U.S. Stocks Gain; Hertz, Dollar Thrifty Deal

Arthi Gupta
13 Sep, 2010
New York City

U.S. stocks trade higher after sharply higher industrial production and consumer demand in China. Industrial production in India also surged. The Basel Committee unveiled tighter guidelines for bank capital reserves. Hertz and Dollar Thrifty and LabCorp and Genzyme Genetics agreed to merger.

[R]10:00 AM New York – U.S. stocks trade higher after sharply higher industrial production consumer demand in China. Industrial production in India also surged. The Basel Committee unveiled tighter guidelines for bank capital reserves. Hertz and Dollar Thrifty and LabCorp and Genzyme Genetics agreed to merger.[/R]

Asian and European markets advanced. Ocean Power Technologies secured awards worth $4.8 million from U.S. Department of Energy.

The Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, on Sunday agreed to substantially raise the amount of capital that banks must set aside against potential losses.

The Committee said internationally active banks must now hold a minimum 7% of assets as total common equity. This includes a special """"capital conservation buffer"""" of 2.5% to withstand future periods of stress in the financial markets. The minimum requirement for common equity, which is highest form of loss absorbing capital, was raised to 4.5% from 2%.

In addition, Tier 1 capital which includes common equity and other qualifying financial instruments will be raised to 6% from 4%.

The new rules will be implemented as of January 1, 2013, when banks are expected to set a 3.5% of assets aside as minimum common equity and meet the Tier 1 capital requirements.

The Committee added if common equity levels fall below the minimum levels, regulators could force banks to hold back more of their earnings in reserves and suspend dividend payments and loan portfolios.

The U.S. Federal Reserve welcomed the new rules as a """"significant strengthening"""" in prudential standards for large and internationally active banks.

Data released by the National Bureau of Statistics in China said industrial production rose 13.9% from a year ago in August, stronger than the 13.4% rate in the previous month and compared to estimate of 13%.

The Head of the International Monetary Fund Dominique Strauss-Kahn, the International Labor Organization Director-General Juan Somavia and Norway''s Prime Minister Jens Stoltenberg said urgent action is needed to tackle the job crisis globally.

In a joint opinion piece published in the Spanish newspaper El Paris on Sunday ahead of the joint-conference hosted by the ILO and the IMF in Oslo, Norway, they said that the latest data on unemployment showed that 210 million people are out of work globally, representing an increase of 30 million since 2007, the highest level of official unemployment in history.

The European Commission sees strong recovery in the euro-zone. In its latest interim forecast report released today, the European Commission said euro-zone real gross domestic product is forecast to grow 1.7% this year, revised up from 0.9% in May. In 2010 EU 27 economic growth is estimated at 1.8%.

Hertz Global Holdings, Inc. announced an agreement to amend merger agreement to acquire Dollar Thrifty Automotive Group, Inc. for an increased purchase price of $50 per share.

The purchase price is based on September 10 closing price of Hertz stock of $10.05, consisting of $43.60 in cash, including approximately $6.87 per share to be paid by Dollar Thrifty as a special cash dividend immediately prior to the transaction closing, and 0.6366 of a share of Hertz common stock. The revised price represents an increase of $10.80 per share in the cash consideration to be paid to Dollar Thrifty shareholders.

Hertz noted that other key provisions of the original merger agreement are unchanged, including a $44.6 million reverse termination fee payable to Dollar Thrifty if required antitrust clearance is not obtained. As an additional step to facilitate the prompt closing of the transaction, Hertz announced it has begun the process of divesting Advantage Rent-a-Car.

Hewlett-Packard Co. signed an agreement to acquire ArcSight Inc. for $43.50 per share, or an enterprise value of $1.5 billion. The offer price of $43.50 per share represents a 24% premium to ArcSight''s closing price of $35.10 on Friday, and a 54%premium to the closing price of $28.23 on August 25, the day prior to the first media reports that the company put itself on the block.

HP said that the acquisition will expand its software and security portfolio and accelerate growth.

Ocean Power Technologies, Inc. said it won two new funding awards totaling $4.8 million from the U.S. Department of Energy.

The first award is for $2.4 million and the company intends to use it in connection with the construction and deployment of one of its PB150 PowerBuoys at Reedsport, Oregon. The second award is also for $2.4 million for the design and development of Ocean Power Technologies'' next generation 500kw PowerBuoy wave power system.

Laboratory Corporation of America Holdings entered into an agreement to acquire Genzyme Genetics, a business unit of Genzyme Corp., in an all cash transaction valued at $925 million. Net of expected income tax benefits, less acquisition-related expenses, the acquisition has a net cash cost to LabCorp of approximately $795 million. The transaction is expected to close before the end of the year.

Earnings Review

Crocs, Inc. ((CROX)), the footwear maker reiterated its third-quarter earnings per share guidance of around $0.22 to $0.24 and revenue of about $205 million.

Evolution Petroleum Corporation ((EPM)) the onshore oil and gas explorer reported fourth quarter total revenues soared 39% to $1.36 million from $0.98 million in the comparable period. Net loss in the quarter narrowed 39% to $0.43 million or 2 cents per diluted share compared to a net loss of $0.71 million or 3 cents per share in the prior-year period.

K12 Inc. ((LRN)), the technology-based education company fourth quarter revenues increased 22.4% to $88.32 million compared with $72.17 million for the fourth quarter of fiscal 2009. Net loss in the quarter widened 97% to $1.32 million or 4 cents per diluted share compared a net loss of $0.67 million or 2 cents per share in the prior-year quarter.

National Technical Systems, Inc. ((NTSC)), the provider of engineering and compliance testing services to several industry reported second quarter total revenues climbed 20% to $34.5 million, from $28.7 million in last fiscal year''s second quarter. Net income in the quarter rose 17% to $993,000 or 10 cents per diluted share compared to net income of $852,000 or 9 cents per share for the same period in the prior fiscal year.