Market to Open Slightly Higher on Merger News

Elena
07 May, 2007
New York City

U.S. stock market futures were volatile in the pre-opening hours, as positive sentiment generated by optimism over a merger in the aluminum sector was offset by cautiousness before key interest rate decisions in the U.S. and Europe later in the week. Merger-and-acquisition news was in the spotlight after Alcoa said it is planning to launch a buyout bid for rival Alcan for $33 billion.

[R]9:00AM U.S. stock futures traded in a lackluster fashion ahead of Fed’s decision.[/R]
U.S. stock market futures were volatile in the pre-opening hours, as positive sentiment generated by optimism over a merger in the aluminum sector was offset by cautiousness before key interest rate decisions in the U.S. and Europe later in the week. The Fed and the European Central Bank are expected to keep the rate unchanged, while the Bank of England is seen raising rates by 0.25%.

Merger-and-acquisition news was in the spotlight after Alcoa ((AA)) said it is planning to launch a buyout bid for rival Alcan ((AL)) for $33 billion, or $73.25 a share in cash and stock. The deal represents a 32% premium to Alcan''s average closing price over the past 30 trading days.
Alcan''s stock surged 25% in pre-open trading, while Alcoa slipped 2.4%.

Further in deal news, BAE Systems is reportedly close to offering $88 a share, or $3.5 billion, for defense contractor Armor Holdings ((AH)). ABN Amro ((ABN)) dropped 1.7% in the pre-open after it turned down a $24.5 billion offer for its LaSalle operation from banks led by the Royal Bank of Scotland because of the numerous conditions attached. Instead, the company opted for a $21 billion offer from Bank of America

Yahoo ((YHOO)) shares fell 1.1% ahead of the open following a report late Friday that merger talks with Microsoft ((MSFT)) have been terminated. S&P 500 futures eased 0.40 of a point to 1,513.80 and Nasdaq 100 futures slipped 1.50 points to 1,907.00. Dow industrial futures gave up 6 points to 13,313.


[R]8:30AM Asian markets rally on Monday with Japanese stocks leading on export-related issues.[/R]
Asian markets ended higher on Monday. The Nikkei 225 Average in Tokyo closed 1.6% higher at 17,669.83, boosted by gains in export-related stocks as the yen is still weak against the dollar. Among Japanese tech and export-related shares, Canon surged 4.1%, Sony added 2.2% and Honda Motor ended up 2%.

Hong Kong Hang Seng Index closed 0.3% higher at 20,896.64, after earlier setting a record high of 21,070.21. PetroChina rallied 4.7%. The largest listed oil producer in China advanced after shareholders in Berkshire Hathaway rejected a proposal to cut its $3.31 billion stake in the company.

Australian S&P/ASX 200 gained 0.5% to end at 6,335.70. BHP Billiton and Rio Tinto advanced 2.7% and 3.2% respectively, buoyed by firmer metals prices and speculation the sector could become the next target for leveraged-buyout funds. Shares of construction materials maker Rinker Group advanced 1.8% after Cemex of Mexico enhanced its $14.25 billion bid for the company and extended the deadline by three weeks to June 9.

South Korean Kospi index gained 1.1% to an all-time high of 1,584.46. Shares of Hynix Semiconductor gained 4.9%, while Samsung Electronics added 1.4%. Among other record performances, Singapore Straits Times Index climbed 0.1% to 3,489.84 and Taiwan Weighted Price Index finished up 0.6% at 8,115.27.


[R]8:15AM Alcoa announced plans to launch a $27-billion bid for Alcan.[/R]
Alcoa ((AA)) announced on Monday plans to launch an acquisition bid for Canadian aluminum rival Alcan Inc. ((AL)) in a cash-and-stock deal worth nearly $27 billion, or $73.25 a share. The proposal carries an enterprise value of about $33 billion and represents a 32% premium to Alcan''s average closing price on the NYSE over the last 30 trading days. The offer includes $58.60 per share in cash and 0.4108 of a share of Alcoa common stock for each outstanding Alcan common share. The Dow component expects $1 billion in annual cost savings from the deal.

Alcoa is planning to begin its offer for Alcan on May 8 and finish the transaction by the end of 2008. It said that the two companies have been in talks to do a deal for almost two years. Alcoa decided to approach the shareholders directly as the companies failed to reach a negotiated deal. Shares of Alcoa slipped 4.4% in pre-market trading, while Alcan''s stock soared 23.7%.


[R]8:00AM NY-7:00PM Mumbai Sensex pares earlier gains Monday to finish lower.[/R]

The Sensex on BSE finished 55.02 points, or 0.39%, lower at 13,879.25. Trading was highly volatile as the index traded within a range of 206 points. The market-breadth was negative as 1,396 stocks declined, 1,192 stocks advanced and only 59 stocks remained unchanged. Of the 30 stocks in the Sensex, eight stocks advanced, while the rest declined. The turnover on BSE was Rs 4,474 crore, higher than Rs 4,268.39 crore on Friday. The turnover on NSE was Rs 8,657.72 crore, lower than Rs 9,399.66 crore on Friday.

