Dow Up 183, Nasdaq Up 41

123jump.com Staff
24 Jul, 2006
New York City

Market averages rallied on $21 billion deal to acquire HCA, American Express reported 78 cents per share earnings beating the estimates of 74 cents and $10.2 billion deal in Europe for semiconductor business of Philips Electronics. Large and small cap stocks rallied. Tech stocks got a boost from an upgrade on Dell by Citigroup. Merck reported 73 cents and Schering-Plough reported operating income of 25 cents.

[R]4:15PM Merger and Earnings news power another advance in averages.[/R]

-Dow closed up 182.67 points, Nasdaq up 41.45 and S&P500 up 20.62.
-Yield on 10-year bond closed at 5.04% and 30-year bond closed at 5.09%.
-Crude oil up 62 cents to close at $75.05 per barrel.
-Gold down $7 to close at $613.20 per ounce.

-Asian Markets closed lower however India led the gainers with 1.28% rise and Taiwan led the decliners with 0.94% loss. Indonesia, Australia and South Korea fell more than 0.5%.

-European Markets rallied across the region with at least 2% gain in local country averages. Germany closed up 2.33% and UK and France closed up 2.00%.

-Latin American Markets rallied led by 2.74% rise in Argentina, 2.1% gain in Brazil and 1.95% advance in Mexico.

Typical of Monday, for last many months now, it was mega merger news that drove averages higher. Earnings news only supported the advance further in the mid-day trading. Investor group made up of Bain Capital, Merrill Lynch and KKR agreed to offer $21 billion for HCA ((HCA)), hospital chain operator. The 6.5% premium from the Friday’s close is one of the lowest premiums offered in some of the largest deals in recent years. The investor group proposed an offer of $51 per share, and at close stock traded near $49.20. Hospital Corporation of America, widely known as HCA has faced financial headwinds in the recent years. The company paid $1.7 billion in 2002 to settle charges of Medicare over-billing.

Increasingly Wall Street firms are taking their capital and acting as private equity investors. Goldman Sachs has come under heavy fire this year for a similar role it played in taking New York Stock Exchange private and then merging it with electronic trading firm Arca Capital. Goldman acted as advisor on both the side of the deal. Merrill Lynch is now playing a role of private equity investor and is acting as advisor to several players in the healthcare industry.

Low premium is likely to spur other large players into action and new bid is likely from other Wall Street firms and private equity houses, but in Monday’s trading stock did not jump higher than proposed price of $51 per share.

European stocks jumped across the region and closed up at least 2% in UK, France, Germany and Switzerland. Widely expected deal between Fiat and Tata Motors of India appears to be on hold for several days. But, Fiat released three major ventures with Russian Severstal to make light trucks in Russia, produce heavy commercial vehicles with Chinese company SAIC and form a joint venture between Fiat Auto Finance and Credit Agricole to finance Fiat vehicle purchases. A deal previously announced between Tata Motors and Fiat for manufacturing and sourcing from India and selling Fiat products in India is still not finalized.

Efforts to salvage Doha round of talks for World Trade Organization appears to have lost all the momentum as the world’s six leading nations failed to agree on ways to cut farm subsidy.

[R]11:30AM Stock markets extended gains.[/R]
U.S. stock markets continued to post strong gains in morning trading, with the three main averages rising to new highs for the session. Positive sentiment was generated by news about one of the largest leveraged buyouts in history. Hospital operator HCA ((HCA)) agreed to be acquired by an investor group of three private equity firms- Bain Capital, Kohlberg Kravis Roberts, and Merrill Lynch- for approximately $33 billion, including the assumption or repayment of approximately $11.7 billion of debt.

In other M&A news, Advanced Micro Devices ((AMD)) announced that it agreed to acquire ATI Technologies ((ATYT)) for $5.3 billion in cash and stock. HCA added 3.6%, ATI shares shot up 17.2%, while AMD stock fell 4.7%.

Positive earnings news from drug makers Schering-Plough ((SGP)) and Merck ((MRK)) also contributed to the upward move. Merck rose 3%, while Schering gained 4.8%. The Dow made a triple-digit gain lofted by strong gains for Pfizer ((PFE)), Home Depot ((HD)), and J.P. Morgan ((JPM)).

Among advancing sectors, the airline sector moved notably higher as a decrease by the price of oil helped to ease concerns about higher fuel costs. Brokers and bankers led the financial sector higher. Networking stocks also posted strong gains in morning trading due to bargain hunting. The computer hardware sector also benefited from bargain hunting, with Dell ((DELL)) posting a notable gain after it dragged the sector lower in the previous session. In late morning trading, the Dow gained 132.24, or 1.2%. The Standard & Poor''s 500 index was up 15.50, or 1.25%, and the Nasdaq jumped 32.51, or 1.61%. Bonds were higher, with the yield on the 10-year Treasury note falling to 5.03% from 5.04% late Friday.


