Wall Street closed mixed on Monday, with the Dow bouncing back from an 82 point loss, as investors continued to weigh second-quarter corporate earnings ahead of the Federal Reserve's policy decision later this week. After the closing bell, Microsoft stock edged lower after the software giant was targeted in a Chinese antitrust probe while shares of Zillow, Trulia and Family Dollar continued to gain.
The Dow Jones Industrial Average fell 22.01 points or 0.13 percent, to close at 16,982.59. The S&P 500 edged up 0.57 points or 0.03 percent, to end at 1,978.91. The Nasdaq Composite fell 4.65 points or 0.10 percent, to finish at 4,444.91.
Microsoft Under Investigation in China
Microsoft Corp. (NASDAQ:MSFT) shares fell more than 1 percent Monday to close at $43.97 following a report the Chinese government made surprise visits to four of the software giant’s offices, the South China Morning Post reported Monday.
The report said investigators from China’s State Administration for Industry and Commerce made unannounced visits to Microsoft's offices in Beijing, Shanghai, Guangzhou and Chengdu. The report said it was unclear why Microsoft was being investigated, but that the focus was on “antitrust behavior.”
Joan Li, a Microsoft spokeswoman in China, confirmed to South China Morning Post in an emailed statement the software company was being investigated and said it would "actively cooperate" with the government.
China’s State Administration for Industry and Commerce did not respond to a request for comment on the investigation.
The news comes as JD.com Inc. (NASDAQ:JD), China's largest online direct sales company, began taking pre-orders for Microsoft’s Xbox One gaming console, the first entertainment console to hit China’s market since 2000. The console is scheduled to ship nationwide in September.
JD.com said it will have the exclusive right to accept pre-orders for Xbox One in China from July 28-30 through JD.com's Mobile QQ and Weixin entry points, which are Tencent Holdings Ltd.'s (HKG:0700) mobile social networks. On July 31, the JD.com website and JD.com's exhibition booth at the ChinaJoy Expo in Shanghai will also begin taking pre-orders.
“Through our partnership with Tencent, Chinese consumers are increasingly able to enjoy the JD.com shopping experience directly on China's most popular mobile communications platforms,” JD.com said in a press release. “We will continue to focus on providing the most convenient channels for Chinese consumers to purchase authentic products through their mobile devices.”
Shares of Microsoft fell 0.16 percent to $43.90 in after-hours trading.
Zillow to Acquire Trulia for $3.5 Billion
Shares of Trulia soared more than 15 percent Monday to close at $65.04. The stock edged down 0.86 percent to $64.48 in after-hours trading.
"Both companies have been enormously successful in creating compelling consumer brands and deep industry partnerships, but it's still early days in the world of real estate advertising on mobile and Web,” Spencer Rascoff, chief executive officer at Zillow, said in the press release. “This is a tremendous opportunity to combine our resources and achieve even more impressive innovation that will benefit consumers and the real estate industry."
As part of the agreement, Trulia shareholders will receive 0.444 shares of Class A common stock of Zillow for each share of Trulia, and will own nearly 33 percent of the combined company at closing.
Current Zillow holders of Class A common stock and Class B common stock will receive one comparable share of the combined company at closing, and will represent around 67 percent of the combined company.
"By working together, we will be able to create even more value for home buyers, sellers and renters, as well as create a robust marketing platform that will help our industry partners connect with potential clients and grow their businesses even more efficiently,” Pete Flint, chief executive officer at Trulia, said in the press release.
Zillow expects to achieve at least $100 million in annualized cost savings by 2016.
Shares of Zillow edged up 0.92 percent on Monday to close at $160.32. The stock edged down 0.2 percent to $160 in extended-hours trading.
Dollar Tree to Acquire Family Dollar for $8.5 billion
Dollar Tree Inc. (NASDAQ:DLTR) announced Monday the company has entered into a definitive merger agreement to acquire Family Dollar Stores Inc. (NYSE:FDO) in a cash and stock transaction expected to close by early 2015.
Shares of Family Dollar Stores skyrocketed over 24 percent on Monday to close at $75.74 following the announcement. The stock edged down 0.05 percent to $75.70 in after-hours trading.
The value of the consideration is $74.50 per share, a 22.8 percent premium over Family Dollar's closing price as of July 25, 2014. Under terms of the deal, Family Dollar shareholders will receive $74.50 for each share they own: $59.60 in cash and $14.90 in Dollar Tree stock.
“With the acquisition of Family Dollar Stores, Dollar Tree will become a leading discount retailer in North America, with over 13,000 stores in 48 states and five Canadian Provinces, sales of over $18 billion, and more than 145,000 associates on our team,” Bob Sasser, chief executive officer at Dollar Tree, said in the press release.
The deal comes a month after activist investor Carl Icahn, who owns a 9.4 percent stake in Family Dollar, said in a letter to Howard R. Levine, chairman and chief executive officer at Family Dollar, that he wanted the company to explore a sale. Family Dollar has “consistently underperformed its peers” and faces “growing competition,” Icahn said.
“It is clear that now is a perfect time to sell, given the advantageous stock market and interest rate environment. We also believe, based on the makeup of Family Dollar’s shareholder base as well as the precipitous rise in the market value of the company’s shares after we announced our position, that an overwhelming majority of the company’s shareholders would be in favor of a sale,” Icahn said in the letter.
On Thursday, July 10, Family Dollar Stores reported fiscal 2014 third-quarter earnings of cents 85 per share, excluding items, on revenue of $2.66 billion, compared with EPS of $1.05 on revenue of $2.57 billion in the same period a year ago. Net sales for the quarter ended May 31 increased 3.3 percent to $2.66 billion from $2.57 billion in the third-quarter of 2013. Comparable store sales for the 13-week period decreased 1.8 percent.
For the fourth-quarter, the discount retailer expects flat comparable store sales and estimates earnings per share of 75 cents to 85 cents, excluding approximately 37 cents related to restructuring charges. For fiscal 2014, Family Dollar expects earnings per share will be $3.07 to $3.17, excluding approximately 51 cents per share related to restructuring charges.
Dollar Tree is expected to report fiscal 2014 second-quarter earnings in August.
Shares of Dollar Tree rose more than 1 percent on Monday to close at $54.87. The stock edged up 0.04 percent to $54.89 in extended-hours trading.