Lehman, Aon Takeover Talks Lift Stocks

123jump.com Staff
22 Aug, 2008
New York City

Talks of takeover in the U.S. and UK lifted stocks in the two regions. Korea Development Bank may bid for Lehman Brothers and Dutch insurance broker Aon Corp agreed to purchase UK reinsurer Benfield Group Ltd for 844 million pounds. The takeover talks bolstered optimisim in trading but shareholders of Fannie and Freddie may face siginficant loss even from the current depressed price levels. Crude oil futures fell and lifsted transportation stocks in Europe and New York trading.

[R]9:35AM New York – U.S. stocks edged higher on talks of takeover of Lehman Brothers and a drop in crude oil prices. UK economy stagnates in the second quarter.[/R]

U.S. stocks open higher on a drop in crude oil prices and talks of an interest in acquiring Lehman Brothers by Korea Development Bank. European stocks edged higher as crude oil fell and financial stocks rebounded.

Lehman ((LEH)) jumped after the news of a possible takeover by Reuters but several hurdles remain to acquire the broker. The broker is mired in interlocking derivative transaction, has a high leverage on the balance sheet and is reliant of lending from the Fed to run its day to day operations.

A drop in crude oil prices lifted stocks of airlines and transportation companies. UAL Corp, the parent of United Airlines ((UAUA)), AMR Corp, the parent of American Airlines and Delta Airlines edged higher in the morning.

Warren Buffett, chairman of Berkshire Hathaway said that Fannie Mae ((FNM)) and Freddie Mac ((FRE)) are essentially insolvent after reckless lending and are surviving on “blank check from the federal government.’’

Second quarter economic growth in the UK was reported at a flat rate compared to the previous quarter and a rise of 1.4% from a year ago in the same quarter. The anemic growth surprised economists who were expecting a rise of between 0.1% and 0.2% from the first quarter of this year. UK has been battling a surge in inflation and falling exports and retail sales.

In European trading stocks traded higher. Benfield Group soared after Aon Corp, Dutch insurance broker proposed to take over the company at 844 million pounds. Transportation companies rallied on weaker oil. PSA Peugeot Citroen added 2% to 33 euros and Deutsche Lufthansa increased 2.1% to 14.10 euros.

TNT surged 8% to 26.55 euros on a media speculation that UPS and TNT may discuss possible combinations or a merger between two companies.

Rentokil Initial Plc fell 5% to 69.81 pence after it second quarter profit declined nearly 70% and offered gloomy outlook for the next several years. Arriva Plc, the rail road and bus operator first half profit surged 32% as people switch to public transportation.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 86.17 or 0.68% to 12,666.04, ASX 200 index in Australia increased 56.20 or 1.15% to close 4,931.40. The KL Composite index in Malaysia increased 14.17 or 1.32% closed to 1,085.60. Hong Kong was closed today.

The Kospi Index in South Korea decreased 15.68 or 1.04% to close at 1,496.91, SET index in Thailand closed higher 5.40 or 0.80% to 681.93 and JSE Index in Indonesia increased 32.24 or 1.54% to 2,120.49. The Sensex index in India increased 157.76 or 1.11% closed to 14,401.49.

Europe Markets Review

In London FTSE 100 Index traded higher 51.60 or 0.96% to 5,421.80, in Paris CAC 40 Index increased 23.51 or 0.55% to 4,328.12 and in Frankfurt DAX index traded higher 31.07 or 0.50% to 6,268.03. In Zurich trading SMI increased 52.05 or 0.74% to 7,052.58.

U.S. Earnings Review

DryShips Inc, a global provider of marine transportation services for drybulk cargoes said second quarter revenues rose 63% to $302.7 million from $112.5 million a year ago. Net income in the quarter rose 63% to $299.8 million or $7.10 per diluted share compared to net income of$110.8 million or $3.12 per share, a year ago.

DryShips Inc ((DRYS)) in the last one year traded as high as $131.34 in October 2007 and as low as $48.21 in January 2008. Based on the yesterday’s closing price the company has a market cap of $3.12 billion.

The Gap, Inc, apparel retailer said second quarter revenues fell 5% to $3.5 billion from $3.69 billion a year ago. Net income in the quarter rose 51% to $229 million or 32 cents per diluted share compared to net income of $152 million or 19 cents per share, a year ago.

Comparable store sales decreased 10%.

The Gap, Inc ((GPS)) in the last one year traded as high as $22.02 in December 2007 and as low as $14.77 in July 2008. Based on the yesterday’s closing price the company has a market cap of $13.76 billion.

Intuit Inc, tax preparation and money management software maker said fourth quarter revenues rose 11% to $478.2 million from $432.7 million a year ago. Net loss in the quarter was $61.9 million or 19 cents per diluted share compared to net loss of $13.6 million or 4 cents per share, a year ago.

For the fiscal year, Intuit posted a profit of $476.8 million, or $1.41 per share, an 8% gain over last year''s profit of $440 million, or $1.24 per share. Full-year revenue rose 15% to $3.07 billion, from $2.67 billion last year.

Intuit Inc ((INTU)) in the last one year traded as high as $33.10 in October 2007 and as low as $25.08 in March 2008. Based on the yesterday’s closing price the company has a market cap of $3.87 million.