Stocks Jump on a Spurt of Mergers
Monday’s burst of merger activity sent stocks higher Monday, as Bank of America’s proposed purchase of FleetBoston Financial and Anthem’s plan to buy rival WellPoint Health Networks signaled a growing confidence in the nation’s business climate.
The multibillion-dollar acquisitions as well as generally positive third-quarter earnings news “should help buoy investors’ sentiment,” said John C. Forelli, portfolio manager for Independence Investment in Boston.
“It’s sort of merger mania today,” Forelli said. “My guess is once investors look at this, they’ll become more optimistic that there will be some more merger activity in corporate America.”
The Dow Jones industrial average closed up 25.70 points, or 0.3%, at 9,608.16. The Nasdaq composite index rose 17.32 points, or 0.9%, to close at 1,882.91. The Standard & Poor’s 500 index closed up 2.22 points, or 0.2%, at 1,031.13. All three indexes lost ground last week.
Advancers outnumbered decliners by about 2 to 1 on the New York Stock Exchange and Nasdaq in active trading.
Although stocks advanced, analysts said investors were still somewhat cautious after selling heavily last week on less-than-stellar quarterly earnings. Most companies either met or beat Wall Street expectations, but failed to justify the high share prices investors set this month in anticipation of strong profits.
But investors followed a long market tradition of rallying on merger news.
“It feels good, there’s a merger and the market’s higher,” said Matt Kelmon, president and portfolio manager of the Kelmoore Strategy Funds, who said he was paying particular attention to large financial services companies. “Things are looking better on the horizon.”
Bank of America announced plans to buy FleetBoston in a stock swap valued at more than $43 billion that would create one of the world’s biggest banking companies. The news sent FleetBoston soaring $7.40, or 23.3%, to close at $39.20, but Bank of America lost $8.29, or 10%, to close at $73.57, as some analysts questioned the price of the deal.
Health insurer Anthem said it would buy larger rival WellPoint Health Networks, which is based in Thousand Oaks, in a cash and stock deal that combines the nation’s two largest Blue Cross Blue Shield concerns. WellPoint closed up $7.16, or 8.5%, at $91.09, while Anthem lost $6.21, or 8%, to close at $71.05.
In yet another merger, Mid Atlantic Medical rose $5.74 to $59.62 after the company agreed to sell itself to UnitedHealth Group. UnitedHealth fell $1.85 to $52.40.
In earnings news, Procter & Gamble Co. said its first-quarter earnings rose 20%, beating analysts’ estimates by a penny a share, as sales surged in all of the company’s segments. The maker of Tide detergent, Pampers diapers and Clairol products gained 74 cents, to close at $96.80.
But International Paper fell after reporting a 16% drop in third-quarter earnings on weakening demand and rising costs for energy and wood. The world’s largest paper company missed estimates by a penny a share, and slipped 44 cents to $38.
Financial services company American Express said third-quarter profit beat analyst expectations, jumping 12% as consumers boosted their credit card spending and credit quality improved. Nevertheless, it declined 87 cents, to $46.75.
In the day’s only major economic news, a Commerce Department report showed a dip in new-home sales last month, but the level of sales was stronger than forecast -- a sign that the housing market continues to help spur the economic recovery.
The yen, meanwhile, slid to a new near-three-year low against the dollar as traders bet that Treasury Secretary John W. Snow would pressure Japan during Senate testimony this week to pull back on efforts to weaken its currency.
Bond yields inched up ahead of today’s meeting of the Federal Reserve’s policy-setting committee. Although the body is expected to leave interest rates untouched, its members may acknowledge that the U.S. economy is showing signs of strength -- bringing the Fed a step closer to a rate hike. The yield on the benchmark 10-year T-note rose to 4.26% from Friday’s close of 4.23%.
Overseas, Japan’s Nikkei stock average finished 1.2% higher Monday. In Europe, key share indexes rose 1.2% in France, 0.3% in Britain and 1.9% in Germany.
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Market Roundup, C8-9
