Please ensure Javascript is enabled for purposes of website accessibility

Dow Rises on Comcast-Time Warner Deal, but Pepsi Fades

By Jeremy Bowman - Feb 13, 2014 at 9:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The blue chips gained 64 points as investors reacted to the mega-merger between Comcast and Time Warner. Meanwhile, Pepsi edged lower after saying it would not spin off its North American beverage unit.

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

After a slow start on weak economic data, the Dow Jones Industrial Average (^DJI 0.00%) recovered as investors seemed to believe poor winter weather led to underwhelming retail sales, and a slight uptick in initial jobless claims. The blue chips finished the day up 64 points, or 0.4%, while the S&P 500 and Nasdaq made even stronger gains as investors digested news that the nation's two largest cable providers would be combining, pending approval: Time Warner Cable (NYSE: TWC) agreed to be bought by Comcast (CMCSA -0.52%) for $44.7 billion. 

In the day's economic news, the Commerce Department reported that January retail sales fell 0.4%, or were flat when auto sales are removed, both slightly below estimates. Meanwhile, December sales were revised down to -0.1%, or 0.3% excluding auto sales, reflecting the poor holiday performance that many retailers complained about. Separately, initial unemployment claims edged higher from 331,000 to 339,000, worse than estimates of 335,000, indicating job growth may still be mediocre this month, as well. 

As for the day's big merger, Time Warner shares popped 7%, closing at $144.81, short of Comcast's offer at $159. That discrepancy indicates that shareholders are skeptical of the deal going through as the Federal Communications Commission or the Justice Department could spike the deal on antitrust grounds. The deal also comes as consolidation has heated up in the media and communications industry as TV broadcasters have merged, Liberty Media recently took a majority stake in SiriusXM, and a number of mergers, real and proposed, have shaken the telecom sector. Time Warner had already been on the auction block earlier as Charter Communications and Liberty had previously made an offer for Time Warner at $130 a share. One thing seems to be clear from the deal --  investors can only speculate on it going through, as cable companies have been called out many times before for abusive monopolistic practices, and there seem to be many reasons why the merger would not be in consumers' interests. Notably, the deal has no breakup fee if it's blocked by regulators. 

Finally, Pepsi (PEP 0.58%) shares finished down 2.2% despite beating earnings estimates in its quarterly report, as investors seemed disappointed by the snack-and-beverage company's announcement that it would not be spinning off its North American beverage unit as they had hoped. The company said it performed an "exhaustive" review, and concluded that shareholder value would be maximized by keeping control of the unit as is. Pepsi has been losing ground to Coca-Cola in recent years, and industrywide beverage sales have been falling in North America; but management said the category's size and profitability, as well as its scale benefits, make it most beneficial in its current structure. Volume sales of carbonated beverages fell by the mid-single-digits in North America in the past quarter, reflecting continuing concerns.  

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends PepsiCo. The Motley Fool owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,912.44 (0.00%) $0.00
Pepsico, Inc. Stock Quote
Pepsico, Inc.
$180.32 (0.58%) $1.04
Comcast Corporation Stock Quote
Comcast Corporation
$40.36 (-0.52%) $0.21

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.