The Dow Jones Industrial Average (^DJI 0.40%) and the S&P 500 (^GSPC 1.02%) did investors no favors this week with both indexes moving 3.32% and 3.79% lower, respectively. While there was plenty of economic data for investors to filter through, the headlines revolved around oil's continued decline.
Oil fell to fresh lows on Friday as benchmark pricing in the U.S. fell to less than $36 per barrel. The International Energy Agency reported that growth in world oil demand will slow to 1.2 million barrels a day next year, compared to 1.8 million barrels a day this year. That in combination with OPEC continuing its high production levels and Iranian oil entering the fold in 2016, it was a tough week for oil stocks and the overall market followed lower.
With that less than optimistic intro out of the way, there were some intriguing developments in the market this week.
72% gains taste great
The week started off with a bang for investors of Keurig Green Mountain Inc's (GMCR.DL) when delighted shareholders pocketed a 72% single-day increase in their holdings. European private equity firm JAB Holding Company announced it would acquire Keurig for $92 per share, valuing the overall deal at $13.9 billion. For investors that endured a roughly 60% drop in Keurig's share price in 2015, the 72% single-day jump was obviously something to celebrate.
Prior to the deal being announced, The Coca-Cola Co was holding an unrealized loss on its Keurig stake equal to nearly $1 billion, so the acquisition was a win for Coke despite not getting to see the long-term potential play out. Keurig is also a winner, as the acquisition will likely bring the company back to a coffee-first strategy, rather than the more vague hot and cold beverage company it was trying to evolve into. Finally, JAB seems to be a winner as well, despite paying a seemingly hefty price for Keurig, it's not a crazy valuation when you dig into it.
Moral victory
Despite Adobe (ADBE 0.87%) trading as much as 5% higher on Friday, it couldn't hold the gains by market close and missed a moral victory of breaking even amid a tough week for the market. The company still managed to close 2.77% higher after it reported fourth-quarter revenue increased 22%, compared to the previous year period, to $1.3 billion. Adobe's earnings per share checked in at $0.62 during the fourth quarter, which was two pennies better than expectations.
Further, Adobe also reported the company added roughly 833,000 subscribers during the fourth-quarter, which was well above expectations of 678,200. The company's 22% GAAP operating margin was a strong figure, and that could move higher as Adobe's cloud model matures.
Shantanu Narayen, President and CEO of Adobe had this to say during the conference call: "Coming off a great year, we continue to have a sense of urgency and purpose. There is a lot of opportunity ahead and we will work hard to capture it. We look forward to another record year in 2016."
1+1 = 3?
This week also brought investors of Dow Chemical Co. (DOW) and DuPont Co. (DD) a merger that looks weird when written as a math equation. Dow and DuPont announced Friday that they have agreed to merge into a chemical goliath worth roughly $130 billion; then the combined company will be abruptly divided into three companies.
Digging into the terms of the deal, Dow Chemical shareholders will get 1 share of the new company, which was creatively called DowDuPont, for each Dow share and DuPont shareholders will receive 1.282 shares for each DuPont share. When the three-way breakup takes place, the resulting companies will be publicly traded and focused on agriculture, material sciences and specialty products.
While the merger seems odd, it's not all that uncommon. One reason for the complicated merger is a potential tax savings: if the companies merge first, then the subsequent spinoffs qualify as tax-free transactions in the U.S. Also, the deal is expected to result in $3 billion in cost synergies, which is nothing for investors to sneeze at.