[R]9:45AM Stocks rallied on mergers and earnings.[/R]
Stocks rallied at opening on a couple of multibillion-dollar acquisitions and upbeat earnings reports from major pharmaceutical companies. Oil futures retreated as energy traders awaited developments in talks over the violent conflict between Israel and Lebanon.

The positive sentiment was generated by a spate of acquisitions as they helped offset investor concerns about a weakening economy. Three equity firms offered to buy hospital operator HCA ((HCA)) for $21.3 billion and assume $11.7 billion of debt. In another deal, AMD ((AMD)) agreed to acquire graphics chipmaker ATI Technologies Inc. for $5.4 billion in cash and stock. Shares of ATI Technologies ((ATYT)) stood out among gainers in early morning, rising 17%. Upbeat earnings from drug-makers also contributed to the market''s momentum. Dow component Merck & Co. ((MRK)) said its Q2 earnings more than doubled to top analyst estimates, while Schering-Plough ((SGP)) swung to a profit, also beating expectations.

The airline sector turned in one of the market''s best performances, benefiting from a decrease by the price of oil which helped to ease concerns about the impact of higher fuel costs. Significant strength was visible in the brokerage sector, with Morgan Stanley ((MS)) and Lehman Brothers ((LEH)) posting notable gains. The biotechnology, networking, and retail sectors showed considerable strength as well. Among biotech stocks, PDL BioPharma ((PDLI)) gained on brokerage upgrade of its stock rating. Meanwhile, a decrease by the price of gold sent gold stocks to the downside. In the first hour of trading, the Dow Jones industrial average gained 63.16, or 0.58%.The Standard & Poor''s 500 index was up 6.53, or 0.53%, and the Nasdaq composite index rose 17.59, or 0.87%. Bonds slipped, with the yield on the 10-year Treasury note edging up to 5.05% from 5.04% late Friday.


[R]9:00AM Stock futures pointed to a higher opening on mergers and earnings.[/R]
U.S. stock index futures indicated market opening on a positive note Monday morning, reflecting several major takeover deals as well as better-than-expected earnings news.

In merger-and-acquisition news, Advanced Micro Devices Inc ((AMD)), the No. 2 supplier of computer processors, agreed to acquire graphics chip maker ATI Technologies Inc. ((ATYT)) for $5.4 billion in cash and stock. ATI surged 15.9%to $19.20, while AMD stock fell 6.1% to $17.15, both on the Inet electronic brokerage system. Hospital operator HCA Inc. ((HCA)) is reportedly close to an agreement to be acquired by an investor group for about $21 billion.

On the earnings news front, drug maker Schering-Plough Corp. ((SGP)) reported a Q2 profit above forecasts on sharply higher sales of its cholesterol drugs. Company’s shares rose 3.9%. Rival Merck & Co. ((MRK)) gained 1.7% after reporting earnings that beat expectations. The company also raised its full-year profit forecast. Other companies scheduled to report earnings include American Express Co. ((ADXP)) and Texas Instruments Inc. ((TXN)). S&P 500 futures were up 4.3 points, above fair value. Dow Jones industrial average futures rose 30 points, and Nasdaq 100 futures were up 6 points.

Schering-Plough Inc. ((SGP)), drug-maker, reported a second-quarter profit of $237 million, or 16 cents a share as sales improved 11% from a year ago to $2.8 billion. Including the company’s joint venture with Merck & Co. sales grew 18% to $3.3 billion.

Virginia Financial Group Inc. ((VFGI)), bank holding company, said that its second-quarter earnings of $5.2 million, or 72 cents a share, vs. $4.5 million, or 62 cents a year ago. Quarterly revenue increased to $19.1 million from the year-ago $17.9 million.

Radcom Ltd. ((RDCM)), network test and service-monitoring solutions provider, said that its second-quarter net income doubled thanks to 18% growth in revenue. Net at the Tel Aviv-based company was $208,000, or a penny a share versus $103,000 or a penny a share a year ago. The number of shares outstanding increased 3.2% to 16.6 million. Revenue came in at $5.7 million vs. $4.8 million last year as adjusted earnings amounted to 2 cents a share compared with 1 cent.

