Jim Cramer Blog

Sliding oil prices and a spate of M&A deals spurred investors to resume buying stocks. In doing so, they looked past the struggle that one of the nation's leading subprime lenders faces in a bid to survive. After a lackluster start to the week, buying picked up in the mid-afternoon as the major stock averages pushed sharply higher before easing somewhat in the final 30 minutes of trading. The 10-year Treasury note also attracted buyers, which cut the yield -4 basis points to 4.55%. Crude oil futures dipped near $59 a barrel.
Early in the day, the market was focused on the travails of New Century Financial (NYSE: NEW - News), which appears to be teetering on the brink of insolvency. The company disclosed in a filing with the Securities and Exchange Commission that all of its lenders have either cut financing or will cease to finance New Century's short-term borrowings. New Century said last Thursday it would no longer accept new loan applications due to liquidity problems. The company hinted it does not have the funds to meet current obligations, which may exceed $8 billion. Subscribers can read further analysis on the fallout from this latest development in today's issue.
Merger activity helped shake off the cloud created by New Century's woes. Ford Motor (NYSE: F - News) took a step toward funding its own recovery plan by announcing it has sold its Aston Martin unit to a consortium of investors for $848 million. The U.K.-based unit is best known for the exotic, pricey sports cars used in the James Bond movie series. The car now retails for between $110,000 and $270,000 each.
Schering-Plough (NYSE: SGP - News), meanwhile, announced it plans to buy the pharmaceuticals division of Akzo Nobel (Nasdaq: AKZOY - News) for $14.5 billion in cash. U.S.-traded shares of Akzo, a Dutch company, jumped 16% on the news. The deal will given Schering the Akzo Organon Biosciences unit, which makes a range of fertility, birth control, and women's health products. That addition should lessen Schering's dependence on its Vytorin and Zetia cholesterol-lowering drugs. Organon also has a treatment for schizophrenia and bipolar disorder in late-stage development, but Pfizer (NYSE: PFE - News), its partner in the development of the drug asenapine, dropped out after the treatment achieved mixed results in clinical trials.
In the health insurance sector, UnitedHealth Group (NYSE: UNH - News) agreed to buy Sierra Health Services (NYSE: SIE - News) for about $2.6 billion in cash. Sierra services about 310,000 employer-sponsored health plan members in Nevada and another 320,000 members enrolled in senior and government programs nationwide. UnitedHealth offered $43.50 a share for Sierra, or roughly a 21% premium over Friday's close. Sierra added 16% today. Separately, Express Scripts (Nasdaq: ESRX - News) ended 5% higher on the day after announcing it would not raise its bid for rival Caremark Rx (NYSE: CMX - News). Express Scripts has been battling drug-store retailer CVS (NYSE: CVS - News) to acquire Caremark. Both Caremark and CVS ended down -2%.
In the final major deal of the day, the management of discount retailer Dollar General (NYSE: DG - News) agreed to a $6.9 billion buyout bid from Kohlberg Kravis Roberts. KKR offered $22 a share, a 31% premium over Friday's close, for the operator of more than 8,200 discount stores nationwide. Dollar General jumped 26% higher on the news.
By the BullMarket.com Staff

