Redback up 18% on Takeover Bid from Ericsson

Elena
20 Dec, 2006
New York City

Stock market averages gained ground in late Wednesday trading, driven higher by a flurry of merger deals which helped offset disappointing forecasts from Fedex and Palm. Harrah''s Entertainment rose 0.6% after it agreed to be bought by private-equity firms. Telecoms equipment provider Ericsson added 1% after it agreed to buy Redback Networks for $2.1 B. Steel giant Arcelor Mittal rose 1% on news that it is buying Mexico''s Sicartsa from Grupo Villacero for $1.44 B.

[R]11:30AM Market was driven higher by merger activity.[/R]
Stock market averages gained ground in late Wednesday trading, driven higher by a flurry of merger deals which helped offset disappointing forecasts from Fedex Corp. and Palm Inc. Harrah's Entertainment ((HET)) rose 0.6% after it agreed to be bought by private-equity firms. Telecoms equipment provider Ericsson ((ERIC)) added 1% after it agreed to buy Redback Networks for $2.1 B. Steel giant Arcelor Mittal ((MT)) rose 1% on news that it is buying Mexico's Sicartsa from Grupo Villacero for $1.44 billion. Again in the M&A news, M&F WorldWide Corp. ((MFW)) agreed to buy John H. Harland ((JH)) for $1.7 billion cash, or $52.75 a share. The offer is a premium of 19% above its Tuesday closing price of $44.47. Shares of M&F rose 3.7%, while John H. Harland climbed 12%. Shares of the NYSE fell 1.6% after its shareholders approved the exchange's merger with Euronext.

On the earnings news front, FedEx ((FDX)) fell 2.6% after reporting a 9% gain in Q2 income, but a disappointing Q3 earnings estimate. Palm ((PALM)) was another decliner, down 1% after posting a sharp drop in earnings, in line with expectations, but disappointed investors with its forecast for the current quarter. On a positive note, used car dealer CarMax ((CMX)) rose 9.6% after its Q3 earnings nearly doubled on strong sales to the wholesale market and strong demand for trucks and sport utility vehicles. In late morning trading Wednesday, the Dow rose 24.51, or 0.20 percent, at 12,475.83. The Standard & Poor's 500 index was up 2.89, or 0.20%, at 1,428.44 and the Nasdaq composite index rose 11.12, or 0.46%, to 2,440.67. Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.60% from 4.59% late Tuesday.


[R]10:30AM The Sensex declined Wednesday amid a highly volatile session.[/R]
The Sensex on BSE finished 41.80 points, or 0.31%, lower at 13,340.21. The benchmark index traded within a range of 335 points. The market-breadth was negative. As 1,465 shares declined, 1,094 advanced and 83 remained unchanged. From the Sensex stocks 21 advanced while the rest declined. The turnover on BSE was Rs 4,383 crore, higher than Rs 4,183 crore on Tuesday.On NSE, the turnover amounted to Rs 10,066.83 crore, up from Rs 9,066.2 crore yesterday.

Economic news

Arcelor Mittal, the largest steelmaker in the world, which is still in the process of completing $33 billion merger, said it had agreed to purchase for $1.45 billion Grupo Villacero for Sicartsa of Mexico.

Trying to improve transparency, the Reserve Bank of India has asked banks to publish separate profit and loss account for different business segments like retail and wholesale.

IPO

Sobha Developers made a remakable debut closing with 51% gain. Ruchira Papers made a flat debut, easing 9% from its issue price.

Most-active stocks

Sobha Developers was the most-active stock with a turnover of Rs 710.90 crore followed by Tech Mahindra and Reliance Industries.

Advancers

Tata Steel led the advancers, up 2.30% to Rs 465. It bounced back from low of Rs 450.10, advancing after Britain takeover agency set January 30, 2007 deadline on Tuesday for Tata Steel and CSN of Brazil to make revised offers for steelmaker Corus Group.

Sobha Developers closed at Rs 968.75 on BSE above its IPO price of Rs 640. The stock opened at Rs 1,111.25 and reached Rs 1,179 before closing.

Cipla gained 1.24% to Rs 24, Maruti Udyog advanced 1.73% to Rs 925 and HDFC rose 1.97% to Rs 1,580.

ITC advanced 1.13% to Rs 170.25 following reports that it will expand its fruit and vegetable retail and wholesale business by opening 54 new outlets in select metros in next three years.

Tech Mahindra surged 7.18% to Rs 1,238.10 on intense buying in expectation of strong financial performance for third-quarter December 2006.

iGate Global Solutions soared 16.66% to Rs 305 after the company reported the company board meeting on 10 January 2007, to discuss record third-quarter December 2006 results.

Decliners

Tata Motors led the decliners, off 3.22% to Rs 835.10 on 5.46 lakh shares. Hindustan Lever declined 3.14% to Rs 217.70, Grasim shed 2.29% to Rs 2,655 and HDFC Bank edged lower 1.82% to Rs 1,019.

Index heavyw Reliance Industries closed 0.24% lower at Rs 1,250.10 on a high volume of 13.29 lakh shares.


[R]9:45AM Stocks opened narrowly mixed. FedEx reported Q2 profit rise but released disappointing Q3 forecast.[/R]
U.S. stocks opened little changed on Wednesday as transportation stocks fell after FedEx financial report limited gains generated by optimism about global merger-and-acquisition activity. FedEx Corp. ((FDX)) reported Q2 profit rise of 9% on strong results from its ground delivery business. Earnings for the quarter increased to $1.64 per share, up from $1.53 per share last year. However, the company also released a disappointing Q3 forecast, sending its shares down 2.2%. Used car dealer CarMax ((KMX)) said its Q3 earnings nearly doubled on strong sales to the wholesale market and strong demand for trucks and sport utility vehicles.

The Nasdaq was pushed higher by Swedish telecommunications equipment maker Ericsson ((ERIC)) which agreed to buy networking equipment vendor Redback Networks ((RBAK)) for $2.1 billion in cash. Redback shares jumped 17.5%. Some strength emerged in the semiconductor sector, with Maxim ((MXIM)) leading the sector higher after announcing the retirement of its CEO. The stock jumped 4.9%. Shares of U.S. metal producers advanced Arcelor Mittal ((MT)) agreed to buy Mexico''s Sicartsa for $1.44 billion. from Grupo Villacero.U.S. Steel Corp. ((X)) stock gained 1.3% and Allegheny Technologies ((ATI)) shares gained 0.7%. Software, disk drive, and housing stocks also posted strong gains. At the same time, transportation stocks came under pressure in early trading. In the first hour of trading Wednesday, the Dow was down 4.17, or 0.03%, at 12,467.15. The Standard & Poor''s 500 index was up 0.88, or 0.06% at 1,426.43 and the Nasdaq composite index rose 7.84, or 0.32%, to 2,437.39


[R]9:30AM The London benchmark index was higher Wednesday on Asian recovery.[/R]
The FTSE 100 advanced 26.6 points, or 0.4%, to 6,230.4.

Decliners

British Energy was in focus as its shares slumped 8.3% on reports that repair work at Hunterson and Hinkley reactors will not be completed until March.

HMV Group, the music and book retailer, also hogged the limelight after warning that full-year pretax profits would be at the low end of City expectations. HMV dipped 4.07%.

Northern Foods shed 5.2% after Credit Suisse downgraded to neutral on recent share price strength and the fact that Christmas is a crucial period for the company and four of the past five January’s have brought profits warnings.

Bodycote International, engineering company, was 4.22% lower after it warned that costs had stabilised at record high levels.

Advancers

Experian, the credit company, led the gainers, up 2.5% on a Morgan Stanley upgrade to outperform. The broker said the company was undervalued and could spend up to $3 billion on acquisitions over the next couple of years.

Soft drinks group Britvic advanced 4% as investors reponded to Tuesday after-hours conformation that Permira had increased its stake from just under 3% to 14%.

There was more gains for John Wood, the oilfield services group, as its forecasts were upgraded in the wake of the trading statement on Tuesday. The shares rose 3.9%.

Bangladeshi drug maker Beximco recouped part of its recent decline after it guided full year revenue growth of more than 10%.


[R]9:00AM Stocks futures advanced, lifted by Ericsson acquisition deal.[/R]
U.S. U.S. stock market futures pointed higher Wednesday, boosted by tech shares gains after Ericsson agreed to acquire a network hardware company. A recovery in Asian-Pacific stock markets after a sharp decline yesterday also contributed to the advance. Thailand''s government reversed a decision on capital controls, sending its benchmark SET index up 11%.

Swedish telecommunications equipment maker Ericsson agreed to buy Redback Networks for $2.1 billion cash, an 18% premium to Tuesday''s close. In other merger-and-acquisition news, Harrah''s Entertainment ((HET)) late Tuesday agreed to be bought by two private-equity firms. Texas Pacific Group and Apollo Management topped a bid from Penn National Gaming, offering $90 a share in cash, or $27.8 billion with assumed debt included. The steel sector continued consolidation as Arcelor and Mittal ((MT)), which are in the process of combining to form the world''s biggest steelmaker, announced they had bought Mexico''s Sicartsa from Grupo Villacero for $1.44 billion. The companies said that the deal would result in the creation of Mexico''s largest steel producer with an annual capacity of 6.7 million tons.

In earnings news, express package delivery company FedEx Corp. ((FDX)) reported on Wednesday Q2 profit rise of 9% on strong results from its ground delivery business. Earnings for the quarter increased to $1.64 per share, up from $1.53 per share last year. But the company also released a Q3 forecast that was below both the previous year''s results and analysts'' expectations. The company''s shares fell 4% in premarket trading. Dow Jones futures were recently up 16 points, S&P 500 futures rose 2.6 points and Nasdaq futures rose 6.5 points.

Outside of M&A, women''s clothing retailer Christopher & Banks forecast fourth-quarter earnings below consensus estimates. Medical products maker FoxHollow Technologies cut its fourth-quarter sales outlook. Merck & Co. last month bought an 11 percent stake in the company.


[R]7:30AM Asian stocks bounced back led by reversal of Thai central bank decision.[/R]
Asian markets ended higher on Wednesday. SET Index of Thailand rebounded 11% to 691.55, after plummeting 15% in the previous session. On Monday the Thai central bank introduced rules designed lock up 30% of foreign-currency deposits for a year and penalize investors trying to repatriate funds within a year. Late Tuesday, Thai authorities reverse the move.

In Japan, the Nikkei 225 Index closed up 1.4% at 1,7011.04. Exporters led the way. Honda advanced 2.3% while Toyota rose 1.3%. Toyota and related units Daihatsu Motor and truck maker Hino Motors are reportedly on schedule to build 9.45 million vehicles next year. Consumer electronics conglomerate NEC gained 2.9% while Toshiba advanced 0.9%.

Hang Seng Index of Hong Kong gained 1.5% to 19,240.12. Sun Hung Kai Properties advanced 0.7%, after the real-estate company paid $231.48 million for a residential lot in the exclusive Peak district on Hong Kong Island. China Life, the biggest life insurer in mainland China, surged 8.2% to a record as investors were optimistic about the share, after it won approval last week from mainland authorities to list shares in Shanghai.

In Seoul, the Korea Composite Stock Price Index, or Kospi, gained 1% to 1,442.28. Industrial Bank of Korea advanced 2.4% as concerns over the planned 15.7% stake sale by the Ministry of Finance and Economy have been overcome as it is anticipated to be delayed into next year

Other markets around the region also gained including Australia S&P/ASX 200 Index advancing 0.9% to 5607.80 and New Zealand NZSX-50 Index rising 0.6% to 4004.96. Singapore Straits Times Index surged 8% to 2920.83 and Shanghai Composite Index of China added 0.4% to 2,373.20, while Taiwan Weighted Price Index ended 0.7% higher to 7,648.35.


[R]6:30AM European shares advanced Wednesday on autos and merger deals.[/R]
European markets were higher on Wednesday. By mid morning, the FTSE 100 in London climbed 0.4% to 6,232.3, Frankfurt’s Xetra Dax gained 0.7% to 6,597.89, while the CAC 40 in Paris advanced 0.6% to 5,518.66.

Advancers

DaimlerChrysler led European autos higher, up 2%, before a supervisory board meeting. Volkswagen, whose board is locked in a management leadership struggle with chief shareholder Porsche, advanced 1%. Porsche added 1.8%.

Price increases buoyed Continental. The company said it might return some of its 4 billion euros to shareholders if it did not find suitable acquisitions. Shares gained 0.8%, while Michelin climbed 1.8%.

Ericsson led the tech sector after investors welcomed its acquisition of Redback Networks. Ericsson gained 1.5%. Swiss engineer ABB advanced 2.1% after Moody’s raised its rating on the debt of the company, in view of its the stronger-than-expected improvement of its operating performance.

Arcelor-Mittal the world largest steelmaker, advanced 1.5% following its statement that it is buying Sicartsa of Mexico from Grupo Villacero.

Decliners

HMV Group traded down 1.8% after the U.K. book and music retailer said that it anticipates its annual profit to be at the low end of market expectations.

Oil and gold

Crude oil for February delivery declined 15 cents at $63.31 a barrel in on the New York Mercantile Exchange. At London ICE Futures exchange, oil prices also moved slightly lower, with Brent crude for February delivery 17 cents lower to $62.64 a barrel.

Gold traded in London at $623.40 per troy ounce, higher than $620.20 late Tuesday. In Zurich, gold traded at $621.70, up from $619.95.

Currencies

The U.S. dollar dipped against the euro on Wednesday morning. The euro traded at $1.3229, up from $1.3192 late Tuesday. The British pound was quoted at $1.9707, up from $1.9682. The dollar bought 117.98 Japanese yen, down from 118.08.