European Markets Soar on Rio Tinto Stake

123jump.com Staff
01 Feb, 2008
New York City

European stock markets gained 2% or more after two aluminum companies teamed to bid for a stake in Rio Tinto. The 12% stake purchased by Chinalco and Alcoa at 21% premium lifted mood across the region. U.K., France, the Netherlands, and Norway gained nearly 2.5%. Mining companies across the region closed higher. ThyssenKrupp gained 6% after it reported to buyback stocks and may be make acqusitions. Vinci in Paris traded higer on quarterly sales rise.

[R]10:00PM Frankfurt, 4:00PM New York, 8:00AM Sydney – U.S. stocks edged higher on the earnings from Exxon Mobil, Google, and Chevron. Microsoft made an unsolicited offer for Yahoo at $44.6 billion, the second largest takeover in the technology sector. Payroll in January fell.[/R]

European Markets

In London FTSE 100 Index closed higher 149.40 or 2.54% to 6,029.20, in Paris CAC 40 Index increased 108.27 or 2.22% to close at 4,978.06 and in Frankfurt DAX index added 116.92 or 1.71% to close at 6,968.67. In Zurich trading SMI increased 145.54 or 1.90% to close at 7,815.98.

North American Markets indexes

Dow Jones Industrial Average added 92.83 or 0.73% to a close of 12,743.19, S&P 500 closed up 16.87 or 1.22% to 1,395.42, and Nasdaq Composite Index traded up 23.50 or 0.98% to a close of 2,413.36.

In Toronto TSX Composite closed up 163.27 or 1.24% to close at 13,318.37.

Of the 30 stocks in Dow Jones Industrial Average, 22 closed higher, 8 closed lower, and none were unchanged.

Citigroup led the gainers in the index with a rise of 5.4% followed by increases in 3.6%, in Intel of 3.2%, and in Disney of 2.75%. Microsoft led the decliners in the index with a loss of 6.6% followed by declines in Home Depot of 0.6%, in AT&T of 0.55%, and in Exxon Mobil of 0.52%.

Of the stocks in S&P 500, 433 closed higher, 65 fell, and 2 were unchanged. One hundred and forty stocks rose more than 3% and seven stocks fell more than 3%.

Yahoo led the gainers in the index with a rise of 48% followed by gains in CA Inc of 19.6%, in Altera of 14.98%, in Ambac Financial of 13.4%, in Micron of 11.7%, and in Motorola of 10.4%. Google led the decliners in the index with a fall of 8.6% followed by losses in Millipore Corp of 7.9%, in Microsoft of 6.6%, in Safeco of 5.1%, and in Amazon.com of 3.95%.


South American Markets Indexes

In Latin Markets Brazil led the advancers in the region with a gain of 2.67% followed by increases in Peru of 2.36%, in Mexico of 2.21%, in Argentina of 1.89%, in Chile of 0.79%, and in Colombia of 0.79%. Venezuela added 0.68%.


Asian Markets

In Tokyo Nikkei 225 Index closed lower 95.31 or 0.70% to 13,497.16, in Hong Kong Hang Seng index increased 667.84 or 2.85% closed to 24,123.58, in Australia ASX 200 index higher 192.60 or 3.41% to close 5,842.90.

In South Korea Kospi Index increased 9.85 or 0.61% to close at 1,634.53, in Thailand SET index closed higher 26.63 or 3.40% to 810.86, and Indonesia JSE Index edged increased 19.57 or 0.74% to 2,646.82. Sensex index in India increased 593.90 or 3.37% to 18,242.58.

Bond Yields decreased on 10-year U.S. bonds to 3.59% and on 30-year bonds gained to 4.31%.

[R]Commodities, Metals, and Currencies[/R]

Crude oil lost $2.90 to close at $88.850 per barrel for a front month contract, natural gas decreased 37 cents to $7.70 per mBtu, and gasoline futures increased 7.38 cents to close at 228.34 cents per gallon.

Gold decreased $18.70 in New York trading to close at $909.30 per ounce, silver closed down 18 cents to $16.82 per ounce, and copper for front month delivery decreased 2.050 cents to 327.75 per pound and in London copper futures increased $191.00 to $7,354.00.

