Evening Update

Corporate News Gifts the Bulls

Markets began the Christmas holiday-abbreviated week in positive fashion on support from healthcare issues as health-care reform passed a hurdle in the Senate and on optimism in the corporate sector from some M&A news. Sanofi-Aventis agreed to acquire US healthcare firm Chattem for $1.9 billion, while Bucyrus International reached a definitive agreement to acquire the mining equipment business of Terex Corp. for about $1.3 billion. In other equity news, Walgreen and ConAgra Foods both topped the Street’s profit projections, while General Motors announce a renewed interest for its Saab unit and tapped a former Microsoft executive to replace its CFO. Treasuries were lower amid the rise in the equity markets and as there were no major economic reports scheduled for release today.

The Dow Jones Industrial Average jumped 85 points (0.8%) to close at 10,414, the S&P 500 Index added 12 points (1.0%) to 1,118, while the Nasdaq Composite gained 26 points (1.2%) to 2,238. In light volume, 1.0 billion shares were traded on the NYSE and 1.8 billion shares were traded on the Nasdaq. Crude oil was $0.38 lower at $73.72 per barrel, wholesale gasoline was down $0.01 at $1.86 per gallon, and the Bloomberg gold spot price fell $21.30 to $1,091.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.3% higher at 78.07.

In M&A news, Sanofi-Aventis (SNY $39) reported that it has agreed to acquire US healthcare firm Chattem Inc. (CHTT $93) for $1.9 billion. Under terms of the deal, SNY will offer $93.50 per CHTT share in a cash tender offer, a 34% premium over Friday’s closing price. SNY said that the move will give it a presence in the US consumer healthcare market, and hopes it will push it into the spot of the world’s fifth-largest over-the-counter drug company by revenue. CHTT was up nearly 33% on the day, while SNY was only modestly higher.

Elsewhere, Bucyrus International (BUCY $56) was solidly higher, gaining more than 9%, after the mining equipment firm announced that it has reached a definitive agreement to acquire the mining equipment business of Terex Corp. (TEX $21), for about $1.3 billion. BUCY’s CEO said the company will expand its geographic footprint and diversify its portfolio of products across a broader range of commodities. Shares of TEX were up nearly 8% on the news.

In other deal-making news, Dutch luxury car maker Spyker Cars announced that it made a new bid to acquire the Swedish car brand Saab from General Motors. The announcement follows last week’s unsuccessful discussions, after which GM said it would wind down its Saab unit. Spyker said the new offer includes an 11-point plan to address the issues the surfaced during its prior due diligence and hopes to overcome each of “the obstacles that were standing in the way of a swift transaction.” On a separate note, GM tapped former Microsoft (MSFT $31) CFO Chris Liddell as its new CFO and vice chairman. The move comes amid a shake-up in GM’s executive ranks in which Edward Whitacre replaced Fritz Henderson in the CEO spot four weeks ago.

Walgreen Co. (WAG $37) reported fiscal 1Q EPS ex-items of $0.52, four cents above the consensus estimate of Wall Street analysts, with revenues increasing 9.5% compared to last year to $16.4 billion, slightly above the $16.3 billion that the Street has predicted. WAG said same-store sales—stores open at least a year—rose 4.9%, with prescription sales, which accounted for about 66% of sales for the quarter, jumping 10%. WAG said the number of prescriptions filled increased 12% versus last year, while an early flu season and a “well-executed” flu shot campaign—launched a month earlier than last year—lifted front end and pharmacy sales.

However, the company said consumer concerns over high unemployment and the challenging economy were a drag on holiday sales at the end of November and “we’ve seen a similar pattern through mid-December,” but the company said like every Christmas season, its performance is driven by the final days, which makes this an important week. Shares finished nearly unchanged.

ConAgra Foods (CAG $22) reported fiscal 2Q EPS ex-items grew 21% to $0.52, above the $0.47 that analysts had forecasted, with revenues declining 2.4% to $3.2 billion, below the $3.3 billion that the Street was expecting. The consumer and commercial food firm said a more favorable input cost environment and strong cost savings “substantially” contributed to profit growth. CAG raised its full-year profit outlook. CAG was slightly lower.

Economic calendar inactive today

Treasuries were under pressure as the equity markets were higher and as there were no major economic reports scheduled for release today. The yield on the 2-year note rose 7 bps to 0.86%, the yield on the 10-year note advanced by 15 bps to 3.68%, while the yield on the 30-year bond increased 11 bps to 4.57%. Please note, US markets will close early on Thursday and remain closed Friday in observance of the Christmas holiday.

There was some Fedspeak that was in focus in late-morning trading as Federal Reserve Bank of Chicago President Charles Evans spoke with CNBC’s Steve Liesman and the voting member of the Federal Open Market Committee (FOMC) offered comments on the timing of unwinding the FOMC’s monetary policy. Evans said 2010 will be a better year of growth and all tools are on the table for the eventual policy unwind. The Committee member added that there is no urgent need to recalibrate policy and that policy accommodation will be required for a long period of time. He also said that the “focus is going to be on how the economy is playing out, how unemployment is coming down and whether or not inflationary pressures remain as muted as they currently are.”

Tomorrow/’s economic calendar will yield the third and final reading on 3Q Gross Domestic Product (GDP), and the Bloomberg survey of economists expects no change from the 2.8% second reading, and the component estimates provided by the survey are forecasted to remain unmoved for personal consumption at 2.9%, the GDP Price Index at 0.5%, and the core PCE Index, which excludes food and energy, at 1.3%. Also, the November report on existing home sales will be released, expected to have increased 2.5% month-over-month (m/m) to an annual rate of 6.25 million units after surging 10.1% to 6.1 million units in October and 8.8% in September.

Japanese exports moderate

Japan’s exports declined 6.2% in November, the slowest pace in 14 months, as worldwide government spending has increased demand for automobiles and electronics made in the world’s second-largest economy. Economists surveyed by Bloomberg estimated exports to decline by 6.8%. Elsewhere in Asian economic news, the Chinese government said it is targeting 8% growth in 2010, and hopes to achieve an 11% gain in industrial production.

The US’ neighbor to the north, Canada, said retail sales for the month of October rose 0.8%, matching the survey of economists by Bloomberg and the eighth increase in 10 months, led by auto and clothing retailers. Also, Canada’s Conference Board said consumer confidence in December rose to 82.8 from 79.1 in November.