Takeover Deals Lead Market Higher

Elena
04 Dec, 2001
New York City

U.S. market averages started trading higher Monday morning, despite a steep decline by the shares of Pfizer. The drugmaker''s decision to halt development of a key drug generated negative sentiment in pre-opening hours, but series of takeover deals managed to offset the negative mood. Chipmaker LSI Logic fell 12% after it agreed to buy Agere Systems in an all-stock deal worth around $4 billion. Shares of Bank of New York jumped 8.8% after it agreed to takeover Mellon Financial which rose 4%.

[R]9:45AM Stocks opened higher, helped by merger activity.[/R]
U.S. market averages started trading higher Monday morning, despite a steep decline by the shares of Pfizer. The drugmaker's decision to halt development of a key drug generated negative sentiment in pre-opening hours, but series of takeover deals managed to offset the negative mood.
Drug makers were in the spotlight after Pfizer ((PFE)) pulled its cholesterol drug because of cardiovascular problems it causes to users. Shares of the company tumbled 14.8% to $23.75. In contrast, rivals Merck & Co. ((MRK)) and Schering-Plough Corp. ((SHPL)) gained as their cholesterol drug was seen thriving with competition eliminated.

Financial shares were also in focus, helping the market to overcome the earlier weakness. Shares of Bank of New York ((BK)) jumped 8.8% after it agreed to takeover Mellon Financial which rose 4%. The transaction will create the world's leading asset custodian with $16.6 trillion in assets. Further in the deal news, Chipmaker LSI Logic ((LSI)) fell 12% after it agreed to buy Agere Systems in an all-stock deal worth around $4 billion. In the first hour of trading, the Dow Jones industrial average rose 31.00, or 0.25%, to 12,225.13. The Standard & Poor's 500 index was up 4.40, or 0.32%, to 1,401.11, and the Nasdaq composite index added 13.12, or 0.54%, to 2,426.33. Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.45% from 4.43% late Friday.


[R]9:30AM London advances in early trading Monday supported by merger deals.[/R]
The FTSE 100 rose 8.8 points, or 0.1%, at 6,029.7 at mid-day on Monday.

Advancers

Shares in RHM, which makes Mr Kipling cakes and Hovis bread, leapt 30.6% on the news, which will create the biggest food producer in Britain. Premier Foods gained 3.4%, and jumping on the bandwagon, Northern Foods rose 3.9% and Cadbury Schweppes gained 1.9%.

Cairn Energy added a further 2.1% following Friday strong run on continued speculation that Indian partner, ONGC, could be eyeing a move for Cairn assets in Rajasthan.

AstraZeneca rose 1.4% after US rival Pfizer halted development of its experimental drug Torcetrapib due to safety concerns.

Telecoms group Vodafone Group traded 1.3% higher after Credit Suisse upgraded the stock from neutral to outperform.

In the mid-caps, Aberdeen Asset Management rose 1.7% after it said full-year pre-tax profits increased to 79 million pounds.

Decliners

The only decliners in early trading was BAE Systems losing 2.3% amid continued concerns over its multi-billion pound contacts to supply fighter jet to Saudi Arabia.


[R]9:00AM Stocks futures pointed lower, hurt by weakness in Pfizer shares.[/R]
U.S. stock futures declined, hurt by weakness in Pfizer shares which overshadowed a multibillion-dollar deal in the financial sector. Pfizer ((PFE)) dropped 14% in pre-market trading as the drugmaker said it halted the development of cholesterol drug torcetrapib because of deaths and cardiovascular problems in patients using it. Following the news, the drugmaker was downgraded by Leman Brothers, citing concerns that revenue growth may not return for the next seven years. Bank stocks were also in focus after Bank of New York ((BK)) agreed to buy Mellon Financial ((MEL)) to become the world's largest financial assets service company. In other merger-and-acquisition news, chipmaker LSI Logic Corp. ((LSI)) said it agreed to buy Agere Systems Inc. ((AGR)) in an all-stock deal worth around $4 billion. Agere shares shot up 19% to $21.09 ahead of the open. Station Casino shares ((STN)) climbed 17% in pre-open trading after the casino operator said it received an $82-a-share buyout bid from Fertitta Colony Partners LLC, representing a 19% premium to Friday's closing price of $69.10. S&P 500 futures fell 1.40 points to 1,399.00 and Nasdaq 100 futures dipped 0.75 points to 1,781.25. Dow industrial futures shed 12 points to 12,212.


[R]8:00AM The Bank of New York agreed to buy Mellon Financial for $16.5 B.[/R]
The Bank of New York ((BK)) announced on Monday it agreed to take over Mellon Financial Corp. ((MEL)) in a $16.5 billion all-stock deal. The combined company will be the world's biggest asset custodian and corporate trustee with $16.6 trillion in assets under custody and $8 billion in assets under trusteeship. It will also be a top ten global asset manager with $1.1 trillion of assets under management. The company will rank as the 11th largest financial institution in the U.S. The new company will be called Bank of New York Mellon Corp.

