Major indexes slumped Tuesday after comments from Federal Reserve officials indicated that an interest rate cut may not happen soon. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^SPX) opened roughly flat but fell through the session, finishing with moderate losses.
Today's stock market
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AbbVie wants to acquire Allergan in the latest pharma megadeal
AbbVie announced it plans to buy Botox maker Allergan in a deal worth $63 billion, but AbbVie investors panned the move, sending its shares down 16.3%. Allergan stock soared 25.4% to $162.43. Under the terms of the agreement, AbbVie will pay $120.30 in cash and 0.866 AbbVie shares for each share of Allergan, representing a whopping 45% premium based on yesterday's closing prices.
Motivating AbbVie to make such an expensive acquisition is the fact that Humira -- the world's top-selling drug, accounting for about 60% of the company's revenue -- will have biosimilar competition in the U.S. beginning in 2023. After the merger, Humira's $19 billion in sales would make up less than 40% of the total. AbbVie believes that it can find $2 billion in annual cost savings and that the combined company, excluding Humira, can generate high-single-digit sales growth.
Allergan has had its own growth challenges lately, with revenue falling 2% last quarter. The transaction is subject to regulatory approval and a vote by Allergan shareholders, who have plenty of reason to be happy with the deal.
Lennar reports a strong quarter, but guidance stirs worries
Homebuilder Lennar reported fiscal second-quarter results that beat expectations, but followed them with weak guidance, and shares fell 6.2%. Revenue grew 1.9% to $5.2 billion and earnings per share increased 38% to $1.30. Analysts were expecting the company to earn $1.14 per share on revenue of $5.1 billion.
Deliveries of homes rose 5% to 12,729 and new orders were up 1% to 14,518 homes. Lennar said more moderate price increases and lower interest rates were leading buyers back into the market after a pause in the second half of 2018.
Lennar shares opened higher but started to fall during the conference call when company officials said that labor and land shortages are adding to costs and that tariffs are adding $500 to the cost of a new home. Furthermore, the company forecast Q3 EPS between $1.25 and $1.35, compared with the analyst consensus of $1.52.
Lennar continues to be optimistic about the housing market, but investor nervousness about a slowdown and a report from the Commerce Department showing weak new home sales in May contributed to the decline in share price.