Bandag up 30% on Acquisition Bid

Elena
05 Dec, 2006
New York City

U.S. stocks opened little changed on Tuesday as traders digested a report from the Labor Department that showed modest Q3 productivity growth but significant downward revisions Q3 and Q2 unit labor costs. In deal news, Japan''s tire company Bridgestone Corp. said its North America subsidiary will buy Bandag Inc., a maker of tire tread rubber, for about $1.05 billion in cash. Shares of Bandag rose 12% to $50.40 in morning trading.

[R]9:45AM Stocks opened little changed, following wage inflation report.[/R]
U.S. stocks opened little changed on Tuesday as traders digested a report from the Labor Department that showed modest Q3 productivity growth but significant downward revisions Q3 and Q2 unit labor costs. In deal news, Japan's tire company Bridgestone Corp. said its North America subsidiary will buy Bandag Inc., a maker of tire tread rubber, for about $1.05 billion in cash. Under terms of the deal, Bridgestone Americas Holding will pay $50.75 per share for an almost 13% premium over Bandag's Monday closing price of $45.04 on the Nymex. Bandag ((BDG)) rose 12% to $50.40 in morning trading. In other corporate news, Yum Brand Inc. ((YUM)) unit Taco Bell said it had closed four restaurants in New York after a suspected E. coli outbreak at one of its New Jersey outlets sickened a dozen people. Its shares declined 1.1%.

Among other early movers, Ford Motor Co. ((F)) shares fell 3.7% after it announced plans for a $3 billion convertible bond sale. Shares of Sirius Satellite Radio Inc. ((SIRI)) fell 7.4% to $3.86 after Bear Stearns cut its rating on the stock. In the first hour of trading, the Dow Jones industrial average rose 4.89, or 0.04%, to 12,288.74. The Standard & Poor's 500 index was up 1.05, or 0.07%, at 1,410.17, and the Nasdaq composite index was down 1.65, or 0.07%, at 2,446.74. Bonds were little changed, with the yield on the benchmark 10-year Treasury note flat at 4.43% from late Monday.


[R]9:30AM The FTSE 100 advanced slightly in early trading Tuesday on miners.[/R]
In early trade, the FTSE 100 rose 25.1 points, or 0.4% to 6,075.7. Antofagasta led the gainers, up 3.7%. Bid talk has been ongoing in the mining sector in recent weeks since the acquisition of Phelps Dodge. Lonmin and Antofagasta have been the key beneficiaries. The Chile-based group is a pure copper play and copper prices have held up while others have weakened in recent weeks.

Advancers

ICAP, the inter-dealer broker, rose 3.9% after it said it had bought 2 million ordinary shares.The group said it had more than sufficient capital to continue to develop its businesses.

Vodafone Group advanced 1.7% after Goldman Sachs raised its recommendation on the mobile phone retailer from neutral to buy.

Henderson Group rose 5.4% as the fund manager forecast profits this year to be ahead of market expectations. Forth Ports gained a further 3.4% amid talk of a bid from Bank of Scotland.

Carphone Warehouse rose 6.6% after Merrill Lynch reiterated its buy rating on the mobile phone retailer following a presentation from Charles Dunstone, Carphone chief executive.

Decliners

Woolworths, a sweets-to-DVDs retailer, warned that sales could disappoint in the weeks leading up to Christmas, sending its shares10.2% lower.

There was profit taking in Tesco as the largest supermarket in the UK reported a 5.6% rise in UK like-for-like sales. Tesco shares fell 1.5%, while fellow retailers William Morrison lost 1% and J Sainsbury shed 0.3%.


[R]9:00AM Stocks futures pointed higher on Q3 productivity data.[/R]
Stock market futures indicated a slightly higher opening Tuesday, after a revised report on Q3 labor productivity showed that productivity was revised up, but came in below economist estimates. Productivity in the nonfarm business sector rose 0.2% in Q3, down from the expected increase of 0.4%. The report also showed a downward revision to the pace of unit labor cost growth in Q3, which was revised down to 2.3% from 3.8%.
In corporate news, luxury home builder Toll Brothers Inc. ((TOL)) reported lower quarterly earnings and warned that next year’s net income is likely to drop 62%. Shares of Toll Brothers declined 3.2% to $30.90 before the bell. Shares of Starbucks Corp. ((SBUX)) rose 2% to $36.48 before the opening bell after UBS raised its rating on the company to ‘buy’ from ‘neutral.’ Standard & Poor''s 500 futures were up 2.20 points, slightly above fair value. Dow Jones industrial average futures were up 23 points, and Nasdaq 100 futures up 4.50 points.

[R]Labor productivity was revised up 0.2% in Q3.[/R]
Tuesday morning, the Department of Labor released its revised report on labor productivity in the third quarter, showing that productivity was revised up compared to its previous reading. Despite the upward revision, productivity growth came in below economist estimates. The report showed that productivity growth was revised to 0.2 percent in the third quarter compared to the previously reported unchanged reading. Economists had expected a more significant upward revision to 0.5 percent growth. The Labor Department said that output growth in the third quarter was revised up to 2.3 percent from 1.6 percent, while the increase in hours worked was revised up to 2.1 percent from 1.6 percent. The upward revision was also partly due to a faster rate of productivity growth in the manufacturing sector, which was revised up to 6.7 percent from the previous reading of 5.9 percent.

Manufacturing output growth was revised up to 5.1 percent from 4.2 percent, while the 1.6 percent decline in hours was unrevised. At the same time, the report showed a downward revision to the pace of unit labor cost growth in the third quarter, which was revised down to 2.3 percent from 3.8 percent. The Labor Department also said that second quarter unit labor costs were revised significantly lower. The report showed that unit labor costs fell 2.4 percent in the second quarter compared to the previous reading of 5.4 percent growth. While the modest productivity growth in the third quarter may raise some concerns about the strength of the economy, the downward revisions to unit labor costs in the second and third quarters may help to ease recent concerns about the pace of inflation.