Under the terms of agreement, Bank of New York's shareholders will receive 0.9434 shares in the new company for each share of Bank of New York that they own, and Mellon shareholders will receive one share in the new company for each Mellon share they own. Bank of New York and Mellon entered into mutual stock option agreements for 19.9%.of the issuer's outstanding common stock.

The companies said the deal will allow the combined group to invest and expand more rapidly than its competitors. They expect to reduce total pre-tax costs by around $700 million a year, equivalent to roughly 8.5% of the estimated combined expense base in 2006. The deal is expected to complete in Q3 of 2007 and will result in restructuring charges of around $1.3 billion. 3,900 of its 40,000 combined jobs will be cut within three years.


[R]7:30AM Asian stocks closed mixed on Monday, with the Japan down and HK up.[/R]
Asian markets ended mixed on Monday. Japan's benchmark Nikkei 225 stock index fell 0.11%, to finish at 16303.59. Shares of Canon fell as much 1.2%. Consumer electronics conglomerate Matsushita slipped 1.3%. Among Japanese auto makers, which rely on the U.S. export market, Nissan Motor lost 1.4%, while shares of Nippon Steel rose 1.3% on reports the group will consider a cross-shareholding arrangement from Baosteel Group Corp of China.

In Hong Kong, strength in Chinese banks and laggard blue chips helped the Hang Seng Index edge higher. The Hang Seng Index rose 0.1% to 18702.73. China Construction Bank, which has the third-largest weighting in the benchmark index, rose 1% and China Merchants Bank gained 3.1%. Shares of China Mobile shed 0.8% while fellow index heavy HSBC Holdings fell 0.4%.

In South Korea, shares fell on U.S. market losses as disappointing U.S. economic data released late Friday sent the Korean won to more than a nine-year high. The Korea Composite Stock Price Index, or Kospi, fell 0.6% to 1426.46. LG.Philips LCD declined 2.6%, due to concerns over earnings in the first half of next year.

Taiwan shares rose for the fourth session in row to a new six-year high. The Weighted Price Index of the Taiwan Stock Exchange rose 0.4% to close at 7647.01. Australia's S&P ASX/200 fell 0.1% after data released Monday showed Australian new home building approvals fell 7.4% in October, exceeding the 2% decline economists had expected. Australia's Woodside Petroleum traded flat.

Shanghai Composite Index in China climbed to a five-year high after official media reported that the government will encourage financial institutions to invest more heavily in shares. The Shanghai Composite rose 2.8% to 2161.65, its highest close since July 23, 2001. Singapore Straits Times Index rose 0.5%, Malaysia KLSE Composite shed 0.3% and New Zealand NZX-50 index ended down 0.5% and Indonesia Jakarta Composite fell 0.2%.


[R]6:30AM European markets gained a little on Monday on bid speculation.[/R]
European markets were higher on Monday. By mid morning, FTSE 100 in London climbed 0.5% to 6,049.8, Frankfurt Xetra Dax added 0.4% to 6,268.05, and the CAC 40 in Paris gained 0.4% to 5,272.54.

Advancers

Shares in Alstom gained 2.4%, while Bouygues added 0.3%. Spanish construction company FCC gained 2.4% after domestic rival Acciona said it had agreed to sell its 15.1% stake in FCC to property group Inmocaral. Inmocaral jumped 5.1%. Acciona shares were flat.

Endesa, meanwhile, along with rival Spanish electricity groups Iberdrola and Union Fenosa, gained after the government said it planned to raise electricity tariffs by an average 10 %, Endesa gained 0.6%, Iberdrola added 0.7% and Union Fenosa climbed 1.1%.

Eon, the German utility whose bid for Endesa could potentially be blocked by Acciona, climbed 0.4%. AstraZeneca, whose rival treatment Crestor is among its biggest growth drivers, gained 1.1%, while Roche, the Swiss group which is developing a new cholesterol drug, added 0.3%.

Decliners

The German-listed pharma company Pfizer fell as much as 12% after the company ended development of a new cholesterol drug, which had been tipped to be its next blockbuster.

Oil and gold

Oil prices gained slightly Monday as fresh comments from key OPEC members over the weekend suggested the oil cartel would push for further cuts in output at its next meeting later this month. Light, sweet crude oil for January delivery rose 2 cents to $63.45 a barrel in electronic trading on the NYME.

Gold traded at $640.66 an ounce Monday, down $5.74 an ounce from the close of $646.40 on Friday.

Currencies

After rising to a 20-month high around $1.3370 in early trade, the euro pared gains to stand at $1.3325, slightly down on the day. The British pound pulled away from a 14-year high of $1.9849 hit on Friday to stand at $1.9790. The dollar was up slightly at 115.55 Japanese yen but stayed in sight of a four-month low of 114.97 yen on Friday.