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| Currency | US Dollar |
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Investors came back from the July Fourth holiday and bought hotel stocks like mad, especially Hilton Hotels (HLT, news, msgs), after the Blackstone Group (BX, news, msgs) agreed to buy the hotel company for $20 billion.
The rest of the stock market was quiet, which was not a big surprise because many professionals on Wall Street are on vacation this week.
At the close, the Dow Jones industrials were down 11.5 points to 13,566. The Standard & Poor's 500 Index was up slightly to 1,525.
The Nasdaq Composite Index and its sister, the Nasdaq-100 Index ($NDX.X), both moved higher, thanks to some gains in several key tech stocks, especially Apple (AAPL, news, msgs), up nearly 4.4% to $132.75, an all-time high, thanks to the buzz from its iPhone.
The Nasdaq Composite closed up 11.7 points to 2,657. The Nasdaq-100 was up nearly 16 points to 1,981.
The market was held in check by rising interest rates ahead of Friday's monthly jobs report. The report, due out before the market opens, is expected to show that payrolls rose by 135,000 in May. The report for April showed a gain of 157,000 jobs.
The yield on the 10-year Treasury note jumped to 5.144% today from 5.05% on Tuesday. In addition to the worries about the jobs report, bond yields moved higher as the Bank of England raised its key interest rate to 5.75%. The European Central Bank left its key rate at 4%.
At the same time, oil prices moved higher on concerns about domestic gasoline prices and reports of renewed turmoil in Nigeria. Light, sweet crude closed at $71.81 in New York. Brent crude, which European and Asian traders focus on, closed at $73.88, up 83 cents on the day.
Only 10 of the 30 Dow stocks were higher on the day. Honeywell International (HON, news, msgs) was the Dow leader with a 2% gain to $58.36.
General Motors (GM, news, msgs) was the laggard on both the Dow and the S&P 500, down 3.3% to $36.76. That loss, a reaction to a worse-than-expected report on June sales, trimmed nearly 10 points from the Dow.
A total of 223 S&P 500 stocks were higher, led by hotel stocks, especially Hilton, which finished up nearly 26% to $45.39 on the news of the deal with Blackstone.
Bausch & Lomb (BOL, news, msgs) jumped nearly 5% to $72 on news that Advanced Medical Optics (EYE, news, msgs) will offer $75 or $4.1 billion for the company. Advanced Medical Optics was up 1.2% to $35.89. The offer sets up a potential bidding war. Bausch & Lomb has already agreed to be bought out by Warburg Pincus for $3.7 billion.
Traders appeared unfazed by a 5.3% plunge in the often-volatile Shanghai Composite Index. Chinese stocks weakened due to worries about government steps to cool down the market and concerns that prices could fall following several new share listings.
| Thur. | Tues. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $71.81 | $71.41 | $0.40 | 1.60% | 17.62% |
| Heating oil (per gallon) | $2.0662 | $2.0662 | $0.0000 | 1.69% | 29.31% |
| Natural gas (per million BTU) | $6.6180 | $6.7540 | -$0.1360 | -2.29% | 5.06% |
| Unleaded gasoline (per gallon) | $2.2843 | $2.2644 | $0.0199 | -0.43% | 42.58% |
Markets closed Wednesday for July Fourth holiday. |
Research In Motion, Google post gains
In addition to Apple's big gain, a reaction to a report earlier this week said the company could make as much 55% profit from its most expensive iPhone models, the Nasdaq had other stars.Research In Motion (RIMM, news, msgs), the maker of the BlackBerry device, was up nearly 4% to $216.19. The company won approval to start selling its BlackBerries in China.
Google (GOOG, news, msgs) added 1.4% to $541.63, also an all-time high.
Microsoft to take charge on Xbox 360 problems
After the close, software giant Microsoft (MSFT, news, msgs) said "an unacceptable number of repairs" to its Xbox 360 video game console will force it to take a charge of more than $1 billion for its most recent quarter.The company also announced a new extended warranty for the product. (Microsoft is the publisher of MSN Money.)
The announcements come amid mounting complaints on the Internet about Xbox 360 failures. Microsoft said it would extend warranty coverage to three years to cover the problems and would reimburse customers who had previously paid for repairs related to the three-flashing-lights error message. Microsoft also said it has made improvements to the Xbox 360 console.
