A. Schulman plans more deals; Comcast faces legal scrutiny; latest Freewest bid likely to stick

By Cristal Cody

Tupelo, Miss., Dec. 3 - A. Schulman, Inc. executives hinted at more deals to come on Thursday after the company released details of its plans to acquire ICO, Inc. for $105 million in cash and 5.1 million shares in a deal valued at $191.4 million.

Meanwhile, Comcast Corp. and General Electric Co. at long last announced their plans for the heavyweight media joint venture, with Comcast holding the majority stake.

Also on Thursday, Cliffs Natural Resources Inc. increased its stock bid for Montreal-based Freewest Resources Canada Inc. to C$211 million, an offer that should end the rival bidding from Noront Resources Ltd., an analyst told Prospect News.

Meanwhile, stocks slipped on Thursday.

The Dow Jones Industrial Average fell 86.53 points, or 0.83%, to close at 10,366.15.

The Standard & Poor's 500 index dipped 9.32 points, or 0.84%, to 1,099.92, and the Nasdaq Composite index lost 11.89 points, or 0.54%, to close at 2,173.14.

A. Schulman plans more growth

Under the agreement with A. Schulman, ICO shareholders will receive $6.79 a share, which includes $3.67 in cash and $3.12 in A. Schulman stock.

The transaction requires approval by ICO shareholders and regulatory clearances.

The deal, which includes a 3.5% breakup fee, is expected to close in the spring.

Dmitry Silversteyn, an analyst with Longbow Research LLC, told Prospect News on Thursday that the merger has no regulatory concerns.

"The deal is more complementary than overlapping in terms of geography and product lines," he said. "Strategically, it looks like a good deal. Clearly, there's some execution risk that's always adherent in a transaction of this size and in trying to merge two different cultures."

In fact, in a conference call with analysts on Thursday, A. John Knapp Jr., president and chief executive officer of ICO, said the deal was "bittersweet."

Houston-based ICO first entered into deal discussions with A. Schulman in spring earlier this year, he said.

"We have explored our future both as an independent company and in combination with Schulman," Knapp said. "We are giving up our independence to join a larger organization. It will be a different environment. In the end, our board and management's opinion is the terms [are] compelling. The cost of capital for small firms has risen over the past year, and I'm not sure that's going to change."

ICO manufactures specialty resins and concentrates that are used to make products that include plastic bags, films, toys and water tanks.

Akron, Ohio-based A. Schulman is a leading supplier of plastic compounds and resins with 16 manufacturing facilities in North America, Europe and Asia.

In a separate conference call Thursday afternoon, A. Schulman chairman, president and CEO Joseph M. Gingo said he expects the company to seek additional transactions.

A. Schulman's chief financial officer, Paul DeSantas, added, "Acquisitions are one of our key growth strategies. Our acquisition of ICO fits right into our strategy."

ICO shares soared to a new annual high of $6.67 on Thursday before shares settled up $2.08, or 46.22%, at $6.58.

A. Schulman's stock slipped 21 cents, or 1.24%, to $16.74 on Thursday.

Comcast casts large shadow

NBC Universal, which currently is 80% owned by General Electric and 20% owned by Vivendi SA, now will be controlled by Philadelphia-based cable network operator Comcast. Under the joint venture, Comcast will hold a 51% stake and GE will control 49% of the venture.

The transaction values NBC Universal at $30 billion.

Under the deal's terms, NBC Universal will borrow $9.1 billion and distribute the cash to GE, which then will acquire Vivendi's 20% interest in NBC Universal for $5.8 billion.

Fairfield, Conn.-based GE said it will purchase 38% of Vivendi's interest for $2 billion in September 2010 if the transaction has not closed and the remaining 62% of outstanding shares for $3.8 billion from the Paris-based communications and entertainment company when the deal closes.

In turn, Comcast will pay GE $6.5 billion in cash subject to adjustments.

"This transaction will generate approximately $8 billion of cash at closing with an expected small after-tax gain," GE chairman and CEO Jeff Immelt said in a statement. "We have many opportunities to invest in our high-technology infrastructure businesses at attractive returns."

Market observers expect the deal to face heavy regulatory scrutiny because it includes NBC Universal's various stations and businesses and Comcast's cable networks, regional sports networks and digital properties.

The transaction must receive antitrust clearances, including from the Federal Communications Commission and under the Hart-Scott-Rodino Antitrust Improvements Act.

Comcast shares rose 97 cents, or 6.49%, to $15.91 on Thursday.

GE shares fell 7 cents, or 0.44%, to $16.00.

Vivendi's stock fell 1.09% to €20.01.

Cliffs wins with deep pockets

Cliffs' revised all-stock offer announced Thursday values each Freewest share at 90 Canadian cents.

On Monday, Toronto-based Noront, which mines for nickel-copper-platinum-palladium, chromite, gold and vanadium in an area known as the Ring of Fire in Ontario, Canada, raised its stock offer for Montreal-based Freewest to 86 Canadian cents a share.

Noront said the offer of two shares for every seven Freewest shares and a five-year purchase warrant with a strike price of C$4.00 was its final bid.

The future of Freewest, which holds chromite deposits in the Ring of Fire area, had been up in the air since Noront made an initial C$90 million takeover proposal in October.

Chromite is a key component in the production of steel.

Cleveland-based Cliffs is North America's largest producer of iron ore pellets for the steel industry.

Noront did not have a statement on Thursday regarding the deal, but it released an update of the company's development plans for its chromite and other mineral deposits in the Ring of Fire region.

Freewest said in a statement Thursday that it intends to hold a shareholders meeting on Jan. 15 to vote on the transaction with Cliffs. The acquisition is expected to close soon after the meeting.

David Macgregor, an analyst with Longbow Research LLC, told Prospect News on Thursday that it wouldn't make sense for Noront to keep bidding.

"Cliffs has much deeper pockets and provides shareholders with a more liquid stock than Noront shares," Macgregor said. "Long term, it's going to require more capital and has the potential to become a very valuable addition to the business."

Since the transaction is a pure development play with the first revenues not expected until 2015, Cliffs likely will not back away from other deals in the months ahead, he said.

"They issued 3 million shares out of 10 million, so it's pretty small," Macgregor said. The deal is "not going to prevent [other acquisitions]."

Freewest shares rose 3.53% to 88 Canadian cents on Thursday.

Shares of Cliffs closed down $1.80, or 3.92%, at $44.15.

Noront's stock gained 17 Canadian cents, or 7.49%, to close at C$2.44.

Mentioned in this article:

A. Schulman, Inc. Nasdaq: SHLM

Cliffs Natural Resources Inc. NYSE: CLF

Comcast Corp. Nasdaq: CMCSA

Freewest Resources Canada Inc. TSX Venture: FWR

General Electric Co. NYSE: GE

ICO, Inc. Nasdaq: ICOC

Noront Resources Ltd. TSX Venture: NOT

United Technologies Corp. NYSE: UTX

Vivendi SA Paris: VIV

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