Coca-Cola Falls, Forest Labs Gets Bought As Dow Falls

Good morning, good lookin'. Here are the three things you need to know on Feb. 19.

Feb 19, 2014 at 6:00AM
A little confused to wake up this morning and see a plastic toy "Barbie" on the Sports Illustrated swimsuit edition cover instead of a real human? That's OK. Wall Street had a confusing day too -- the Dow Jones Industrial Average (DJINDICES:^DJI) dipped 24 points Tuesday on a mixed start to the four-day holiday-shortened week.

1. Actavis buys Forest Laboratories for $25 billion
Irish pharmaceuticals made Wall Street buzz like an EDM dance floor Tuesday as Dublin-based Actavis PLC announced that it's buying New York-based Forest Laboratories (NYSE:FRX) for $25 billion in cash and stock. The deal creates a juggernaut of generic and brand-name pills that's giving Wall Street an overdose. 

The Carl Icahn playbook worked like a charm, once again. The famous and freckled investor has accumulated 11% of Forest shares since 2009, and Tuesday is his $2.7 billion payday. He infiltrated, by putting two of his Icahn Enterprises henchman on the board of Forest. Then he attacked, by trimming and prepping the company like a cocker spaniel to be bought by a bigger corporate suitor. This acquisition is the finale of a 209% return for those who first touched Forest in 2009 with Icahn.

Forest shareholders will get $26 in cash and .3306 of an Activus share for being taken over. That's equivalent to $89.48 a share based on Tuesday's Activus share price, so Forest shares jumped 27% to $91. The sugar on top for investors -- Forest profits will be taxed at Ireland's lower corporate tax rates. It goes down like a pint of Guinness.

2. Candy Crush iPhone game announces IPO
Move over, Angry Birds, because the blindingly colorful smartphone game Candy Crush is bringing its talents to Wall Street. The game's developer, King Digital Entertainmentplans an IPO soon to raise $500 million by offering its stock to the public. Let the trading games begin.

It's all about the "freemium" model for the Swedish-based gamer -- King offers its games for free but then charges users for "cool" features mid-game. The company's revenues popped to an unbelievable $1.88 billion over 2013 from just $166 million the year before (although Candy Crush accounted for nearly 80% of that cash).
The takeaway is that investors have already honeymooned with phone-game pioneer Zynga (NASDAQ:ZNGA) -- but as gamers lost interest in Zynga's once-cool FarmVille, Wall Street lost interest in the stock, which now trades at half the price of Zynga's 2011 IPO. The pressure will be on King Digital to make (shocker) more than one good game.

3. Coca-Cola earnings are OK but revenues shrink
It was a bunch of 1% moves that caused Coca-Cola's (NYSE:KO) earnings to fall flat. The company that's No. 1 on former Mayor Bloomberg's most-hated list fell down 3.8% in trading on Tuesday. Global sales volumes rose 1%, but volumes in North America and Europe fell 1%. Is soda on the out for developed countries?

Wall Street lives on growth, and modern health campaigns by Michelle Obama and others are not making Coke executives in Atlanta happy. Developed markets are falling out of love with sugary soda drinks, making growth tougher than ever. Fourth-quarter earnings climbed 2%, as Wall Street expected, but revenues were down 4%, which made investors spit out their drink. 

Coke stock was flat for all of 2013, making investors wonder: Are there enough Chinese to keep Coke sweet? On the upside though, Coke stock is as consistent as it gets with dividends (about 3% of the total stock value is returned every year in dividends), so a flat stock price won't make the Coke polar bears lose their Christmas spirit.  

  • Minutes from the Federal Reserve's last policy meeting are released
  • Fourth-quarter earnings reports: Tesla Motors, Marriott Hotels
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Nick Martell and Jack Kramer have no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Tesla Motors and owns shares of Coca-Cola, Microsoft, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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