$15 Billion of Merger Deals, U.S. Indexes Ease

Arthi Gupta
23 Apr, 2012
New York City

U.S. indexes fell after global economic worries weighed on the market. Weak manufacturing in China and the euro area dampened market sentiment despite the release of $15 billion worth of deals in the U.S. and Europe. Pfizer agreed to divest its infant nutrition business to Nestl

[R]10:00 AM New York – U.S. indexes fell after global economic worries weighed on the market. Weak manufacturing activity from China and the euro area dampened market sentiment despite the release of $15 billion worth of deals in the U.S. and Europe. Pfizer agreed to divest its infant nutrition business to Nestlé for $11.85 billion. Thomson Reuters agreed to sell its healthcare unit for $1.25 billion.[/R]

U.S. indexes traded lower after weak manufacturing activity from China and the euro area.

Investors look ahead to the new home sales report, the durable goods orders report and advance first quarter GDP estimates to gauge the health of the economy.

Wal-Mart Stores Inc. fell nearly 5% after the company faces regulatory inquiry that may cost as much as $4.8 billion. The largest retailer failed to stem a bribery scandal in Mexico that facilitated its rapid growth in the nation and may have violated anti-bribery laws in Mexico and in the U.S.

The company confirmed it is investigating into possible violations of the U.S. Foreign Corrupt Practices Act at its Mexican unit.

The European indexes dropped after a week of positive advance in market sentiment after the euro area PMI fell to a 5-month low in April. Weak manufacturing data from China also added caution to the market sentiment.

Spain’s benchmark 10-year bond yield rose above 6% today.

The G20 nations pledged more than $430 billion to the International Monetary Fund and doubled its lending capacity to help build confidence and prevent crises from spreading in the euro zone.

The IMF plans to use this new reserve to increase lending to the euro zone nations and buy sovereign bonds, even though the statement from the multilateral agency said the funds will be available for all member nations.

The policies of the IMF in the past have been controlled by the European nations to advance their political agenda and failed to provide needed capital at the time of the Asian crisis. The current fund raising is with the aim of targeted lending to the euro zone nations, a direct violation of the charter of the IMF.

Asian stocks edged lower after China’s manufacturing activity shrank for the sixth straight month in April according to a private survey. The HSBC/Markit purchasing managers’ index rose to 49.1 in April from 48.3 in March.

The manufacturing output index rose to 49.1 in April from 47.3 in March.

Pfizer to Divest Nutrition Business to Nestlé

Pfizer entered into an agreement to divest its nutrition business to Nestlé for $11.85 billion in cash. The transaction would be completed by the first-half of 2013 but is expected to face a tough anti-trust regulatory inquiry on both sides of the Atlantic.

Nestle beat out the rival bidder Danone and agreed to pay a significant premium that valued the company at 19.8 times its pre-tax earnings for 2012.

The infant nutrition business generated $2.1 billion in 2011, an increase of 15% from 2010 and Nestle said it expects the unit to generate sales of $2.4 billion in 2012 and expects to save annually $160 million from the fourth year after the close of the deal.

AstraZeneca to Acquire Ardea Biosciences

AstraZeneca plc agreed to acquire Ardea Biosciences, Inc., the California-based biotechnology company for $1.26 billion. The acquisition includes Ardea''s lead product, lesinurad, for gout.

Under the terms of the agreement, AstraZeneca will acquire Ardea for $32 per share which represents a premium of 54% based on the closing price on April 20.

Thomson Reuters to Sell Healthcare Unit

Thomson Reuters reached an agreement to sell its Healthcare business to an affiliate of Veritas Capital for $1.25 billion cash.

Vodafone to Buy Cable & Wireless

Vodafone Group Plc agreed to buy Cable & Wireless Worldwide plc for 38 pence per share in cash, representing a 92% premium to the closing price of 19.8 pence per CWW share on February 10.

The deal has a value of about £1.04 billion or $1.68 billion, the company said today and will position the company as the second largest fixed-line telecom operator in the UK and also expand its reach to Caribbean.

Beam, White Rock Distilleries Deal

Beam Inc., a premium spirits company, today announced an agreement with White Rock Distilleries to acquire the Pinnacle Vodka and Calico Jack rum brands and other related assets for $605 million in cash.

Earnings Review

ConocoPhillips Company ((COP)), the energy explorer reported first quarter total revenues and other income rose 0.2% to $58.35 billion from $58.25 billion in the prior-year quarter. Net earnings in the quarter fell 3% to $2.94 billion compared to net earnings of $3.03 billion a year ago. Earnings per share rose to $2.27 from $2.09 in the prior-year quarter.

D.R. Horton, Inc. ((DHI)), the homebuilder reported second quarter revenue increased 28% to $935.6 million from $733.1 million in the same quarter of 2011. Net income for the quarter increased 46% to $40.6 million or 13 cents per diluted share compared to net income of $27.8 million or 9 cents per diluted share in the same quarter of fiscal 2011.

Hasbro, Inc. ((HAS)), the games and toys manufacturer reported first quarter net revenues declined 3% to $648.85 million from $671.99 million in the same quarter last year. Net loss in the quarter swung to $2.58 million or 2 cents per diluted share compared to net earnings of $17.20 million or 12 cents per share reported a year ago.

Xerox Corporation ((XRX)), the copying equipment and government contractor said first quarter revenues increased 1% from a year ago to $5.50 billion. Net income for the quarter declined 4% to $269 million compared to net income of $281 million reported last year. On a diluted per share basis, earnings remained flat at 19 cents on lower share count.