Today's Market: Mergers, Stock Splits And Restructurings Dominate News

by: Matthew Smith


Health insurers are looking to further consolidate the industry, with CI turning down ANTM recently.

UA will create a new class of stock with no voting rights and use it to provide investors with a "stock split".

GPS is closing Gap stores and laying off employees at its HQ in an effort to cut costs and streamline operations.

Worries continue to grow as Greece takes a hard stance on its position at the bargaining table. The ECB and other European entities appear quite frustrated with the situation and we have seen various quotes from key people saying that whatever happens next will be a result of what Greece does, which indicates to us that everyone seems to agree to disagree.

Europeans love to negotiate, in fact, as we have seen in the past, they like to negotiate about things which have previously been negotiated. We joke that negotiations on the continent never come to an end because everyone always seems interested in revisiting previous agreements. This time, however, it appears that the rest of Europe is prepared to abandon Greece because the country's leaders have fully played their hand and are not only unwilling to accept defeat but continue to try and dictate more concessions. This is not how it is supposed to work and to put it simply, Europe is mad.

There is not a lot of economic news due out today, with only housing starts and building permits, so the US markets will most likely be at the mercy of the news flow coming out of Europe. Watch for equities to remain under pressure and for capital to seek shelter in safe, liquid places.

Chart of the Day:

The US 10-Year Treasury has risen sharply recently, driving rates about 10% lower as investors brace for bad news from Europe, the IMF and Greece.

Source: CNBC

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

  • Housing Starts (8:30 a.m. EST): Est: 1100k
  • Building Starts (8:30 a.m. EST): Est: 1100k

The Asian markets are lower today:

  • All Ordinaries - down 0.05%
  • Shanghai Composite - down 3.44%
  • Nikkei 225 - down 0.64%
  • NZSE 50 - down 0.10%
  • Seoul Composite - down 0.67%

In Europe, markets are lower today:

  • CAC 40 - down 0.69%
  • DAX - down 0.78%
  • FTSE 100 - down 0.51%
  • OSE - down 0.22%

Health Insurers Look To Consolidate

Investors rushed to bid up shares of health insurers yesterday after the Wall Street Journal reported that Anthem (NYSE:ANTM) had approached Cigna (NYSE:CI) about a possible takeover two separate times recently. According to unnamed sources cited by the Journal, Cigna turned down an offer which would have valued the health insurer at $175/share, or a premium of over 27% to Friday's closing stock price. News of the offers and Anthem's interest pushed Cigna shares higher by nearly 12%, while Anthem shares rose over 2.3%.

Other health insurers also attracted attention as news began to circulate that others could be interested in Cigna, such as Aetna (NYSE:AET), or in Humana (NYSE:HUM). With big names still lurking out there as buyers, think UnitedHealth Group (NYSE:UNH), bidding wars could erupt as everyone jockeys for positioning within the industry.

Based on the reports we have read, Cigna is the key because it could either be a buyer or a seller in this market and no matter which decision it makes, it will set the tone for the market. While this may sound silly, readers need to understand that Cigna's management has two options; accept a rich takeover offer from someone larger or make their own takeover offer for Humana and possibly start a bidding war. Either move would have a domino effect on the industry as all major players are looking for further ways to increase margins and keep profits growing now that 'Obamacare' enrollment growth is tapering off.

Under Armour Announces Stock Split

Under Armour (NYSE:UA) announced a special stock dividend which will create a new class of shares without voting rights, as the company and its founder, Kevin Plank, look to preserve his control of the athletic apparel maker while enabling him to continue to lower his ownership in the company. The special stock dividend will effectively serve as a stock split and will also allow Mr. Plank to continue selling shares while no longer having to be concerned about falling below the 15% ownership threshold he is required to maintain, via his founders shares, to preserve his super voting rights.

The company also announced that as part of the arrangement Mr. Plank has agreed to limits on how much stock (presumably non-voting shares) he can sell in any given year as well as a non-compete agreement which would force the founder to stay out of the industry for five years once he was no longer with the company.

This move may sound familiar to readers, and it should, because Google (NASDAQ:GOOG) (NASDAQ:GOOGL) did the same thing in order to preserve its founders' control of the company. That move led to a lawsuit which the tech giant recently settled.

Gap Moves To Cut Costs

As it seeks to address growth issues at its namesake stores, Gap (NYSE:GPS) announced that it will close 175 stores in the North American market and cut 250 jobs at the company's headquarters. The company plans to close 140 locations by the end of its current fiscal year, which ends January 31. 2016 and will close the remaining 35 locations after that. These cost cutting measures will cost the company between $140 and $160 million and will save $25 million annually. While the cost savings will help, the company is focused on eliminating jobs which make it slow as it seeks to have the ability to make decisions quickly and compete with other retailers who can quickly change fashions and merchandising.

This is a good move by the company to focus on turning around its namesake stores because they have been a drag on results in recent quarters. The Old Navy brand has led the way higher, and although Banana Republic has not been a great performer, it certainly has not been the anchor that Gap has (and it is not nearly as big in terms of revenues or store count).

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.