By Alex Planes, The Motley Fool
Filed under: Investing
On this day in economic and business history …
The Dow Jones Industrial Average closed over 9,000 points for the first time in its history on April 6, 1998. The 9,033.23 close was reached largely on news of a merger between Citicorp — now Citigroup — and Dow component Travelers , the largest corporate tie-up in history to that time, defying the weakness in other, broader indexes. Travelers soared 21% on news of the deal, and non-component Citi rose 16%. The divergence between the Dow and other indexes prompted Charles Pradilla of Cowen to tell The New York Times that “this market is probably a little ahead of itself.”
It was a big year for big deals in 1998. At that point in the year, more than 2,500 deals worth more than $316 billion had already been announced, a 50% increase over 1997’s total for the comparable period. Stock-based transactions in an environment of ballooning stock prices surely helped to drive the year-over-year growth in deal value. The path to 9,000 also saw divergence in the Dow’s components — nine components, primarily heavy-industry and commodity stocks, were lower when the index reached 9,000 than they had been at Dow 8,000. This was offset by big gains of at least 30% in eight other Dow stocks, during that period. This group included all of the Dow’s financially focused components, including Travelers, American Express, and JPMorgan Chase .
The Citi deal, however, was far and away the largest of the year’s deals to date. Announced at a value of $70 billion, the stock-based merger swelled to $84 million during the day as investors bid up shares of the two companies, anticipating a clear path through regulatory hurdles that at that point would have made such a deal technically illegal. The Gramm-Leach-Bliley act had yet to be proposed, and a similar Glass-Steagall-destroying effort had died in the House of Representatives not a week before the deal was proposed. To become Citigroup, with an estimated $50 billion in revenue, $700 billion in assets, and $140 billion in market cap, the two companies would have to work hard to undo decades of regulatory precedent. Victory would have gained the new company top ranking among the world’s largest financial-services companies. Ultimately, they succeeded, ushering in a new era of financial consolidation — but talk of records would fade as the dot-com bubble produced ever more outlandish merger valuations, culminating in the disastrous AOL and Time Warner tie-up that wound up destroying the vast majority of its shareholders’ wealth after the bubble popped.
One man’s junk …
Drexel Burnham Lambert created the junk bond in 1977, and it found great success when offered for the first time on April 6, 1977. Drexel’s rise and fall would become the stuff of Wall Street legend (you can read more on its collapse by clicking …read more
Source: FULL ARTICLE at DailyFinance
