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Why CenturyLink, YRC Worldwide, and Baker Hughes Slumped Today

By Dan Caplinger – Oct 31, 2016 at 5:48PM

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Even though the market didn't move much, these stocks fell sharply. Find out why.

The stock market finished little-changed on Monday as investors tried to figure out what if any impact the latest revelations in the U.S. presidential election campaign might have on the results of the contest and the broader economic picture for the nation and the world. Yet even though the Dow and S&P finished close to unchanged on the day, CenturyLink (LUMN -1.43%), YRC Worldwide (YELL 0.32%), and Baker Hughes (BHI) weren't so lucky, suffering substantial losses. Below, we'll look more closely at these stocks to tell you why they did so poorly.


Image source: CenturyLink.

CenturyLink makes the wrong deal?

CenturyLink fell 13% after the company announced that it will buy out Level 3 Communications (LVLT) in a cash and stock deal worth $34 billion including the assumption of debt. As structured, the buyout involves CenturyLink's buying Level 3 for a combination of $26.50 per share in cash and 1.4286 shares of CenturyLink stock for every Level 3 share that shareholders own. The implied total price was therefore $66.50 per share, which CenturyLink argued was considerably higher than where Level 3 traded before takeover speculation arose. Some investors are disappointed because the similar size of the two companies suggested that CenturyLink and Level 3 might decide to use a merger-of-equals structure rather than having CenturyLink pay the premium. As a result, the structure of the deal essentially favors Level 3 shareholders at the expense of those who own CenturyLink shares, but that isn't likely to stop the transaction from going forward.

YRC Worldwide keeps dropping

YRC Worldwide continued its plunge from late last week on Monday, falling another 9%. The stock lost more than a fifth of its value on Friday following the release of its third-quarter results, which included falling revenue and net income compared to the year-ago quarter. Some of the decline stemmed from lower fuel surcharges that had a corresponding benefit to YRC's expense structure, but in general, the trucking business has been extremely competitive, putting the company in a difficult situation. Until the shipping situation picks up and YRC demonstrates that it can compete effectively in its industry, it will be hard for the shares to make up lost ground.

Baker Hughes sees a strategic combination take shape

Finally, Baker Hughes fell 6%. Speculation that the oil services company was in talks with General Electric (GE 1.90%) was confirmed Monday, but the shape of the transaction didn't match up with what investors had hoped. Specifically, Baker Hughes agreed to combine its business with GE's oil and gas unit, creating a new combined company in which General Electric will hold a 62.5% stake. Rather than buying out Baker Hughes shareholders, however, investors will hold onto their shares, instead receiving a $17.50 per share special cash dividend. The deal essentially works out to the same as a cash-and-stock acquisition bid, but those who were looking for a big premium for Baker Hughes shares were disappointed with the structure.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of General Electric. We Fools may not 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.

Stocks Mentioned

Lumen Technologies Stock Quote
Lumen Technologies
LUMN
$5.51 (-1.43%) $0.08
General Electric Stock Quote
General Electric
GE
$86.88 (1.90%) $1.62
Baker Hughes Incorporated Stock Quote
Baker Hughes Incorporated
BHI
Yellow Corporation Stock Quote
Yellow Corporation
YELL
$3.11 (0.32%) $0.01
Level 3 Communications, Inc. Stock Quote
Level 3 Communications, Inc.
LVLT

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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