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Stocks End Mostly Higher After Late Rally

Kevin O'Shaughnessy

U.S. Market
Stocks recovered late in the session and finished mostly above the flat line. Much focus was on corporate news today, particularly potential mergers in the health-care sector.

U.S. pending home sales increased 3.4% last month to an index of 97.4. The monthly gain marked the first uptick for the index in nine months, though the year-over-year figure was 7.9% lower. Most of the U.S. regions saw improvement in March sales, but sales fell by 0.8% in the Midwest.

The Dow ended 0.5% higher, and the S&P 500 rose 0.3%. The Nasdaq was flat.

Stocks on the Move
Pfizer (PFE) and AstraZeneca (AZN) have confirmed that merger discussions occurred between them. While Astra rejected Pfizer's January $76.62-per-share bid, saying the offer price was too low, Morningstar analysts believe the deal is likely to occur. Cost-cutting is probably driving this deal. Astra carries a relatively bloated infrastructure, with operating costs 1,100 basis points higher than Pfizer's. We estimate the combined company could easily trim more than 500 basis points off Astra's operating costs by incorporating Pfizer's low-cost operating strategy. Pfizer shares ended 4.2% higher, while Astra's shares jumped more than 12%.

Also making news in the health-care sector was Forest Laboratories' (FRX) $1.1 billion buyout of Furiex Pharmaceuticals (FURX). Forest Labs has a contingent value right, valued at up to $360 million, for Furiex's eluxadoline product, and Forest is selling Furiex's royalties on other products. Forest shares fell 0.4%, while Furiex shares soared more than 28%.

Mylan (MYL) shares fell by 2.7% after Swedish pharmaceutical firm Meda (MDABY) rejected a merger proposal. Meda did not favor the bid, reportedly valued at $4.7 billion, which lacked internal and shareholder support, and the firm said it would prefer to stay a stand-alone entity. Meda's ADR shares sank more than 16%.