Labels: AKZOY, CMX, CVS, DG, ESRX, F, NEW, pfe, SGP, SIE, UNH

Stocks showed little movement Monday as further cracks appeared in the subprime lending sector, stirring concerns that a blowup among companies making loans to consumers with poor credit will spill over into other industries.
A warning from New Century Financial Corp. early Monday about its financial woes overshadowed merger news, which often gives a boost to enthusiasm on Wall Street.
The renewed concerns about subprime lenders follow a relatively successful week on Wall Street. Stocks etched out gains last week U.S. and overseas markets managed to regain some sense of stability following a sharp pullback that began Feb. 27. Even amid the gains seen last week, however, concerns about subprime lenders weighed on investors.
"We've had fairly flat trading given the continuing meltdown in New Century," said Frederic Dickson, market strategist and director of retail research at D.A. Davidson & Co. "The market appears to have handled this latest piece of news in a fairly decent and orderly way, almost as if had anticipated it happening at the end of last week."
In late morning trading, the Dow Jones industrial average fell 9.69, or 0.08 percent, to 12,266.63.
Broader stock indicators slipped. The Standard & Poor's 500 index fell 3.44, or 0.25 percent, to 1,399.41, and the Nasdaq composite index fell 0.80, or 0.03 percent, to 2,386.75.
Bonds rose amid the concerns about subprime lenders; the yield on the benchmark 10-year Treasury note falling to 4.54 percent from 4.59 percent late Friday. The dollar was mixed against other major currencies, while gold prices were little changed.
Light, sweet crude fell $1.17 to $58.88 per barrel on the New York Mercantile Exchange.
In corporate news, New Century warned in a filing with the Securities and Exchange Commission that all its lenders had cut off short-term funding or announced plans to do so after the subprime mortgage lender wasn't able to make payments. New Century, which relies on short-term borrowings to finance mortgage loan originations and purchases, said it would need about $8.4 billion should it be forced to repurchase all outstanding mortgage loans. The company said it doesn't have sufficient liquidity to meet its obligations for repurchasing mortgages.
Trading in New Century shares remained halted with news pending, as it had been before the opening bell.
Other subprime lenders fell sharply. Fremont General fell 86 cents, or 10.7 percent, to $7.17, while Novastar Financial Inc. fell 67 cents, or 12.8 percent, to $4.57.
Investors have grown uneasy about the subprime market amid fresh concerns about the ability of some homeowners with spotty credit to continue to make mortgage payments. Many of the mortgages came with low teaser rates and a cooling housing market has made it more difficult for people to extract cash from equity in their homes by refinancing.
Amid the din over subprime lenders, buyout news offered some support for stocks. Word that private-equity company Kohlberg Kravis Roberts & Co. struck a deal to acquire Dollar General Corp. for about $6.87 billion sent the discount retailer sharply higher. Dollar General jumped $4.38, or 26.1 percent, to $21.16 -- well past the stock's 52 week high of $18.32.
As often occurs when a company announces an acquisition, Schering-Plough Inc. fell 22 cents to $23.63 after agreeing to purchase the Organon BioSciences BV pharmaceuticals business of Akzo Nobel NV, the Dutch maker of chemicals and coatings, for $14.5 billion. Akzo rose $9.94, or 16.4 percent, to $70.75.
UnitedHealth Group Inc., the health insurer, announced plans to acquire health care services provider Sierra Health Services Inc. for about $2.6 billion. Sierra Health rose $5.66, or 15.8 percent, to $41.56, while UnitedHealth advanced 28 cents to $53.28.
Boeing Co., one of the 30 stocks that make up the Dow industrials, said Kuwait-based Alafco Aviation Lease and Finance Co. agreed to purchase 18 airplanes with a list value of $2.26 billion. The deal includes 12 787-8 Dreamliner airplanes and six 737-800s. Boeing rose 97 cents to $90.48.
Procter & Gamble Co., the consumer products company, said it struck a deal to sell its Western European tissue and towel business to SCA, which makes paper and other products, for about $671.9 million. P&G, also a Dow component, advanced 11cents to $62.27.
Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where volume came to 469.6 million shares.
The Russell 2000 index of smaller companies fell 1.29, or 0.16 percent, to 783.83.
Overseas, Japan's Nikkei stock average rose 0.75 percent, Hong Kong's Hang Seng index added 1.61 percent and the Shanghai Composite Index added 0.58 percent. In afternoon trading, Britain's FTSE 100 fell 0.29 percent, Germany's DAX index slipped 0.08 percent, and France's CAC-40 fell 1.02 percent.

Labels: AKZOY, BA, DG, NEW, NFI, PG, SIE, UNH