Stocks Soar on Merger News; Dow Jumps 50
Stocks surged on the first day of the second quarter Monday on a burst of buying ignited by major merger deals and a big gain in General Motors Corp., a component of the Dow Jones industrial average.
The 30-share Dow industrial average jumped 50.58 points to close at 5,637.72, storming back from a 41-point fall Friday, the last trading session of the first quarter. The New York Stock Exchange’s limits on program trading was activated after the index gained 50 points late in the session.
In the broader market, advancing issues beat decliners 1,450 to 893 on moderate volume of 390.2 million shares on the NYSE.
“We had some merger excitement and a benign purchasing managers’ report that indicated the economy is not on a tear,” said David Shulman, Salomon Bros.’ chief equity strategist.
The National Assn. of Purchasing Management said its March index of industrial activity rose slightly to 46.9 from 45.2 in February, pointing to some improvement but general weakness in manufacturing. Investors have been concerned the economy may be accelerating too rapidly after slowing late last year.
The report helped spur a dip in bond yields, with the Treasury’s main 30-year bond yield falling to 6.64% from 6.67% late Friday.
According to Birinyi Associates Inc., a firm that tracks program trading, four buy programs were unleashed, including one near the closing bell.
Among the multibillion-dollar mergers, 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.
“The Aetna-U.S. Healthcare and SBC-PacTel deals indicated to investors that corporate management is prepared to do whatever is necessary to boost earnings in a slow growth economic environment,” said Philip Orlando, chief investment officer at Value Line Asset Management.
Hugh Johnson, chief investment officer at First Albany Corp., added: “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,” he said.
Analysts said the stock market was also boosted by the latest news about the economy.
Aetna Life fell 3 1/2 to 72 and U.S. Healthcare surged 6 to 51 7/8 on active trading of more than 25 million shares on the Nasdaq market.
SBC Communications fell 2 3/4 to 49 7/8 and PacTel jumped 6 1/8 to 33 3/4.
Among other market highlights:
* ISB Financial rose 3/16 to 15 5/8 and Jefferson Bancorp rose 2 3/8 to 21 7/8 after agreeing to merge.
* General Motors rose 2 7/8 to 56 1/8 on its decision to spin off Electronic Data Systems to class E shareholders in a tax-free stock exchange.
GM class E shares lost 1/4 to 56 3/4 as traders were surprised by the large charges totaling $500 million related to the EDS spinoff.
* 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.
Overseas, Tokyo’s Nikkei stock average rose 0.8%, Frankfurt’s DAX index rose 0.1% and London’s FTSE-100 index rose 0.5%.
Tight supplies of corn and booming exports drove futures prices sharply higher for the second consecutive session Monday. At the Chicago Board of Trade, May corn jumped 7.5 cents to $4.165 a bushel, a record high for a nearby corn contract and near the all-time high for any corn contract of $4.1925 set on Nov. 28, 1980.
Market Roundup, D10