Gateway Financial Holdings Inc. ((GBTS)), the holding company for Gateway Bank & Trust Co., said that its second-quarter net income increased 68% as net interest income advanced 69% from a year ago. Earnings amounted to $1.5 million or 14 cents a share vs. $902,000, or 11 cents last year. Weighted average shares outstanding increased 31% to 11.1 million from 8.5 million in the prior-year period. Net interest income was $9.2 million compared with $5.4 million, while net interest margin was 3.88% vs. 3.76% a year earlier and 3.95% in the prior quarter. Total revenue jumped 56% to $11.7 million.

Astec Industries Inc. ((ASTE)), specialized infrastructure equipment manufacturer, posted second-quarter net income of $12.4 million, or 56 cents a share, compared with $10.2 million, or 49 cents a year ago. Quarterly sales rose 12% to $191.3 million as international sales comprised 28% of net sales for the most recent quarter vs. 19.4% last year. The company''s June 30 backlog amounted to $121.7 million, climbing 38.2% from 2005.

Titanium Metals Corp. ((TIE)) reported a 62% growth in second-quarter net income to $54.3 million, or 31 cents a share, versus $33.6 million, or 20 cents a share a year earlier. Revenue increased to $300.9 million from $183.7 million in the prior year comparable period.

TGC Industries Inc. ((TGC)), seismic data provider, reported 15% increase in second-quarter net income as revenue more than doubled. Net amounted to $2.1 million or 13 cents a share, compared with $1.8 million, or 14 cents, a year ago. Shares outstanding increased 20% to 15.7 million. Revenue totaled $14.9 million vs. $7.2 million last year due to productivity improvements. The quarterly performance was impacted by the unfavorable weather. The management added that the demand for the company’s services remains strong.


[R]8:00AM Advanced Micro Devices agreed to pay $5.4 B for ATI Technologies.[/R]
Advanced Micro Devices Inc. ((AMD)) announced Monday morning it agreed to pay $5.4 billion for the acquisition of top graphics chip maker ATI Technologies Inc., as Intel Corp.''s biggest rival in the market for personal-computer microprocessors attempts to expand its product portfolio. Under terms of agreement AMD will pay $4.2 billion in cash and 57 million AMD shares to acquire all of ATI''s outstanding stock, according to a news release. AMD will borrow $2.5 billion from Morgan Stanley to help fund the purchase. Based on AMD''s closing share price of $18.21 on Friday, the deal valued ATI''s shares at $20.47, a premium of almost 24% compared with ATI''s Friday''s closing price of $16.56 on the Nasdaq Stock Market. ATI shares surged more than 9% to $18.07 in pre-market trading.

AMD expects the deal to contribute modestly to earnings in 2007 and considerably to profit by 2008. The purchase is expected to save the combined company about $75 million by the end of 2007.

The new offerings would broaden AMD''s package of products as it takes on Intel, the world''s biggest chip maker that has long supplied a wider portfolio. Ontario-based ATI makes chipsets and graphics chips for PCs, as well as a host of semiconductors for consumer products, such high definition TVs and cell phones. According to analysts, the acquisition of ATI ‘would make AMD a bigger player with a more diversified portfolio,’ and ‘would certainly put AMD on a more equal footing relative to Intel.’


[R]7:00AM Asian markets closed down as techs weighed.[/R]
Asian-Pacific benchmarks closed slightly lower as gains for automakers helped limit losses brought by the tech sector after the Nasdaq hit a 14-month low. The Nikkei lost 0.18% as signs of strengthening domestic economy and strong June production figures for automakers offset declines among technology stocks. Japan’s largest PC maker NEC Corp. dropped 2.08%, while the country’s biggest chip maker Toshiba slipped 1.55%. Steel stocks and industrials shares also showed weakness. Automotive shares advanced after Toyota Motor reported domestic production increase of 10.25, and Honda Motor posted 8.8% growth. Across the region, Hong Kong’s Hang Seng lost 0.06%, with China’s Lenovo down 1.89% on Dell’s profit warning and modest weakness in the financial sector. South Korea’s Kospi dropped 0.6%, dragged by Samsung Electronics, down 1.5% and LG Electronics, down 0.56%. Stock markets in China, Taiwan, Thailand, and Australia also ended down.


European stocks recovered from last-week weakness to move higher at mid-day trading on stronger telecom shares and gains for consumer-electronics giant Philips Electronics. Retreating oil prices also provided support to sentiment. Vodafone Group climbed 2.7% after the company reported Q1 revenue growth of 9.2% and confirmed its outlook. Other telecommunication shares like BT Group, France Telecom, and Deutsche Telekom also advanced. Philips rose 3.9% on news that three private equity firms are bidding over $10 billion for its semiconductor unit. The German DAX 30 rose 0.9%, the French CAC 40 was up 0.7%, and London FTSE 100 surged 1%.