EOP, Equity Residential higher; Triad slips; Inyx climbs on deal; Loral improves, Cablevision off

By Ronda Fears

Memphis, Jan. 25 - In round three, the bidding war for Equity Office Properties Trust, the largest domestic office real estate investment trust, heated up Thursday when private equity giant The Blackstone Group raised its offer to buy it to $54 per share. EOP shares zoomed past the latest bid, and traders noted Equity Residential - another interest of real estate mogul Sam Zell - was on the rise.

In another Blackstone deal, drug wholesaler Cardinal Health Inc. said it plans to sell its Pharm Technologies and Services segment to The Blackstone Group for $3.3 billion. Cardinal also announced a deal to buy SpecialtyScripts Pharmacy for an undisclosed price, signaling its intent to expand its efforts in the fast-growing market for specialty drugs. The news also sent Cardinal competitors Amerisource Bergen Corp. and McKesson Corp. higher.

An update from New York-based specialty pharmaceutical Inyx Inc. that "an attractive cash buyout offer" would be presented in February sent that stock higher, but its major lender, W Holding Co. Inc., parent of Westernbank Puerto Rico, did not join the party. W Holding had come under pressure at the first of the year when the company failed to pay off a loan at year-end 2006.

In the broader health care sector, hospitals have been reeling this week on President Bush's new health reform package. Meanwhile, the lack of a deal after at least six months of looking sent players fleeing from Triad Hospitals Inc.

Potential deals in the utility sector, though, are creating "fantastic" interest in those stocks as growing demand for electricity is expected to fuel deals in the sector, according to one trader. Most utility stocks were lower with the broader market Thursday, he said, along with Dominion Resources Inc., which has been shopping its oil and gas assets since November and reportedly has two rival bids in the works and plans to focus on its utility operations. Dominion shares (NYSE: D) slipped 16 cents on the day to $81.88.

Elsewhere, satellite builder and operator Loral Space & Communications Inc. got a boost from winning a $51 million verdict against the Rainbow DBS Holding unit of Cablevision Corp., which was weaker on the news. Loral shares (Nasdaq: LORL) advanced $1.05, or 2.4%, to $44.87, while Cablevision shares (NYSE: CVC) lost 40 cents, or 1.3%, to $30.29.

EOP bid gets no argument

With the bidding for EOP pushing LBO levels to new highs, traders said there was evermore interest in REITs and especially any that Zell is associated with, such as Chicago-based apartment REIT Equity Residential. Zell is on the board of Equity Residential.

As for the new EOP bid, a risk arb trader at a huge hedge fund in New York remarked, "It sort of boggles the mind, but we have no argument with it. Most everyone would've been ecstatic if it got past $50 and then it went past that to $52. Now, you have to wonder how much higher it will go, because we don't think the Vornado group is going to just walk away."

The market is saying the matter isn't likely over, as well, with EOP shares zooming well past the latest bid.

EOP shares (NYSE: EOP) gained $2.20 on the day, or 41.7%, to close at $54.90 and tacked on a little more in after-hours action to $54.98. Meanwhile, Vornado shares (NYSE: VNO) advanced by $1.11, or 0.89%, to $125.76.

The new Blackstone bid is an 11.3% increase from its original bid of $48.50, and tops a rival bid of $52 per share from a group led by peer REIT Vornado Realty Trust and including Cerberus Capital Management, Starwood Capital and Walton Street Capital.

But EOP said it will continue to provide diligence information to the Vornado group so that it can submit a definitive counteroffer, if it chooses, by Jan. 31. Chicago-based EOP said a special shareholder meeting scheduled for Feb. 5 to vote on the merger agreement will proceed as planned, however, and the Blackstone deal could be sealed by Feb. 8.

The EOP bids have been record-setting since they began at $36 billion, and Blackstone's amended offer would take the transaction to $38.3 billion and the largest leveraged buyout in history. It has greatly stimulated interest in REITs, as well.

Equity Residential shares (NYSE: EQR) gained to $55.34 on Thursday before easing back to settle the session better by 26 cents at $54.72. Some 2 million shares traded versus the norm of 1.5 million shares.

Cardinal flies on unit sale

Cardinal Health gained sharply on news that it had found a buyer for its pharmaceutical technologies and services unit, which it put on the auction block in November. Blackstone is buying the unit for $3.3 billion in cash. Also boosting the stock was separate news that the company's net income for the most recent quarter more than doubled due to the previously announced divestiture.

Cardinal shares (NYSE: CAH) gained $2.39, or 3.41%, to $72.42.

Moreover, a trader said the spike in Cardinal was due to the unit garnering significantly more than the $2 billion the company suggested it could bring when it put it up for sale in November.

