Market Overview
The stock market has continued its record setting run this month, buoyed recently by economic data suggesting inflation remains under control. Recent comments from Federal Reserve Bank of St. Louis president William Poole that the current policy position was “about right” have also assuaged investors’ concerns about possible future rate hikes.
According to recently release CPI figures, consumer prices fell for second straight month in October, helped by another decline in gas prices. The CPI, following PPI data that showed bigger than expected declines in both overall and core numbers, dropped by 0.5 percent last month, better than the expected 0.3 percent decline and matching the figures for the month of September. This marks the first back-to-back drops in the CPI since late last year and coupled with a core CPI that rose just 0.1 percent, the lowest increase in eight months, serves as further evidence that inflationary pressures are on the decline.
The PPI and CPI numbers were welcomed by both investors and the Fed, who according to recently released minutes from the October 24-25 meeting still remain more concerned with inflation than a slowing economy. The recent economic data reinforces the market belief that the Fed will take no action on rates at the upcoming December 12 meeting.
M&A Overview
Market sentiment has also been boosted by the announcement of several high profile acquisitions. US Airways $8 billion bid for Delta Airlines has boosted the airline sector as investors see the possibility of additional consolidation in the industry. Healthcare has also seen recent activity as CVS made a major splash with its $21 billion acquisition of Caremark, spurring talks that Caremark rivals Express Scripts and Medco Health Solutions could be acquisition targets. Media properties continue to generate a lot of attention from buyout shops, with Clear Channel recently announcing a major offer to take the company private.
Despite the growing threat of internet advertising, which according to PriceWaterhouseCoopers reached a new high of $4.2 billion in the third quarter, marking the eighth consecutive quarter of growth, private equity interest in media properties continues to heat up. This interest is driven in part by the perception that the market is undervaluing the sector, which despite its slow growth rate continues to generate strong cash flows. The market has recently seen large private equity bids for properties spanning the media spectrum, with recently announced deals for Univision and Clear Channel, as well as several bids on the Tribune Co. Clear Channel just announced a buyout agreement with a group led by Thomas H. Lee and Bain Capital Partners for $18.7 billion, a deal that values the Company at a 10.2 percent premium, or $37.60 per share. On the business to business media front, Prism Business Media Holdings, a Wasserstein & Co. company, announced last week an offer of $530 million, including debt assumption, for $27 million market cap Penton Media, a deal that values Penton Media at 3.32 times revenue and 9.23 times EBITDA.
