Mergers and Acquisitions News Push US Markets Higher

Posted on | September 28, 2009 |

The Dow and S&P 500 opened higher today as a raft of high profile merger news provided the market with a much needed shot of adrenaline.

‘M&A can be a driver of gains for the market,’ said Benoit de Broissia of KBL Richelieu Gestion. ‘It illustrates that industrials have the cash to invest and consider valuations attractive. We can expect the M&A movement to continue.’ [1]

Affiliated Computer Services (ACS) surged 14.3% to $53.99 after Xerox Corp agreed to buy the company in a cash-and-share deal that values it at $6.4 billion, approximately $63.11 a share.

This deal will shift Xerox’s focus from traditional printing equipment to technology outsourcing and data management, a more lucrative business. Xerox believes this transaction will help it triple sales from services to around $10 billion.

‘By combining Xerox’s strengths in document technology with ACS’s expertise in managing and automating work processes, we’re creating a new class of solution provider,’ said Ursula Burns, Xerox’s chief executive, in a statement. ‘A game-changer for Xerox, acquiring ACS helps us expand our business and benefit from stronger revenue and earnings growth.’ [2]

Abbot Laboratories was also in M&A news; its shares jumped 3.5% to $48.98 after agreeing to acquire Solvay SA’s pharmaceutical unit for €4.8 billion ($7.1 billion) in order to enhance its presence in emerging markets.

In the meantime, speciality chemical and vehicle engine components maker GenTek rallied nearly 40% to $37.75 after agreeing to a takeover by ASP GT Acquisition Corp, a wholly-owned subsidiary of investment funds managed by American Securities LLC. Under the terms of the merger agreement, ASP will purchase all of the outstanding shares of GenTek common stock at a price of $38.00 per share, valuing the company at $411 million.

By 3.30pm (London time) the Dow Jones Industrial Average was trading 111.70 points (+1.16%) above its previous close at 9776.89, while the broader S&P 500 had climbed 14.10 points (+1.35%) to 1058.48. The Nasdaq, meanwhile, climbed an impressive 29.43 points (+1.74%) to 1723.58.

Technology shares were having a good run as well today, following a number of broker upgrades.

Cisco Systems, the largest maker of networking equipment, jumped 5.14% to $23.78 after Barclays upgraded the company from ‘equal-weight’ to ‘overweight’, predicting an increase in revenues. Applied Materials, the largest maker of semiconductor-production machinery climbed 3% to $13.50 after Citigroup raised its recommendation on the stock from ‘hold’ to ‘buy’, citing ‘cost savings and a renewed focus on silicon share.’ [3]

In contrast, Cal-Maine Foods, the largest US egg producer, tumbled as much as 12% to $24.50 after reporting a first-quarter loss of 16 cents a share. This compares with a profit of 47 cents per share a year ago. The company also cited lower demand from restaurants and food service customers.

[1] Source: Bloomberg News (28 September 2009)
[2] Source: FT (28 September 2009)
[3] Source: Bloomberg News (28 September 2009)

By Anthony Grech, Research Analyst, IG Index.

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