Early this morning, things looked dire for the stock market. News from around the world led to rising concerns about the global economy as Japanese GDP fell for the third straight quarter and GDP within the European Union dropped by 0.6%. Yet as he has done so often in the past, Warren Buffett made a big investment that inspired confidence in stocks, and U.S. markets responded by eliminating their early losses. By 10:55 a.m. EST, the Dow Jones Industrials (DJINDICES: ^DJI ) were back at breakeven, while broader benchmarks were similarly close to the unchanged level.
The big news from Berkshire Hathaway (NYSE: BRK-B ) was its $23 billion bid for H. J. Heinz (UNKNOWN: HNZ.DL ) . Uncharacteristically, Berkshire made the deal with help from Brazilian private-equity firm 3G Capital, but given Heinz's increasing exposure to emerging markets, having 3G in on the deal may help Heinz bolster its international strategy to maximize returns for Berkshire. Berkshire shares rose 1%, while Heinz soared exactly to the $72.50 per-share buyout offer amount.
Elsewhere, rural telecom stocks got hit hard after CenturyLink (NYSE: CTL ) announced yesterday that it would cut its dividend by 26% from an annual rate of $2.90 per share to $2.08. The company authorized a $2 billion repurchase program, but bond rating agency Fitch didn't like the change in capital-allocation priorities, downgrading the stock to junk-bond status from its previous investment-grade rating of "BBB-." CenturyLink's stock fell 20%, and with the entire rural telecom industry relying on big dividends to entice investors, shareholders are clearly nervous about future prospects for their payouts.
Finally, Zillow (NASDAQ: Z ) soared 14.6% after seeing revenue surge 73% in its most recent quarter. Although Zillow is barely profitable, it has nevertheless done a good job in putting together a growing network of real-estate professionals and other users, and as the network effect grows, Zillow could have the best prospects in the industry to profit from its home sales, rental, and remodeling services.
What's next for Berkshire?
Buffett's bid for Heinz is just the latest in his huge track record of successful buyouts. But despite its incredible record, Berkshire still has key issues to address. To help investors understand those issues, Fool resident Berkshire Hathaway expert Joe Magyer has created a premium research report on the company that details why Berkshire has been so successful and where it's looking to benefit next. You'll receive ongoing updates as key news hits, as well as reasons both to buy and to sell the stock. Claim a copy by clicking here now.