GM and UAW in Buyout Agreement

Elena
12 Jun, 2006
New York City

Stocks have been trading in a lackluster fashion Monday morning, with the Dow lifted by 3% gain for General Motors which reached a buyout agreement with the UAW union. The Nasdaq declined on signficant weakness among tech stocks, largely contributed by Comverse Technology, telecommunications equipment and software maker, which dropped 9%.

[R]11:30AM General Motors supported the Dow.[/R]
In late morning, Wall Street continued to trade in a lackluster fashion The Dow showed a modest gain while the S&P 500 and the Nasdaq moved into the negative territory. The Dow was boosted by 3% gain for General Motors ((GM)), which benefited from news that Delphi reached an agreement with the UAW union on a buyout offer. Significant weakness among tech stocks put the tech-heavy Nasdaq under pressure, with networking stocks standing out as notable losers. The Amex Networking Index dropped 2.4%, led by Comverse Technology ((CMVT)), telecommunications equipment and software maker, which dropped 9% after the company delayed the filing of its Q1 report. Shares of Tellabs ((TLAB)) dropped 7.4% after Deutsche Bank cut is rating on the company to hold from buy. Some brokerage also came under pressure, contributing to a 1.9% loss by the Amex Securities Broker/Dealer Index. Lehman Brothers ((LEH)) helped to lead the sector lower although the company reported Q2 earnings growth of 42%. The oil service, telecommunications, and airline sectors also declined. Meanwhile, some tobacco stocks moved to the upside, with the Amex Tobacco Index currently up 1%. Altria ((MO)) gained 0.8%, contributing to the gain by the Dow.


[R]10:30AM Indian Sensex plunges more than 300 points in volatile trading.[/R]
The Sensex in India declined 334.31 points, or 3.4%, to close at 9,476.15. The turnover on BSE was Rs 2,605 crore, down from Friday’s Rs 3,437 crore. The market-breadth was negative. 1,582 stocks declined, while 777 advanced. 56 stocks remained unchanged. RCL plunged nearly 7% to Rs 205.85 on 29.3 lakh shares exchanged on BSE. Tata Power was down 5.8% to Rs 412.55. ICICI Bank declined 6% to Rs 468, raising on Friday lending rates across the board by 50 basis points after the RBI on Thursday lifted short term interest rates by 25 basis points. HDFC plummeted 8% to Rs 1,106, as the bank has no plans for an immediate raising of interest rates. Auto makers declined on worries of higher fuel prices and interest rates slowing down sales. Hero Honda shed 5.7% to Rs 709, Bajaj Auto lost 6.9% to Rs 2,309 and Tata Motors declined 4.8% to Rs 720. Bhel dived 6.6% to Rs 1,750. Bhel announced on Monday that it had secured a contract worth Rs 113 crore from the Essar group.

Cement makers declined due to the monsoon advancing to some parts of the country, indicating a slowdown in construction activity. Grasim shed 6.5% to Rs 1,660, ACC dipped 5% to Rs 714 and UltraTech Cement was off 4% to Rs 570. Volatility hit metal shares hard due to a weakness in metal prices on the London Metal Exchange. Sterlite Industries declined 8.9% to Rs 314, Hindalco lost 3.8% to Rs 153, and Hindustan Zinc shed 1.4% to Rs 509. Steel shares were also down. Tata Steel lost 7% to Rs 424 and Sailplunged 5% to Rs 66.80. Hindustan Lever was down 5.6% to Rs 196. 8.2 lakh shares were exchanged on BSE. Large-cap Reliance Industries slipped 1.3% to Rs 910. Another large-cap, Infosys, edged down 0.4% to Rs 2,775.


[R]9:45AM Stocks opened flat, despite strong earnings from Lehman Bros.[/R]
Stocks opened near the flat line despite strong earnings from investment bank Lehman Brothers Holding Inc. ((LEH)) which said its Q2 profit climbed 42%, driven by its overseas expansion, exceeding analyst estimates. Following the heavy losses posted the previous week and awaiting key inflation data as well as comments from Fed Reserve Chairman Bernanke and other officials, traders remained turned to cautious trading. News of a buyout agreement between General Motors Corp. ((GM)) and its workers'' union raised market’s confidence in restructuring initiatives at the struggling automaker.

After five consecutive declines, the gold sector advanced, as an increase by the price of gold inspired traders to do some bargain hunting. The Amex Gold Bugs Index rose 0.8%. A slight increase by the price of oil contributed to some strength in the oil sector, with the Amex Oil Index currently up 0.4%. Meanwhile, the networking sector posted significant weakness, led by Comverse Technology ((CMVT)) which fell 5.6% after announcing that it is delaying the filing of its Q1 report due to an ongoing review of stock option grants. The Amex Networking Index dropped 2%, extending a recent downward trend. In the first hour of trading, the Dow added 17.94, or 0.16%. The Standard & Poor''s 500 index was up 1.56, or 0.12%, and the Nasdaq composite index lost 3.67, or 0.17%. Bonds meandered, with the yield on the 10-year Treasury note inching up to 4.99% from 4.98% late Friday.


[R]9:00AM Stock futures indicated a positive opening.[/R]
Awaiting key inflation data later in the week and comments by Fed Reserve officials on interest rates, U.S. stock markets were poised to higher opening. Global markets posted steep losses the previous week on worries about the impact of interest rate increases by central banks in attempt to curtail inflation. Five Federal Reserve top officials are expected to speak on Monday, including Chairman Ben Bernanke.

