Reckson, Mack-Cali gain, retreat; Revlon up; Dollar General falls; National Home Health plunges

By Ronda Fears

Memphis, Nov. 29 - Traders were scrambling to unwind positions Wednesday in Dollar General Corp. as rumors of a private equity takeover the day before fizzled with news from the company of a sweeping restructuring that includes a $500 million stock buyback plan, closing 400 new stores and a new president focused on moving the company into a "year of transition" in 2007.

"This is why you play the news, not the rumor," said a risk arb trader in New Jersey who on Tuesday expressed skepticism of any takeover deal and passed on setting it up. "Of course, greed motivates a lot of guys into thinking they have to get in early to make the big bucks. Well, they can also lose big bucks."

Dollar General shares (NYSE: DG) fell $1.01, or 6.04%, to close Wednesday at $15.70 and were seen headed lower in after-hours activity. Some 14.4 million shares traded, compared with 11.5 million shares on Tuesday and the norm of 3.6 million shares.

In addition to risk arbs unwinding, traders said there were plenty of sellers taking profits on the news. The stock has run up about 32% since September when takeover rumors began circulating.

"I see no reason to hold at these levels," said one equity fund manager in Atlanta. "I don't see a buyout coming and this new plan sounds expensive. This should definitely hurt earnings in the near future."

Dollar General named David Bere president and chief operating officer, and in addition to the $500 million stock buyback plan, the company said it would take charges estimated at $138 million related to plans to close 400 stores. The closures will also result in layoffs, and the Goodlettsville, Tenn.-based discount retailer said it planned massive price markdowns.

Winn-Dixie stock zooms 16%

Winn-Dixie Stores Inc., however, extended its rally with the when-issued shares zooming by more than 16% on Wednesday, and although the stock pulled back by 3% in after-hours action, traders said the thinking was very positive on this trade.

"This is one of the most interesting stories in the marketplace right now," said an equity trader. "What with private equity buyout news, you could see where there would be rampant speculation of some big PE firm snapping up a company like Winn-Dixie coming out of bankruptcy where they erased all the bond debt."

The Jacksonville, Fla.-based grocery chain, which emerged bankruptcy last week, plans to distribute roughly 54.5 million new shares per the reorganization plan in three to four weeks, and the stock will trade on the Nasdaq under the symbol "WINN." The company will have authorization for up to 150 million shares of stock, less the stock distributed in the bankruptcy. Meanwhile, the when-issued shares are trading on the Nasdaq under the ticker "WINNV."

Winn-Dixie shares Wednesday soared by $2.03, or 16.75%, to $14.15 with a whopping 3.39 million shares changing hands. That compares to 2.3 million shares traded Tuesday and the running average of 892,550 shares. After-hours, the stock was off 43 cents, or 3%, to $13.73.

"I think we'll see a little profit taking on such a big spike, but its headed north for the most part," the trader said.

Reckson, Mack-Cali retreat

In other after-hours activity, Reckson Associates Realty Corp. and Mack-Cali Realty Corp. were sharply in retreat after having gained ground during the regular session on news that emerged late Tuesday of billionaire Carl Icahn and developer Harry Macklowe adding several more partners, including Mack-Cali to their $4.6 billion bid for Reckson.

"There was a lot of short covering, and then when that died down, you are seeing the true colors of this deal," said a risk arbitrage trader at a hedge fund in New York. "I think a lot of people would like to see a deal, some deal, but the water is getting pretty muddy. The details are supposed to be out there tonight, and I think the after-hours picture tells it all, but I haven't seen anything concrete."

Reckson shares (NYSE: RA) closed up by 49 cents, or 1%, to $49.60 but fell after the close by $1.35, or 2.72%, to $48.25.

Mack-Cali shares (NYSE: CLI) gained 51 cents on the day, or 0.94%, to settle at $54.70 but gave back 18 cents in after-hours action, or 0.33%, with the last trade at $54.52.

"I am hoping Mack-Cali is getting back to basics, i.e. the New York/New Jersey regional market. I sure hope that it's the right move. Under the circumstances one guess is as good as another."

Edison, N.J.-based Mack-Cali and Uniondale, N.Y.-based Reckson compete in the office building space in the New York area. In August, Reckson agreed to a buyout by SL Green Realty Corp. for cash and stock now worth about $4.1 billion. Reckson had criticism over the SL Green proposal, which included the simultaneous sale of $2.1 billion worth of properties to certain senior managers of Reckson and Marathon Asset Management.

Icahn and Macklowe put in its bid two weeks ago.

On the muddied waters referred to by the trader, in a letter dated Wednesday to the Icahn and Macklowe partnership, Reckson lead director Peter Quick said the directors are concerned that they are "making a request to bring on additional partners so late in the process."

Reckson independent directors said they expect to receive the full details of the bid, including capital structure and financing details, by no later than Wednesday. Earlier this week, Reckson postponed for a second time a special shareholder meeting to vote on the SL Green merger because of the competing offer from Icahn and Macklowe.

