Wall Street Breakfast: D.C. To Have Its Say On AT&T/Time Warner Deal

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Includes: AMCX, AMTD, BEAV, CBS, CMCSA, COL, DISCA, GNW, HHRBF, LGF, QQQ, SNI, SPY, T, TD, TWX, VIA, VIAB
by: Wall Street Breakfast
Wall Street Breakfast
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Next up for the blockbuster $85.4B deal for AT&T (NYSE:T) to buy Time Warner (NYSE:TWX) is navigating the political landscape given what are certain to be objections by lawmakers and media/telecom rivals. Before the deal was even officially announced, Donald Trump was on the tape saying he would block it, while Clinton running mate Tim Kaine voiced his concerns a few hours later. Comcast's (NASDAQ:CMCSA) purchase of NBC Universal made it through in 2011, but not until after 13 months of review, and some have complained that conditions of the approval - such as its requirement to not weigh in on big decisions at Hulu - were tough to monitor and enforce. No stranger to making its way around D.C., AT&T is no doubt stealing itself for what lay ahead, but CEO Randall Stephenson on a Saturday night conference call played down regulatory concerns, arguing this deal isn't increasing industry concentration, as it combines a content provider with a content distributor.

Economy

Markit's manufacturing PMI for the eurozone rose to a 30-month high of 53.3, topping estimates of 52.6. Germany's print of 55.1 was a 33-month high, and France's of 51.3 was the strongest in 10 months. Meanwhile in Spain, the re-election of Prime Minister Mariano Rajoy was assured after the Socialist party decided not to block him from forming a minority government. While the ending of gridlock is good news, it's still a minority government, and likely to be weak and unstable. Europe's Stoxx 600 is higher by 0.5%, led by Spain's 1.3% advance.

Stocks

In a cash and stock deal valued at $6.4B plus the assumption of $1.9B in debt, Rockwell Collins (NYSE:COL) has agreed to buy B/E Aerospace (NASDAQ:BEAV), combining two of the largest suppliers to airlines and plane makers. Each BEAV shareholder will receive $62/share, comprised of $34.10/share in cash and $27.90 in COL common shares (subject to a 7.5% collar), representing a 22.5% premium to Friday's closing price. The proposed deal continues the consolidation of the aerospace industry over the past two years as suppliers adjust to pressures from Boeing and Airbus to cut costs. Also today, both COL and BEAV issued earnings reports that slightly beat analyst expectations.

As floated on Sunday, Scottrade has been sold to TD Ameritrade (NASDAQ:AMTD) for $4B. The deal will take place in two stages, with TD Bank (NYSE:TD) first buying Scottrade Bank for $1.3B in cash, and then Ameritrade purchasing Scottrade Financial Services for $4B, or $2.7B of stock and cash net of the proceeds of the bank sale. Ameritrade will issue $1B in new stock (28M shares) to Scottrade, and the $1.7B in cash will include $900M of its own money, $400M in new debt and $400M raised by selling another 11M shares to TD Bank (TD Bank is already an owner of 42% of Ameritrade). Thanks to about $450M in combined annual expense synergies, Ameritrade expects 15-20% adjusted EPS accretion in years two and three following the close. Another $300M in longer-term cost savings are hoped for as well. A conference call is set for 8:30 AM ET.

In a roughly $2.7B deal, Genworth Financial (NYSE:GNW) has agreed to sell itself to China Oceanwide (OTC:HHRBF). That works out to $5.43 per share in cash, a puny 4.2% premium to Friday's close, but comes as Genworth announces more troubles with its long-term care business and an after-tax charge in Q3 of $275M-$325M. BTIG's Mark Palmer notes GNW would surely today have traded sharply lower than its most recent price of $5.21 were it not for the weekend sale. A conference call is set for 8:00 AM ET.

The next wave of media consolidation will surely be on investors' minds today following AT&T's weekend agreement to buy Time Warner. Discovery Communications (NASDAQ:DISCA), Scripps Networks (NYSE:SNI), AMC Networks (NASDAQ:AMCX), Lions Gate (NYSE:LGF), Viacom (VIA, VIAB), and CBS already had their tails in the air on Friday afternoon as merger talk between AT&T and Time Warner heated up.

Today's Markets

In Asia, Japan +0.3% to 1723. Hong Kong +1.0% to 23604. China -0.3% to 9983. India +0.4% to 28201.
In Europe, at midday, London +0.1%. Paris +0.7%. Frankfurt +0.8%.
Futures at 6:20, Dow +0.4%. S&P +0.4%. Nasdaq +0.6%. Crude +0.01% to $50.85. Gold -0.06% to $1267.00.
Ten-year Treasury Yield Flat at 1.73%

Today's Economic Calendar

8:30 Chicago Fed National Activity Index
9:00 Fed's Dudley: "Evolving Structure of the U.S. Treasury Market"
9:05 Fed's Bullard speech
9:45 PMI Manufacturing Index Flash
1:45 PM Fed's Powell: "Future of the settlement process for Treasury market"

Companies reporting earnings today »