Dow Rises on Comcast-Time Warner Deal, but Pepsi Fades

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.

After a slow start on weak economic data, the Dow Jones Industrial Average (DJINDICES: ^DJI  )  recovered as investors seemed to believe poor winter weather led to underwhelming retail sales, and a slight uptick in initial jobless claims. The blue chips finished the day up 64 points, or 0.4%, while the S&P 500 and Nasdaq made even stronger gains as investors digested news that the nation's two largest cable providers would be combining, pending approval: Time Warner Cable  (NYSE: TWC  ) agreed to be bought by Comcast  (NASDAQ: CMCSA  ) for $44.7 billion. 

In the day's economic news, the Commerce Department reported that January retail sales fell 0.4%, or were flat when auto sales are removed, both slightly below estimates. Meanwhile, December sales were revised down to -0.1%, or 0.3% excluding auto sales, reflecting the poor holiday performance that many retailers complained about. Separately, initial unemployment claims edged higher from 331,000 to 339,000, worse than estimates of 335,000, indicating job growth may still be mediocre this month, as well. 

As for the day's big merger, Time Warner shares popped 7%, closing at $144.81, short of Comcast's offer at $159. That discrepancy indicates that shareholders are skeptical of the deal going through as the Federal Communications Commission or the Justice Department could spike the deal on antitrust grounds. The deal also comes as consolidation has heated up in the media and communications industry as TV broadcasters have merged, Liberty Media recently took a majority stake in SiriusXM, and a number of mergers, real and proposed, have shaken the telecom sector. Time Warner had already been on the auction block earlier as Charter Communications and Liberty had previously made an offer for Time Warner at $130 a share. One thing seems to be clear from the deal --  investors can only speculate on it going through, as cable companies have been called out many times before for abusive monopolistic practices, and there seem to be many reasons why the merger would not be in consumers' interests. Notably, the deal has no breakup fee if it's blocked by regulators. 

Finally, Pepsi  (NYSE: PEP  ) shares finished down 2.2% despite beating earnings estimates in its quarterly report, as investors seemed disappointed by the snack-and-beverage company's announcement that it would not be spinning off its North American beverage unit as they had hoped. The company said it performed an "exhaustive" review, and concluded that shareholder value would be maximized by keeping control of the unit as is. Pepsi has been losing ground to Coca-Cola in recent years, and industrywide beverage sales have been falling in North America; but management said the category's size and profitability, as well as its scale benefits, make it most beneficial in its current structure. Volume sales of carbonated beverages fell by the mid-single-digits in North America in the past quarter, reflecting continuing concerns.  

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