MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, APRIL 6, 1998 (1)
Bay Street rose on the back of strength in the big banks and golds. Stocks were mixed on Wall Street, despite the Dow breaking through the 9000 barrier after news of the world's largest corporate merger.
Canadian stocks rose to records, led by banks amid optimism for further mergers in the industry.
"[The U.S. merger] puts the banks back into focus and people want to own as many high-quality banks as they can on the expectation that more mergers will come," said Paul Devlin, vice-president of MMA Investment Managers Ltd.
The Toronto Stock Exchange 300 composite index rose 33.08 points, or 0.4%, to a record 7645.81. It was the TSE 300's 11th record close of the year.
About 134.1 million shares changed hands, down from about 151.6 million shares traded Friday.
All five of the largest banks gained and the TSE financial services index accounted for 28 points of the benchmark index's advance.
Canadian Imperial Bank of Commerce (cm/tse) rose $1.35 to $50.55, Toronto Dominion Bank (td/tse) climbed $1.40 to $63.40, Royal Bank of Canada (ry/tse) rose $1.45 to $85.30, Bank of Montreal (bmo/tse) climbed $1.75 to $77.30 and Bank of Nova Scotia (bns/tse) jumped 65› to $39.
Placer Dome Inc. (pdg/tse) gained 75› to $20.85 and Franco-Nevada Mining Corp. (fn/tse) rose $2.40 to $37 after gold bullion rose to its highest price in five months.
Barrick Gold Corp. (abx/tse) jumped 65› to $32.70 after it was raised to "outperform" from "neutral" by analyst Douglas Cohen, at Morgan Stanley Dean Witter Discover.
TrizecHahn Corp. (tzh/tse) gained 35› to $34.25 after it agreed to sell its shopping centre holdings to Rouse Co. and Westfield America Inc. for US$2.55 billion in cash.
Other Canadian markets finished higher. The Montreal Exchange portfolio rose 19.42 points, or 0.5%, to 3856.45. The Vancouver Stock Exchange rose 0.44 of a point to 643.87.
In New York, financial shares soared after Citicorp and Travelers Group Inc. agreed to a US$70-billion merger - the biggest in history.
Intel Corp. and other computer companies declined on concern that earnings may suffer in the months ahead.
The Dow Jones industrial average gained 49.82 points, or 0.6%, to 9033.23 - its first close about 9000 .
The Standard & Poor's 500 index fell 1.31 points to 1121.39.
The Nasdaq composite index fell 26.26 points, or 1.4%, to 1829.14.
About 628.4 million shares changed hands on the Big Board, down from about 655.5 million shares traded Friday.
Travelers (trv/nyse) surged US$11 1/2 to US$73, Citicorp (cci/nyse) rose US$38 15/16 to US$181 13/16 and J.P. Morgan & Co. (jpm/nyse) advanced US$10 13/16 to US$144 3/4.
Securities firms rose on expectations that the Citicorp-Travelers merger will drive more combinations in the industry. Merrill Lynch & Co. (mer/nyse) soared US$9 1/2 to US$96, Lehman Brothers Holdings Inc. (leh/nyse) jumped US$6 1/16 to US$80 7/8, Paine Webber Group Inc. (pwj/nyse) rose US$2 1/8 to US$43 13/16 and Morgan Stanley Dean Witter & Co. (mwd/nyse) rose US$4 1/2 to US$80.
Microsoft Corp. (msft/nasdaq) fell US$3 1/16 to US$89 15/16 after The Wall Street Journal said the world's biggest maker of personal computer software may face new antitrust charges. U.S. government investigators believe they have enough evidence to bring a new case, the paper said.
Intel (intc/nasdaq) fell US$2 56/64 to US$73 7/8, after National Semiconductor Corp. said it has all the parts to put a personal computer on a single chip by mid-1999, a move that could drop personal computer prices below US$400 and challenge Intel's market dominance. National Semi (nsm/nyse) rose US$3 7/16 to US$23 11/16.
Major international markets ended mixed.
London: Britain's FT-SE 100 index closed at its fourth consecutive record high, after news of the planned Citicorp-Travelers merger sent bank shares sharply higher. The FT-SE 100 climbed 41.6 points, or 0.7%, to 6105.8.
Frankfurt: German shares closed at a record high and above the psychologically and technically important 5300 level. The Dax index rose 48.13 points, or 0.9%. to 5271.65.
Tokyo: Comments by Japanese Prime Minister Ryutaro Hashimoto and other politicians eased market worries. The 225-share Nikkei average jumped 188.21 points, or 1.2%, to 15,705.99.
Hong Kong: The Hang Seng closed at 11,052.68, down 137.03 points, or 1.2%.
Sydney: Australian stocks raced to a record close as Rupert Murdoch's media giant News Corp. gathered pace. The all ordinaries index climbed 24.8 points, or 0.9%, to 2795.6.
M & A Frenzy Fuels $42B In Deals During First Quarter
The Financial Post
In the mergers and acquisitions game, the players are fewer but the deals are much larger, according to data released yesterday.
A report by the Toronto office of U.S. investment bank Crosbie & Co. Inc. shows the dollar value of Canadian mergers and acquisitions skyrocketed to $42 billion in the first quarter, up 74% from the $24 billion in the same period last year.
But the number of deals dropped 15%, to 279 from 327.
Among sectors, utilities and oil and gas led the way.
The totals do not include the proposed $45-billion merger of Royal Bank of Canada and Bank of Montreal, which has not been approved by the federal government.
