Investors were enthusiastic on Monday morning, sending some key benchmarks to new highs. On top of generally favorable earnings reports from multiple sectors of the economy, market participants are also optimistic that the Federal Reserve will continue its recent accommodative monetary policy by reducing interest rates when it meets later this week. As of 11 a.m. EDT, the Dow Jones Industrial Average (^DJI -0.47%) was up 131 points to 27,089. The S&P 500 (^GSPC -0.27%) climbed 17 points to a record of 3,040, and the Nasdaq Composite (^IXIC 0.14%) was higher by 71 points to 8,314.
Earnings reports continued to pour in, but some of the biggest moves were due to more strategic factors. Tiffany (TIF) saw its stock soar in response to a buyout proposal, while AT&T (T 0.07%) agreed to take action that should appease activist investors looking for change from the telecom giant.
A big buy in a little blue box
Shares of Tiffany jumped 30% after reports surfaced that the jewelry giant had gotten a buyout offer from LVMH (LVMUY 1.02%), the owner of the Louis Vuitton brand. The value of the acquisition bid is reportedly about $14.5 billion, working out to about $120 per share in cash for Tiffany.
The combination makes perfect sense from a business perspective. LVMH is one of the most popular, well-known luxury goods companies in the world, with brand names that include Christian Dior, TAG Heuer, and Dom Perignon. Adding Tiffany to its collection would be a natural supplement.
Moreover, the move comes at an auspicious time. Tiffany has had to deal with significant impacts from tariffs on its exports to China. Prior to the offer, that had kept the jewelry retailer's stock in check throughout 2019, and some feared that escalating trade tensions could inflict even worse financial damage. That apparently made Tiffany look like a value stock to LVMH.
After today's jump, though, it's apparent that shareholders believe the eventual takeover price for Tiffany could be much higher. The stock is already trading well above the reported $120-per-share deal price, and that suggests a final binding offer might be a lot more expensive if LVMH really wants to follow through on its initial proposal.
AT&T moves forward
Meanwhile, shares of AT&T climbed 5%. The telecom company reported its third-quarter financial results, but what really captured investors' attention was how it responded to calls from activist investors at Elliott Management.
AT&T's latest numbers were relatively solid. The company boosted its postpaid subscriber count by more than 100,000 customers, substantially more than the roughly 60,000 that were expected. Revenue sank 3% from year-earlier levels, but adjusted earnings per share inched higher by about 7% year over year.
Yet what most investors gravitated toward was the company's three-year capital allocation plan, which was a key area in which Elliott Management was looking for improvements. AT&T will continue its modest rate of annual dividend growth, but it will use 50% to 70% of its free cash flow after dividends to buy back stock. The idea is to repurchase about 70% of the stock that AT&T used in acquiring Time Warner. The telecom will also aim to pay back all of the debt from the Time Warner deal by 2022.
Moreover, AT&T will look to sell off noncore assets to raise cash. By the end of the year, the company expects to have raised about $14 billion from such sales, with another $5 billion to $10 billion coming in 2020.
Add to all that plans to bring in new directors and setting the stage for a possible replacement of CEO Randall Stephenson, and it's clear that AT&T responded fully to activist investor demands. Whether that'll be enough remains to be seen, but shareholders like what they're seeing so far.