Meanwhile, the company reported net income rose to $739.3 million, or $1.80 a share, in fiscal third-quarter ended Dec. 31, up from $304 million, or 70 cents, in the year-ago period, with a gain in revenue to $21.78 billion from $19.35 billion. And, the company backed its profit forecast of $3.25 to $3.40 a share for fiscal 2007, excluding the impact of proceeds from the sale of its PTS business. Analysts are currently looking for $3.36 a share in earnings, on average.

The sale is expected close early in Cardinal's fiscal fourth quarter, which ends June 30.

The news also sent competitor drug wholesalers higher, although one trader said the news was more likely to generate buying interest in small pharmaceutical companies because Cardinal plans to use the new money for investments.

On Thursday Cardinal also said it agreed to buy SpecialtyScripts Pharmacy in a move to broaden its specialty pharmaceutical service offerings for drugmakers, for an undisclosed amount. Cardinal chief executive Kerry Clark called the acquisition "relatively small, but strategic," however.

Still, the trader noted that Amerisource Bergen shares (NYSE: ABC) were better by 2% and McKesson shares were higher. He added, though, that McKesson shares (NYSE: MCK) were better by more than 1% in after-hours trade on its earnings.

Inyx sees deal in February

Although there has been such a promise before, New York-based specialty pharma Inyx got a boost Thursday on a new assurance from management that there is an LBO offer in the immediate offing. It was a rather small gain, however, which one trader said was likely due to the deal coming a lot later than the company planned and skepticism about where the offer will shake out at.

Inyx shares (OTCBB: IYXI) gained 3 cents on the day, or 1.33%, to settle at $2.25.

The company said its senior management group, led by chairman and CEO Jack Kachkar and president Steve Handley, has finalized financing to take the company private along with several strategic outside investors.

Kachkar said the buyout group is completing its valuation of Inyx, which will take about three to four weeks to complete, and the group now intends to present "an attractive cash buyout offer" in February.

The Inyx board of directors has a special committee comprised of three independent directors that will evaluate the fairness of the offer.

Inyx also reported that financing has been arranged for its pending £9 million cash acquisition of Pharmapac UK Ltd., one of the leading contract pharmaceutical packaging providers in the United Kingdom. The acquisition is now also expected to be completed in February.

Inyx is a specialty pharmaceutical company operating in the United States, Canada and Europe. It develops and manufactures prescription and over-the-counter pharmaceutical products such as aerosols for dermatological and topical drug applications, metered dose inhalers and dry powdered inhalers used for respiratory ailments, metered dose nasal and throat pumps, and sterile salines and injectables.

W Holding continues to fall

In addition, Inyx said Thursday it has hired "a leading consulting firm" to assist in recapitalizing its balance sheet and in other strategic initiatives. Related to the recapitalization, Inyx said it now intends to pay off a $120 million loan owed Westernbank Puerto Rico by March 31.

W Holding Co. Inc., parent to Westernbank Puerto Rico, did not see a bounce on the news, however. One trader said there was increased risk aversion to small banks outside the United States; another said the reaction in W Holding could just be delayed because the Inyx news was not widely disseminated.

W Holding shares (NYSE: WHI) lost 13 cents on the day, or 2.27%, to $5.60.

"It takes time for folks to put two-and-two together," one trader said. "I had a buyer as result of the news."

W Holding stock has lost roughly 50% of its value since the first of the year on rumors the Inyx loan had gone sour. Inyx had said it would pay off the $120 million loan by year-end, but that was contingent on an LBO deal.

On Thursday, W Holding said is plans to report fourth-quarter and 2006 results on Jan. 30 after the market close.

Triad slips amid selling

It wasn't a big selloff, but Triad Hospitals continued in the red Thursday as one analyst remarked of the company's ongoing discussions with private equity about a possible LBO but to no avail as yet. A trader said the slide underscores the lack of patience with the company's turnaround.

Triad shares (NYSE: TRI) slipped 14 cents, or 0.33%, to $42.30.

Triad Hospital has acknowledged in conference calls for the past two quarters that it continues to speak with members of the private equity community about a possible LBO, in part due to a nudge from activist shareholders. The trader said there had been some hope for Triad's search on the heels of the $1.7 billion going-private transaction earlier this month of nursing home operator Genesis HealthCare Corp., but that soon fizzled.

Gimme Credit analyst Evan Mann said in a report Thursday that Triad equity holders are feeling short-changed, as the company spends more cash than it generates on growth through joint ventures and acquisitions.

"While the likelihood of an LBO is anyone's guess, we don't foresee a significant turnaround in earnings anytime soon," Mann said.

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