Dollar edged higher and traded near record against euro to $1.4802 and edged higher against yen to 106.505.


[R]1:30PM New York – U.S. stocks traded in a tight range on two large acquisition related news and jobs data. Exxon earnings rose 18% from a year ago on 7% rise in sales.[/R]

U.S. stocks appeared caught between merger news, earnings from Chevron and Exxon, and jobs data.

Payroll Data

Non-farm payroll in January fell 17,000 on the weakness in construction, financial services, and public sector hiring. Employers in health care, travel and entertainment, and retail sectors added jobs. December payroll data was revised upwards by 64,000 to 82,000 increase and November data was lowered by half to 60,000. Unemployment rate in the month fell to 4.9%.

In 2007, payroll employment increased by an average of 95,000 jobs per month.

Average hourly earnings of production and nonsupervisory workers on private nonfarm payrolls rose by 4 cents, or 0.2 percent, in January to $17.75, seasonally adjusted. This followed a gain of 7 cents in December. Average weekly earnings fell by 0.1 percent in January to $598.18. Over the year, average hourly earnings rose by 3.7 percent, and weekly earnings rose by 3.4 percent.

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during December 2007 was estimated at a seasonally adjusted annual rate of $1,140.2 billion, 1.1 percent below the revised November estimate of $1,153.0 billion. The December figure is 2.3 percent below the December 2006 estimate of $1,167.3 billion. The value of construction spending in 2007 was $1,161.3 billion, 2.6 percent below the $1,192.2 billion spent in 2006.

Merger News

Alcoa and Chinalco purchased 12% stake in the mining company Rio Tinto traded in the UK. The 12% stake was purchased at a cost $14 billion or 7.2 billion pounds at 60 pounds per share, 21% from the yesterday’s close. The surprised deal reflects growing anxieties in China and in the commodities world of Rio Tinto was acquired by BHP for three-to-one stock deal.

Microsoft in a surprise move made an unsolicited offer to buy Yahoo at $44.6 billion or $31 per share. The deal reflects Microsoft frustration with its lack of progress in the on-line advertising market. Microsoft projected that online ad market is likely to grow from $40 billion in 2007 to $80 billion in 2010.

Exxon Mobil and Chevron Earnings


[R]2:00PM New York – Exxon Mobil earnings in the fourth quarter rose 14% on 18% rise in sales. Chevron reported 9% rise in net income in 2007.[/R]

Exxon Mobil reported fourth quarter net income rise of 14% to $11.66 billion from a year ago and earnings per share increased to $2.13 per share or 21% from $1.76 per share a year ago. For the year earnings increased 3% to $40.6 billion and earnings per share rose 10% to $7.28.

Revenues in the quarter rose 18% to $116 billion from $90 billion a year ago and for the year jumped 7.2% to $404.55 billion in 2007 from a year ago.

The Marimba North project, located more than 90 miles off the coast of Angola in approximately 3,900 feet of water, started production ahead of schedule and within budget, according to the earnings release. The project is the first tie-back development to the Kizomba A infrastructure, and is designed to develop 80 million barrels of oil (gross) and is expected to have peak production capacity of about 40,000 barrels of oil per day (gross).

Liquids production of 2,517 kbd (thousands of barrels per day) was 161 kbd lower. Excluding the Venezuela expropriation, divestments, OPEC quota effects and price and spend impacts on volumes, liquids production was down 3%. Mature field decline and PSC net interest reductions were partly offset by increased production from projects in Russia and West Africa.

Chevron reported fourth quarter earnings of $4.9 billion or $2.32 per share compared to $3.8 billion or $1.74 per share. For the full year net income rose 9% to $18.70 billion or $8.77 per share compared to $17.1 billion or $7.80 per share.

“Fourth quarter earnings for our upstream business benefited from a significant increase in the price of crude oil,” said Chairman and CEO Dave O’Reilly. “However, downstream profits were off sharply because of planned and unplanned refinery downtime in the United States, as well as the impact of higher crude-oil costs that were not fully recovered in the sales price of refined products.

“Our results overall capped a successful year for our company,” O’Reilly added. “We achieved record earnings in 2007 and invested a record $20 billion in our excellent queue of capital and exploratory projects. Our financial strength also enabled us to increase the common stock dividend payment for the 20th consecutive year and buy back $7 billion of our common shares.”

