For what seems like the third or fourth time in the last few months, the US markets tumbled on reports or rumors that the Russian Army was assembling on the Ukraine border in preparation for invasion. So, a quiet summer market turned turbulent and dropped dramatically. However, that was a trading opportunity and stocks closed about 1/3% off the day’s lows. In the meantime, south of Ukraine, the Israelis and Hamas began a cease fire and headed to Egypt for peace talks. As it turns out, the Israelis may have already achieved their object of eliminating the tunnel threats and destroyed important weapons cache. I have to say that the Obama administration has handled both situations poorly. That will have an impact on the important midterm elections here in the United States.
Fox and Sprint Pull Out of Potential Deals
We wake up to two merger and acquisition deals getting the thumbs down. First, Ruppert Murdoch’s Twenty-First Century Fox (FOXA) has abandoned its desire to purchase Time Warner (TWX). Shares of FOXA tumbled on the announcement of the prospective deal and have rebounded on today’s news of the deal abandonment. The opposite is true for TWX. Second, Sprint (S) gave up its bid for T-Mobile (TMUS) as concerns for regulatory approval loomed large.
However, there was positive M&A news as Walgreen (WAG) announced that it would purchase the remaining 55% of Alliance Boots that it does not already own. However, the deal would not take advantage of the tax inversion strategy which has recently become popular. As a result, shares of WAG have declined nearly 15% in the premarket.
Tax Inversion Deals
Tax inversion is a legal strategy in which a US corporation acquires an offshore company and then relocates it headquarters and main tax domicile to the foreign nation of the acquired company. Politicians, especially in the Obama Administration are calling this “unpatriotic.” However, these are legal strategies until Congress were to change the tax law. At the heart of the matter are the high corporate tax rates in the United States and the inability for American companies to repatriate overseas earnings without incurring huge tax bills. There are several pending tax inversion deals which are awaiting approval and I am sure that the government will play hardball in the approval process.
Ralph Lauren (RL) has once again reported solid results but guided to lower margin.. The company’s stock which has struggled this year is declining in the pre-market.
The market is poised to open lower as the summer correction continues. Just let it play out.