Market commentary: France’s GDP and the Verizon’s takeover of AOL

This is an important week for Europe with the release of GDP data for France and Germany and the presentation of the latest economic forecasts from the Bank of England.

While the Eurozone Member States are still locked in intense negotiations over Greece, some good news came from France after the country reported better than expected GDP growth on Tuesday. The second largest Eurozone’s economy expanded 0.7% in the first quarter of the year beating economists’ predictions for a growth rate of 0.4%.

The positive data has been welcomed by investors and European policy makers as a clear indication that the ECB’s QE program and the indirect benefits of low oil prices have finally made their way into the real economy, encouraging consumer spending and business investments.

France started 2015 with its best GDP reading in two years, after recording flat data for the previous quarter and experiencing sluggish growth and increasing government spending over the past few years. Germany is also seen to have grown 0.5% over the first three months of the year as the International Monetary Fund expects Europe to eventually expand over 1% in 2015, supported by a weak Euro and a possible definitive resolution of the Greek crisis.

France’s positive GDP reading may prove a catalyst to counterbalance concerns over Greece and finally provide some support to European equity and bond markets that have been experiencing a widespread selloff with investors going “risk off” across most of European asset classes. The French CAC 40 jumped over 1% in early trading this morning, fuelling a rebound in European stocks with all indexes opening higher.

On the other side of the Atlantic, Verizon Communication Inc. took the spotlight on Tuesday afternoon when it announced that the company had agreed to takeover AOL Inc in a deal valued as much as $4.4 billion.

The US largest wireless provider will pay $50 per share, offering shareholders a 17% premium over AOL’s Tuesday market price, pushing shares in the internet company to jump 18.62% and close at $50.52. Verizon, after buying out Vodafone plc’s stake and gaining full control over its wireless subsidiary, is now joining the battle for a piece of the increasing lucrative mobile and advertising market, hoping to offset declining revenues from its telecommunication core businesses.

Throughout this takeover the telecom giant managed to acquire two important technologies and new set of revenue streams that will help Verizon to compensate for the increasing competition in the wireless and traffic data sectors that have faced declining margins due to a price war initiated by smaller carriers such as T-Mobile and Sprint Corp.

By taking over AOL’s exclusive video and its ability to automatically targeting ads to mobile devices the company intends to shore up its own mobile streaming services, scheduled to take off next month, and will attempt to steal market shares from Google and Facebook that have become the dominant player with the mobile and advertising businesses.

This takeover is also a sign that, as many analysts have predicted, the cable and telecommunication sectors are undergoing an industry consolidation cycle that started with the recently abandoned Comcast-TWC merge, continued with the combination of AT&T and DirectTV, and is now led by the acquisition of AOL by Verizon.

It is interesting to notice that the two largest US telecommunications entities AT&T and Verizon have indeed adopted two very different expansion strategies: with the former entering the cable and content development market through the acquisition of DirectTV, and the latter pursing an entry in the mobile and advertising market through the acquisition of AOL.

While both models face the completion of large dominant players such as Google, Facebook, Netflix and CBS, both companies have the size and the cash to fund a successful expansion which is likely to reshape the way we consume data, news and mobile devices.

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

More in Business Comment