Tags: Fed | rate | Time Warner | Charter

Why the Time Warner-Charter Deal?

By    |   Wednesday, 27 May 2015 10:56 AM

Traders returning from the Memorial Day weekend found a landmark acquisition of Time Warner (TWC) by Charter Communications (CHTR). It is only reasonable to look for an explanation of the timing and what it may mean for the bigger picture for mergers and acquisitions.

Dan Scott, vice president of Credit Suisse, addressed these questions on CNBC. Asked whether this deal is overpriced, reminiscent of the classic deal 15 years ago when Time Warner acquired AOL, Scott noted that one should also look at the leverage, which he finds not excessive. He went on to say, "One of the drivers for M&A overall is that companies have not even had to lever their balance sheets to execute big M&As, so within this industry and many others, it just makes sense to do M&A." For Charter, Scott estimated that it will gain 12 million subscribers, along with cost synergies of $2.5 billion.

Next, Gerard Fitzpatrick, chief investment officer for fixed income at Russell Investments, expounded the consensus view that the meaning of the latest comments from Federal Reserve Chair Janet Yellen is that the economy is strong enough to justify a rate increase this year and as soon as September. He also cited remarks by Fed Vice Chairman Stanley Fischer as indicating that events overseas, especially the prospect of a Greek default, support the U.S. Treasury market and the prospect of a gradual rise in rates. Fitzgerald was quite sanguine regarding the attractiveness of bank loans and other instruments yielding more than Treasurys in a continued low-yielding environment. This writer remains cynical about the ability of the Fed to raise rates this year and to deliver an orderly increase, and suspects the Fed is already behind the curve of the market.

The estimable Dennis Gartman, editor of The Gartman Letter, recalled the course of trading in dollar-yen when the yen was 160 and even 290 to the dollar. Several years ago it got as low as 49.95. So from this vantage point, a drop back to 123, a high for the dollar over the last several years, is "relatively minimal," and Gartman sees 175 in prospect, and he praised the Japanese for administering the currency in an "extraordinarily efficient" manner to enable their industry to enjoy large profit margins. Thus, he sees a continued weak yen as bullish for Japanese stocks. Gartman estimated that the upward trend of the dollar is still in its early stages and has years to go. This writer would suggest that how the dollar can be so strong when U.S. policy is so poorly managed will continue to be one of the most interesting questions. In the short run it has to do with the threat of a Grexit or a Graccident that causes a flight to the dollar.

Finally, Chris Watling, CEO of Longview Economics, joined the debate over when the Fed will raise rates and cited strength in the housing sector as a driver for Fed action this year. Asked whether the stock market remains an attractive source of yield, Watling responded, "This recovery has been built on cheap money and cheap labor, and once you start taking that away, its attractiveness starts to diminish, and I think that's where we're at. We're in a very expensive market, the money about to start getting tighter, because wage inflation is starting to come through, the economy's getting stronger, and the Fed's going to move." He called this 'a very bad mix" in view of what he called "disappointing productivity."

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
Robert-Feinberg
Traders returning from the Memorial Day weekend found a landmark acquisition of Time Warner (TWC) by Charter Communications (CHTR). It is only reasonable to look for an explanation of the timing and what it may mean for the bigger picture for mergers and acquisitions.
Fed, rate, Time Warner, Charter
587
2015-56-27
Wednesday, 27 May 2015 10:56 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved