Opening Weakens on Oil

albena
22 Aug, 2005
New York City

Market breadth was positive at the opening though oil prices varied. With only a few earnings reports due to be released and no economic news on the calendar, fresh merger and acquisition activity is in the spotlight Monday. CNPC Intl. said it has agreed to buy PetroKazakhstan for $4.18 billion. SBS Broadcasting agreed to be acquired for $2.6 billion by two private equity companies.

U.S. AVERAGES

Early gains were shadowed by the higher oil prices and the major averages are now each posting a slight advance.

Commodity shares offer the biggest help to the early gains. Tech shares and disk drive segments are also among the advancers.

LanVision Systems ((LANV)) is among the biggest percentage advancers after it posted a 2Q profit vs. a loss last year. The stock is currently 35% higher.

Maytag shed 3 cents to $18.68, and Whirlpool advanced 52 cents to $82.35 as traders expected confirmation whether Whirlpool would indeed acquire its rival.

OSI Pharmceuticals said it agreed to buy Eyetech for $20 per share, a 20 percent premium to Eyetech's Friday closing price. Eyetech shares gained 28.5%, to $17.98, while OSI declined 20.4%, to $32.47.

Merck & Co. continued to drop after the unfavorable jury verdict late Friday. Merck's shares lost almost 8% and slid 34 cents to $27.72.

On the earnings front, H.J. Heinz's fiscal 1Q earnings fell 19%, dragged down by reorganization charges, higher commodity prices and a decline at the company's European frozen-foods unit. Heinz's earnings and sales topped analysts’ views and the company’s shares gained 42 cents to $36.72.

J.M. Smucker's ((SJM)) 1Q profit dropped 9% as sales growth was overshadowed by higher marketing costs, expenses related to establishing the company's new distribution network and other items. The company’s shares are currently down 5.74%.

The HIV drug developed by Panacos ((PANC)) helped boost the company's share price 56%.

ECONOMIC NEWS

No economic reports are due Monday.

Existing home and new home sales, weekly jobless claims, durable goods orders and monthly consumer sentiment are on economic calendar for the week.

On Tuesday the National Association of Realtors is expected to report that July existing home sales have declined to 7.25 million from 7.33 in June and 7.14 million in May. National median price on housing in June was $219,000. On Wednesday, Commerce Department is expected to report new home sales of 1.325 million from 1.374 million in June.

On Wednesday the Commerce Department is also scheduled to report July durable goods orders declined by 1.2% after rising 1.4% in June, 6.4% in May, and 1.5% in April. If the orders do decline then this will be the first decline since March 2005.

On Thursday Labor Department is to report weekly unemployment for the week ended August 20 to rise to 320,000 from 316,000 in the previous week. The initial claims after peaking in March 2005 at 455,000 have been on steady decline.

On Friday Fed’s Chairman is scheduled to report on the health of the economy at the Fed’s annual meeting in Jackson Hole, Wyoming. Final read on August consumer sentiment from the University of Michigan is expected to match the initial estimate of 92.7.

INTERNATIONAL MARKET NEWS

Asian markets closed higher Monday as Japanese shares reached their highest level since July 2001, led by gains in banking and oil companies. The Nikkei 225 index rose 160.78 points, or 1.3%, to 12,452. Among advancers, Hong Kong's Hang Seng index closed 1.2% higher, Sydney's All-Ordinaries index rose 0.7% to 4,462, Singapore's Straits Times index closed 0.6% higher to 2,300 and the Shanghai Composite index added 0.7% to 1,158.

Japanese stocks climbed to a new 4-year high Monday as continued confidence in the nation's economic recovery encouraged traders to buy issues sensitive to domestic demand. On the Tokyo Stock Exchange the Nikkei 225 index gained 160.78 points, or 1.30% to 12,452.51 points, its highest level since July 5, 2001 when it reached 12,607.30 points.

European stocks advanced at mid-day Monday, as oil and mining stocks gained strength, while drug makers were under pressure. The German DAX 30 added 0.24% to 4941, the French CAC 40 gained 0.09% to 4491 and the British FTSE 100 index advanced 0.15% to 5320.

ENERGY, METALS AND CURRENCIES MARKETS

Oil advanced towards $66 a barrel on Monday on worries of possible supply disruptions in the Middle East. U.S. crude gained 38 cents at $65.73, close to an all-time high of $67.10 reached on August 12. London Brent crude had climbed 40 cents to $64.76.

The dollar weakened vs. the euro and the yen Monday, after the greenback had rallied last week on positive U.S. economic reports and expectations of higher interest rates. The greenback traded at 109.55 yen, off from 110.40 yen late Friday, while the euro advanced to $1.2232 vs. $1.2164.

Gold futures were higher in morning trade, reviving from Friday's drop. December gold gained $2.60 to $444.80 an ounce, while September copper added 1.8 cents, or 1.1%, to $1.677 a pound.

Gold closed at $437.55 an ounce on Monday in Hong Kong, down $1.2 an ounce versus Friday's close of $438.75.

The benchmark 10-year Treasury dropped 5/32, or $1.56 per $1,000 invested, to yield 4.23% Monday. The 30-year bond lost 7/32 to yield 4.44%.

EARNINGS NEWS

Heinz Company ((HNZ)) posted earnings for 1Q 2006, excluding special items, of 52 cents per share vs. 55 cents per share in the same period a year ago. Analysts expected earnings of 49 cents per share for the quarter. Sales for the first quarter totaled $2.110 billion vs. 2.003 billion prior in the year.

J. M. Smucker Company, jams, jellies and preserves producer, announced that its earnings per share from continuing operations for 1Q of 2006 were 51 cents, up vs. 50 cents the year-ago period with sales climbing some 23% in 1Q of fiscal 2006.The analyst estimate was for 63 cents per share.

LanVision Systems Inc. ((LANV)) posted 2Q net income of 6 cents per share vs. a net loss of 5 cents per share in the same quarter last year. Revenues for the quarter were up 59% to $4.06 million from $2.56 million in the year-ago quarter.

Benihana Inc. ((BNHN)) posted 1Q net income of 44 cents per share vs. 20 cents per share in the year-ago period. Total revenues rose 13% to $74.1 million vs. $65.4 million last year.

CORPORATE NEWS

Ripplewood Holdings has decided against lifting its bid for Maytag, providing an opportunity for Whirlpool's $1.7 billion rival takeover offer.

Merck was found liable in the sudden cardiac death of a man who had used Vioxx, the company's painkiller. A Texas jury awarded the man’s widow $253.4 million in damages.

PetroKazakhstan Inc. ((PKZ)) said it has entered into an arrangement agreement according to which a wholly-owned subsidiary of CNPCI would offer $55.00 per share in cash for all outstanding common shares of PetroKazakhstan. The aggregate value of the transaction is about $4.18 billion. The Board of Directors of PetroKazakhstan has recommended that its shareholders accept CNPCI's offer. The transaction is expected to be completed October 2005.

OSI Pharmaceuticals ((OSIP)) has agreed to buy Eyetech Pharmaceuticals ((EYET)) in a deal worth about $935 million. Under the agreement, each Eyetech share would be exchanged for $15 in cash and 0.12275 of an OSI share. The transaction is expected to be completed by the end of 2005.

Northwest Airlines Corp. is put to the test as it will try to keep planes flying on heavier weekday levels Monday with its mechanics still on strike. In anticipation of the strike, the nation's fourth-biggest carrier switched to its fall schedule Saturday, a week earlier than planned, making the schedule lighter by about 17%. No talks are scheduled between Northwest and the union, which is refusing to take pay cuts and layoffs that would have reduced their ranks almost by half.

SBS Broadcasting S.A. ((SBTV)) revealed that it has entered into a definitive deal for its business to be bought by funds advised by Permira and affiliates of Kohlberg Kravis Roberts & Co. in a transaction valued at about $2.549 billion, on an enterprise value basis. An acquisition company jointly held by Permira and KKR has agreed to pay SBS 1.691 billion euro in cash for substantially all of SBS's assets, and to assume substantially all of its liabilities, resulting in a total transaction value, excluding minorities, of approximately 1.864 billion euro. SBS's business activities would be continued under ownership of Permira and KKR.

German travel company TUI AG revealed Sunday it plans to acquire Canadian firm CP Ships for $2 billion in a deal to bolster the company’s container shipping business. According to TUI, the Canadian company's board of directors unanimously recommended that its shareholders accept the all-cash offer of $21.50 per share - a premium of 9.7% over CP Ships' closing share price on Friday.

Freescale Semiconductor Inc. ((FSL)) announced that it has acquired the assets of Seaway Networks Inc. The company said that Seaway Networks is a fabless semiconductor supplier of content processing technology and solutions for the data networking industry. The company did not reveal the financial terms of the deal.

OTHER NEWS

Iraq's oil exports were shut down Monday by a power cut that left parts of central and southern Iraq dark, including the country's only functioning oil export terminals. Sabotage was also blamed for Monday's blackout, which prevented oil from being pumped into tankers waiting at berths, according to Iraqi officials. There was no electricity Monday morning in Basra and in the port city of Umm Qasr, too. Exports through the country's other main route, the northern export pipeline to Turkey, have long been halted by incessant sabotage.