OMX Deal, Lower Close in Europe

123jump.com Staff
25 May, 2007
New York City

European markets closed on a lower note ahead of three-day weekend in the region. Deal and merger news dominted trading. Nasdaq offered to buy Swedish stock market operator OMX for $3.7 billion in cash and stock. UBS agreed to divest its 20.7% stake in Julius Baer to fund share buy-back program. Rising bond yields depressed stocks in the utilities and construction companies. Goldman Sachs raised its take in British Air to 5.1%.

[R]1:00PM New York, 6:30PM Frankfurt – European markets closed lower and OMX is acquired by Nasdaq.[/R]

Markets

European markets closed slightly lower at the end of the week ahead of Monday holiday in the U.K., the Netherlands, and Belgium. Norway led the decliners in the region with a loss of 1% followed by 0.7% decline in Belgium and 0.3% in Spain. Germany led the gainers in the region with a gain of 0.54% followed by a rise of 0.2% in Switzerland, Italy and France.

U.K. economy expanded in the first quarter at 2.9% according to the Office for Natioan Statistics, a government agency.

Merger and Deal News

Nordic stock exchange operator has agreed to be purchased by Nasddaq for $3.7 billion in cash. Nasdaq after two years of trying to acquire London Stock Exchange directed its attention to other exchanges. Sweden based OMX rose 11% to close at 199.5 swedish kronor. Nasdaq offered 94 kronor in cash and 0.502 shares of the new company valuing the company at 208.1 kronor the share of OMX.

The deal lifted other exchange operators in the region. Deutche Boerse AG operator of Frankfurt Exchange rose 2% and Bolsas & Mercados Espanoles advanced 3.6%.

Swiss company UBS AG has agreed to sell its 21% stake in Julius Baer and use the proceeds to buy back its shares. The company expects to receive nearly 4.1 billion Swiss francs for the sale.

Carrefour SA in Paris trading rose 2.3% to 54.6 euros on the speculation that shareholders Colony Capital and Bernard Arnault controlled companies may raise their stake and convince the founding family to sell their stake.

Spain based Iberian Air rose 3% to 3.95 euros on the news that the company has received information from suitor TPG Inc for the planned bid. Goldman Sachs has increased its stake in British Air to 5.1%, fourth largest shareholder, lifting the stock to 461 pence in the UK trading.

Gainers and Losers

Rising bond market yields in the region led to a sell-off in the utilities stocks. Utilities shares came under pressure in the UK trading. British Energy lost 2.1% to 575.5 pence and in Italy Enel SpA, largest energy company in the country, lost 0.7% to 8.4 euros.

Construction and building materials company sold-off as well in the region. UK based Balfour Beatty dropped 2.5% to 455 pence and CRH building materials company fell 2.3%.

Mining stocks rose in the day’s trading on higher nickel, copper and zic prices. Rio Tinto ((RTP)) jumped more than 4%, Anglo American gained 1.2%, and Lonmim advanced 0.8%


[R]11:30AM New York, Coca Cola share jumps 1.5% on largest acquisition in the company’s history.[/R]

Coca Cola ((KO)) has agreed to purchase Energy Brands for $4.1 billion in cash. The laggard in the non-carbonated beverage market, Coca Cola is forced to make largest purchase in its history to compete in the bottled water market.

The beverage maker Energy Brands is also known as Glaceau is known for its products labeled as Fruitwater, Smartwater, Vitaminenergy and Vitaminwater. The brand has captured the imagination of health conscious consumers who want to quench their thirst and still avoid carbonated soda. The company is estimated by Beverage Digest to increase its case sales volume 103% to 77 million cases.

The company will acquire 70% stake now and 30% from Tata Tea, India based tea company. Tata controlled total of 30% stake in the company through its holding company Tata Sons and Tata Tea UK and has agreed to sell its stake in energy Brands one year later. Tata acquired the stake in the company a year ago for $677 million and will reap a nearly 100% gain on the sale. At the time Tata had reported to the press in India that Energy Brands is expected to generate $700 million in revenue in 2007.

Queens, New York based Glaceau will help Coca Cola to secure a position in the relatively fast growing bottled water market in the U.S. The company has been late in introducing bottled water in the U.S. and has lagged behind Pepsi and others. Pepsi controls nearly 45% of non-carbonated soft drink sales in the domestic U.S. market.