The charge will be in a range of $1.05 billion to $1.15 billion, before taxes, for the quarter ended June 30. The stock was down slightly in regular trading to $29.99 and fell an additional 8 cents to $29.91 in after-hours trading.
The Xbox 360 competes against the Nintendo (NTDOY, news, msgs) Wii and the Sony (SNE, news, msgs) PlayStation 3. Sony was up 3.4% in regular trading to $52.37 in New York and rose an additional 0.6% in after-hours trading to $52.67. Nintendo finished up 2.1% to $48.90.
Hilton changes the game for real estate stocks
The news of the $20 billion Hilton deal was an extraordinary event. As the stock soared 25.9% to $45.39, just below Blackstone's $47.50 offering price, more than 105 million shares changed hands, just under 8% of today's total New York Stock Exchange volume of 1.38 billion shares. It was nearly 30 times its daily average of about 3.45 million shares.Blackstone will pay about $20 billion for the stock and assume about $6 billion in debt, bringing the total value of the deal to $26 billion.
The news forced traders to take a new look at how they value real estate stocks, especially hotel stocks. And it caused all of Wall Street to wonder which company would be next.
The immediate focus was on Starwood Hotels & Resorts Worldwide (HOT, news, msgs), up 7.9% to $74.55. The chain owns the Westin, W, Sheraton and Le Meridien chains. Also pushing higher were Host Hotels and & Resorts (HST, news, msgs), up 9.1% to $26; and Marriott International (MAR, news, msgs), up 7% to $47.57.
- Video: Blackstone gobbles up Hilton
A big reason for the stock price jumps was the premium Blackstone is paying for Hilton -- 32% over Tuesday's close. Robert LaFleur of Susquehanna Financial Group told clients in a research note this morning that hotel stocks are cheap compared with, say, office real estate stocks.
Blackstone is paying 13.5 times earnings before interest, taxes, depreciation and amortization, better known as EBITDA, CNBC's Bob Pisani said. That's much higher what had been the going rate for hotel stocks.
Susquehanna's LaFleur, appearing on CNBC this afternoon, said that formula applied to Starwood could mean the stock could move to perhaps $85.
The stock market and private companies have always valued real estate differently.
For years, in fact, the Rouse Co., the shopping center developer famed for such projects as Fanueil Hall in Boston and New York's South Street Seaport, used to publish two sets of financial statements to show how the valuations differed. One would use generally-accepted accounting rules. The other valued the assets at more current market levels. The reason: The company believed Wall Street undervalued real estate as a general rule, and Rouse wanted investors to have a more realistic picture.
Rouse is now part of General Growth Properties (GGP, news, msgs) in 2004.
Stock Charts (Year)
Hilton Hotels
Starwood Hotels and Resorts Worldwide
Marriott International
The MCSI U.S. REIT Index ($RMZ.X) was up 1.6% this afternoon to 1,041, among the top-performing indexes. The Dow Jones Equity REIT Index ($DJR.X) jump 1.6% to 304.21. Jones Lang LaSalle (JLL, news, msgs), a big real estate advisory firm, was up 2.6% to $118.47. CB Richard Ellis (CBG, news, msgs), the big commercial real estate brokerage company, was up 3.4% to $38.20.
The gains were probably welcome to real estate investors. REITS have been struggling since peaking in the early part of the year.
Even Blackstone got into the act. The master limited partnership's units had tanked last week after going public on June 22. Today, the units were up 3% to $30.63.
Hilton owns the Hilton, Doubletree, Embassy Suites and Homewood Suites chains. Its best-known property is the Waldorf-Astoria Hotel on Park Avenue in New York. In all, Hilton has 2,800 owned or franchised hotels around the world with 476,000 rooms.
But Blackstone already is a big player in the hotel business, owning some 100,000 rooms. So, a deal for Hilton makes a lot of sense.
Its holdings include the LaQuinta chain at the lower end of the price scale and upscale properties such as the Boulders Resort in Arizona, the El Conquistador Resort in Puerto Rico and the Boca Raton Resort and Club in Florida.
