AT&T Buying T-Mobile

March 21, 2011

Stocks are set to open higher after strong results in Asia and Europe last night following improvements in the Japanese nuclear situation and success with military actions in Libya. Over the weekend Japanese officials appear to have made progress in restoring power to two of the damaged Fukushima power plants, lessening the possibility of a major radiation release. The US, UK, and France have been enforcing a no-fly zone over Libya with a combination Tomahawk cruise missiles and fighter jets in an effort to help rebels in their battle against Muammar Qaddafi. The coalition was led by France, who has “returned” to the diplomatic arena for the first time in years. Treasury yields are rising as the macro fears subside.

The Fed approved Citigroup’s request to issue its first dividend since receiving the largest bailout among US banks. The company announced a $.01 per share dividend as well as a 10:1 reverse split. It is interesting to note that the performance history of stocks undergoing reverse splits has been rather poor.

AT&T announced plans to acquire T Mobile, creating the largest US wireless carrier. AT&T is getting a strong bid this morning in spite of the deal being dilutive for roughly three years, while Sprint’s stock is falling 13% on concerns they will be a distant third in the market behind AT&T and Verizon. AT&T and Verizon will control 80% of the US wireless market if the deal is approved. No timeline was given for a closing, but typically large telco deals take about a year to obtain DOJ and FCC approval. This one may also face Congressional scrutiny because of the expected loss of jobs resulting from the merger.

Leonard Green & Partners completed the all cash acquisition of Jo-Ann Stores today at $61.01 per share.

The World Bank is expecting the earthquake and tsunami will depress Japan’s growth, but only briefly through midyear. They feel that spending on construction will fuel growth for as long as five years, at a cost of $122-$235 billion.

The impact of the Japanese disaster is beginning to spread, adding turmoil to the Middle East, Africa and Europe. Morgan Stanley has lowered its Q1 DGP growth in the US from 4.5% to 2.9% as a result of supply chain disruptions from Japan.

The CBO is now estimating that the budget deficit during the next 10 years will be $2.3 trillion more than the most recent White House estimate. The CBO said that tax revenue will be less than the President’s projections.

The IMF is reporting that debt levels for developed countries is the highest since WWII, and that the average debt ratio of advanced economies will exceed GDP for the first time since the Big One.

March Madness began this past weekend, and while the number of upsets was fewer than in past years, there were some great games and a slew of games determined in the final seconds.

Have a great day

Ned