Merger Monday

123jump.com Staff
26 Jun, 2006
New York City

Market trading was dominated by three merger news. A three way deal worth $40 billion between Phelps Dodge, Inco and Falconbridge topped investors attention. European steel giants Mittal Steel and Arcelor appear closer to merge on a revised offer from Mittal Steel for $34 billion. Mittal was forced to revise the initial offer in January by 45%. Johnson & Johnson agreed to purchase consumer health-care products division from Pfizer for $16.6 billion. European stocks closed lower.

[R]4:15PM Merger in steel, metals mining and healthcare dominated Monday news.[/R]

-Dow closed up 56.19 points, Nasdaq gained 12.21 and S&P 500 rose 6.06.
-Yield on 10-year bonds closed at 5.24% and 30-year bond closed at 5.266%.
-Crude oil price gained 93 cents to close at $71.80 per barrel.
-Gold fell 30 cents to close at $587.70 per ounce.

-Asian markets diverged at closing led by a gain of 1% in Taiwan and Singapore and led by a decline of 3.6% in India and 1% in Philippines.
-European markets closed lower across the region led by a decline of 0.5% in the Netherlands and 0.3% decline in France and Germany.
- South Africa lost 1% but Russia gained 0.3%.
-Latin American markets closed lower except Argentina advancing 1.8%.

Merger news dominated trading sentiment. Arcelor board unanimously recommended $34 billion offer from Mittal Steel. Phelps Dodge is involved in a three way merger with Inco and Falconbridge for $40 billion and Johnson & Johnson agreed to pay $16.6 billion for consumer health products division of Pfizer.

Trading averages rose in the early morning but lost momentum in the early afternoon. However at close averages rebounded near its best level of the day. For every three stocks advancing, two stocks declined on 1.7 billion share volume on the New York Stock Exchange. On Nasdaq trading, ten stocks advanced for every six stock declining on trading volume of 1.3 billion shares.

Commerce Department reported that May new home sales rose to 1.234 million from 1.118 million in April, a gain of 4.6%. Home builders stocks advanced on the news. Lennar ((LEN)) reported earnings gain but lowered earnings guidance for the fiscal year.

Apparel retailer chain Chico’s ((CHS)) lost 72 cents at close or 2.6% to $26.87. Nordstrom ((JWN)) lost 48 cents or 1.3% at close.

Merger related stocks were in the limelight. Phelps Dodge ((PD)) dropped 8% but Inco Inc. ((N)) rose 10% and Falconbridge ((FAL)) gained 5%. In Paris trading Arcelor, steel giant, gained 8% and in New York trading Mittal Steel ((MT)) lost 2.4%.

[R]12:30PM European markets closed down on oil stocks.[/R]
European markets closed in the negative as weaker oil and gas stocks erased gains from merger-and-acquisition activity. Oil majors like BP and Royal Dutch Shell posted declines as crude oil futures traded lower. Auto stocks also posted losses as the euro showed strength against the dollar. Mining stocks like BHP Billiton and Rio Tinto provided some boost to the market sentiment after Phelps Dodge agreed to buy Canadian miners Inco and Falconbridge for $40 billion. The German DAX 30 dropped 0.3%, the French CAC 40 lost 0.3%, and London FTSE 100 declined 0.2%.

Oil prices declined, despite threats from Iran’s oil minister to disrupt world’s supply. Light crude July delivery fell 19 cents to $70.68 a barrel. London Brent dropped 16 cents to $69.77. The dollar lost ground versus most major currencies. The euro traded at $1.2547, up from $1.2515. The dollar bought 116.35 yen, down from 116.49. The British pound stood at $1.8178, down from $1.8188. European gold prices moved higher. In London the precious metal traded at $579.20, up from $578.40 per ounce. In Zurich gold traded at $578.70, up from $578.05. Silver closed at $10.10, down from $10.25.


[R]11:30AM Housing stocks advanced on new home sales data.[/R]
Stocks continued to trade in the positive, lifted by several multibillion-dollar merger deals. An unexpected rise in May new home sales gave a boost to the housing sector, with the Philadelphia Housing Sector Index up 1.9%. The Commerce Department reported that new home sales rose 4.6% to a seasonally adjusted annual rate of 1.234 million units in May from a downwardly revised rate of 1.180 million units in April. Economists had expected sales to fall to an annual rate of 1.145 million units compared to the 1.198 million unit rate originally reported for April.

