AT&T-McCaw deal fuels stock rally


August 17, 1993|By Bloomberg Business News

U.S. stocks soared in a rally driven by optimism that inflation is in check and by confidence in key sectors of the economy -- like telecommunications, semiconductors and aluminum -- traders and analysts said.

Cellular stocks were among the day's biggest gainers, catapulted by the $12.6 billion merger agreement between American Telephone & Telegraph Co. and McCaw Cellular Communications Corp. The marriage will combine the nation's largest long-distance phone company and its biggest cellular phone company.

The Dow Jones Industrial Average, which surged as high as 3591.45 yesterday, closed up 9.50 points at 3579.15, ending below its record close of 3583.35, reached Wednesday. The rise was led by Aluminum Co. of America, Walt Disney Co. and DuPont Co.

"It's the classic type of advance," said Peter DaPuzzo, senior managing director at Cantor, Fitzgerald & Co. "The economic recovery has a wonderful background, especially with inflation under control and employment picking up."

Long-term interest rates hit their sixth successive low, 6.3 percent, yesterday. The Labor Department said Friday that consumer prices are running at an annual rate of 2.8 percent through July -- below a 1993 high of 4.3 percent in April. Last year, inflation was 2.9 percent.

Lower interest rates are good for stocks because they spur economic activity, which helps corporate profits, and because they make the returns of equities more attractive relative to alternatives like fixed-rate investments.

Advancers outpaced decliners 9 to 6 among common stocks on the New York Stock Exchange. Trading was moderate, with about 230 million shares changing hands on the Big Board.

Adding to growing optimism about the inflation outlook was yesterday morning's AT&T-McCaw accord, Mr. DaPuzzo said. "The whole cellular group took off, and they haven't stopped since."

Meanwhile, chip stocks, led by Intel Corp., continued to benefit from last week's report showing strong demand for semiconductors, and aluminum producers rose after Reynolds Metals Co. announced production cuts in an attempt to address a global glut and boost prices.

The AT&T-McCaw merger, which grew out of AT&T's $3.8-billion purchase of one-third of McCaw in November, gives AT&T a presence in cellular communications, the fastest-growing part of the communications industry.

McCaw's stock soared $5 to $56.25, while AT&T slipped $1.625 to $60.75. The American depositary receipts of BT Plc, a McCaw shareholder, leaped $2.125 to $66.275. Each of BT's ADRs represents 10 ordinary shares. Lin Broadcasting, in which McCaw holds a majority stake, is up $8 at $110.25.

Other cellular stocks jumped on speculation of additional acquisitions or mergers in the cellular industry.

Qualcomm Inc. is up $3 at $78.75, and Contel Cellular Inc. is up $1 at $18. Vanguard Cellular is up $1.75 at $31.25, U.S. Cellular is $1.25 higher at $29.375, and Comcast Corp., which owns cable and cellular operations, is up $1.125 at $26.625.

Motorola Inc., which has both semiconductor and cellular operations, is up $2.125 at $98.25.

Among drug stocks, Eli Lilly & Co. rose $1.50 to $45.125, and Pfizer Inc. gained $2.125 to $59.25.

Semiconductor stocks have been strong since the industry's trade group released a report Wednesday showing demand for chips remained strong in July, contrary to the usual summer slowdown.

Intel rose as much as $4.25 to a record $64, adjusted for stock splits. Advanced Micro Devices Corp. is up 87.5 cents at $31.125, and Texas Instruments Inc. is up $1 at $77.25.

Biotechnology shares advanced after a Merrill Lynch & Co. analyst, Stuart Weisbrod, raised his ratings on Amgen Inc., Biogen Inc., Genzyme Inc., Genentech Inc., Somatogen Inc. and Cephalon Inc., citing relatively low price-to-earnings ratios and the market potential of new products.

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