Wall Street Beat: Online is hot as M&A continues

The sight of e-commerce giants jockeying for position in the Internet arena livened up the week for technology investors, while an IBM Corp. acquisition and disappointing news from chip maker ATI Technologies Inc. pointed to pricing and consolidation trends.

Having rebuffed a takeover bid from rival E-Trade Financial Corp., Ameritrade Holding Corp. said Wednesday night it will buy online brokerage TD Waterhouse, a unit of Toronto-Dominion Bank, in an all-stock deal valued at about US$2.9 billion.

Analysts pointed out that consolidation in the market was inevitable, since online brokers have been steadily cutting prices, and trading through online providers, mainly by indviduals, has tapered off since the height of the Internet bubble.

In fact Ameritrade officials were careful not to rule out additional mergers and acquisitions, keeping open the possibility of an eventual deal with E-Trade, after all. Ameritrade itself has grown through mergers and acquisitions, including its 2002 merger with online pioneer Datek Online Holding Corp.

Ameritrade shares (ticker symbol: AMTD) gained $0.39 to close at $18.26 Thursday. Shares however were up by more than 19 percent for the week, since rumors of the buy had been circulating for several days. E-Trade (ET) also fared well, with shares closing Thursday at $14.10, up $0.35 for the day.

Another acquisition in the news Thursday was IBM's announcement that it had bought privately held middleware company Meiosys Inc., which makes software for server resource allocation. IBM said the deal would strengthen its line of Unix and Linux middleware. IBM shares (IBM) closed at $75.41, down by $1.82, though the decline may have been due mainly to general market conditions, which have been uncertain this week as worries about oil prices resurfaced.

In the chip sector, ATI shares (ATYT) dropped $0.98 to close at $11.80 Thursday after it reported a loss for the quarter ending May 31. ATI said that for the quarter, it lost $400,000 compared to a profit of $49 million a year earlier. The company also reduced expectations for the next quarter, saying it expected revenue of $550 million to $580 million, compared to its earlier forecast of $600 million. One of the main problems recently has been a shift in customer buying patterns to lower-end machines, the company said.

Earlier in the week, Google Inc. showed that it has entered the exclusive circle of tech companies that can move markets on the basis of plans and rumors. On Tuesday, Google confirmed reports that it is developing an online payment system. On Monday, when rumors about the plan were first reported, eBay Inc. shares (EBAY) dropped $0.81 to $37.24, on concerns that the Google service would compete with eBay's PayPal. Google shares (GOOG) gained $6.40, to close at $286.70 Monday.

Earlier this month, Google made history of a sort. Its stock ascended to the point where the company became the most highly valued media company in the world, beating Time Warner Inc. on June 7 as Google shares came pennies shy of $300.00. Some analysts are beginning to say Google stock is overvalued, though most investment advisors polled by Thomson First Call are still calling for a buy of the stock.

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