Stock prices stabilized on Wednesday. The Dow Jones Industrial Average (DJINDICES: ^DJI) fell, but the S&P 500 (SNPINDEX: ^GSPC) rose by about the same percentage.
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Biotech stocks notched big gains for the second straight day, with the SPDR S&P Biotech ETF (NYSEMKT: XBI) adding 2.3%. Retail stocks also were strong; the SPDR S&P Retail ETF (NYSEMKT: XRT) closed up 1%.
As for individual stocks, Twenty-First Century Fox (NASDAQ: FOXA) (NASDAQ: FOX) jumped after Walt Disney (NYSE: DIS) sweetened its bid for its assets, and Starbucks (NASDAQ: SBUX) fell after issuing an operational update.
Image source: Getty Images.
Fox accepts a bigger offer from Disney
Disney struck back against Comcast's competing offer to buy most of Twenty-First Century Fox by upping its offer 36% to $71.3 billion in stock and cash. The agreement has been approved by the boards of both companies and is subject to approval by shareholders and regulatory authorities. Class A Fox shares rose 7.5% and Disney stock closed up 1% on the news.
Under the agreement, Fox shareholders may elect to receive either $38 in cash for each Fox share, or a number of Disney shares equivalent to $38 if the average price of Disney stock is between $93.53 and $114.32. If the average price of Disney stock is below $93.53 or above $114.32, Fox shareholders will receive an exchange ratio of 0.4063 or 0.3324, respectively.
The requests will be prorationed so that the total payout will be approximately 50% cash and 50% stock. The newly issued 343 million Disney shares will represent a 19% stake in Disney, as compared to the 25% stake represented by the original deal announced in December.
The new agreement between Disney and Fox leapfrogs over Comcast's all-cash bid of $35 per share last week. Given the lack of movement in Disney stock price, investors may be undecided whether the House of Mouse is overpaying for the assets or sealing the deal on a treasure trove of properties that the company can exploit for decades.
Starbucks announces slower growth, bigger dividend
Starbucks shares were pummeled 9.1% after the company issued an update that revealed slowing same-store sales growth and announced plans to stimulate growth that investors apparently found less than convincing.
No doubt the most troublesome news in the press release was the projection that fiscal third-quarter comparable-store sales growth will come in at 1%. That figure was 2% in Q2, and in the earnings call in April, Starbucks officials said they expected 3% growth in Q3. The press release implied that slowing growth in the U.S. and China was to blame.
In order to reinvigorate comps growth, the company said that in fiscal 2019 it will slow licensed store growth and increase the rate of closure of underperforming stores to 150, three times more than its ordinary pace. The press release also said that Starbucks will increase product innovation and invest in new digital initiatives that management thinks will add 1 or 2 percentage point on comps growth next year.
Investors were probably skeptical that digital initiatives could double the comparable-store sales growth rate, and might have also concluded that a slowdown in store count growth will be a headwind for the company's results next year. But on the positive side, Starbucks announced a 20% increase to the dividend, bumping the yield up to a healthy 2.8%, and increased its projection of cash returns to shareholders through dividends and share buybacks from $15 billion to a whopping $25 billion through fiscal 2020.
Starbucks may be making a transition to a mature business that is attractive to value and income investors, but its traditional base of growth investors headed for the exits today.
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Jim Crumly owns shares of Starbucks and Walt Disney and has the following options: long January 2020 $50 calls on Starbucks. The Motley Fool owns shares of and recommends Starbucks and Walt Disney. The Motley Fool has a disclosure policy.