The summer's big business trends are crumbling

A withdrawn buyout offer and a drugstore chain's decision to stay home represent a dramatic shift in sentiment.

By MSN Money Partner Aug 6, 2014 12:52PM
People walk by a Walgreens in Boston, Mass., on April 30, 2013 (Photo by Wendy Maeda/The Boston Globe via Getty Images)By Myles Udland, Business Insider

The two biggest trends of the summer have fallen apart: mergers & acquisitions and tax inversions.

On Tuesday, more than $100 billion worth of proposed mergers was withdrawn as 21st Century Fox (FOXpulled its bid for Time Warner (TWX) and reports said Sprint (S) would not make an offer for T-Mobile (TMUS).

Additionally, Walgreen (WAGannounced that it would acquire the remaining stake in European pharmacy chain Alliance Boots it did not already own, but as part of the deal the company will not move its tax base overseas in a tax inversion deal.

These pieces of news represent a dramatic and rapid shift in the behavior of companies in the market. And what's more, investors are punishing these companies. 

Following the news that Fox is pulling its deal for Time Warner, shares of Time Warner were down 12 percent Wednesday. And shares of both Sprint and T-Mobile reacted negatively to that deal not coming together, with Sprint falling nearly 19 percent and T-Mobile losing almost 7 percent. 

Shares of Walgreens were also getting punished, falling more than 12 percent after the announcement.

In the first half of 2014, total proposed merger volume was running at a roughly $1.5 trillion annualized pace, the highest since 2007. Following Fox's offer for Time Warner, this chart showing Rupert Murdoch's three latest acquisitions made the rounds, showing Murdoch nailing the previous two market tops. 

Photo credit: @SaraEisen                                                                                                             Image credit: @SaraEisen

And while this chart is a facile illustration of Murdoch's acquisitions against the stock market, the reaction gave us an interesting window into the psychological state of the market. 

Walgreens' announcement that it would not execute a tax inversion, a controversial but legal maneuver that has seen companies acquire foreign companies and move their tax base to avoid paying U.S. taxes on foreign sales, also signals a change in corporate behavior. 

Walgreens' announcement follows news on Tuesday that the Obama administration is reviewing possible actions to stem the tide of companies shifting their tax base overseas. 

In addition to commentary out of the White House, tax inversions have drawn the ire of other commentators ranging from Mark Cuban to Stephen Colbert, but this chart from Goldman Sachs shows that rhetoric hasn't really stopped companies from trying these deals. Until now, it seems. 

                                                                                                               Credit: Goldman Sachs

Last week saw the Standard & Poor's 500 Index ($INX) endure its worst week in two years, dropping more than 2 percent. And while the benchmark index is still less than 5 percent off its most recent highs, many are wondering if the market is getting ready for a long-anticipated correction. 

On Monday, we highlighted commentary from Jonathan Krinsky of MKM Partners, who wrote that for the past year and a half, the market has been effectively "crying wolf" at every small decline by quickly recovering any losses and again moving higher. Krinsky said that now, the wolf may finally be coming

In an environment in which investors seem to be looking for an excuse to sell stocks, the breakdown of two powerful corporate trends might be enough to really spook the market.

More from Business Insider

Aug 6, 2014 2:07PM
Walgreens caved. We will never get tax reform if they cave in to socialist pressure.
Aug 6, 2014 2:22PM
The US should be attractive to business. It is time to adjust our tax and regulatory regimen to attract and keep business in the US. We don't need the lowest corporate tax rates or the freest markets, to be pro business. We can't be pro worker without being pro business. 
Aug 6, 2014 2:27PM

I applaud Walgreens (WAG) for their actions...Much more then other Americans or American owned companies that I'm aware of...

Unfortunately it is a "double edged sword" because WAG is one of our major holdings, and we are taking it in the shorts Today...

My recommendation would be a BUY today, because of the 14-15% dip now; And that does not include the downside yesterday...The company is worth more than their beating..IMO

A buying opportunity...

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.