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Dow Jones Surges Almost 400 Points Following Major Tech Deals

By Timothy Green – Sep 14, 2020 at 1:49PM

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M&A activity ramped up to start the week.

The stock market rallied on Monday, driven in part by some major tech deals. The Dow Jones Industrial Average (^DJI) was up 1.3% just before noon EDT, trailing the other major U.S. stock indices.

There were three deals of note driving the market higher. Verizon (VZ -1.77%) agreed to acquire Tracfone; Microsoft (MSFT 4.20%) and Walmart (WMT 0.21%) lost out to Oracle (ORCL -0.89%) in a deal for TikTok's U.S. operations; and NVIDIA (NVDA 5.14%) agreed to acquire ARM Holdings in a move that could threaten Intel (INTC 1.25%) in the data center.

A notepad drawing of a fish eating a smaller fish.

Image source: Getty Images.

Verizon buys Tracfone

Wireless carrier Verizon announced on Monday that it had agreed to acquire pre-paid mobile provider Tracfone from Mexican telecommunications giant America Movil (AMX -2.02%). The deal will increase Verizon's presence in the value segment of the market.

Tracfone, which resells wireless services, currently has around 21 million subscribers in the United States. About 13 million of those subscribers use Verizon's wireless network through an existing wholesale agreement. The value-focused wireless company's services are sold through a network of more than 90,000 retail locations.

Verizon will pay $6.25 billion for Tracfone, consisting of $3.125 billion in cash and $3.125 billion in Verizon stock. Future cash consideration of $650 million related to certain performance measures is also part of the deal.

Verizon largely caters to consumers willing to pay a premium for top-tier wireless service. With the Tracfone acquisition, the company is now going after more cost-conscious wireless customers. Verizon stock was up about 1.3% by late Monday morning.

TikTok turns down Microsoft and Walmart

After weeks of negotiations, the team of software giant Microsoft and retail juggernaut Walmart lost its battle to acquire the U.S. operations of social media sensation TikTok. TikTok, owned by Chinese company ByteDance, was facing a September deadline to either sell its U.S. operations or shut down in the U.S. due to concerns about privacy and security.

Instead of an outright sale to Microsoft and Walmart, TikTok plans to team with database giant Oracle. A proposal submitted to the U.S. Treasury Department over the weekend involves Oracle becoming TikTok's "trusted technology provider" in the U.S. Oracle would manage TikTok's U.S. user data, and the company is negotiating taking a stake in TikTok's U.S. operations.

While an acquisition of TikTok was always a questionable move for Microsoft, which is largely focused on business software and cloud services, a deal would have given the tech giant a massive base of younger social media users. For Walmart, TikTok could have boosted the company's e-commerce and advertising businesses.

Microsoft and Walmart stocks brushed off the news, up 2.3% and 0.6%, respectively, by late Monday morning. Meanwhile, Oracle stock had gained 5.2%.

Intel stock brushes off chip megadeal

While chip giant Intel is facing intense competition from rival Advanced Micro Devices, the company still dominates the market for PC and server chips. In the second quarter of 2020, Intel was responsible for over 80% of desktop and laptop chips sold, as well as more than 94% of server chips.

In the lucrative server chip market, chips based on the x86 architecture supplied only by Intel and AMD are the industry standard. With a $40 billion deal announced on Sunday, graphics chip developer NVIDIA may be looking to challenge the status quo.

NVIDIA has agreed to acquire ARM Holdings from SoftBank Group. ARM licenses its chip designs and its ARM architectures to a wide variety of companies. Almost all the processors that power smartphones are based on the ARM architecture. In the traditional PC and server chip markets, ARM has little presence.

NVIDIA, which already dominates the market for graphics processing units used in servers, could use ARM to go after the server CPU market as well. While NVIDIA didn't provide many details related to its plans, an ARM-based server CPU isn't out of the question.

For Intel, which is already battling to maintain its server chip market share, another serious competitor is not good news. Other companies have tried and failed to use ARM-based chips to make inroads in the server chip market. NVIDIA has a tough road ahead, but Intel investors should certainly be worried.

Intel stock was up about 0.5% by late Monday morning despite the news, while NVIDIA stock had soared more than 6%.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft and NVIDIA. The Motley Fool recommends Intel, Softbank Group, and Verizon Communications and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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