Business and Finance. News

Monday, March 19, 2007

U.S. Stocks Rise on Takeovers

March 19 (Bloomberg) -- U.S. stocks rose as takeovers bolstered perceptions that equities remain inexpensive relative to earnings and traders increased bets that the Federal Reserve will cut interest rates.

ServiceMaster Co., the biggest provider of lawn-care and landscaping services in the U.S., surged to the highest in almost five years after agreeing to an offer from leveraged buyout firm Clayton Dubilier & Rice Inc. TXU Corp., which is being acquired by Kohlberg Kravis Roberts & Co., climbed the most in three weeks on speculation another bid for the Texas power producer will emerge.

Stocks rebounded from losses last week spurred by concerns bad loans for housing will curtail growth in other parts of the economy. Options traders are starting to say the central bank will cut interest rates this year to counter the effects of falling real-estate prices and moderating economic growth.

``The Fed will have reason to move from hawkish to neutral, from neutral to dovish, and eventually before the end of the year provide some rate reductions,'' said Robert Doll, chief investment officer of BlackRock Inc., which oversees more than $1 trillion in Plainsboro, New Jersey. ``There's no question the economy is slowing.''

The Standard & Poor's 500 Index added 6.83, or 0.5 percent, to 1393.78 at 10:13 a.m. in New York. All 10 of the benchmark's industry groups advanced. The Dow Jones Industrial Average rose 57.52, or 0.5 percent, to 12,167.93. The Nasdaq Composite Index gained 10.13, or 0.4 percent, to 2382.79.

Fed Bias

Fed officials may cling to their bias for tighter credit, setting themselves up for bigger interest-rate cuts later this year if the economy keeps slowing. The Fed Open Market Committee, meeting for two days starting tomorrow, will most likely debate changing its tilt toward higher interest rates and may even add language to their statement underscoring concern about a weakening economy, economists say.

Options on Fed Fund futures at the Chicago Board of Trade show a 24 percent likelihood the central bank will lower its target rate for overnight loans to 4.5 percent from the current 5.25 percent. Just seven weeks ago, options prices suggested no chance of that large a reduction this year.

ServiceMaster rallied $1.64, or 12 percent, to $15.11, the highest since May 2002. Clayton Dubilier agreed to buy the U.S. owner of TruGreen ChemLawn and Terminix pest control for about $4.7 billion. The firm will pay $15.63 a share in cash for the company, 16 percent more than the last closing price, ServiceMaster said in a statement today. Including debt, the deal values the company at $5.5 billion.

`Bullishness'

``Companies getting bought out always creates bullishness,'' said Ronald Kiddoo, who manages $500 million as chief investment officer at Cozad Asset Management Inc. in Champaign, Illinois. ``There's no question it has a positive impact on the market.''

TXU advanced 88 cents, or 1.4 percent, to $63.63 for its best performance since Feb. 26. A group of private equity firms including Blackstone Group and Carlyle Group may offer more than the $45 billion agreed to in the largest-ever leveraged buyout earlier this month, the Financial Times reported, citing people familiar with the matter.

The S&P 500 is currently priced at 16.7 times its members' earnings, about 20 percent below its average of the last five years. Analysts estimate overall earnings growth among index members to rise 6.8 percent in 2007, according to Bloomberg data.

Yen Effect

Stocks also got a boost from the Japanese yen, which declined against all 16 of the world's most actively traded currencies. Speculation the Bank of Japan will leave interest rates unchanged this week may curb the repayment of loans by speculators who use yen to buy securities in other markets.

The yen was the worst-performing currency in the world today, falling to 117.43 per dollar at 9:09 a.m. in New York compared with 116.75 late in New York March 16.

Freeport-McMoRan Copper & Gold Inc., owner of the world's largest gold mine, gained $1.11 to $61.82. The company, which agreed in November to buy Phelps Dodge Corp. for $25.9 billion to form the world's largest publicly traded copper company, was upgraded to ``outperform'' from ``peer perform'' at Bear Stearns Cos. It's a ``compelling value, given the diverse asset base, strong management team and attractive growth prospects,'' analyst Anthony Rizzuto wrote in a note.

BEA Systems Inc., whose software helps server computers exchange information, increased 24 cents to $11.28. Analysts at UBS AG raised their recommendation to ``buy'' from ``neutral,'' saying that ``if challenges persist,'' the company ``could be ripe for shareholder activism and even M&A/LBO activity.''

`Bottom'?

The S&P 500 has lost 2.2 percent this year, plunging the most in four years on Feb. 27 as a sell-off in China sparked a global rout that eventually wiped out $3.3 trillion in market value. Financial firms and retailers led stocks lower last week as rising mortgage defaults stoked concern the home-loan crisis will spread.

According to Barton Biggs, U.S. stocks may be approaching a ``bottom.'' The slump in the so-called subprime mortgage market was ``just another bubble bursting'' and a recession in the U.S. is ``unlikely,'' he said on March 16.

Biggs, a former Morgan Stanley strategist who now runs the $1.3 billion hedge fund Traxis Partners LLC, predicts the S&P 500 will climb as much as 15 percent this year.

Wal-Mart Stores Inc., the world's largest retailer, added 30 cents to $46.51. Twenty-five of 29 retailers in the S&P 500 declined last week after a report showed February sales climbed 0.1 percent, less than economists predicted.

Quanta Services

Quanta Services Inc. added 50 cents to $25.14. The U.S. provider of engineering support to power companies agreed to buy InfraSource Services Inc. for $1.26 billion to add customers in the electricity, gas and telecommunications industries.

Quanta will purchase InfraSource in an all-stock transaction, the Houston-based company said today in a Business Wire statement. The owners of Media, Pennsylvania-based InfraSource will get 1.223 Quanta shares for each share held. The stock of these companies also didn't trade in Europe.

Walgreen Co. gained 42 cents to $46.68. The largest drugstore chain by sales was raised to ``overweight'' from ``neutral'' at JPMorgan based on the risk its competitors face through their acquisition strategy.

Nortel Networks Corp. fell $1.21 to $25.82. North America's biggest maker of telephone equipment said sales this year will be ``flat to down slightly'' from 2006, when revenue was $11.4 billion. The forecast trails the average analyst estimate of $11.6 billion, according to a Bloomberg survey.

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U.S. Stocks Rise on Takeovers

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