Stocks Gain on Merger News; Dow Jumps 50
The U.S. stock market closed broadly higher on the first day of the second quarter, as takeover mania showed itself to be alive and well.
Many foreign markets also surged, with the Mexican market hitting a record high and Tokyo stocks closing at four-year highs.
On Wall Street, the Dow Jones industrials jumped 50.58 points to 5,637.72, nearing its record high of 5,683.60 set on March 18.
Winners topped losers by 15 to 9 on the New York Stock Exchange, though trading volume remained sluggish ahead of this week’s Easter and Passover holidays.
Among the multibillion-dollar mergers announced Monday, Aetna Life said it would acquire U.S. Healthcare for $8.9 billion and SBC Communications agreed to acquire Pacific Telesis in a merger worth $23.8 billion, including the assumption of debt.
Hugh Johnson, chief investment officer at First Albany Corp., said: “What this tells me is that corporations are still looking very hard for ways to restructure. We’ve exhausted the alternatives. You can only downsize so much or buy so many new computers so what we are now seeing are continued strategic mergers.”
On the economic front, the National Assn. of Purchasing Management said its March index of industrial activity rose slightly to 46.9 from 45.2 in February. That indicated that while manufacturing activity remains weak, it is beginning to improve.
The bond market appeared relieved that the NAPM report didn’t hint at more significant strength in the economy. Yields closed modestly lower, with the 30-year Treasury bond yield falling to 6.64% from 6.67% Friday.
But takeover fever was the big story of the day.
The big deals are saying that “the acquiring managements are not concerned that there’s a noticeable overvaluation either in the market in general, or the target stocks in particular,” said James Weiss, money manager at $30-billion State Street Research & Management Co.
And while blue chip stocks got the spotlight Monday, smaller issues also continued to gain. The Russell 2,000 index of smaller stocks rose 1.67 points to a record 332.44.
Among Monday’s highlights:
* PacTel shares soared 6 to 33 3/4 and other Baby Bell stocks also rose on news of the PacTel-SBC deal. But SBC slipped 2 3/4 to 49 7/8.
* Aetna’s bid for U.S. Healthcare drove the latter’s shares up 6 to 51 7/8, while Aetna fell 3 1/2 to 72. Among other HMO stocks, United Healthcare gained 2 1/2 to 64 1/8 and Humana added 3/4 to 25 7/8.
* In other deal news, GM soared 2 7/8 to 56 1/8 on its decision to fully spin off its GM E (Electronic Data Systems) unit to shareholders. GM E dipped 1/4 to 56 3/4 as traders were surprised by the large charges totaling $500 million related to the EDS spinoff.
* Financial stocks were sharply higher as investors searched for companies expected to show strong first-quarter earnings growth. Wells Fargo jumped 3 1/4 to 264 1/2, Federal Home Loan Mortgage gained 3 5/8 to 88 7/8, Merrill Lynch leaped 2 to 62 3/4 and NationsBank rose 2 5/8 to 82 3/4.
* Starbucks rose 1 13/16 to 25 1/8 after Goldman Sachs upgraded the stock.
* Datalogix slumped 6 5/8 to 6 7/8. It warned that its quarterly results would fall below expectations. The company went public last June and was priced at $17 a share.
* Scania, the Swedish truck maker, rose in its first day of U.S. trading. The offering of 50 million class A shares and 50 million class B shares was the world’s biggest stock offering, according to the NYSE. The class A and B shares both rose 19/64 to 27 3/8.
In Tokyo, the Nikkei 225 index climbed 0.7% to a four-year high of 21,560.39 on optimism Japan’s economy will continue to grow as the dollar’s advance against the yen translates into higher profits for exporters.
In Mexico City the Bolsa index climbed 1.3% to a record 3,113.27.
In commodities trading, tight supplies of corn and booming exports drove futures prices sharply higher for the second consecutive session.
Market Roundup, D10
