Merger Tuesday: The 2 Deals Hurting the Dow Today

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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Fresh off the Labor Day weekend, U.S. stocks are modestly higher this morning, with the S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) up 0.4% and 0.1%, respectively, as of noon. Part of the disparity in performance owes to two Dow components, Verizon Communications (NYSE: VZ  ) and Microsoft (NASDAQ: MSFT  ) , which are making headlines everywhere today.

Verizon finally takes its prize -- at a price
At the beginning of April, I asked whether Dow components Verizon Communications and AT&T would seal the biggest M&A deal ever by acquiring the U.K.'s Vodafone. However, that question is now moot, as Verizon announced yesterday that it will acquire the 45% of Verizon Wireless it does not already own from Vodafone in a cash and stock deal worth a whopping $130 billion -- not the largest acquisition in corporate history, perhaps, but third-largest isn't shabby.

Founded in 2000 as a joint venture between Verizon and Vodafone, Verizon Wireless is the nation's largest mobile operator, with more than 100 million subscribers. The deal will give Verizon full control over the crown jewel of its assets. However, the market's reaction to the news this morning raises the question of whether the price tag for this jewel is too high -- Verizon shares are down 2.7%, falling through the $47 floor price on the approximately $60.2 billion in shares Verizon is preparing to issue in payment to Vodafone shareholders.

Even the concurrent announcement of an increase in the dividend doesn't seem to be doing much to mollify investors. Based on Friday's closing price, Verizon's new annual dividend yield is a rich 4.5%.

Ballmer's last blunder?
Less than two weeks ago, in the announcement that he would be retiring within 12 months, Microsoft CEO Steve Ballmer said [my emphasis]: "My original thoughts on timing would have had my retirement happen in the middle of our company's transformation to a devices and services company. We need a CEO who will be here longer term for this new direction."

With this morning's announcement from Microsoft that it will "purchase substantially all of Nokia's (NYSE: NOK  ) Devices & Services business"" it now appears that Mr. Ballmer wanted to drive the nail home with a $7 billion bet on this strategic turn before bowing out. Unfortunately, the market seems to think Mr. Ballmer should have (once more) left well enough alone: Microsoft shares are down more than 6% at the time of writing.

Microsoft is scrambling for position, and at stake is the future of a trillion-dollar revolution: mobile. To find out which tech giant is set to dominate the next decade, we've created a free report called "Who Will Win the War Between the 5 Biggest Tech Stocks?" Inside, you'll find out which companies are set to dominate and give in-the-know investors an edge. To grab a copy of this report, simply click here -- it's free!

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Related Tickers

9/27/2016 4:45 PM
^DJI $18228.30 Up +133.47 +0.74%
^GSPC $2159.93 Up +13.83 +0.64%
S&P 500 INDEX CAPS Rating: No stars
MSFT $57.95 Up +1.05 +1.85%
Microsoft CAPS Rating: ****
NOK $5.71 Up +0.09 +1.60%
Nokia CAPS Rating: **
VZ $52.49 Up +0.34 +0.65%
Verizon Communicat… CAPS Rating: ****