On the corporate front, investment bank Lehman Brothers Holdings Inc. ((LEH)) posted 42% net income growth in Q2. Goldman Sachs Group Inc. ((GS)) is due to report on Tuesday. Banc of America cut the price target of apparel retailer Urban Outfitters ((URBN)) to $23 from $28, citing declining sales growth. eBay Inc. ((EBAY)) may also draw investor’s attention as the online marketplace is set to announce detailed plans on Tuesday how to combine its Skype Web telephone-call service into its core U.S. auction business. Standard & Poor''s 500 futures were up 3.70 points, above fair value. Dow Jones industrial average futures were up 22 points, and Nasdaq 100 futures were up 5.50 points.

Lehman Bros, ((LEH)), broker, reported that its Q2 earnings advanced 47% to $1.69 a share, up from $1.13 a share in the year-ago period due to strong underwriting and merger activity along with rising capital markets revenue boosted results. The firm said its revenue was $4.4 billion, compared to $3.3 billion a year ago. The company topped analysts’ forecasts for the company to earn $1.61 a share.

Comverse Technology Inc, ((CMVT)), provider of communications and billing services software products, reported Q1 sales of $373.5 million, up 37% from a year ago, and said it would not be able to file its Form 10-Q for the April quarter before a deadline due to its ongoing review of past stock option grants. The company added it told the Nasdaq Stock Market about the delay in filing its Form 10-Q and that it anticipates the exchange to issue an additional staff determination letter indicating this delinquency could serve as an additional basis for the potential delisting of its stock. In addition Verint Systems which is majority-owned by Comverse, posted sales of $87.7 million for Q1, up nearly 22% from a year-ago total of $72 million. Verint said that its Form 10-Q would also be delayed due to the ongoing probe of past stock option grants at Comverse, holder of a 57% stake in Verint.

AEP Industries Inc, ((AEPI)), maker of plastic packaging products, reported Q2 earnings of $2.08 a share, up from a loss of $4.43 a share a year-ago on 8% sales growth. The company said the sales increased to higher unit prices, offseting a 3.1% decline in sales volume.


[R]8:00AM Arcelor Sa rejected Mittal’s improved deal.[/R]
Luxembourg-based steelmaker Arcelor SA announced Monday it had rejected Mittal Steel’s improved bid offer, saying it ‘is inadequate as it continues to undervalue the company’ and recommended that company’s shareholders should vote for the deal with the Russian OAO Severstal as it is ‘a more attractive alternative from a strategic, financial and social point of view.’ Arcelor said Mittal''s revised offer does not take into account the company''s financial results for 2005 and the first quarter of 2006, or Arcelor''s strategic plan.

However, Arcelor board said officials will meet with Mittal to further discuss the deal and the possible improvements to it as the Severstal transaction does not preclude Mittal''s 25.8 billion euro ($33 billion) offer. Arcelor valued itself at 44 euros ($55.70) a share in an offer to buy back up to a quarter of its capital. The same price Severstal is paying to buy 32% of the combined company. Mittal is offering 37.74 euros ($47.78) a share in an offer aimed at all equity holders. The company needs to buy at least 50% of the company for its bid to succeed. Its offer closes on July 5 and the results will be published in mid-July.

Arcelor’s fate will be determined by its shareholders, who will vote this month whether to approve the hostile takeover bid from Mittal or a plan to merge the company with Severstal. They will also decide if Arcelor can continue with plans for the share buyback. The company maintained the view that share buyback, will bring shareholders more benefits than a takeover by Mittal. Arcelor''s board said it would not launch the self-tender offer until after Mittal announces how many shares it has bought.


[R]7:30AM Asian markets were broadly higher on Monday.[/R]
Asian markets closed broadly higher on Monday. The Nikkei 225 Index advanced 0.56% to 14833. On Friday, stocks recovered from declines to six-month lows worrying about a global economic slowdown. Ahead of Friday''s recovery, the Nikkei had plunged 9.2% since the start of the year. Among the gainers were Honda Motor, which advanced 0.72%, and Nissan Motor which climbed 0.64%. Machinery makers also gained, with Okuma Holdings climbing 1.07% and SMC 2.9%. Electronics shares also advanced. Sanyo Electronics added 5%, while computer maker Fujitsu jumped 4%. The benchmark Shanghai Composite Index in China advanced slightly 0.09% to 1552. The Shenzhen Composite Index edged up 0.3% to 398.88. Investors were also observing Bank of China, which Monday issued a prospectus, which is another step towards listing. Hong Kong''s Hang Seng Index shed 0.05% to 15621.44. Cathay Pacific Airways inched up 0.35%, extending Friday''s gains after the carrier reported it had secured the takeover of a mainland carrier Hong Kong Dragon Airways.


[R]6:30AM European shares extend early losses.[/R]
On the corporate front, Ericsson said it had agreed to sell its defense business, Ericsson Microwave Systems AB and its 40% holding in Saab Ericsson Space to Saab. Remy Cointreau recouped from a sharp opening fall to trade 0.6% higher after the French wines and spirits group posted full-year results below analysts’ expectations due to restructuring charges. There are reports that Credit Suisse is in exclusive talks to sell its insurance business Winterthur to Axa, the French insurance company. Arcelor has formally rejected Mittal Steel’s takeover bid but its management board has agreed to meet with Mittal to review the offer. Arcelor traded 0.4% higher on hopes that its decision to review the offer might indicate a softening in its stance towards Mittal, which edged 1.5% down.

Light, sweet crude oil for July delivery declined 13 cents to $71.50 a barrel by 0610 GMT, while Brent crude advanced 2 cents to $70.50 a barrel. Gold opened Monday at a bid price of $604.30 a troy ounce, down from $615.65 late Friday. The dollar changed little against the euro. The European currency purchased $1.2643 in morning European trading, compared with $1.2644 in New York late Friday. The British pound advanced to $1.8446 from $1.8413, while the dollar inched up to 114.00 Japanese yen from 113.92 yen.