World Markets Slide; $22 Billion of Mergers, Euro Contagion Worries

Bikram Pandey
10 Jan, 2011
New York City

Deals of $22 billion failed to lift world market indexes. Investors were cautious in Europe ahead of bond sale from Spain, Portugal and Italy. For-profit education providers fell sharply after Strayer indicated weaker than expected new registrations. Fiat increased its stake in Chrysler to 25%.

[R]4:00 PM New York – Deals of $22 billion failed to lift market indexes on both sides of Atlantic. Investors were cautious in Europe ahead of bond sale from Spain, Portugal and Italy. For-profit education providers fell sharply after Strayer indicated weaker than expected new student registration. Fiat increased its stake in Chrysler to 25%.[/R]

More than $22 billion of deals announced on Monday failed to lift market indexes in New York and Europe.

Duke Energy agreed to acquire Progress Energy for $13.7 billion to form the largest utility with 7 million customers. DuPont agreed to acquire Denmark-based food ingredients maker Danisco for $6.3 billion. iGATE acquired stake in India-based Patni for $1.22 billion. And, Sanofi and Genzyme continued their on-again off-again merger dance. Playboy Enterprises agreed to go private in a leveraged buyout.

Education providers declined sharply after Strayer Education estimated lowered than expected earnings and softer winter enrollment. Other providers also tracked lower.

On the news, Apollo Group Inc ((APOL)) dropped 20%, DeVry Inc ((DV)) fell 14%, Capella Education Co. ((CPLA)) declined 12% and Career Education Corp ((CECO)) sank 11%.

Playboy Enterprises Inc ((PLA)) soared 15% to $6.03 after the adult multimedia entertainment company agreed to be acquired by a private company controlled by founder Hugh M. Hefner for $6.15 a share or $207 million. Rizvi Traverse Management LLC will be equity partner in the deal and affiliates of Jeffries & Company will lend $115 million for the deal.

The European indexes declined as investors focused on the sovereign debt issues. Investors this week are looking ahead of bond offerings from Spain, Portugal and Italy. However, euro area investor sentiment improved in January. German manufacturing sector turnover eased and French industrial production climbed in November. The Greek budget deficit decreased.

Fiat SpA increased its stake 5% in Chrysler after it won an approval of the U.S. government to build a four cylinder fuel efficient car with 1.4 liter engine. The stake increased to 25% automatically after the approval and will increase to 35% if it builds a car in the U.S. using its technology that averages at least 40 miles a gallon and to a majority stake after it repays the loan to the U.S. government of $7.5 billion that Chrysler received during its 2009 bankruptcy.

The UK indexes slid after home prices slumped and financial services activity improved. The UK PM Cameron expressed concern over inflation. Smith & Nephew rebuffed J&J''s £7 billion offer.

Shanghai stock indexes fell 1.6% and Hong Kong index fell 0.7% after trade surplus in December dropped. China reported a less-than-expected trade surplus in December 2010 at $13.1 billion. Ford Motor unit in China sold 52% more vehicles in December at 56,880 units.

Stocks in Mumbai slipped for the fifth day in a row and lost more than 6%. Trade deficit in December narrows to $2.6 billion as exports surge and imports contracts. Gems & Jewelry exports soared 39% to $23.5 billion in the nine months to December.

Stocks in Sydney traded in a narrow range to close higher on the strength in retailers. Australia starts fortnightly income assistance of A$500 for flood-affected workers. Delays in mega-projects have cost Australia more than A$8 billion in cost blowouts in 6 years.

Commodities, Currencies and Yields

Dollar declined against euro to $1.29 and fell against the Japanese yen to 82.73. One UK pound fetched $1.55.

Crude oil increased $1.25 to $89.28 a barrel for a front month contract, natural gas edged lower 2.5 cents to $4.39 per mBtu and gasoline increased 4.59 cents to 245.90 cents.

Gold increased $5.20 in New York trading to close at $1,374.10 per ounce, silver increased $0.33 to $29.01 per ounce and copper for the front month delivery increased 0.70 cents to $4.27 per pound.

Yield on 10-year U.S. bond decreased to 3.29% and on 30-year U.S. bond yield increased to 4.47%.