[R]8:00AM Toll Brothers posted Q4 profit decline, beating estimates.[/R]
Toll Brothers ((TOL)), luxury home builder, reported Q4 profit slightly above expectations, but also warned that next year''s annual profit is likely to decline up to 62%. However, it raised hopes that there is an upward turn in the housing market.

Toll Brothers said net income in Q4 fell to $174 million, or $1.07 a share, from $310 million, or $1.84 a share last year, with revenue falling to $1.81 billion from $2.02 billion. Analysts on average expected earnings of $1.06 a share. In fiscal 2006, it earned $687 million, or $4.17 a share. The home builder attributed the downbeat results to 15 months of a home building slowdown, and over 585 cancellations.

But the company also raised hopes that the trend may change direction, as the Washington D.C. suburbs of Northern Virginia, the first market that Toll Brothers saw slowing growth, seems to have stabilized. Still, the net income in the following year is forecast to fall to between $260 million and $340 million, or $1.58 to $2.08 a share, hurt by estimates of a $60 million pre-tax land-related writedown and by a change in accounting treatment that will shift 22 cents to 29 cents a share in earnings to subsequent years.


[R]7:30AM Asian markets ended mixed Tuesday with Japan lower and HK higher.[/R]
Asian markets closed mixed on Tuesday. The Nikkei 225 stock index in Japan shed 0.23% to finish at 16265.76. Oil producers were lower after a slip in crude-oil futures on the NYME overnight. Japan Petroleum Exploration fell 1.1% and Inpex Holdings declined 3.4%.

Sumitomo Mitsui Financial Group declined 2.4% after the banking group announced on Monday that it would issue preferred securities for several hundred billion yen to boost its capital adequacy ratio. Mitsubishi UFJ Financial Group was 1.4% lower and Mizuho Financial Group fell 2.1%. Resona Holdings declined 2% after JP Morgan lowered its rating on the bank to neutral from overweight as higher tax rates lowered the its earnings per share.

Hopes of faster yuan appreciation and gains in telecommunications companies fueled Hong Kong stocks higher. The Hang Seng Index rose 1.3% to 18944.19. The advance was also based on excitement in the telecom sector, with China Netcom Group jumping 8.5%. China Telecom gained 15.6% with investors confirming it is their top pick for the sector, which is likely to undergo profound reforms.

Korea Composite Stock Price Index, or Kospi, fell 0.4% to 1420.59. Automobile and technology stocks declined on the weak dollar, which closed at 924.30 won, down from its last finish at 927.60 won. In Taiwan, the Weighted Price Index of the dropped 0.5% to 7609.9. Australia nudged 0.03% higher, to close at 5,414.2.

The Shanghai Composite Index gained 0.5% to 2173.28, its highest close since July 20, 2001, when it settled at 2179.62. Property developers surged on speculation that a stronger yuan will lift the value of their real-estate holdings. China Vanke advanced 2.4%; Beijing North Star surged by its 10% daily limit and Shanghai Jinqiao Export Processing Zone Development also gained 10%.


[R]6:30AM European markets advanced Tuesday on telecoms, steelmakers.[/R]
European markets were higher on Tuesday. By mid morning, London FTSE 100 climbed 0.6% to 6,084.5, Frankfurt Xetra Dax added 0.6% to 6,331.50, and the CAC 40 in Paris gained 0.6% to 5,329.64.

Advancers

Goldman Sachs raised its recommendation on Vodafone from neutral to buy, saying the share price recovery of the company was in line with a sector-wide rally. Shares of Vodafone gained 2%, while Telenor, the biggest Nordic mobile group, gained 2.3% and Swedish rival TeliaSonera climbed 1%. Cosmote, the Greek mobile telecoms company, was up 1.7%.

Steelmakers also gained after Companhia Siderurgica Nacional of Brazil completed due diligence on Anglo-Dutch target Corus, and was reported to be poised to make a firm offer later in the week. The Amsterdam-listed shares of Corus were flat, while the London-listed stock gained 0.1%.

The wider sector was boosted by the prospect of further consolidation. Thyssen Krupp, the German steelmaker, gained 1.6%, while Salzgitter added 1%. Arcelor-Mittal added 1.1%. Deutsche Börse, the German exchange operator, climbed 1% after WestLB upgraded the stock from hold to add.

Decliners

Greek Alpha Bank was worst performing stock on the market after it completed the sale of 5.2% of its share capital. Alpha Bank fell 2.5%. Consumer electronics group Philips fell 1.1% after its targets for 2007 disappointed.

Oil and gold

Oil prices steadied on Tuesday after a $1 fall the previous day due to mild weather forecasts. U.S. crude was trading at around $62.63 a barrel after falling nearly $1 on Monday. London Brent crude was little changed on the day at $63.32 a barrel.

Gold fell the most in two weeks in London on speculation gains in the dollar against the euro will slow demand for the precious metal as an alternative investment. Gold for immediate delivery fell $3.40, or 0.5%, to $642.80 an ounce in early trading in London, the biggest drop since Nov. 16. Prices have increased 26% in the past year.

Currencies

The US dollar rose against the euro Tuesday, bouncing back from 20-month lows amid expectations of slower U.S. economic growth and higher European interest rates. In late morning trading in Europe, the euro stood at $1.3308, compared with $1.3328 late Monday in New York. The British pound continued to back off its 14-year high against the dollar, falling to $1.9744 on Tuesday from $1.9797 on Monday. The dollar fell to 114.79 Japanese yen, from 115.35 the day before.