Stocks rise to start the second quarter HMO, telecommunications shares prove strongest amid recent mergers

April 02, 1996|By BLOOMBERG BUSINESS NEWS

NEW YORK -- U.S. stocks climbed yesterday on the first day of the second quarter as a pair of mergers valued at $25 billion drove up prices of telephone and health maintenance organization stocks.

Mergers, acquisitions and spinoffs involving Pacific Telesis Group, U.S. Healthcare Inc. and General Motors Corp. showed that companies are taking drastic measures to boost their profits and stock prices. They also suggest there are plenty of stocks that aren't too expensive, even though the Standard & Poor's 500 Index soared 41 percent in the past 15 months, analysts said.

In response, the Dow Jones industrial average rose 50.58 to 5,637.72, hoisted by higher prices for GM and Philip Morris Cos., and the S&P 500 surged 8.23 to 653.73, its biggest advance in two weeks. The Nasdaq composite index was up 5.19 at 1,106.57.

Advancing stocks outpaced declining issues by more than 14 to 9 on the New York Stock Exchange. By recent standards, trading was slow, as only 390.2 million shares changed hands, down from this year's average of 424 million.

The Wilshire 5,000 index soared 53.74 to 6,433.02; the Russell 2,000 index of small company shares advanced 1.67 to 332.44, its second consecutive record; and the American Stock Exchange market value index rose 1.06 to 572.44.

SBC Communications Inc.'s offer to buy Pacific Telesis Group for $16.5 billion, a 41 percent premium to the California telephone company's share price on Friday, was one catalyst for yesterday's rally.

"It's testimony to the fact that consolidation in a whole host of industries is a major theme," said Weiss. "You see it in telecommunications, in banking in spades; we're even beginning see it in technology."

Pacific Telesis shares soared 5.875 to 33.625 after almost a three-hour trading halt on the New York Stock Exchange. SBC, formerly Southwestern Bell, slumped 2.75 to 49.875, Nynex Corp. surged 3 to 52.875, Ameritech Corp. rallied 2.50 to 57 and U S West Communications Group jumped 1.125 to 33.50.

Aetna Life and Casualty Co.'s plan to buy U.S. Healthcare Inc. for $8.9 billion in cash and stock, a 24 percent premium, was a second cause of the market's advance.

"Companies are probably spending more time thinking of ways to enhance shareholder value, whether through buybacks or divesting businesses that don't fit into their business plan," said James Penner, investment officer at the $6 billion Montana Board of Investments.

The Montana pension fund owns about 750,000 U.S. Healthcare shares. "That was a bonus for us, starting off the first day of the quarter," Penner said.

U.S. Healthcare, up 6 to 51.875, was a logical acquisition target for Aetna, down 3.375 to 72.125, said Chip Reed, money manager at the Florida State Board of Administration. U.S. Healthcare's stock has stumbled in the past year, and the company has a horde of cash and a broad distribution of health maintenance organizations, he said.

Other HMO and hospital-management stocks benefited from U.S. Healthcare's sale. United Healthcare Corp. climbed $2.625 to $64.125 and Humana Inc. rose 75 cents to $25.875.

Acquisition announcements extended beyond the telecommunications and health-maintenance industries. DSP Communications Inc. Chairman David Gilo made an unsolicited offer to buy Israeli software publisher Scitex Corp. for $20 a share, or $856 million, a 44 percent premium to Scitex's price Friday.

Scitex shares jumped $4 to $17.875 on the Nasdaq Stock Market, and DSP shares rose 25 cents to $25.25. Mr. Gilo made his offer on his own, not on behalf of DSP.

Corporate mergers worldwide rose to a first-quarter record of $208 billion, 11 percent higher than the $187 billion in last year's first quarter, according to Securities Data Corp. Bolstered by rising stock markets, the torrid pace indicates 1996 may exceed the record $866 billion of last year.

GM vaulted $2.875 to $56.125, its highest since May 1994, after the country's largest automaker approved the spinoff of its Electronics Data Systems subsidiary.

EDS will make a one-time payment of $500 million to GM as part of the arrangement.

GM also is considering a spinoff of part of its Hughes Electronics unit, the Detroit Free Press reported.

"There's still companies around with a significant growth outlook," said Anthony Dwyer, chief market strategist at Rickel & Associates. "Stocks are slightly undervalued, based on inflation and interest rates."

Oil stocks rallied on expectations that recent increases in crude oil prices combined with dwindling inventories may signal a prolonged shortage. Crude oil for delivery in May soared 75 cents a barrel yesterday to $22.22.

Banks and other financial companies rose as Chase Manhattan Corp. and Chemical Banking Corp. completed their merger, creating the country's largest bank, and as Wells Fargo & Co. completed its purchase of First Interstate Bancorp.

Pub Date: 4/02/96

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