Proposed private equity buy-out lifts TXU

Wall Street stocks were little changed on Monday morning after the announcement of the biggest proposed private equity buy-out in history failed to lift investors’ spirits. 

Recent gains in oil prices on worries about Iran’s nuclear ambitions continued to weigh down the market, offsetting takeover speculation surrounding chemical groups and carmakers.

The two groups are paying roughly $32bn in cash, valuing TXU at $69.25 a share – a 25 per cent premium to the average closing share price over the last 20 days. The buyers will also take on $12bn of existing debt.

The proposed buy-out helped the S&P 500 index edge into positive territory for the first time in four days but the gains were trimmed by midday to leave the index flat at 1,452.10. The Dow Jones Industrial Average was also virtually unchanged at 12,647.40. The technology-led Nasdaq Composite slipped 0.3 per cent to 2,508.19.

In other deal news, rumours of private equity interest in Dow Chemical sent shares in the group 5.2 per cent higher to $45.72.

Traders have been speculating over the possibility of a buy-out for some time but no private equity group has confirmed that it is working on a bid. The deal talk boosted other companies in the sector, with shares in Lyondell Chemical up 4.3 per cent to $33.30.

Meanwhile, Apax Partners and Morgan Stanley Principal Investments agreed to buy Hub International, the Chicago-based insurance brokerage, for $1.7bn. Its shares jumped 14.3 per cent to $39.42.

German carmaker DaimlerChrysler was reported to be considering taking a minority stake in General Motors as payment for a purchase of Chrysler by GM. If a deal were reached, it is expected both companies would benefit from savings, while GM would avoid having to raise capital to fund a purchase. Shares in GM pared early gains to stand 0.5 per cent lower at $34.10.

Merck was raised from “hold” to “buy” and had its price target increased from $45 to $50 by Citigroup, which was impressed by the outlook for the company’s diabetes treatment Januvia. Its shares climbed 4.1 per cent to $44.70.

Citigroup announced the appointment of a new chief financial officer Gary Crittenden, formerly CFO of American Express. Its shares eased 0.6 per cent to $53.47 while shares in American Express fell 1.3 per cent to $57.29 amid wider pressures on financial sector stocks.

The US Food and Drug Administration approved Eli Lilly’s antidepressant Cymbalta for the treatment of generalised anxiety disorder. Its shares were 0.5 per cent higher at $54.50.