Along with U.S. hotel stocks, the Hilton news also pushed up hotel stocks around the world. InterContinental Hotels Group (IHG, news, msgs), owner of the Intercontinental chain, jumped 4% to $26.51 in New York. Orient-Express Hotels (OEH, news, msgs), owner of New Orleans' Windsor Court Hotel, jumped 0.9% to $54.43 in New York.
Service sector improvement
The Institute for Supply Management's index of service sector activity rose to 60.7 in June from 59.7 in May, indicating that nonmanufacturing industries saw slightly faster expansion.The figure was better than expected, fueling market sentiment that the economy is recovering from a slow first quarter.
| Thur. | Tues. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 4.810% | 4.815% | -0.005 | 3.00% | -1.54% |
| 5-year Treasury note yield | 5.049% | 4.948% | 0.101 | 2.29% | 7.40% |
| 10-year Treasury note yield | 5.144% | 5.050% | 0.094 | 2.21% | 9.21% |
| 30-year Treasury bond yield | 5.237% | 5.150% | 0.087 | 2.17% | 8.70% |
| Currencies | |||||
| U.S. Dollar Index | 81.31 | 81.20 | 0.11 | -0.47% | -2.54% |
| British pound in dollars | $2.0129 | $2.0169 | -0.0041 | 0.08% | 2.72% |
| Dollar in British pounds | £0.4968 | £0.4958 | 0.0010 | -0.08% | -2.65% |
| Euro in dollars | 1.3607 | 1.3620 | -0.0013 | 0.39% | 3.09% |
| Dollar in euros | € 0.7349 | € 0.7342 | 0.0007 | -0.39% | -3.00% |
| Dollar in yen | ¥122.90 | ¥122.59 | 0.31 | -0.02% | 3.26% |
| Commodities | |||||
| Gold | $650.60 | $655.40 | -$4.80 | -0.05% | 1.97% |
| Copper | $3.5900 | $3.5450 | $0.04 | 4.04% | 25.04% |
| Silver | $12.5800 | $12.6850 | -$0.11 | 0.86% | -2.74% |
| Crude oil (NYMEX) (per barrel) | $71.81 | $71.41 | $0.40 | 1.60% | 17.62% |
Markets closed Wednesday for July Fourth holiday. |
A battle for Barneys
In other merger buzz, clothing retailer Jones Apparel Group (JNY, news, msgs) said today that Japan's Fast Retailing has offered $900 million in cash for the company's upscale Barneys New York unit, rivaling an earlier offer from a Dubai investment group, Istithmar.Jones shares were up 0.7% to $28.60. The company had agreed on June 22 to sell Barneys to Istithmar for $825 million.
That offer was more than double what Jones paid in December 2004 for its first foray into luxury brands. The deal had been expected to close during the third quarter of 2007.
Jones Apparel said it will start talks with Fast Retailing. If Jones terminates its agreement with Istithmar before July 22, it will pay a fee of $20.6 million -- or $22.7 million if the deal is ended later.
More deal action
There was other merger and buyout action likely to move the markets today.Luggage maker Samsonite (SAMC, news, msgs) said today that it has agreed to be acquired by funds affiliated with private-equity company CVC Capital Partners for $1.49 per share, or about $1.11 billion. With debt, the deal is worth about $1.7 billion.
The price is a 12% premium from the company's Tuesday close. Samsonite shares were up 8.3% to $1.44.
In other action:
- Buyout specialist Wasserstein & Co. said today that it will sell ALM, the publisher of such legal journals as The American Lawyer, to Incisive Media for $630 million. The deal is expected to close in the third quarter.
- Chemical company Huntsman (HUN, news, msgs) said today that a private-equity firm had made a cash buyout offer of about $6 billion, trumping last week's bid from a Dutch company. The stock jumped 12.5% to $27.46.
- A Coca-Cola (KO, news, msgs) spokesman said Wednesday that the company is looking into buying Cadbury Schweppes' (CSG, news, msgs) Snapple iced tea brand or building its own tea brand. Investor reviews were negative. Cadbury's shares fell slightly to $53.77; Coke was down 0.5% to $52.67.
By Charley Blaine with wires
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