Calpine ends spree; Vonage adds; Delta when-issued seen coming; Flow dives off; Ceridian slides

By Ronda Fears

Memphis, April 24 - Outside of a handful of deals announced Tuesday, traders observed players taking profits in names where there has been long-standing takeover speculation without a deal materializing and putting some money where the rumors are fresher.

In that vein, one trader mentioned exits at Home Depot Inc., although the stock ended slightly higher, with many pocketing a nice "bit of change," as the stock ran up from around $37 last December when private equity takeover rumors began to $42. The stock (NYSE: HD) on Monday added a dime to settle at $39.31.

Profit taking also put an end to the "monster" run in the stock of bankrupt independent power producer Calpine Corp., but one trader said he expects the stock might plateau at current levels until there is more visibility on the company's reorganization plan, which the market expects imminently.

Delta Air Lines Inc. is set to come out of bankruptcy on April 30, but the new common stock, which is being distributed only to pre-bankruptcy creditors, is expected to start trading on a when-issued basis Wednesday, according to one distressed equity trader. He said the stock is expected to debut on the New York Stock Exchange on May 1.

In buyouts, Myers Industries Inc. jumped to near the $22.50 per share all-cash price by GS Capital Partners. One observer said the stock held back as players are uncertain if the Akron, Ohio-rubber and plastics company can lure a bigger offer than the $1.07 billion - which includes $276 million of debt - in the go-shop period over the next 45 days. He said the 4.6% premium to Monday's price was not a sign of heavy interest in the company. Myers shares (NYSE: MYE) rose 92 cents on the day, or 4.28%, to $22.43.

Symbion Inc. also has a go-shop provision in its pact to be acquired by a Crestview Partners affiliate for $22.35 per share in cash, but a trader said that there is some optimism that the Nashville medical practitioner firm could generate considerable interest from a rival bidder. The stock (Nasdaq: SMBI) added $3.33, or 17.5%, to settle at $22.36. The $627 million transaction came at a 17.4% premium to Monday's market. The merger agreement allows Symbion until May 25 to actively solicit other possible bids.

Calpine climb too enticing

Clamor that Calpine is close to some sort of deal continues to gain steam, traders said Tuesday, but the stock reached a point that was just "too irresistible" to one seller. Another trader called the stock, which hit $4.15 intraday, "a monster."

For months, the market has been anticipating news of a private equity buyout or sponsor for an equity rights offering to emerge as Calpine nears its exit from bankruptcy. In recent weeks, there has been chatter that a General Electric Co. affiliate might be in the bidding, or peer power producer AES Corp. with backing from private equity firm The Carlyle Group.

Visibility hasn't improved any on the story, but the trading pattern has been steadily higher and on Tuesday one player "jumped ship," tumbling the stock into a negative close, a distressed equity trader said.

Calpine (Pink Sheets: CPNLQ) hit $4.15 during the session but came off that amid heavy volume in the afternoon to close with a loss of 5 cents, or 1.33%, at $3.70; it had dipped to $3.60 intraday.

"There was a big seller in the afternoon. Volume was high all day but it went from around 15 million shares at noon to close at like 29 million," the trader remarked.

A buyside market source, who said he was a seller Tuesday and had been waiting for the "peak" for the past 10 days, observed, "Over 30% of the float has traded in the last 10 days. The market cap is up over $2 billion. For stock that has some chance of being worth zero on the intermediate term, that is crazy. Mr. Risk has been thrown to the side of the road."

He speculated that the string of recent gains were short covering, and once the stock hit the $4 mark, the sellers started rolling in, and that put an end to the advance.

The distressed trader said, however, that he doesn't expect the bottom to fall out "until or unless all the speculation about a buyout or equity distribution in a rights offering evaporate. If that happens, then look out below."

He added, however, that he sees the upper threshold on the stock at $3.75 to $3.80 until the plan details are revealed.

San Jose, Calif.-based Calpine, which filed bankruptcy in late 2005, has until June to file a reorganization plan but has said it anticipates filing it before the deadline.

Flow falls on Third Point offer

Flow International Corp. took a surprising dive Tuesday after shareholder Third Point LLC, which has repeatedly asked the board to put the company on the auction block, said it is prepared to launch a bid to take the company private. The decline, observers and traders said, was because of so much uncertainty about such a deal.

Third Point has declared a 13.6% stake in the Kent, Wash., water pump maker.

On anxiety that such a deal with Third Point might face a conflict of interest hurdle, one trader said the stock was coming under pressure. But he said there are some estimates that it should be worth $15 to $17 per share in a takeout scenario, given the premiums private equity has been paying of late.

Flow shares (Nasdaq: FLOW) on Tuesday fell 73 cents, or 6.04%, to $11.35.

Third Point first called for the board to consider a sale on Feb. 2, following the announced retirement of chief executive Stephen Light, and again on April 4.

Then, on Monday, Third Point chief executive Daniel Loeb in a letter to the board asked that Light be allowed to work with Third Point to develop a plan to take the company private and develop a valuation for the bid.

That should resolve conflict of interest concerns, said McAdams Wright Ragen analyst Sid Parakh, but there still is uncertainty about whether Light is interested and whether the board will agree. He has pegged Flow worth $15 to $16 per share in a buyout.

Ceridian players opting out

The market is eager for news on Ceridian Corp. and shareholder moves to force the company to spin off its Comdata division, but there have not even been any rumblings recently on the company's efforts to raise bids to buy the entire company. Thus, the stock was under pressure Tuesday.

Ceridian (NYSE: CEN) slipped 26 cents, or 0.75%, to $34.53.

"They've been looking for a buyer now for nearly two months; some people are ready to walk away," one trader remarked, noting rumors that private equity firms Bain Capital and Blackstone Group were making a bid from a month ago have fizzled out with no offers.

Two weeks ago, Relational Investors, an activist investment firm that had been clamoring for changes, abruptly sold all its shares in the Minneapolis business services company. The trader said the stock has been "holding its own, but everyone is getting restless."

Pershing Square Capital Management, with a 14.3% stake, has been another campaigner for changes, such as spinning off Ceridian's Comdata division; Pershing Square also wants to replace the Ceridian board.

Ceridian's main human resources outsourcing division offers payroll, benefits administration and other services to companies. Comdata offers payment processing and is an issuer of credit cards and debit cards.

Despite the stockholder pressure to spin off Comdata, in February Ceridian said it had hired investment bank Greenhill & Co. to explore a broad range of strategic alternatives, including a sale of the entire company.

Vonage players pocket profits

Internet phone carrier Vonage Holdings Corp. won a respite Tuesday from the devastating loss in the patent dispute with Verizon Communications Inc., but traders said there was considerable profit taking on the day's spike.

Vonage shares (NYSE: VG) spiked to $4.43 before selling brought the stock down to close at $3.72 for a gain of 83 cents, or 28.72%. The stock was halted for part of the session.

The U.S. Court of Appeals on Tuesday granted Vonage's motion to stay a trial judge's injunction, enabling it to keep signing up new customers while still using the disputed technology until the appeal is decided. Last month, Vonage was ordered to pay $58 million plus royalties on future sales to Verizon for violating three Verizon patents.

Vonage warned last week it could face bankruptcy over the situation.

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