Among housing stocks, Lennar ((LEN)) posted a gain of 3.4%, even though the home builder lowered its full year earnings guidance due to a slowdown in new orders. Some mining stocks made strong performance on news of a three-way combination of Phelps Dodge ((PD)), Inco ((N)), and Falconbridge ((FAL)) to create one of the world''s largest mining companies. The total value of the acquisition of the combined Inco and Falconbridge is about $40 billion. Inco surged 12.9%, Falconbridge rose 6%, while Phelps Dodge dropped 7%. Some strength was visible in the telecommunications, semiconductor, and retail sectors. Retailers Lowe''s ((LOW)), Dillard''s ((DDS)), and J.C. Penney ((JCP)) posted notable gains. At the same time, airline stocks showed weakness in morning trading, with the Amex Airline Index falling down 1.5%. A decrease by the price of oil contributed to weakness in the energy sector.


[R]10:30AM Indian Sensex falls sharply in the last hour of trade.[/R]
The Sensex in India finished lower 370.87 points, or 3.5% to end at 10,042.06. The turnover on BSE was Rs 3,020 crore, down from Friday’s Rs 3,356 crore. The market-breadth was quite weak as 2,021 stocks declined and 390 advanced, while 40 shares remained unchanged. Market lost 5% last week after falling 22% since May 10th of this year. Despite trading higher at the market opening, steel shares slumped sharply after Mittal Steel on Sunday succeded in taking over European steelmaker, Arcelor. Steel stocks had run up ahead of the news. Tata Steel lost 7.5% to Rs 492 and SAIL declined 7% to Rs 75.95. The acquisition is expected to spark further consolidation in the sector globally, and better prices for producers.

Auto shares dipped on selling pressure. Car maker Maruti Udyog plunged 6% to Rs 728, Tata Motors lost 5.3% to Rs 734, Hero Honda plunged 5% to Rs 726, and Bajaj Auto slipped 4% to Rs 2,596. IT shares were subject to profit-taking. Satyam Computer shed 5% to Rs 670.50, TCS lost 4% to Rs 1,631, Infosys dived 3.4% to Rs 2,886 and Wipro lost 1.7% to Rs 467. Reliance Industries shed 2.7% to Rs 979, down from a session’s high of Rs 1,023.75, before its annual meeting of shareholders on Tuesday. A total of 3.2 million trading volume. Housing finance large-cap, HDFC, shed nearly 6% to Rs 1,038 on a higher than normal volume. Ambika Cotton Mills reported third quarter profit rose 62% on 30% higher sales. The company has expanded spindle capacity to 14,000 spindles and will add another 10,000 spindles by the end of third quarter 2006.

Cement shares declined as well. Grasim slumped 6% to Rs 1,750, ACC shed 4.8% to Rs 744, UltraTech Cement lost 2.1% to Rs 685 and Gujarat Ambuja Cements was off nearly 2% to Rs 94. Among the few gainers was Tata Coffee advancing 1.1% to Rs 329.25. But the stock pulled sharply back from a higher level in a weak market. Tata Coffee announced during the weekend, it had agreed to buy US-based Eight O''Clock Coffee Company for $220 million from private equity firm Gryphon Investors.


[R]9:45AM Stocks opened in the negative.[/R]
Stock markets advanced at opening. The positive market sentiment was generated by mergers-and-acquisition activity, which helped offset nervousness ahead of Fed Reserve meeting on Thursday. Gains by metal stocks contributed to the initial upward move, with shares of Inco ((N)) and Falconbridge ((FAL)) moving higher on the heels of news that Phelps Dodge ((PD))agreed to buy both companies in a three-way merger valued at $56 billion. The deal follows Anadarko Petroleum''s move on Friday to buy two oil producers for $21.1 billion in cash. Dow component Pfizer ((PFE)) moved higher by 1.7% after the company agreed to sell its consumer healthcare business to Johnson & Johnson ((JNJ)) for $16.6 billion in cash.

Mittal Steel and Arcelor ended a five-month takeover battle after Mittal agreed to pay $34 billion to combine the world''s top two steelmakers. The merge saga may not be over yet, as Severstal is likely to revise its bid for Arcelor. In the opening minutes, the Dow Jones industrials were up 9.21 points at 10,998.30, the Nasdaq Composite climbed 4.99 points at 2,126.46, and the S&P 500 gained .38 of a point at 1,244.88. Bonds were little changed after last week''s record-setting selloff, with the yield on the 10-year Treasury note steady at a four-year high of 5.23% from late Friday.