According to Beverage Digest, Coca Cola has maintained its market share leadership in the carbonated soft drinks channel with nearly 43% share followed by 32% share held by Pepsi and 14.6% share of Cadbury Schweppes. Coca Cola sold 4.4 billon of case volume in 2005 and for the year Pepsi sold 3.2 billion cases.

The purchase of Glaceau will reduce the share buyback plan announced by the company. The company is likely to reduce its purchase to $1.75 billion from $3 billion announced earlier this year.

[R]10:30AM New York, 7:00PM Mumbai, Sensex closes up 0.85% on short covering.[/R]

The Sensex index of 30 stocks listed on Bombay Stock Exchange rose 120.34 points or 0.85% to close at 14,338.45. The daily turnonver on BSE was recorded at 5,044 crores on trading share volume of 25 crores. S&P CNX Nifty index rose 1.03% or 43.25 to close at 4,023 on trading volume of 9,835 crore rupees. Of the 30 stocks in Sensex 22 advanced and 8 declined.

Economic News

Stubborn consumer inflation remained above the target rate of most economists. Annual inflation measured on a rolling 52-week at the end of last week was reported at 6.56% up from a previous week of 6.46%. Inflation for the similar period a year ago was reported at 4.63%. Wholesale price index rose for the week ending May 12th to 5.27% from 5.44% a week ago. High food and clothing prices kept the index at elevated level.

National Weather Service is forecasting arrival of monsoon in Kerala, four days early, on May 27th. The rainfall is expected to be normal.

Merger News

Wind energy system generator Suzlon Energy led the gainers during the trading, up 17.8% to rupees 1,364. The company was locked in bidding war for Germany based REPower with French rival Areva. Areva decided to drop from the bid. In the latest offer Suzlon has offered 150 euros or 1.5 billion euros for REpower stocks. In a complex deal structure, Suzlon currently holds 7.8% in the company and expects to add another 15% by the end of the trading today in Germany. Suzlon also has an agreement with Areva to buy its 30% stake in REpower after one year and buy additional 23% from Portugal based Martifer.

Tata Tea surged 5% on the news that its UK subsidiary has agreed to sell its 30% stake in Energy Brands to Coca Cola for nearly $1.25 billion. Coca Cola earlier reported to buy
Energy Brands, maker of vitaminwater for $4.1 billion. Total stake of 30% in Energy Brands was acquired by Tata controlled entities for $677 million.


IPO update

Market is bracing for mega issues to be priced in the next four weeks led by a largest issue from real estate developer DLF. The company has scaled back its offer size from 13,500 crore rupees to 9,500 crore rupees and is expected to price its offer between Rs 500 and Rs 550. The company IPO will dilute its outstanding shares by 10%. The issue is expected to open on June 11th and close on June 14th.

Gainers

Software exporters and banks led the charge among rising stocks. ING Vysya surged 6% on expectations that the company will double its branch network in the next three years. HDFC bank rose 3.2%, Federal Bank up 2% and State Bank of India gained 1.2%.
Rupee was trading at a stable level against U.S. dollar after steadily falling in the last three sessions. IT stocks rose in the wake of stable rupee. Satyam Computer gained 3.5%, Infosys advanced 3%, Wipro rose 2% and Tata Consultancy edged 0.7%. Smaller IT companies stocks advanced as well. NIIT and CMC gained 11% and 5% respectively on the news of potential merger.

Decliners

Bajaj Auto continued to fall on the disappointment with the company break up plan and lack of clarity in the insurance unit. The stock closed down a fraction to Rs 2,170 and has lost nearly 21% in the last ten trading session.


[R]9:00AM New York, Morning trading suggest higher opening in the U.S. trading.[/R]

News on deals and earnings are expected to dominate the last day of trading this week in New York. Nasdaq has agreed to buy Sweden based stock exchange operator OMX AB for $3.7 billion. Coca Cola has agreed to purchase Energy Brands, owner of Glaceau water brand, for $4.1 billion. Coca Cola has been expanding its non carbonated drink portfolio and boost its sales in the North American market.

In the Earnings news Gap reported profit decline of 26% on markdowns and promotions in the first quarter. The company reported earnings of 22 cents vs. 28 cents a year ago on a revenue of $3.56 billion vs. $3.44 billion a year ago.

Aeropostale, apparel retailer, reported first quarter earnings of 26 cents vs. 15 cents a year ago on revenue gain of 12% to $275.8 million.

In the overnight trading in Asia most markets closed lower reflecting lower closing in New York. Japan and Singapore lost more than 1%, however, India closed up 0.85%.

At mid-day trading European markets are nearly unchanged with a slight negative bias.