The stock market has been on a tear for more than a month now, and so it's not unreasonable to see major market benchmarks taking a pause coming into a new week. Stock indexes were mostly flat at the open on Monday morning, with investors looking forward to the latest decision on interest rates and monetary policy from the Federal Reserve later this week.
However, a couple of stocks got into the holiday spirit Monday morning, both on deal-related news. Macy's (NYSE: M) could reportedly be the target of an acquisition bid, while Cigna Group (NYSE: CI) called a potential deal off. Nevertheless, shareholders in both companies are happy with the potential outcomes. Here's more on these two must-watch stocks heading into the new week.
Private equity companies are going shopping for Macy's
Shares of Macy's jumped 15% at the open on Monday morning. The iconic retailer could be going private, if reports of a takeover bid are correct.
Multiple news outlets reported that institutional investors Arkhouse Management and Brigade Capital have joined forces to make an offer to buy out Macy's. The reported value of the bid is $5.8 billion, with shareholders potentially receiving $21 per share in cash for their Macy's stock if the retailer reaches a final agreement with the private equity group.
In addition, some investors believe that the going-private bid for Macy's might get sweetened in the near future. As of early Monday morning, Macy's hadn't issued a press release about the reported bid.
Despite the quick pop in Macy's stock price, some long-term shareholders might well be irritated at the timing of the deal. With the stock having fallen by two-thirds since the mid-2010s, Macy's had finally started to show some signs of recovering from recent difficulties related to inventory management and shopping trends. If Macy's goes private, then it could potentially be Arkhouse and Brigade enjoying the benefits of any future recovery, rather than the patient shareholders who've stuck with the retailer through good times and bad.
Cigna says no to a Humana buyout, pays shareholders instead
Meanwhile, shares of Cigna climbed 13% early Monday. The healthcare giant had been considering a buyout of its own, but news that it would divert that money toward shareholders instead pushed the stock price higher.
Cigna said on Sunday that it would add a new $10 billion to its share repurchase authorization, bringing the total in authorized buybacks to $11.3 billion. Of that amount, Cigna expects to use at least $5 billion on buybacks by the end of June 2024, in part through an accelerated share repurchase program in the first quarter. The buyback reflects Cigna's belief that its shares are significantly undervalued.
More importantly from a strategic standpoint, Cigna CEO David Cordani noted that the healthcare company "will consider bolt-on acquisitions" in the current market environment. Although Cigna's press release didn't specifically mention it, the buyback increase also came amid reports that Cigna would no longer pursue a merger with health insurance peer Humana. Such a deal would likely have invited regulatory scrutiny from the Department of Justice, which has a history of blocking similar deals in the health insurance industry.
Cigna stock had fallen on initial reports of its interest in Humana, so it's not surprising to see a rebound as that idea fades. Moreover, with the prospect of reducing outstanding share counts by more than 10%, some shareholders like the idea of having a larger percentage stake in the health insurer going forward.
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