[R]New home sales unexpectedly increased.[/R]
Monday morning, the Department of Commerce released its report on new homes sales in the month of May. The report showed that new homes sales increased unexpectedly compared to a downwardly revised reading for the previous month. The Commerce Department said that new home sales rose 4.6 percent to a seasonally adjusted annual rate of 1.234 million units in May from a downwardly revised rate of 1.180 million units in April. Economists had expected sales to fall to an annual rate of 1.145 million units compared to the 1.198 million unit rate originally reported for April.

The report showed that the increase in new homes sales reflected sales growth in the Midwest, South, and West, which more than offset a 7.9 percent decrease in sales in the Northeast. The Commerce Department also said that the seasonally adjusted estimate of new houses for sale at the end of May was 556,000, down from 560,000 in April. The houses for sale at the end of May represent a supply of 5.5 months at the current sales rate.


[R]9:00AM Stock futures pointed to a higher start on merger deals.[/R]
U.S. stock futures moved higher Monday morning, supported by a series of multibillion dollar merger deals which helped offset concerns about the Fed Reserve policy-setting meeting on Thursday. Phelps Dodge ((PD)) shares dropped 5.1% in pre-market trading after the company said it would buy Inco ((N)) and Falconbridge ((FAL)) for about $40 billion in a deal to create a top global copper and nickel miner. Johnson & Johnson ((JNJ)) rose 2.6% as Pfizer Inc. ((PFE)) said on Monday it reached an agreement to sell its consumer health-care business to the diversified health-care company for $16.6 billion in cash. Pfizer shares jumped 3.3%.

Elsewhere, European steelmaker Arcelor accepted an improved $32.2 billion bid from Mittal Steel ((MT)) after a number of rejected offers. In earnings news, home bulder Lennar Corp. ((LEN)) posted a 39% profit jump, well above forecasts but said Q2 new orders fell 3%. S&P 500 futures rose 1.30 points, above fair value. Dow Jones industrial average futures were up 12 points, and Nasdaq 100 futures rose 1.25 points.

Lennar Corp., ((LEN)), homebuilder, reported a 39% increase in Q2 net profit to $2.00 a share, and a 56% rise in sales, beating analyst estimate for earnings of $1.85 a share. The company said that it expects its fiscal year earnings in a range of a range of $8.00 to $8.25 a share, down from a prior estimate of $9.25 a share. Lennar downgraded its 2006 guidance after announcing that it expects the second half of the year to be more challenging in a slowing homebuilding industry, as evidenced by lower new orders and higher cancellation rates. New orders are currently down 3% at 11,757 homes, the company added.

Persimmon, ((PSN.UK)), U.K. homebuilder, reported that first-half sales advanced 34.8% to 2.4 billion pounds ($4.4 billion) as sales reservations jumped 7% from a year earlier. The company said it is on track to deliver further growth in 2006 in line with expectations. It also added the housing market continues to be active and it expects a modest level of price inflation in both selling prices and building costs.

Steelcase Inc, ((SCS)), maker of office furniture, reported Q1 earnings of 12 cents a share, up from a profit of 5 cents a share a year-ago. Q1 includes restructuring charges of $2.7 million related to facility rationalizations at the company''s North American and International operations. Revenue advanced 7.6% in Q1 to $727.3 million from $676 million in the same period a year ago. The company missed analysts’ estimate for a profit of 14 cents a share.

Walgreen Co., ((WAG)), drug store chain, reported that Q3 income advanced to 46 cents a share, up from 40 cents, a year ago. Sales increased to $12.2 billion from $10.8 billion, while same-store sales advanced 7.6%. The company topped analysts’ forecast for earnings of 44 cents a share on sales of $12.14 billion.

Mair Holdings Inc, ((MAIR)), airline holding company, reported a Q4 loss of $2.63 a share, deeper than a loss of 8 cents a share a year-ago. Q4 reflects a loss of $45.6 million from the company''s Mesaba Aviation unit, including $19.6 million in income tax expense, $20.2 million in reorganization-related charges, an $8.9 million asset impairment change and $6.2 million in operating losses. Revenue plunged 95.1% in Q4 from the same period a year earlier.


