Stocks move higher after buyout news

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NEW YORK -- Stocks rose sharply Monday after a fresh round of buyout news offered evidence that Wall Street's penchant for dealmaking hasn't disappeared. The Dow Jones industrial average at times rose more than 100 points and made its way back toward 14,000.

Stocks showed a partial rebound from a sell-off Friday after Transocean Inc., the world's largest offshore drilling contractor, and rival GlobalSantaFe Corp. said Monday they struck an agreement to merge. The combined company will have a market value of about $53 billion.

In addition, equipment rental company United Rentals Inc. said it agreed to be taken private by affiliates of Cerberus Capital Management LP for about $4 billion in cash. Meanwhile, British bank Barclays PLC said it would raise its offer for ABN Amro Holding NV to $93.2 billion to fight a rival bid from a group led by Royal Bank of Scotland PLC.

Better-than-expected profit news from Merck & Co. and Schering-Plough Corp. also boosted the mood on Wall Street.

The turnaround from Friday's retrenchment demonstrates the market's resiliency, said Ted Aronson, a partner at Aronson Johnson Ortiz in Philadelphia, but it also raises questions of whether the short-lived nature of most of the pullbacks Wall Street has seen this year means stocks are rising on a rickety foundation. Like many investors, he sees the pullbacks as a healthful break for an ascendent market.

"We had a correction for a day. It's amazing. I think the market has gone too far, too fast. With that said, there is no doubt that the market is just amazingly strong," he said.

In late morning trading, the Dow Jones industrial average rose 113.24, or 0.82%, to 13,964.32.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 12.90, or 0.84%, to 1,547.00 and the Nasdaq composite index rose 17.43, or 0.65%, to 2,705.03.

Bonds were little changed, with the yield on the benchmark 10-year Treasury note flat at 4.95% from late Friday. The dollar was mixed against other major currencies, hitting record lows against the euro and new multiyear lows against the British pound. Gold prices fell.

Light, sweet crude fell 92 cents to $74.87 per barrel on the New York Mercantile Exchange in part as exports resumed at a key Angolan oil facility.

The resumption of the market's climb comes on a day absent any major economic news and appeared to at least temporarily quiet some concerns that a souring of subprime loans, those made to borrowers with poor credit, will upend the market's advance. Unease over bad loans and a resulting tightening of credit standards could stanch the huge flow of capital that has enabled much of the market-advancing buyout activity in recent years.

"All markets have risk. It's almost as if the market says there's no risk," Aronson said, citing his concerns about subprime loans. "Long-term I'm optimistic but it's one thing to be optimistic and it's another thing to believe in the tooth fairy."

The merger news appeared to help convince Wall Street that stocks have further room to run even after hitting fresh highs last week and pulling back Friday. Concerns have emerged in recent weeks that the merger activity that has helped fuel a run-up in stocks could slow as stocks become more expensive and if access to cheap capital becomes more difficult.

But earnings have commanded much of Wall Street's attention in recent weeks. Friday's decline came as lackluster profit reports from Caterpillar Inc. and Google Inc. raised concerns about the overall strength of corporate earnings.

Along with better earnings reports Monday, investors applauded the buyout news. Investors generally like to see corporate tie-ups because they can signal companies are bullish about the economy.

The Transocean/GlobalSantaFe combination also reflects strong demand as energy companies can afford to spend more on difficult-to-extract supplies. Oil prices touched nearly one-year highs last week. Under the terms of the deal, Transocean shareholders will receive $33.03 and 0.6996 shares of the combined company for each share of Transocean they own, and shareholders of GlobalSantaFe will receive $22.46 and 0.4757 shares of the company for each share of GlobalSantaFe they own.

Transocean rose $6.05, or 5.5%, to $116.02, while GlobalSantaFe rose $4.02, or 5.4%, to $78.76.

The United Rentals deal, for $34.50 per share, represents a 7% premium over United's closing price Friday. It is also a 25% premium to the stock's closing price of $27.55 on April 10, the day the company said it was exploring strategic options. In Monday's trading, United Rentals rose 66 cents, or 2%, to $33.03.

The parade of corporate earnings reports continued Monday, with Merck & Co. reporting a 12% increase in its second-quarter earnings. Merck, the best performer Monday among the 30 stocks that comprise the Dow, rose $3.40, or 6.9%, to $52.42.

Schering-Plough rose 18 cents to $31.67 after reporting its second-quarter profit more than doubled.

American Express Co., which like Merck is a Dow component, is expected to release its quarterly results after the close of the market. Wall Street expects the credit card issuer will turn a profit. American Express rose 62 cents to $65.13.

Earnings news on Friday unnerved investors and was in part responsible for a nearly 150-point drop in the Dow. The drop capped a losing week for the Dow after three weeks of gains. On Thursday, the Dow managed to finish above 14,000 for the first time and the Standard & Poor's 500 index likewise logged a record close.

Advancing issues outnumbered decliners by nearly 2 to 1 on the New York Stock Exchange, where volume came to 544.5 million shares.

The Russell 2000 index of smaller companies rose 4.81, or 0.58%, to 841.25.

Overseas, Japan's Nikkei stock average rose 0.01%, while Hong Kong's Heng Seng Index rose 0.32% and the often-volatile Shanghai Composite Index rose 3.81%. In morning trading, Britain's FTSE 100 rose 0.31%, Germany's DAX index rose 0.21%, and France's CAC-40 advanced 0.77%.
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