U.S. Stocks Gain on M&A

U.S. stocks rose as $35 billion in acquisitions and Merck & Co.'s better-than-forecast earnings carried the Standard & Poor's 500 Index and Dow Jones Industrial Average to the steepest gains in a week.

GlobalSantaFe Corp., the second-biggest offshore oil and gas driller, climbed to a record after agreeing to be bought by larger rival Transocean Inc. Merck, the third-largest U.S. drugmaker, had its biggest advance since April and accounted for almost a third of the Dow average's rally.

Announced purchases of United Rentals Inc., Arrow International Inc. and Opsware Inc. also boosted stocks. The deals curbed speculation that higher interest rates and worsening conditions in credit markets will slow U.S. takeovers, which are running 58 percent above last year's record pace.

``Corporate buyers believe there are business combinations that make sense,'' said Liam Dalton, who oversees $1.3 billion as chief executive officer of Axiom Capital Management in New York. ``It gives an undercurrent to the market that says equities are not excessively expensive.''

The S&P 500 increased 7.47, or 0.5 percent, to 1541.57. The Dow average added 92.34, or 0.7 percent, to 13,943.42. For both gauges, the gain was the steepest since July 12. The Nasdaq Composite Index advanced 2.98, or 0.1 percent, to 2690.58.

As many stocks rose as fell on the New York Stock Exchange after smaller stocks retreated. The Russell 2000 Index, a benchmark for companies with a median market value of $695 million, lost 0.1 percent to 835.62, the lowest since June 29. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.3 percent 15,558.28.

Takeovers

Today's announced takeovers brought this year's total to about $1.49 trillion, according to Bloomberg data, compared with $938.6 billion at the same time last year. The S&P 500 currently trades for 18 times earnings, 33 percent below the average this decade, Bloomberg data show.

GlobalSantaFe jumped $3.59, or 4.8 percent, to $78.33. Transocean climbed $5.99, or 5.5 percent, to $115.96. Shareholders of both Houston-based companies will get a combination of cash and shares in the combined company approximately equal to stock prices of the two drillers at the end of last week.

Other oil services companies rose. Noble Corp., the fourth- largest U.S. offshore oil and gas driller, rose $3.82 to a record $106.28. Diamond Offshore Drilling Inc., the world's third biggest, jumped $4.64 to an all-time high of $113.04.

Merck led advances in the Dow, rising $3.31, or 6.8 percent, to $52.33. The drugmaker said second-quarter profit excluding certain costs was 82 cents a share, beating the average 72-cent estimate of 16 analysts surveyed by Bloomberg.

United Rentals, Arrow

United Rentals, the biggest U.S. construction-gear rental company, gained 61 cents to $32.98. Cerberus Capital Management LP will pay $4 billion, or $34.50 in cash for each share. That's 25 percent more than the price on April 9, the day before United said it was considering a sale.

Arrow International added $6.32, or 17 percent, to $44.11. Teleflex Inc., a maker of surgical instruments, car parts, and boat engines, agreed to buy medical-device maker Arrow International for $2 billion, or $45.50 a share, to add products for critical and cardiac care. That's 20 percent more than the stock's closing price July 20.

FoxHollow Technologies Inc., a maker of devices to repair blocked arteries, jumped $2.73, or 11 percent, to $27.45. Ev3 Inc., which makes medical equipment, agreed to buy FoxHollow for $780 million in cash and stock. Shareholders will receive 1.45 shares of Ev3 stock plus $2.75 in cash for each share, for a total of $25.92, a 4.9 percent premium to the July 20 closing price.

Tellabs, Opsware

Tellabs Inc. advanced 35 cents to $12.20. Nokia Siemens Networks is considering a $7 billion bid, Thestreet.com reported, citing a person familiar with the plan that it did not identify. Nokia Siemens, the world's third-biggest maker of telecommunications equipment, may offer about $16 to $17 a share, the Web publication said late July 20.

Brett Young, spokesman for Espoo, Finland-based Nokia Siemens, declined to comment on the story.

Opsware surged $3.72, or 36 percent, to $14. Hewlett-Packard Co., the world's largest personal-computer maker, will buy Opsware for about $1.6 billion, or $14.25 a share, to gain data- center software. The price is 39 percent more than the closing stock price on July 20.

Halliburton Co. climbed the most in two months, advancing $1.17 to $37.74. The world's second-largest oilfield contractor said profit excluding some items was 60 cents a share in the second quarter. The company was expected to earn 56 cents, the average of 21 analyst estimates compiled by Bloomberg.

`Why Not Be Bullish'

So far, S&P 500 companies have posted average profit growth of 8.5 percent for the second quarter, according to Bloomberg data. Of the 138 companies that reported, 59 percent have beaten analysts' estimates. Analysts now expect average growth of 5.8 percent for the entire index, up from 4.8 percent on July 13.

``Earnings in general have been coming in better than expected,'' said John Carey, who overseas about $13 billion at Pioneer Investment Management in Boston. ``Why not be bullish?''

AT&T

AT&T Inc. added 97 cents to $40.03 and lifted telecommunications companies in the S&P 500 up 1.6 percent, the steepest gain among 10 industry groups. The largest U.S. phone company may post higher second-quarter earnings tomorrow on its exclusive contract to sell Apple Inc.'s iPhone. The company may say net income rose to $3.1 billion from $1.81 billion, according to the average of 12 analysts' estimates in a Bloomberg survey.

Some 1.52 billion shares changed hands on the Big Board, 2.2 percent less than the three-month average.

A group of home construction companies in S&P indexes tumbled 3.4 percent after a Deutsche Bank report said new home demand is falling as potential buyers have trouble obtaining mortgages.

D.R. Horton Inc., the second-largest U.S. homebuilder, fell the most in four months, slipping 79 cents to $18.38. KB Home dropped $1.48 to $33.55.

Hasbro Tumbles

Hasbro Inc. slid $1.76, or 5.4 percent, to $30.80, the biggest drop in almost three years. The world's second-largest toymaker said profit fell to 3 cents a share from 7 cents a year earlier.

Barr Pharmaceuticals Inc. rose $3.31, or 6.3 percent, to $55.52, the most since August 2006, as investors speculated the maker of birth-control pills and generic medicines will attract takeover offers.

``Private equity would be attracted to the strong cash flows and prospects in the business due to the strong pipeline in both branded and generic markets,'' said Marc Weinberger, head trader at W. Quillen Securities in New York.

In other markets, crude oil for September delivery fell 90 cents to $74.89 a barrel in New York. The yield on the benchmark 10-year Treasury note rose 1 basis point, or 0.01 percentage point, to 4.96 percent at 4:23 p.m. in New York, according to bond broker Cantor Fitzgerald LP.

Apple Inc. (AAPL US)
Arrow International Inc. (ARRO US)
AT&T Inc. (T US)
Barr Pharmaceuticals Inc. (BRL US)
Diamond Offshore Drilling Inc. (DO US)
D.R. Horton Inc. (DHI US) Transocean Inc. (RIG US)
FoxHollow Technologies Inc. (FXH US)
GlobalSantaFe Corp. (GSF US)
Halliburton Co. (HAL US)
Hasbro Inc. (HAS US)
Hewlett-Packard Co. (HPQ US)
KB Home (KBH US)
Merck & Co. (MRK US)
Noble Corp. (NE US)
Nokia Siemens Networks (752212Z FH)
Opsware Inc. (OPSW US)
Teleflex Inc. (TFX US)
Tellabs Inc. (TLAB US)
United Rental Inc. (URI US)

source:bloomberg.com