Shares fall over 1.7%, Healthscope agrees to private equity takeover: Economy Roundup

The Australian sharemarket has opened over 1.7% lower today after Wall Street stocks plunged 2.5% due to disappointing financial results from a number of groups including investment institutions.

The benchmark S&P/ASX200 index was down 69 points or 1.58% to 4353.1 at 12.10 AEST, while the Australian dollar also dropped this morning to US86c following Friday’s close of US87c.

ANZ shares dropped 1.9% to $22.12, while Commonwealth Bank shares lost 1.6% to $50.53. Telstra shares fell 0.6% to $3.25 as Westpac lost 1.7% to $22.20.

Last week, the Dow Jones Industrial Average dropped 261 points or 2.52% to 10.097 after a number of disappointing financial results were posted, including Google’s. News that University of Michigan’s consumer sentiment index had dropped didn’t help investor confidence.

Meanwhile, Healthscope has agreed to a takeover offer from a consortium which includes private equity groups TPG and Carlyle, in a deal worth $2.7 billion.

The company’s shares have jumped 10% this morning following news of the deal.

“After careful consideration, the Board has unanimously concluded that the consortium’s offer provides shareholders with an excellent opportunity to realise considerable value from their investment in Healthscope,” chairman Linda Nicholls said in a statement.

The deal is conditional on shareholder and court approval, along with a go-ahead from the Foreign Investment Review Board. The deal is the biggest in private equity in Australian since 2007.

Also in the healthcare sector, The Age has reported Sigma Pharmaceuticals has received three bids for its Herron drugs branch, and three bids for its Orphan Australia business, but the company still hopes for a deal from Aspen Pharmacare.

The company is struggling to pay $100 million in debt after it breached loan covenants, and it also cut its profit forecast late last week. Aspen has offered $0.55 per share, but it is hoping for a better deal.

Meanwhile, National Australia Bank and AXA Asia Pacific Holdings have extended an acquisition arrangement until August 31, while regulatory concerns are addressed.

A statement to the ASX reveals NAB has until the end of August to secure approval from the Australian Competition and Consumer Commission.

AXA APH has also said it is pursuing ways to allow the ACCC to pass the deal, which it originally blocked on 19 April due to fears it would stifle competition.

Westpac defends home loans stance

Westpac head of retail banking Rob Coombe has told the Australian Financial Review that the company rejects any accusations from NAB that its focus on home loan lending has affected the national economy.

Coombe said the accusation was “mischievous”.

He references comments made by NAB head of business banking Joseph Healy in a speech last week, during which he said banks are showing some bias to home loans.

“[This] may mean there is less capital to allocate to business, the most productive area of the economy,” Healy said, according to the paper. “This is ultimately bad for growth, bad for competition, bad for jobs, bad for business and in the end bad for Australia.”

The comment comes as GE Capital Australia head Skander Malcolm told Sunday Business that funding is still hard to come by for smaller lenders.

“We’re trying to access capital markets, they are accessing capital markets as well,” said. “Certainly, it’s a lot easier for them because they have a whole lot of deposits on hand,” he said, referring to larger lenders.

He also said the debt problems in Europe have affected the local market by pushing up prices.

“But from our perspective, we’re well funded through this year and into next (year), so we’re pretty comfortable with where we are.

“But for some of the organisations out there trying to raise funds, it’s not exactly a liquid market, so there are certainly challenges still out there.”

Labor leads initial election poll

With the federal election campaign now underway, a Newspoll poll has Labor holding a 10 point lead over the coalition.

Newspoll chief executive Martin O’Shannessy says the poll reveals prime minister Julia Gillard has a solid lead.

“She is entering the election campaign having re-established the base vote for Labor, much as Tony Abbott did for the coalition,” he told Sky News today.

Meanwhile, investors in the US are preparing for a volatile week due to a series of financial reports due and expected downgrades in official economic data. Additionally, confidence is down due to minutes from the Fed’s meeting were published last week, showing a lack of confidence in a sustained recovery.

“It doesn’t mean the market can’t rally, but the structural problems are there and there is no doubt about it,” Themis Trading co-manager of trading Joe Saluzzi told Reuters.