[R]8:00AM Phelps Dodge agreed to buy mining companies Inco and Falconbridge.[/R]
One of the largest copper producers in the world, Phelps Dodge Corp. ((PD)), announced Monday it is buying Canadian mining companies Inco Ltd. ((N)) and Falconbridge Ltd. ((FAL)) for $40 billion in a cash and stock. As part of the deal, Phelps Dodge will initiate a share buyback program of $5 billion. The final deal is expected to close in September, with Phelps Dodge shareholders owning about 40% of Phelps Dodge Inco, current Inco shareholders owning about 31%, and current Falconbridge holders owning about 29%. The companies forecast combined annual cost savings of $900 million by 2008. The deal would also add to earnings from 2008 onward.

The new company, to be called Phelps Dodge Inco Corp., is expected to be the world''s biggest nickel producer and largest publicly traded copper producer. Under the terms of the agreement, Inco shareholders will receive 0.672 shares of Phelps Dodge stock plus 17.50 Canadian dollars ($15.59) per share in cash for each share of Inco stock, representing a premium of 23% to Inco''''s closing price on June 23. Simultaneously, Inco will increase its previous offer for Falconbridge to 17.50 Canadian dollars ($15.59) from 12.50 Canadian dollars ($11.14) and the exchange ratio to 0.55676 shares of Inco, from 0.524 shares, for each share of Falconbridge.


[R]7:30AM Asian stocks close mostly higher on merger activity.[/R]
Asian markets closed mostly higher. Japan''s major indexes inched higher in late afternoon after having been lower most of the day. Led by domestic demand-sensitive issues such as banks and real-estate developers, the Nikkei 225 Index advanced 0.19% to close at 15152.40. Investors grabbed large industrial issues on expectations the companies could become targets in the consolidation wave. Mitsubishi Heavy Industries rose 1.7%, while Kawasaki Heavy Industries advanced 3%. Sumitomo Metal Industries gained 2.2%. Japanese financial shares declined, though, with Resona Holdings shedding 1.7%. Consumer finance firm Aiful, consumer lender, fell 2.5%. South Korean shares closed higher bouncing back as leading exporters, including information and technology companies, rallied on positive corporate news and in anticipation of improved earnings after the second quarter. The Korea Composite Stock Price Index, or Kospi, gained 0.8% to 1238.05. Taiwan shares also finished higher on bargain hunting. The Taipei Index advanced 1.1% to 6523.68.

In Hong Kong, stocks closed little changed Monday as investors stayed on the sidelines anticipating the expiry of June index futures later this week, but telecommunications operator PCCW outperformed on the prospect of its asset sale. The Hang Seng Index slipped 0.03% to 15804.81.


[R]6:30AM Mittal and Arcelor deal lifted Europe.[/R]
European markets traded higher in mid-morning. The U.K. FTSE 100 index rose 0.2% at 5,701, the German DAX Xetra 30 index advanced 0.2% at 5,543, and the French CAC-40 index gained 0.2% at 4,827. On the corporate front, Mittal Steel and Arcelor deal drew early attention on the steelmaking sector after the companies agreed to an improved offer on Sunday night. The new business, to be called Arcelor Mittal, will have an annual output of more than 100m tonnes of steel. Germany''s ThyssenKrupp advanced 1% and Anglo-Dutch Corus Group rose 1.6%. Diversified mining stocks such as BHP Billiton and Rio Tinto also gained, following a report in The Wall Street Journal stated that Phelps Dodge is set to make a $40 billion bid for Canadian miners Inco and Falconbridge.

Oil inched down on Monday, following signs of improved Iraqi production, but kept near $71 a barrel as demand from the United States and China is still growing despite near-record prices while traders are concerned about supply disruptions. Crude traded down 7 cents at $70.80 a barrel by 0436 GMT, after an increase of 3 cents on Friday that took gains for last week to 1.4%. London Brent crude shed 8 cents to $69.85. The euro opened up against the dollar on Monday, pushing back the U.S. currency from a rally it staged late last week. The euro purchased $1.2566, up from $1.2515 in New York late Friday. The British pound slipped against the dollar, purchasing $1.8237, down from $1.8281 in late trading last week. The dollar was stronger against the Japanese yen, purchasing 116.25, up from 116.08 in New York at the end of last week.