Economic news

Financial institutions, led by LIC, UTI, SBI and the Bank of India are buying a major stake of the BSE of 41% which is being offered by the Bombay Stock Exchange. According to sources, LIC and UTI are buying 8-9% equity.

Airbus Industrie confirmed plans to invest $1 billion in India in the next decade as its superjumbo Airbus A380 arrived to raise the profile of Kingfisher Airlines, its only customer in the country.

S. Sridhar, chairman of the National Housing Bank, said that mortgage defaults in India may rise as higher interest rates hit the fastest-growing segment of the banking industry of the nation. The Reserve Bank of India may be restrained from raising rates further to combat inflation because of the risk of an increase in bad debts, which have never crossed 2% of banks advances to home-loan borrowers.

The seventh and final phase of polls in Uttar Pradesh is scheduled on Tuesday, or May 8 and counting of votes is due on May 11 2007, with results expected the same day. The UP vote is a barometer of the national political trends.

Trading highlights

ICRA was the most-active stock with a turnover of Rs 397.20 crore followed by Indiabulls and Indiabulls Real Estate.

Advancers

Ranbaxy surged 2% to Rs 390 on a volume of 3.12 lakh shares, touching an intra-day high of Rs 392.10. Index heavy Reliance Industries gained 1.5% to finish at Rs 1,605, and Hero Honda added 1% to Rs 704. Bharti Airtel gained 0.6% to Rs 823 and ACC added 0.4% to Rs 862 were among the other eminent advancers.

Decliners

Technology stocks exhibited weakness today. IT shares declined tracking a surge in the rupee to a new nine-year high against the dollar. In early trading, the partially convertible rupee was at 40.5450 per dollar, its highest level since May 1998, and stronger than Friday close of 40.8450. Wipro and Satyam led the decliners, losing over 2% each to Rs 555 and Rs 460, respectively. Infosys dropped 1.6% to Rs 2,039.

Dr.Reddy and Hindalco lost over 2% each to Rs 704 and Rs 145, respectively. Cipla lost 1.4% to Rs 214 and ICICI Bank dipped 1.3% to Rs 844.


[R]6:30AM European markets opened higher on Monday on strong U.S. close.[/R]

European markets traded higher in mid-morning on Monday. The French CAC 40 rose 0.2% at 6,081.78, while the German DAX 30 rose 0.2% at 7,533.35.

Advancers

Though markets were expecting Sarkozy to win, shares of Bouygues advanced 2.7%, on expectations that the new president would welcome a tie-up involving Bouygues, 21% held Alstom and nuclear plant operator Areva. Alstom rose 2.5% and Areva gained 0.5%.

EADS added 1.6%, as there were fears that the election of Royal would halt a restructuring program at the Airbus owner.

Reed Elsevier advanced 3.1%. Pearson, publisher of Penguin Group, agreed to buy Reed Elsevier Harcourt businesses for $950 million in cash to bolster its international reach in education publishing.

Rheinmetall added 3.2%. The German maker of car parts and military equipment announced first-quarter net income advanced by almost a third to 22 million euros because of higher sales at both the automotive and defense businesses.

Shares of Altana, the German chemical maker that sold its drugs unit in December, added 5.6%.

Decliners

ABN Amro lost 1.4% after calling a $24.5 billion offer for its Chicago-based LaSalle unit not superior from a group led by the Royal Bank of Scotland to the $21 billion bid from Bank of America.

Shares of PPR of France edged 0.2% lower after Puma which it has agreed to buy, lowered its profit and sales outlook for the year after reporting a 4% first-quarter profit rise. Puma stated sales and earnings should grow in the low single digits, against an earlier forecast that profit would grow at least 10% and sales to rise in the mid-to-high single digits. Shares of Puma weakened 0.3%.

Commodities

Crude oil was little changed, after falling 6.8% last week because of ample U.S. supplies and signs gasoline output is increased as refiners return plants from maintenance. Crude oil for June delivery was at $61.95 a barrel, up 2 cents, in after-hours electronic trading on the New York Mercantile Exchange. Gasoline for June delivery was at $2.2050 a gallon in after-hours trading.

Gold for immediate delivery rose 50 cents, or 0.1%, to $689.35 an ounce in early trading in London. Silver for immediate delivery added 9 cents, or 0.7%, to $13.52 an ounce. Platinum rose $19, or 1.4%, to $1,339.50 an ounce, the highest in almost six months, as some traders said U.S. demand for the metal, used in devices that curb car-exhaust pollution, may be stronger than previously anticipated. Palladium, also used in the pollution-control devices, gained $3, or 0.8%, to $378.5 an ounce.

Currencies

The euro rose above $1.36 against the dollar in European trading on Monday as markets looked toward interest rate decisions this week by European, U.S. and British central banks. In Frankfurt, the euro rose to $1.3610 before settling back to $1.3602, slightly higher than the $1.3593 it bought in New York late Friday. The dollar was down slightly against the British pound, trading at $1.9966 in Frankfurt, compared with $1.9929 late Friday. The dollar bought 119.89 Japanese yen, down slightly from the 120.13 it bought in New York late Friday.