The prospect of a failed merger between General Electric (GE) and Honeywell International rattled investors on Wall Street yesterday, with heavy losses in early afternoon trading, and market worries compounded by a flurry of corporate profit warnings.
The Dow Jones industrial average dropped 181.49 to 10,690.13, while the tech-heavy Nasdaq Composite Index lost 77.58 to close at 2,044.08.
The merger of GE and Honeywell was designed to create one of the world's largest industrial companies. GE dominates the market for aircraft engines and servicing, while Honeywell is the predominant supplier of aircraft electronics for commercial jets and air traffic control systems.
The two companies, both listed on the 30-member Dow, proposed divestitures worth $2.2 billion (€2.6 billion) to win European Commission approval for their planned merger, but were not optimistic that the proposal would be accepted by the midnight deadline last night. Though they are both US companies, the EU has jurisdiction over mergers when the parties involved exceed a sales threshold in European markets. The US and Canada have already approved the terms of the proposed merger.
Honeywell accounted for over a fifth of the blue-chip index's loss yesterday, as it fell $4.81 to $37.45 by mid-afternoon, while GE rose $1.50 to $49.35.
Elsewhere, companies ranging from H.J. Heinz to electronic parts maker CTS warned yesterday that results would not meet Wall Street estimates. There was also a disappointing follow through to the market debut on Wednesday of food giant Kraft Foods. Kraft fell $1.03 to $30.22, below its initial public offering price of $31 a share.
So far this quarter, 65 per cent of a total of about 743 profit forecasts have been negative, according to Thomson Financial/First Call. This time a year ago, about 50 per cent of 173 earnings' outlooks were warnings, the research firm said.
The four-week moving average of jobless claims in the US rose to 424,500, the highest level in almost nine years.
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