INVESTMENT NEWS: Except For AIG, DOW Has A Good Day
Market despatches 2/11/08 6:45PM ET
AIG shares slump after it says losses from mortgage-related securities are bigger than thought. Microsoft signals it won’t take ‘NO’ for an answer after Yahoo rejects its $44.6 billion offer. The Dow will get a makeover next week. Apple leads techs higher. Crude oil jumps.
The stock market gave investors a decent rally today, despite an 11% drop for Dow component American International Group
But the gains came with low volume, leading some to suggest that investor confidence in the market overall remains weak.
At the close, the Dow Jones industrials were up 58 points, 0.5%, to 12,240. The Standard & Poor’s 500 Index rose nearly 8 points, or 0.6%, to 1,339. The Nasdaq Composite Index finished with a 15-point gain, 0.7%, at 2,320.
Had AIG just broken even today, the Dow might have jumped more than 100 points. Instead, AIG’s big drop to $44.87 knocked nearly 48 points off the Dow. The effect was eight times greater than that of Altria (MO, news, msgs), which will be replaced in the Dow next week. Altria’s 0.9% loss to $72.42 cost the Dow a bit more than 5 points.
Microsoft’s (MSFT, news, msgs) 1.2% loss to $28.21 cost the Dow fewer than three points. Yahoo formally rejected Microsoft’s $44.6 billion for the company, saying the bid undervalued the company. But Yahoo didn’t preclude another bid, and there was tremendous speculation on Wall Street today that the rejection was simply one step in what may be a prolonged negotiation. That’s why Yahoo shares moved 2.3% higher to $29.87.
After the market close, Microsoft called Yahoo’s rejection of its “full and fair” offer was “unfortunate.” The company added that the response didn’t change its position on a deal, and it aded, “We are confident that moving forward promptly to consummate a transaction is in the best interests of all parties.”
Microsoft said it may pursue “all necessary steps” so shareholders can “realize the value inherent in our proposal.”
The company did not offer details on what the steps might be, but they could include a proxy fight or a tender offer for Yahoo’s shares.
Yahoo shares moved up 13 cents to $30 in after-hours trading; Microsoft was up a penny to $28.22. Energy and technology shares led the market today. Energy moved higher on a 2% increase in the price of crude oil to $93.59 a barrel in New York. Crude oil moved higher on supply disruptions in Nigeria, a refinery outage in the United States and concern about Venezuelan President Hugo Chávez’s threat to cut off oil supplies to the U.S. Crude had been as high as $94.72 today.
AIG was the laggard among both the 30 Dow stocks and the S&P 500. General Motors (GM, news, msgs) was the Dow leader, up 5% to $27.12 on hopes that fourth-quarter profits, to come out Tuesday, will be better than expected.
New York Stock Exchange volume was a bit more than 1.3 billion shares, about 20% below its average of about 1.6 billion shares. The Nasdaq’s volume was better: about 1.9 billion shares. But the pattern of light volumes on up days and big volumes on down days continues to worry market watchers.
AIG auditors force larger write-downs
AIG shares tumbled after the company said auditors found a “material weakness” in the internal controls on how it accounts for and manages its credit-default-swap portfolios. Credit default swaps are financial instrument sold to protect investor in fixed-income securities, including mortgage securities, against losses.
Result: AIG may have to write off $4.88 billion from the portfolios just for October and November
Earlier, the company had estimated the October and November losses at between $1.05 billion and $1.15 billion. AIG’s auditors found “material weakness” in its accounting for the contracts, and the firm doesn’t know what they were worth at the end of 2007, a Securities and Exchange Commission filing said.
AIG said it will expand and clarify its disclosures on how it determines the value of those portfolios.
Energy prices — New York close
Mon. Fri. Chg. Month chg. YTD chg.
Crude oil (NYMEX) (per barrel) $93.59 $91.77 $1.82 2.01% -2.49%
Heating oil (per gallon) $2.6044 $2.5541 $0.0503 2.76% -1.70%
Natural gas (per million BTU) $8.5310 $8.3010 $0.2300 5.66% 14.01%
Unleaded gasoline (per gallon) $2.3962 $2.3572 $0.0390 3.77% -3.80%
Yahoo rejects Microsoft — for now
Yahoo wasn’t biting today, rejecting Microsoft’s $31-a-share offer
And, as noted, Microsoft isn’t going away.
Yahoo’s board met over the weekend and concluded that the $44.6 billion offer from Microsoft “substantially undervalues” the company and “is not in the best interests” of the company and its shareholders.
“The Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders,” Yahoo’s statement said this morning.
A key question now is whether Microsoft will go hostile and proceed with its effort despite the official rejection from Yahoo’s board. The software giant could also work on Yahoo’s largest shareholders in hopes of getting them to persuade Yahoo to agree to a deal.
About 70% of Yahoo’s shares are owned by institutions such as big mutual fund companies. The biggest shareholder is Capital Research and Management, one of the nation’s largest mutual fund companies, which owns 11% of the company.
“A lot of this is gamesmanship on the part of Yahoo,” Standard & Poor’s analyst Scott Kessler told Bloomberg News. “Microsoft is well aware that Yahoo doesn’t have any other options. What this is about is how much Microsoft wants Yahoo and how much time they’re willing to wait to get this deal done.”
Yahoo didn’t state an acceptable price in its press release. But the Associated Press reported that Microsoft proposed a deal at $40 a share last year. Reports over the weekend suggested that $40 is the minimum price the Yahoo board will now consider.
Microsoft launched its unsolicited bid for Yahoo on Feb. 1 with an offer that represented a 62% premium over Yahoo’s previous day’s closing price of $19.18.
Most analysts speculate that Microsoft could sweeten its bid to $35 per share but question whether Microsoft will pay $40 per share.
Yahoo has been struggling with executive departures, low employee morale and continued market-share loss to rival Google