Chevron agreed with its unnamed partners to build liquefied natural gas plant with a maximum capacity of one billion cubic feet per day and 5.2 million metric tons of LNG and related products a year.

Chevron commissioned new facilities associated with a $1.5 billion upgrade of the 50 percent-owned GS Caltex Yeosu Refinery, enabling the refinery to process heavier and higher-sulfur crude oils and increase the production of gasoline, diesel and other light products.

Worldwide oil-equivalent production was 2.61 million barrels per day in the fourth quarter 2007, down 42,000 barrels per day from the corresponding 2006 period. Approximately 25,000 barrels per day of the decline was associated with the impact of higher prices on cost-recovery and variable-royalty volumes.

[R]10:30AM New York – Microsoft offers $44.6 billion or $31 per share for Yahoo in the second largest technology merger ever.[/R]

Microsoft ((MSFT)) offered $31 per share to Yahoo! Inc shareholders in a bid to accelerate its Internet strategy that has faltered as Google dominates search business. The surprise and expensive bid comes after Microsoft efforts to gain traction in the online ad business from the chief executive of Microsoft Steve A. Ballmer to catch up in the fast growing Internet search business.

Microsoft offer values Yahoo ((YHOO)) at $44.6 billion and the offer will allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock. The offer represents a 62% premium above the closing price of Yahoo! common stock on Jan. 31, 2008.

Microsoft made hints at domination by one rival, Google, in the search space, and talked about combining programming resources between the two companies.

Steve Ballmer, chief executive officer of Microsoft, “We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners.”

The online advertising is rapidly evolving from a niche marketing platform and is likely to grow from $40 billion in 2007 to $80 billion in 2010. Ballmer added, “Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners.

“The combined assets and strong services focus of these two companies will enable us to achieve scale economics while reaching R&D critical mass to deliver innovation breakthroughs,” said Kevin Johnson, president of the Platforms & Services Division of Microsoft.

The letter published on the Microsoft investor relations page highlighted the strength of the combined research and development but failed to acknowledge that Microsoft lags considerably behind Google and Yahoo in search related business.

Yahoo, has never been a technology company and has always focused on extending its reach through several well timed acquisitions in the past. This strategy had served well until Yahoo stock was rising and each acquisition added new traffic and features and increased earnings. With the stock struggling in the last three years, and weak earnings in the last five quarters, Yahoo has failed to leverage its growing presence in email, online job search, directory, and personal space.

Yahoo’s failure to leverage its Inktomi acquisition to build its search technology was exploited by Google in the last seven years. Google continues to garner lion share of search related queries on the Internet. Estimates for the market share range from a low of 60% to as high as 76% for Google in the search business.

Yahoo’s inability to develop it online ad serving system, named Panama, led to the departure of its then chief executive Terry Semel.

Yahoo in the past has powered its growth through several well times acquisitions. Its own efforts to build search and social networking, and online market places and related technologies had mixed success.

Yahoo has faltered in the search business but it has some valuable strategic assets in Asia and Europe. In Asia Yahoo has a minority stake in Yahoo Japan and in recently listed company in Hong Kong, Alibaba.com. In Europe Yahoo has gained a significant presence in the UK market. Yahoo’s stake in Asian ventures is worth at least $10 per share.

Yahoo stock has struggled in the last three years as it has faced significant challenges in retaining its key executives.

Yahoo ((YHOO)) has traded between $19 and $39.90, since the company split the stock 2 for 1 on May 7, 2004.




[R]8:00AM New York – Alcoa and Chinalco have teamed up to acquire a 12% stake in Rio Tinto. The stake may throw a significant hurdle in BHP’s ability to acquire Rio Tinto.[/R]

Chinalco, based in China and Alcoa based in the U.S. have partnered to purchase a stake in UK traded mining company Rio Tinto. The surprise and decisive move in alliance between two aluminum companies appear in response to prevent a takeover of Rio Tinto by BHP Billiton.

Rio Tinto and BHP Billiton have been locked in a hostile takeover that has Chinese industrial companies and China worried. If combined, BHP and Rio may have a power to raise prices and control supply of wide variety of commodities that China needs to sustain its industrial development.

If merged, BHP and Rio Tinto merger would be the second largest in the world and is likely to be the world leader in several minerals and commodities production, including iron ore, coal, aluminum, and coal. The proposed merger between the two companies would be worth more than $300 billion at the current market price.

The acquisition was made through a Singapore based investment vehicle wholly controlled by Chalco. Alco contributed its stake of $1.2 billion to the investment vehicle Shining Prospect Pte. It is not clear, but several news reports suggest that Chalco will have a 9% and Alcoa will have 3% in the Rio Tinto purchase through the Shining Prospect investment.

The unit of Chinalco, Chalco or Aluminum Company of China, and Alcoa bought 7.2 billion pounds ($14 billion) an estimated stake of 12% in the UK traded Rio Tinto. The stake was purchased by Lehman Brothers at 21% premium to the close price of yesterday, at 6,000 pence.

Rio Tinto surged 780 pence to 5,736 pence, but traded below the purchase paid by the two companies. BHP also increased 130 pence to 1,607 pence.

Lehman Brothers said that it has acquired the stake for Shining Prospect for Chinalco. Chinalco and Alcoa do not plan to make an offer for Rio at this time but reserve the right to make an offer if another party, meaning BHP, made an offer for Rio.

The 12% stake acquired by Chinalco is not a controlling stake in the company but can throw significant hurdle in BHP’s efforts to acquire Rio Tinto. The purchase at 60 pounds per share is equivalent to 3.8 BHP shares for one Rio Tinto stock. BHP had proposed to offer 3 stocks for one stock of Rio Tinto.


[R]6:00AM New York, 6:00PM Hong Kong – Stocks in Hong Kong recovered ahead of the holiday season. Snowfall in China has disrupted transportation network stranding hundreds of thousands of people. Several mining facilities and commodities facilities are likely close down.[/R]

Stocks in Hong Kong closed up after investors returned to buy stocks and positioned themselves ahead of the Chinese New Year holiday that begins in Hong Kong on February 7.

In Hong Kong trading Hang Seng Index recovered 2.9% or 667.84 at 24,123.58, a 4% decline for the week, and the China Enterprises index climbed 6.4% or 799.67 to 13,284.74, falling 5.2 % for the week.

Daily turnover on main-board was HK$119.4 billion compared to HK$110.7 billion yesterday.

Xinhua News Agency online edition reported today that heavy snowfalls in the Northern China have cost the Chinese economy up to Rmb 53.9 billion.

The Standard news online reported today that Standard Chartered will purchase commercial paper issued by Whistlejacket Capital up to the outstanding amount of US$7.15 billion.

The lender has since August reduced the size of its structured investment vehicle portfolio from US$18.2 billion to the current US$7.15 billion.

Separately, the online edition also reported today that Hang Seng Bank yesterday acquired a 20% stake in mainland financial institution Yantai City Commercial Bank for HK$868 million to become the majority shareholder

Also Wing Lung bank will take 4.99% equity in Yantai, the second largest commercial bank in Shandong province.

The Standard also reported Jiangxa Copper will shutdown 43% or 300,000 tons of smelting capacity as a result of power outages until mid-February. Market analysts estimated that the closure will cost the company 2.3% or 12,500 tons of the expected output of 550,000 tons in 2007.

Realty stocks plummeted in Hong Kong as a result of the interest rate differentials between the Hong Kong Monetary Authority and financial institutions.

Most lenders slashed their prime rates by 25 basis points, while HKMA slashed its key rate by half percentage point.

Sun Hung Kai Properties tumbled 3.3% to HK$147.5 and Cheung Kong Holdings Limited shed 1.8% to HK$123.4 and Sino Land declined 8.5% to HK$21.5 as a result.

But a main land property lender, Agile Property, jumped 10% at HK$9.47.

Shipping lines gained on expectations that the Baltic Dry Index will continue to rise from last year’s slump. China Shipping Development surged 8.5% to HK$21.50, China COSCO increased 8.8% to HK$19.22, and Dry bulk shipper Pacific Basin advanced with a 12.2%.

Financial stocks gained as well. China Life gained 5.4 % to HK$29.5.