Revlon plans rights offering

Revlon Inc. shares were lifted sharply Wednesday on news that it plans to launch a $100 million equity offering largely backstopped by majority owner Ronald Perelman, and refinance its existing bank debt. The stock (NYSE: REV) gained 9 cents on the day, or 5.92%, to close at $1.61.

"Ronnie [Perelman] is betting his own money to keep 'his' Revlon afloat," said an equity trader. "It's a good sign, a big sign; to start with, some actual substance. Has Revlon found the bottom? I think so. If so, could be a very good time to buy more."

The moves follow a massive shake-up in September, which included naming a new chief executive officer, discontinuing a new line of cosmetics for mature women and cutting more jobs. The company described the current move as a step toward improving cash flow and strengthening its balance sheet and capital structure.

New York-based Revlon said it would launch a $100 million rights offering in December that would allow holders to buy additional class A common stock. An equity offering had been planned for some time, then deferred as Revlon worked on revitalizing its brands.

Revlon plans to distribute rights to buy shares to its shareholders at the close of business on Dec. 11. Revlon said the subscription price would be determined by a committee of independent directors based on market conditions.

MacAndrews & Forbes, Revlon's parent company owned by financier Perelman, agreed to buy its pro rata share of the $100 million of class A common stock covered by the rights offering. MacAndrews & Forbes will also buy any remaining class A shares offered but not purchased so that the gross proceeds of the rights offering total $75 million.

Meanwhile, the operating unit, Revlon Consumer Products Corp., expects to refinance and replace its existing $800 million term loan with a new $840 million five-year term loan facility. Revlon also expects to amend an existing $160 million multi-currency revolving credit facility and extend its maturity through the same five-year period.

Revlon said that the refinancing would result in annual interest savings due to expected lower interest margins, which will give Revlon greater flexibility and extend the maturity dates of the existing bank credit agreement.

Central Parking short covering

Central Parking Corp. shares gained nearly 4% Wednesday on news from late Tuesday that the company had retained Blackstone Group LP to assist in exploring strategic alternatives, but traders said the rise was on short covering that once executed will likely result in a decline in the stock.

"There was pretty big short interest and those guys are covering," said a risk arbitrage trader. He added, however, that the stock's rise Wednesday was "tempered with a fair amount of uncertainty that they will find a buyer.

"Once the short covering is over, I think this one drops like a rock. The may find buyers for individual properties, but I don't see a sale of the company."

Central Parking shares (NYSE: CPC) gained 64 cents on the day, or 3.68%, to $18.03 with 120,200 shares moved versus the norm of 86,395 shares.

Late Tuesday, Central Parking chief executive Emanuel Eads said in a statement that the alternatives may include a complete or partial sale of the Nashville, Tenn.-based company, a merger, or a decision to take no action.

"If anything, this is probably a real estate play, as they are in some of the biggest, hottest real estate markets in the country. But the window is closing on cashing in on those prospects," said an equity trader.

"They sold some land in Baltimore back in September, I think it was. A 10% compounded price appreciation during a super-hot market isn't one of mythic proportion, but it's better than taking it in the chops. But the announcement is a reminder that there are another 150 or so pieces of real estate that remain unsold, and that the U.S. real estate market is beginning to show signs of slowing. New York, San Francisco and Washington, D.C., may have the longest legs remaining, but how much of Central's portfolio is in those three markets?"

On Sept. 21, Central Parking said it sold a parking lot in downtown Baltimore to a property developer for $25 million, from which it recorded a pretax gain of $8.2 million.

In addition to owning and operating parking lots in 37 domestic states, Central Parking has operations in Canada, South America and Europe. As of Sept. 30, the company said it operates some 3,100 parking facilities worldwide.

National Home Health sinks

National Home Health Care Corp., however, saw an all-out run for the doors, traders said, on news of a buyout by the big New York hedge fund Angelo, Gordon & Co. and Eureka Capital Partners at a discount, rather than premium, to where the stock has been trading.

The stock (NYSE: NHHC) dropped 11 cents on the day, or 0.92%, to $11.50 - where the merger offer stands - with some 20,372 shares traded versus the norm of 1,990 shares.

"Where is our premium? At first glance, it appears the management team has sold out," said a buysider, who holds a big stake in the company. "Down the river we float while they jump with golden parachutes. It's unreal. I mean the dividend is 2.5%; you'd think they would at least pay that much."

After Tuesday's close, when the stock settled at $1.61, the company announced that it had inked a merger agreement with Angelo, Gordon whereby National Home Health shareholders will receive either $11.35 or $11.50 per share, in cash.

Under the agreement, if National Home Health's EBITDA for the four fiscal quarters ending prior to the closing is at least $7.9 million, but less than $8.15 million, the price will be $11.35 per share and if the EBITDA is $8.15 million or more, the price will be $11.50 per share.

Scarsdale, N.Y.-based National Home Health provides home health care and staffing services primarily in the northeast region of the United States.

Frederick H. Fialkow and Bernard Levine, who collectively control 49.4% of the outstanding shares, have agreed to vote their shares in favor of the merger.

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