Crosbie investment banker Glenn Bowman said the merger numbers show smaller companies have already been picked up and now larger ones are coming onto the market at higher values.
The bull market is giving companies the fuel they need to power this continued buying binge.
"If companies can use stock to acquire other companies then it's cheap financing," he said.
In most cases shareholders are willing to accept stock. "There was some correction in the marketplace so people are more comfortable with the valuation multiples."
However, there has been a sharp drop in the premium companies are prepared to pay for the stock of companies they acquire.
From an average 33% premium in 1997, the premium so far this year is 18% over the stock price.
Bowman said the globalization of economies means companies feel the need to get bigger "in order to compete.
"It's keeping up with the Joneses. It's the fear of not being in the game."
The biggest deals in the first quarter include Nova Corp.'s $11-billion merger with TransCanada PipeLines Ltd. and Texas-based Union Pacific Resources Group Inc.'s $3.7-billion acquisition of Calgary's Norcen Energy Resources Ltd.
The $42-billion figure also includes the value of selloffs by companies shedding assets that are not core to their business, such as Nova's planned $3-billion spinoff of Nova Chemicals Ltd.
Bowman cautioned that like all other business decisions, mergers must be considered carefully to ensure they are a good fit.
In many cases, premiums paid for acquired companies are not reflected in increased shareholder value a few years after the deal.
"One challenge is getting a common business statement articulated," he said. "You'll never know if [a merger] is successful until after the fact. Overall shareholders have a belief now that bigger is better."
Bulls v. Bears
Bearishness Over TSE 300 On The Rise
Globe & Mail
Market professionals are becoming increasingly dubious that the Toronto Stock Exchange will continue to pile on new records six months from now, The Globe and Mail's latest Bulls v. Bears survey indicates.
More bears have infiltrated our team of experts in the two weeks since the previous survey, when negative sentiment on prospects for the bellwether TSE 300-stock composite index outweighed positive for the first time in the nearly two years that The Globe has been conducting the survey.
Meanwhile, sentiment toward the U.S. market improved slightly, in tandem with the record run to the 9,000 level posted by the Dow Jones industrial average on Friday.
In the latest survey, 48 per cent of respondents said that the TSE 300 will be lower in six months, compared with 38 per cent who were negative in the previous survey. Those calling for the index to be higher in six months have increased to 41 per cent from 34 per cent. The proportion of respondents who believe the level will be unchanged -- or are undecided -- has fallen to 11 per cent from 28 per cent.
Many of those previously sitting on the fence have taken the plunge into one camp or the other -- with more landing on the side of the bears. The balance of opinion -- the bullish percentage subtracted from the bearish -- stands at minus 6.9.
Canadian stocks climbed on Friday, with the golds group leading the charge after Japan's financial crisis put its creditworthiness in peril with an influential rating agency.
The TSE 300 gained 69.33 points during Friday's session to close at 7,612.73. For the week, the index edged down 0.1 per cent. So far this year, the TSE 300 is up 13.63 per cent, keeping pace with the Dow.
Many market watchers consider a pessimistic outlook to be a sure sign of an upturn.
Conversely, bullish sentiment often peaks just before a crash.
Because investor sentiment is often wrong, surveys that try to call the market may be viewed as contrary indicators.
Negative sentiment toward New York's Standard & Poor's 500-stock index softened slightly in the latest survey. The percentage of pessimists stands pat at 52 per cent, but optimists increased to 38 per cent from 28 per cent. Those who believe the S&P 500's level will be unchanged totalled 10 per cent, compared with 20 per cent two weeks earlier.
On Friday, the S&P 500 achieved its third consecutive record high, closing at 1,122.70, up 2.69 points on the day.
The latest survey suggests that sentiment about Canadian bonds darkened slightly, just as Canadian bond prices shot up on Friday. The percentage of investment professionals who believe the price of Canada's long bonds will be higher in six months slipped to 44 per cent from 48 per cent in the previous survey. Those who believe bond prices will be lower increased to 30 per cent of respondents from 22 per cent. Those who say prices will remain unchanged totalled 26 per cent, compared with 30 per cent.
On Friday, the benchmark 30-year, 8-per-cent issue climbed to a record high on U.S. economic news that appeared to reassure investors that Canada's major trading partner will not be plagued by high inflation. The bellwether bond jumped $1.21 to $134.70, and the yield fell to 5.58 per cent. During the day, the bond's price broke through $135 for the first time, as the yield dipped to 5.55 per cent.
On the outlook for gold prices, survey respondents seemed immune to the gains made by gold producers in the market last week. Sentiment remained stable, with 42 per cent predicting the price will rise, 19 per cent saying it will fall, and the rest calling for no change. The numbers were the same in the previous survey.
Last week, the gold and precious metals index was the biggest winner among the TSE 300's 14 industry groups, with an advance of 4.5 per cent.
On Friday, the price of bullion climbed 2 per cent as Asian investors sought shelter from risky markets. Gold rose $6 (U.S.) to $302.25 on the Commodity Exchange division of the New York Mercantile Exchange.
Bulls v. Bears is a proprietary survey developed by The Globe and Mail as an indicator of the sentiment of market professionals.
The investment pros fight it out
Every two weeks we survey money managers, strategists and advisers on where they expect financial markets to be in six months -- up, down or unchanged. Here is what they think this week. TSE 300, 41% bullish - 48% bearish / S&P 500, 38% bullish - 52% bearish, Bond prices, 44% bullish - 30% bearish and Gold, 42% bullish - 19% bearish.
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