Insurers Anthem, WellPoint to merge in $16 billion deal

NEW YORK -- A burst of merger activity sent stocks higher Monday, as Bank of America Corp.'s proposed purchase of FleetBoston Financial Corp. and Anthem Inc.'s plan to buy rival WellPoint Health Networks Inc. signaled a growing confidence in the nation's business climate.\nThemultibillion-dollar acquisitions as well as generally positive third-quarter earnings news "should help buoy investors' sentiment," said John C. Forelli, portfolio manager for Independence Investment LLC in Boston.\n"It's sort of merger mania today," Forelli said. "My guess is once investors look at this, they'll become more optimistic that there will be some more merger activity in corporate America."\nThe Dow Jones industrial average closed up 25.70, or 0.3 percent, at 9,608.16, after falling 1.4 percent last week.\nThe broader market also advanced. The Nasdaq composite index rose 17.32, or 0.9 percent, to close at 1,882.91, following a weekly decline of 2.5 percent. The Standard & Poor's 500 index closed up 2.22, or 0.2 percent, at 1,031.13, having shed 1.7 percent the previous week.\nThere was also positive news out of Washington. A Department of Commerce report showed a dip in new home sales last month, but the level of sales was stronger than forecasted -- a sign that the housing market continues to help spur the economic recovery.\nAlthough stocks advanced, analysts said investors were still somewhat cautious after selling heavily last week on less-than-stellar quarterly earnings. Most companies either met or beat Wall Street expectations, but failed to justify the high share prices investors set this month in anticipation of strong profits.\nBut investors followed a long market tradition of rallying on merger news.\n"It feels good, there's a merger and the market's higher," said Matt Kelmon, president and portfolio manager of the Kelmoore Strategy Funds, who said he was paying particular attention to large financial services companies. "Things are looking better on the horizon."\nBank of America announced plans to buy FleetBoston in a $47 billion deal that will create one of the world's biggest banking companies and the nation's largest consumer bank.\nThe news sent FleetBoston soaring $7.40, or 23.3 percent, to close at $39.20, but Bank of America lost $8.29, or 10.1 percent, to close at $73.57, as some analysts questioned the price of the deal.\n"They've paid a lot for a franchise that has a lot of issues yet to wrestle through," said Tim Leach, chief investment officer for Wells Fargo's Private Client Services. "In general, I think Fleet is a second-tier operation that needs a fair amount of work."\nHealth insurer Anthem said it would buy larger rival WellPoint Health Networks for about $16.4 billion in cash and stock. The deal combines the nation's two largest Blue Cross Blue Shield concerns. WellPoint closed up up $7.16, or 8.5 percent, at $91.09, while Anthem lost $6.21, or 8 percent, to close at $71.05.\nAlso in the health services sector, managed care company UnitedHealth Group agreed to buy Mid-Atlantic Medical Services Inc. in a $2.95 billion deal that would give the combined company a leading position in the mid-Atlantic region. Mid-Atlantic Medical rose $5.74, or 10.7 percent, to close at $59.62, while UnitedHealth fell $1.85, or 3.4 percent, to $52.40.\nProcter & Gamble Co. said its first-quarter earnings rose 20 percent, beating analysts' estimates by a penny a share, as sales surged in all of company's segments. The maker of Tide detergent, Pampers diapers and Clairol hair care products gained 74 cents, to close at $96.80.\nThose results offset a disappointing report from International Paper Co., which saw a 16 percent drop in third-quarter earnings on weakening demand and rising costs for energy and wood. The world's largest paper company missed estimates by a penny a share, and fell 44 cents, to close at $38.00.\nFinancial services company American Express Co. said third-quarter profits beat analyst expectations, jumping 12 percent as consumers boosted their credit card spending and credit quality improved. It declined 87 cents, to $46.75.\nAdvancers outnumbered decliners about 2 to 1 on the New York Stock Exchange. Volume was moderate, with 1.35 billion shares traded, compared with 1.73 billion at the same point Friday.\nThe Russell 2000 index, which tracks smaller company stocks, rose 8.92, or 1.8 percent, to close at 515.35\nOverseas, Japan's Nikkei stock average finished 1.2 percent higher Monday. In Europe, France's CAC-40 advanced 1.2 percent, Britain's FTSE 100 rose 0.3 percent and Germany's DAX index gained 1.9 percent.