Wall Street boosted by M&A activity

VF Corporation to buy Timberland in $2bn cash deal

M&A activity in the retail, financial and industrial sectors helped Wall Street kick off the week in positive territory after six consecutive weeks of losses, but the gains were limited by sharp losses in the energy sector.

VF Corporation, the apparel retailer that owns North Face and Nautica, was up 10 per cent to $101.01 after announcing it would buy Timberland, the footwear company, in a $2bn cash deal that it said would expand its outdoor and sports brands.

Timberland jumped 44.1 per cent to $43.20 on the news, although it is still down 4.4 per cent since the start of May.

In other deal news, Allied World Assurance Company Holdings agreed to buy Transatlantic Holdings for $3.2bn in stock, creating a speciality insurer and reinsurer. Shares in Transatlantic, which was once controlled by American International Group, were up 9.5 per cent to $48.19 while Allied World Assurance fell 4.5 per cent to $55.44.

This deal helped lift sentiment in the financial sector, which was the best performing in the session.

Citigroup was up 3.3 per cent to $39.17 while Wells Fargo added 2.4 per cent to $26.90. The S&P financial index was up 1 per cent, paring some of the sharp losses seen during the month.

The gains helped the S&P 500 into positive territory, with many bulls hoping the string of losses might be coming to an end.

Gains were limited, however, by losses in energy and material stocks as commodity prices softened, meaning the index was up only 0.1 per cent to 1,271.84

In the materials sector Freeport-McMoRan, the largest copper miner in the world by market capitalisation, was down 1.2 per cent to $48.33 while Titanium Metals declined 1.7 per cent to $16.66. The sector lost 0.6 per cent.

But the biggest drag on the index were energy stocks as oil prices lost ground. Chesapeake Energy fell 3.1 per cent to $28.32 while Cameron International was down 2.2 per cent to $43.78.

The S&P energy index was down 1.4 per cent, adding to the 4.7 per cent losses seen earlier this month.

This left the Dow Jones Industrial Average just fractionally higher at 11,952.97, preventing the index from reclaiming the 12,000 mark that it lost after sharp retreats last week.

The Nasdaq Composite was unable to claw itself back into positive territory for the year, dropping another 0.2 per cent to 2,639.69.

Last week, the markets saw their sixth week of declines. Many investors have been moving out of equities in the past month and a half while others have been moving into more defensive sectors on weak economic data.

Weekly flow data in the previous session showed that retail and institutional investors withdrew $6.3bn from US equity funds last week, the largest outflow since mid-August, according to EPFR Global.

Since the start of May, the cyclical financial and industrial sectors are down 8.7 per cent and 9.2 per cent respectively, while healthcare and utilities are down only 0.8 per cent and 1.2 per cent.

“A variety of factors from home prices to recent stock price weakness and modest employment growth suggest that a somewhat more defensive posture may be appropriate,” said analysts at Citigroup.

But after the 6.7 per cent losses on the S&P 500 in the past six weeks, some are now starting to argue that the selling might have been overdone. “While the soft patch of economic activity appears to be at an early stage, it looks as if markets have moved significantly to price this in,” said David Shairp of JPMorgan Asset Management. “Stocks have become significantly oversold versus bonds,” he added.

In other deal news from the session, Wendy’s/Arby’s Group was up 0.9 per cent to $4.56 after announcing that it would sell its Arby’s unit to Roark Capital Group, a private equity firm, for $430m.

Honeywell International, the industrial conglomerate, agreed to buy the mobile-computer maker EMS Technologies for about $491m, sending shares in the target up 32.3 per cent to $32.80. Honeywell added 0.3 per cent to $55.71.

Graham Packaging soared 16.8 per cent to $25.63 after the packaging products maker said that it had received an unsolicited buy-out offer from a third party at $25 per share in cash.

Graham had previously agreed in April to a deal with a rival packager, Silgan Holdings.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.