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Market Update

S&P 500 Drops 1%, Heinz Kicks Off Consolidation in Food Industry

Author: Nichole Harper
Last Update: 2:26 PM ET March 25 2015

2:20 PM New York – Market indexes on Wall Street dropped more than 1% after durable goods orders declined in February largely because of weakening exports on higher dollar. Heinz kicked-off long awaited consolidation in food industry with the purchase of Kraft at 27% premium.

Stocks on Wall Street sold off sharply after the latest durable goods report showed the weakening impact of the rising dollar and the cuts in capital spending in the oil patch.

Durable goods orders in February declined 1.4% to $231.3 billion and orders excluding transportation decreased 0.4% and defense dropped 1%, the Department of Commerce said today.

Orders fell from the 2% increase in January that was lowered from the previous estimate.

On Wall Street trading, Tollbooth Strategy Index declined 1.1% or 121.61 to 10,477.70.

S&P 500 index dropped 18.78 or 0.9% to 2,072.75 and the Nasdaq Composite Index slumped 84.36 or 1.7% to 4,910.96.

Crude oil gained 98 cents a barrel to $48.49 and gold climbed $5.50 to $1,196.90 an ounce.

U.S. Movers

Kraft Foods Group Inc (KRFT) surged 38.2% or $23.02 to $84.48 after the packaged food and beverage maker agreed to merge with H.J. Heinz Co.

The merged company will be called The Kraft Heinz Co.

The merger was financed with $10 billion by Brazil-based private equity firm 3G Capital Partners and Warren Buffett controlled Berkshire Hathaway.

The deal did not involve any bankers as the merger did not require any debt or financing from banks.

Under the terms, Kraft shareholders will control 49% in the combined company and a special cash dividend of $16.50 per share and valued the company at $48 billion.

The deal is expected to close in the second-half of this year.

European Markets

In London trading, FTSE 100 index slid 0.1% or 7.63 to 7,012.05 and in Frankfurt the DAX index slipped 0.5% or 57.87 to 11,947.82.

In Paris, CAC 40 index decreased 0.8% or 41.65 to 5,046.63.

Airbus Group NV dropped 2.1% to €59.02 after the France-based aerospace and defense systems maker plans to sell 17.5% stake in Dassaut Aviation as the larger company plans to lower its stake in the company.

Airbus had earlier announced to sell 15% stake in the fighter jet maker and after the sale its stake in Dassault will decline to 24.5% from 42%.

French government said it would not exercise its right for first refusal for the deal as the two companies have been working for months for the sale.

Dassault said it would acquire as much as 5% stake or 460,000 shares from Airbus for 980 per share. Dassault share closed at 1,240 on Tuesday before placed on hold and institutional investors are willing to pay up to €980 per share.

The placement is expected to close on March 26 and Airbus is expected to raise €1.57 billion.

Asian Markets

Nikkei index trimmed losses of the day after investors remained focused on dividend expiry on Thursday. Nikkei is likely to surpass 20,000 mark as long term investors remain in accumulation phase as wage gains spread across the economy.

Stocks in Tokyo closed higher and the yen held firm after investors focused on domestic economic news and long term investors hoped that the rising wages for consumers and earnings for corporations will support higher market indexes.

The widely followed Nikkei index trimmed the losses of the day after investors remained in the buy-mode ahead of dividend expiry on Thursday.

In addition, long term investors continue to add exposure to Japanese stocks as the Nikkei approaches 20,000 on the hopes that the recent rise in wages at large exporting companies will support consumer spending, supporting the inflation goal targeted by the government and the central bank.

Japan’s producer prices in February climbed 3.3% from a year ago month, the Bank of Japan said.

The Nikkei 225 Stock Average gained 32.75 or 0.2% to 19,746.20 and the broader Topix index rose 4.42 to 1,592.01.

The yen closed at 119.66 against a dollar.

Stocks on Dalal Street declined for the sixth day in a row after public sector companies led the decliners.

Sun Pharmaceuticals finalized its purchase of smaller rival Ranbaxy Laboratories and the founder and Managing Director Dilip Shanghavi said that the company still has appetite to make large acquisition.

For every Ranbaxy share held, 0.8 share of Sun Pharmaceuticals share was exchanged.

Shanghavi told reporters in Mumbai that the merged companies’ primary focus will be to win the confidence of regulatory agencies in India and in the U.S.A. and he is planning to expand research capabilities and not eliminate jobs.

Shaghavi added that the recent $290 million investment in Suzlon to acquire 23% stake in the wind turbine maker is only for financial purpose and he has no interest in operating the company.

Rupee weakened 7 paisa 62.32 against one dollar.

The Sensex Index fell 49.89 to close at 28,111.83. The CNX Nifty slid 12.15 to 8,530.80.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc