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Stocks Pare Early Losses; Vanguard and STEC Skyrocket on Takeovers

Dan Berman
Hot Stock Minute

A bloody beginning to the week on Wall Street was partially averted as the major averages pared steep early losses. The Dow dropped more than 240 points (or 2%) in early trading, fought back to a loss of nearly 60 points by midday, before tripping up and finishing down 139 points. The S&P 500 and Nasdaq each slid 1.2% and 1.1% respectively. The initial plunge in U.S. markets appeared to be precipitated by China. The central bank there issued a statement today saying lenders should not expect it to help stem a perceived credit crunch. The new concerns came as U.S. markets continue to digest the Federal Reserve's latest policy statement, and statements by Ben Bernanke last week that hinted a pullback in bond buying could begin this year. There were no major economic reports out today.

Two of today's few gainers were Tenet Healthcare (THC) and Vanguard Health Systems (VHS). Tenet is acquiring its smaller rival in an effort to expand services and broaden its reach. The price agreed upon is $1.8 billion or $21 a share, which is a 70% premium on Vanguard's closing price on Friday. Vanguard's shares soared 68% on word of the deal. Tenet's shares were up nearly 5%.

Vanguard was bested as the biggest gainer of the day only by hard-drive maker STEC (STEC) which rose 87%, also on news of a takeover. Western Digital (WDC) announced it will buy STEC for $340 million dollars. STEC makes solid state drives which are much faster than standard hard drives, but it has been losing market share to its new owner. The company has also been reeling from an insider trading scandal involving its co-founder and former CEO. Western Digital fell 3% today.

Vodafone (VOD) fared better than the overall market, trading flat on news that it's buying German cable provider Kabul Deutschland. The British-based Vodafone says it will pay more than $10 billion for Kabul. The move positions Vodafone to expand from its core business of cell service into so-called "triple plays" which include cable and internet service. Word of talks between the two companies first surfaced in February.

Ebix (EBIX) continued to fall today. Shares lost roughly half their value last Thursday and Friday after a planned takeover by Goldman Sachs fell through. Goldman cited a government investigation into claims of internal misconduct for backing out of the deal. Ebix says it hasn't done anything illegal.

Gogo (GOGO) shares fell another 9% today, on top of the 6% it lost on Friday when it first began trading publicly. Gogo, which sells wireless internet equipment for airplanes, says it will use the cash from the offering for a global expansion. Shares never rose above their initial price of $17.