U.S. Stocks Slump; Covidien to Acquire Ev3

Arthi Gupta, Mayank Mehta and Sanjay Barot
01 Jun, 2010
New York City

U.S. and world markets struggle on declining manufacturing growth in China, political turmoil in Japan and continued oil leaks in Gulf of Mexico. Investors are still worried about the elevated risks for sovereign debt default in the euro-zone. Covidien agrees to acquire Ev3 for $2.6 billion in cash.

[R]9:45 AM New York – U.S. and world markets struggle on declining manufacturing growth in China, political turmoil in Japan and continued oil leaks in Gulf of Mexico. Investors are still worried about the elevated risks for sovereign debt default in the euro-zone. Covidien agrees to acquire Ev3 for $2.6 billion in cash.[/R]

U.S. and world markets fell after an unexpected drop in manufacturing growth in China and political turmoil in Japan. Resource stocks led the decliners. AIG refuses to lower the price for its Asia unit sale to Prudential Plc. BP Plc struggles to contain oil leak in Gulf of Mexico.

Euro-zone manufacturing recovery slowed significantly in May, according to data from the Markit Economics. The final Purchasing Managers' Index stood at a 3-month low of 55.8 in May.

American International Group, Inc. said that it will not consider revisions to the agreement terms it reached earlier with Prudential Plc for Prudential to acquire the New York-based company's wholly owned Asian insurance unit.

Last week, Prudential confirmed that it is renegotiating with AIG regarding purchase terms of AIG's Asian insurance unit and said that the discussions may or may not lead to a change in the terms of the combination of AIA and Prudential.

On March 1, AIG agreed to sell its Asian life insurance unit American International Assurance Co. Ltd. or AIA, to Prudential for about $35.5 billion in cash and stock.

BP Plc announced that it plans to further enhance the lower marine riser package or LMRP containment system currently scheduled to be deployed this week with further measures that are expected to keep additional oil out of the Gulf of Mexico.

The first planned addition is intended to use the hoses and manifold that were deployed for the 'top kill' operation to take oil and gas from the failed Deepwater Horizon blow-out preventer through a separate riser to an intervention vessel on the surface, in addition to the LMRP cap system.

According to the company, this system, which currently is expected to be available for deployment in mid-June, is intended to increase the overall efficiency of the containment operation by possibly increasing the amount of oil and gas flow that can be captured from the well.

It is anticipated that the next planned operation will provide a more permanent system by directing oil and gas to a new free-standing riser ending about 300 feet below sea level. A flexible hose then will be attached to a containment vessel.

The company stated that this long-term option is designed to permit the system to more effectively disconnect and reconnect the riser to provide the greatest flexibility for operations during a hurricane. Implementation of this enhancement is expected in late June or early July.

Covidien plc and ev3 Inc. announced a preliminary merger agreement under which Covidien will acquire all of the outstanding shares of ev3 Inc. for $22.50 per share in cash, for a total of $2.6 billion, net of cash acquired. The combination is expected to be accretive to both revenue and earnings growth rates.

The transaction, which will take the form of an all-cash tender offer by a wholly-owned subsidiary of Covidien, followed by a second-step merger, is subject to customary closing conditions, including receipt of certain regulatory approvals, and is expected to be completed by July 31, 2010.

Commodities, Currencies and Yields

Dollar edged higher against euro to $1.2128 and decreased against the Japanese yen to 90.95.

Crude oil decreased $1.89 to $72.08 a barrel for a front month contract, natural gas edged lower $0.03 cent to $4.31 per mBtu and gasoline decreased 5.540 cents to 197.12 cents.

Gold increased $9.10 in New York trading to close at $1,224.10 per ounce, silver closed lower $0.032 to $18.39 per ounce and copper for the front month delivery decreased 7.700 cents to $3.02 per pound.

Yields on 10-year U.S. bonds increased to 3.24% and on 30-year U.S. bonds traded at 4.17%.

Stock Movers

American International Group, Inc. rose 0.2% after the insurer today announced that after careful consideration the company will adhere to the original terms of its previously announced agreement with Prudential plc for Prudential to acquire AIG's wholly owned pan-Asian life insurance subsidiary AIA Group Limited.

BP Plc plunged 11.8% after the energy producer was downgraded to “sell” from “buy” at Arbuthnot.

Citigroup Inc., the diversified financial services holding company declined 1.5%.

Fifth Third Bancorp, the lender fell 1.9% after has appointed William Isaac to its board and has also named him as a non-executive chairman.

Harman International Industries, Incorporated fell 1.2%.

Icahn Enterprises L.P., the investment company rose 1.6%.

Earnings Review

Blue Coat Systems, Inc. ((BCSI)), the security hardware and software maker said fourth quarter revenues rose 16.7% to $132.6 million from $113.6 million a year ago. Net income in the quarter was $23.6 million or 49 cents per diluted share compared to net loss of $3.5 million or 9 cents per share a year ago.

Diamond Foods, Inc. ((DMND)), the nuts and snacks seller said third quarter sales rose 25% to $138.7 million from $111.0 million a year ago. Net loss in the quarter was $4.3 million or 22 cents per diluted share compared to net income of $2.7 million or 16 cents per share a year ago.

Esterline Technologies Corporation ((ESL)), the aerospace and defense parts supplier said second quarter sales rose 8% to $387.6 million from $359.5 million a year ago. Net income in the quarter rose 15% to $29.6 million or 98 cents per diluted share compared to net income of $25.7 million or 86 cents per share a year ago.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 56.87 or 0.58% to 9,711.83, Hang Seng index in Hong Kong decreased 268.24 or 1.36% to 19,496.95 and CSI 300 index in China lower 29.10 or 1.05% to 2,744.16. ASX 200 index in Australia decreased 16.60 or 0.37% to 4,413.10. The FTSE Bursa KL Composite index in Malaysia closed lower 2.04 or 0.16% to 1,282.97.

The Kospi Index in South Korea decreased 10.85 or 0.66% to close at 1,630.40. SET index in Thailand closed lower 9.51 or 1.27% to 740.92 and JSE Index in Indonesia decreased 72.34 or 2.59% to 2,724.62. The Sensex index in India decreased 372.60 or 2.20% to 16,572.03.

Europe Markets Review

In London FTSE 100 Index closed lower 108.40 or 2.09% to 5,080.03, in Paris CAC 40 Index decreased 82.89 or 2.36% to 3,424.67 and in Frankfurt DAX index traded lower 103.05 or 1.73% to 5,861.28. In Zurich trading SMI decreased 49.71 or 0.79% to 6,262.89.