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Midday Market Update

Stocks Mostly Lower After M&A News, European GDP Data

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U.S. Market    
Stocks were mostly lower this morning after M&A news and disappointing economic data from Europe.

Eurozone GDP shrank 0.6% in the fourth-quarter from third-quarter levels. Economists had expected a more modest 0.4% decline. GDP was off 0.9% year-over-year. Germany and France also reported worse-than-expected national level GDP data today.

Initial unemployment claims fell a better-than-expected 27,000 to 341,000 last week. The less volatile four-week moving average rose 1,500 to 352,000, near a five-year low.

At midday the Dow, S&P 500 and Nasdaq were each down 0.1%.

Stocks on the Move
Wide-moat-rated  Berkshire Hathaway (BRK.A) (BRK.B) announced this morning that it has agreed to acquire packaged foods firm  HJ Heinz (HNZ) in a $28 billion deal that has been put together in conjunction with 3G Capital, a Brazilian private equity firm. Early indications are that Berkshire and 3G Capital will be putting up most of the cash portion of the deal (equal to $23.2 billion), with Warren Buffett noting that Berkshire and 3G Capital will each be directing $4 billion toward the joint buyout, with Berkshire also paying $8 billion for preferred shares. The rest of the cash portion of the deal will be covered by debt financing. Berkshire shares were up less than 1% on the news while Heinz shares soared 20%.

 US Airways (LCC) and AMR (AAMRQ) announced a  merger agreement today to create the world's largest airline. The combined entity is worth between $10 billion and $11 billion based on US Airways' Feb. 13 closing stock price. US Airways shareholders will own 28% of the carrier (approximately $2.5 billion-$3 billion) while AMR stakeholders and its debtor subsidiaries will own 72% ($7.5 billion-$8 billion). The companies expect the merger to close by the third quarter. US Airways shares fell 6.5% on the long-rumored news.

Shares of  Constellation Brands (STZ) rose more than 35% after a  new agreement with  AB-InBev's (BUD) to acquire Modelo. Under the new agreement, Constellation will be granted 100% ownership of Crown, a perpetual license to distribute Modelo brands (including Corona) in the U.S., as well as ownership of the state-of-the-art Piedreas Negras brewery. Since Constellation will own the production and distribution of Corona, we believe the DOJ will have no choice but to approve the deal. Additionally, ABI now anticipates it can generate $1 billion of synergies from the Modelo acquisition (compared with previous estimates of $600 million). Including asset sales and cost synergies, ABI will be paying roughly $12.9 billion in a transaction that values Modelo's assets at 9.3 times EV/Adjusted EBITDA. ABI shares were up 5% at midday.

 General Motors Company (GM)  reported fourth-quarter results Thursday morning that missed EPS consensus ($0.48 versus $0.51 consensus), but did beat on revenue, which rose by 3% to $39.3 billion from the prior year's quarter. The company is maintaining its guidance to break-even in Europe by mid-decade. For the quarter, GM boosted adjusted EBIT margins by 30 basis points year over year to 3.2% thanks to improvements in volume and mix offsetting negative contributions from pricing and cost increases. GM North America, however, saw its margin and adjusted EBIT fall by 70 bps and 6.8%, respectively, despite revenue increasing 4.8%, as positive contributions from volume and mix could not offset pricing headwinds and cost increases. Shares were down 1.6% on the report.

Foreign Markets
European markets were lower after the worse-than-expected eurozone GDP readings. The FTSE 100 and Paris CAC were each off 0.5% while Germany’s DAX was down 1.0%.

Asian shares were mostly higher on the day. The Shanghai CompositeNikkei 225 and Hang Seng were up 0.6%, 0.5% and 0.9% respectively.

Jeremy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.