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A withdrawn buyout offer and a drugstore chain's decision to stay home represent a dramatic shift in sentiment.
On Tuesday, more than $100 billion worth of proposed mergers was withdrawn as 21st Century Fox (FOX) pulled its bid for Time Warner (TWX) and reports said Sprint (S) would not make an offer for T-Mobile (TMUS).
Additionally, Walgreen (WAG) announced 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 $1.5 trillion annualized pace, the highest since 2007. Following Fox's offer for Time Warner, this chart showing Rupert Murdoch's three latest acquisitions made the rounds, showing Murdoch nailing the previous two market tops.Image credit: @SaraEisen
And while this chart is a facile illustration of Murdoch's acquisitions against the stock market, the reaction gave us an interesting window into the psychological state of the market.
Walgreens' announcement that it would not execute a tax inversion, a controversial but legal maneuver that has seen companies acquire foreign companies and move their tax base to avoid paying U.S. taxes on foreign sales, also signals a change in corporate behavior.
Walgreens' announcement follows news on Tuesday that the Obama administration is reviewing possible actions to stem the tide of companies shifting their tax base overseas.
In addition to commentary out of the White House, tax inversions have drawn the ire of other commentators ranging from Mark Cuban to Stephen Colbert, but this chart from Goldman Sachs shows that rhetoric hasn't really stopped companies from trying these deals. Until now, it seems.
Credit: Goldman Sachs
Last week saw the Standard & Poor's 500 Index ($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
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...
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