Pulled down by biotechs and ongoing concerns regarding the true health of the global economy, stocks were hit particularly hard to start the new week out. The S&P 500 lost 2.57% of its value to close at 1881.77, which is its second-lowest closer of the year.
And for shareholders of Energy Transfer Equity LP (NYSE:ETE), Sprint Corp (NYSE:S) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX), it was much, much worse. Here’s why.
Valeant Pharmaceuticals Intl Inc (VRX)
Most of the time, threats of legal action are merely theoretical, off-the-cuff remarks indicative of shareholder frustration. As it turns out, though, the ones that have made Bill Ackman and Valeant Pharmaceuticals something of a scapegoat over the past several months are taking a more serious tone.
VRX shares plunged 16% on Monday after it was reported that Congress was pushing for a subpoena of Valeant Pharmaceuticals, requesting documents relating to price increases put in place earlier in 2015, and possibly even requesting a representative of the company testify next week regarding the same.
The news was ultimately an extension of last week’s buzz that presidential hopeful Hillary Clinton was looking to crack down in rampant, unchecked price gouging from makers of specialty pharmaceuticals; Valeant Pharmaceuticals most definitely is in that category. But, VRX is particularly vulnerable — and apparently even more so than first imagined — in that it has to take on the added expense of buying its specialty drugs rather than developing its own.
Energy Transfer Equity LP (ETE)
The good news is, after months of back-and-forth wrangling, Energy Transfer Equity is finally going to buy Williams Companies Inc (NYSE:WMB). The bad news is, judging from the roughly 13% plunge from ETE and the 12% tumble from WMB suffered today, nobody seems to be particularly happy about the deal.
The offer being extended to WMB shareholders is 1.8716 shares of ETE for every share of Williams Companies. But, if they like, Williams shareholders may receive up to 20% of their offer as cash rather than all stock. Energy Transfer Equity is also throwing in a special dividend of 10 cents per share of WMB as a parting gift.
Though the terms of the deal weren’t thrilling to shareholders on either side of the table, today’s 2.5% dip in the price of oil against a backdrop of growing concerns that demand is softening may have been a contributing factor to today’s setbacks for WMB and ETE.
Sprint Corp (S)
Last but not least, Sprint has decided it’s not interested in buying any more radio spectrum even though it has an opportunity to do so next year. As such, it has largely given competitor T-Mobile US Inc. (NYSE:TMUS) the green light to buy as much as it wants. Indirectly, the decision to skip next year’s auction could be interpreted by current or would-be S shareholders as a lack of willingness or ability to grow.
On a semi-related note, Sprint CEO Marcelo Claure also made it clear late last week that the company wasn’t in any discussions with a potential cable television partner, even though such a pairing between rival AT&T Inc. (NYSE:T) and DirecTV has offered some upside to shareholders thus far.
S shares fell 8% on the news.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
