Today's Market: China Testing 52-Week Highs And M&A News/Rumors

by: Matthew Smith


Highlight the key levels markets are pushing up against.

Discuss the Chinese stock market and its testing of 52-week highs.

Look at the deals on this version of 'Merger Monday'.

It is another "Merger Monday" today, with a potential inversion on the table for an iconic American brand and a biotech deal that could create a market leader in the lung business. The optimism in the market right now, coupled with the M&A activity has the S&P 500 at record levels and testing the 2,000-point level on the chart. We doubt that this move will be easy, but it is significant and could bring more retail money into the market as people begin to chase returns and reallocate retirement funds to seek capital gains rather than just yield.

Chart of the Day:

It certainly seems that Shanghai is breaking out, and many charts indicate this. Looking at the one-year chart, the market is at yearly highs and looking to break through resistance, which is present around the 2,250 level. If China can catch fire again, look for further bullishness in the market.

Source: CNBC

We have economic news today, and it is as follows:

  • New Home Sales (10:00 a.m. EST): Est: 427k

The Asian markets are mostly higher today:

  • All Ordinaries - down 0.19%
  • Shanghai Composite - down 0.51%
  • Nikkei 225 - up 0.48%
  • NZSE 50 - up 0.30%
  • Seoul Composite - up 0.20%

In Europe, the markets are higher this morning:

  • CAC 40 - up 1.22%
  • DAX - up 1.12%
  • FTSE 100 - down 0.04%
  • OSE - up 0.44%

Restaurant Deal In Works?

The rumor over the weekend that began circulating had Burger King (BKW) in talks to acquire Tim Hortons (THI), the Canadian doughnut and coffee shop. By Sunday, both companies had confirmed that talks were being held and shed details on how a deal would be structured. The bottom line is that Burger King is looking to structure a deal for the smaller Tim Hortons that would see the combined company's headquarters moved to Canada to allow for a tax inversion.

The deal comes not long after Tim Hortons went through a battle with activist investors to raise its debt levels to fund a share buyback and address other issues such as the company's capital structure, management compensation and expansion plans in the United States. This deal would allow the two companies to create a new company, controlled by Burger King shareholders, that would have well over the 20% foreign ownership threshold required for an inversion.

Shares in Burger King are breaking out of their recent lull with the announcement that the company is in talks to buy Tim Hortons and do a tax inversion to free up cash in foreign markets.

Click to enlarge

Source: Yahoo Finance

There are not a lot of synergies that the two companies can realize outside of cuts to top management ranks and certain supply chain integrations, but one thing investors could look for is a combination of the two companies' key breakfast items. The combined company could work to create premium coffee and food offerings available at both locations that could help drive traffic; assisting Burger King in the very crowded fast food breakfast business and give Tim Hortons a leg up in bolstering its after breakfast menu items.

With the potential tax benefits of a deal, along with certain synergies and the optimization of menus, the combined company could create problems for the growth plans of companies such as Dunkin' Brands (NASDAQ:DNKN) and Krispy Kreme Doughnuts (KKD).

Biotech Deal

Roche Holdings AG (OTCQX:RHHBY) and InterMune (NASDAQ:ITMN) announced that they had reached a deal where Roche would buy InterMune for $8.3 billion, or a 38% premium to Friday's close. Roche is looking to build upon its current portfolio of drugs, which already includes two drugs focused on lung diseases. Buying InterMune gives Roche pirfenidone, a drug that treats pulmonary fibrosis.

Roche said that the deal is not about synergies and cutting staff, but about growth opportunities and plugging pirfenidone into Roche's sales pipeline upon approval. Roche wants to keep the InterMune team intact to continue developing drugs, but there is speculation that InterMune's CEO will not be around long.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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