor’ opinion remain divided on the course and pace of U.S. interest rate in the next six months. At least for now, the Fed is showing no sense of urgency and rates have at record low for more than six years.

The Nikkei 225 Stock Average rose 23.71 to 20,437.48 and the broader Topix index edged up 0.42 to 1,659.57.

The yen closed at 122.70 against a dollar.

In volatile trading, stocks in Mumbai closed lower, bonds were stable and Indian rupee dropped to a new low in the year so far.

Rupee closed down as traders accumulated U.S. dollar on the expectations of rising interest rates in the U.S. Federal Reserve is expected to raise rates in a gradual manner probably in the increment of 25 basis points according to several economists.

But the rupee has been on the slide in the last eight weeks of trading as oil price has rebounded 40% above $64 a barrel, high in the year so far.

Rupee weakened 42 paisa to 63.98 against one U.S. dollar.

The Sensex Index slipped 112.47 or 0.4% to close at 27,531.41. The CNX Nifty fell 30.90 or 0.4% to 8,339.35.

Tata Motors Limited slipped 1.4% to ₹498 after the truck and motor vehicle maker said net in the fourth-quarter advanced 6% to ₹4,150 crore.

Total revenues in the quarter rose 2% to ₹66,500 crore.