- The Washington Times - Monday, October 27, 2003

NEW YORK (AP) — A burst of merger activity sent stocks higher yesterday as Bank of America Corp.’s proposed purchase of FleetBoston Financial Corp. and Anthem Inc.’s plan to buy rival WellPoint Health Networks Inc. signaled a growing confidence in the nation’s business climate.

The multibillion-dollar acquisitions as well as generally positive third-quarter earnings “should help buoy investor sentiment,” said John C. Forelli, portfolio manager for Independence Investment LLC in Boston.

“It’s sort of merger mania today,” Mr. Forelli said. “My guess is once investors look at this, they’ll become more optimistic that there will be some more merger activity in corporate America.”

The Dow Jones Industrial Average closed up 25.70 points, or 0.3 percent, at 9,608.16, after falling 1.4 percent last week.

The broader market also advanced. The Nasdaq Composite Index rose 17.32, or 0.9 percent, to close at 1,882.91, following a weekly decline of 2.5 percent. The Standard & Poor’s 500 index closed up 2.22, or 0.2 percent, at 1,031.13, having shed 1.7 percent the previous week.

Positive news also came from Washington. A Commerce Department report showed a dip in new home sales last month, but the level of sales was stronger than forecast — a sign that the housing market continues to help spur the economic recovery.

Although stocks advanced, analysts said investors were still somewhat cautious after selling heavily last week on less-than-stellar quarterly earnings. Most companies either met or beat Wall Street expectations, but failed to justify the high share prices investors set this month in anticipation of strong profits.

But investors followed a long market tradition of rallying on merger news.

“It feels good. There’s a merger and the market’s higher,” said Matt Kelmon, president and portfolio manager of the Kelmoore Strategy Funds, who said he was paying particular attention to large financial-services companies. “Things are looking better on the horizon.”

Bank of America announced plans to buy FleetBoston in a deal initially valued at $47 billion that will create one of the world’s biggest banking companies.

The news sent FleetBoston soaring $7.40, or 23.3 percent, to close at $39.20, but Bank of America lost $8.29, or 10.1 percent, to close at $73.57, as some analysts questioned the price of the deal.

“They’ve paid a lot for a franchise that has a lot of issues yet to wrestle through,” said Tim Leach, chief investment officer for Wells Fargo’s Private Client Services. “In general, I think Fleet is a second-tier operation that needs a fair amount of work.”

The combined company will have about 5,700 branches — nearly twice as many as nearest rival Wells Fargo — and a combined $930 billion in assets, second only to Citigroup Inc.

Health insurer Anthem said it would buy larger rival WellPoint Health Networks in a deal the companies initially valued at $16.4 billion in cash and stock. The deal combines the nation’s two largest Blue Cross and Blue Shield concerns. WellPoint closed up $7.16, or 8.5 percent, at $91.09, while Anthem lost $6.21, or 8 percent, to close at $71.05.

Also in the health services sector, managed care company UnitedHealth Group agreed to buy Mid-Atlantic Medical Services Inc. in a $2.95 billion deal that would give the combined company a leading position in the mid-Atlantic region. Mid-Atlantic rose $5.74, or 10.7 percent, to close at $59.62, while UnitedHealth fell $1.85, or 3.4 percent, to $52.40.

Procter & Gamble Co. said its first-quarter earnings rose 20 percent, beating analysts’ estimates by a penny a share as sales surged in all of the company’s segments. The maker of Tide detergent, Pampers diapers and Clairol hair products gained 74 cents to close at $96.80.

But International Paper Co. fell after reporting a 16 percent drop in third-quarter earnings on weakening demand and rising costs for energy and wood. The world’s largest paper company missed estimates by a penny a share, and slipped 44 cents to close at $38.

Financial services company American Express Co. said third-quarter profits beat analyst expectations, jumping 12 percent as consumers boosted their credit card spending and credit quality improved. Nevertheless, it declined 87 cents to $46.75.

Advancers outnumbered decliners about 2-to-1 on the New York Stock Exchange. Consolidated volume was moderate, with 1.71 billion shares traded, compared with 2.10 billion traded Friday.

The Russell 2000 Index, which tracks smaller-company stocks, rose 8.92, or 1.8 percent, to close at 515.35

Overseas, Japan’s Nikkei stock average finished 1.2 percent higher yesterday. In Europe, France’s CAC-40 advanced 1.2 percent, Britain’s FTSE 100 rose 0.3 percent and Germany’s DAX index gained 1.9 percent.

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