Biosite buyout lifts diagnostics firms; Rotech rises; Tribune up; Riviera gains; LSI, Agere slump

By Ronda Fears

Memphis, March 26 - Beckman Coulter Inc.'s $1.55 billion buyout of diagnostics firm Biosite Inc. at a whopping 53.5% premium bolstered several other testing firms, such as Nanogen Inc., Medtox Scientific, Inc. and NeuroMetrix Inc., in trade Monday.

A boosted buyout offer for Las Vegas gaming standard Riviera Holding Corp. coming from many of the same group that was voted down last year was generating some bets that the bid might have to get another "kick" over the slim 6% premium offered Monday. The stock went well past the $27 per share offer, but traders noted heavy short covering in the stock as well.

Otherwise, traders said it was a rather sluggish session.

"It just felt heavy today," remarked one trader.

Ongoing ruckuses regarding control of The Tribune Co. and CBOT Holding Co., parent to the Chicago Board of Trade, provided news to give those some attention, but those stories "were not really that sexy," as one risk arbitrage trader put it.

"CBOT could get interesting but the Tribune is toast if you ask me, and the Riviera just isn't a very liquid stock," the trader remarked.

IntercontinentalExchange Inc. named UBS Investment Bank and Societe Generale as co-advisors for its proposal to link up CBOT in a rival bid to the Chicago Mercantile Exchange Holdings Inc. offer accepted in October. CBOT shares (NYES: BOT) lost $2.95, or 2.08%, to end Monday at $186.30. All three stocks were weak Monday, which the trader continued to attribute to risk arb traders holding the price levels in check while waiting for more visibility on how it will play out.

MasterCard Inc. also was taking lumps Monday, which another trader attributed to players "ratcheting it down because of litigation risk." The stock (NYSE: MA) dropped $1.38, or 1.26%, to $108.48. He said there was concern that an antitrust lawsuit MasterCard lost against American Express, Discover, and other companies with credit cards, "could run into the tens of billions and the market has not priced any of that in."

In a Jan. 2 appeals ruling in the MasterCard case, a federal appeals judge ruled that in addition to the $3 billion cash monetary relief provided by the settlement in the case, there is injunction valued by the court in the range of $25 to $87 billion to U.S. merchants and consumers. In approving the settlement, the appeals court stated that it was "the largest antitrust settlement in history," that "the compensatory relief by itself constitutes the largest settlement ever approved by a federal court," and the injunction had "produced significant and lasting benefits for America's merchants and consumers."

Elsewhere in the credit circles, in an extension of the subprime mortgage crisis, Capital One Financial Corp., Wachovia Corp. and Wells Fargo & Co., were lower along with other banks on a report from Standard & Poor's Corp. on Monday about deteriorating auto loan credit standards. Lowered lending standards to boost volume also produced loans for longer terms, increasing the probability of default as about 68% of 2006 subprime auto loans have tenors of five years or longer, according to the report.

New Century drags sector

Subprime mortgage lenders were pressured again Monday on news that Morgan Stanley is auctioning $2.48 billion of mortgages from New Century Financial Inc. related to its credit line with the investment bank.

Meanwhile, traders said there distressed funds continue to step in to buy New Century shares as other investors rapidly bail out as lingering market speculation puts the company filing bankruptcy soon.

New Century (Pink Sheets: NEWC) traded in a band of $1.54 to $2.04, one trader noted, but added that volume was light at just 3.38 million shares. The stock closed the day off by 44 cents, or 22%, at $1.56.

"Shorts are covered but it's still a good short-term trade," said another hedge fund trader.

"The only question for investors is how quickly this will be resolved - bankruptcy or sale in pieces."

Morgan Stanley is seeking initial bids for the 13,200 New Century residential loans by 11 a.m. ET on March 29. After that, at least three bidders will be selected to perform due diligence on the assets and submit final bids.

Two weeks ago, Irvine, Calif.-based New Century stopped making loans and said it had less than $60 million of cash on hand. In addition to at least 13 state banking regulators putting a halt to the company writing any more mortgages, there is a securities investigation involving New Century as well as numerous stockholder suits.

Accredited Home Lenders Holding Co. and Fremont General Corp. earlier this month also announced agreements to sell big packages of their subprime loans at a discount. Accredited Home (Nasdaq: LEND) lost 96 cents on Monday, or 8.16%, to settle at $10.81. Fremont (NYSE: FMT) dropped 49 cents, or 5.67%, to $8.15.

Player unwinds LSI/Agere

Agere Systems Inc. cut its second-quarter revenue outlook, citing inventory corrections at several leading customers in its networking and storage businesses and the news also put pressure on LSI Logic Corp. as the two storage chipmakers have a merger pending. According to a trader, at least one big player was lightening exposure to the deal, although it seemed the reduced forecast will not affect the transaction.

"We had a size unwinder who was in the market early; that appeared to be done," said one trader at around noontime.

Agere shares (NYSE: AGR) ended at $21.85, a loss of 29 cents on the session, or 1.31%; it traded as low as $21.22.

LSI shares (NYSE: LSI) closed at $10.18, a decline of 9 cents, or 0.88%, on the day, coming back from a session low of $9.94.

Agere said it now expects second-quarter revenue to fall 12% sequentially to about $327.4 million from the $372 million reported in the first quarter but said GAAP earnings per share should increase substantially from first quarter. In January, Agere had swung to a GAAP profit of 9 cents a share and forecast second-quarter revenue and earnings to be roughly flat with first quarter.

The LSI merger with Agere, in which Agere holders will get 2.16 shares of LSI, is expected to close by the end of this week.

Riviera shorts cover rapidly

An investment group including most of the members of the group calling itself Riv Acquisition Holdings Inc. last year has announced plans to make a tender offer to buy the Las Vegas gaming establishment for $27 per share in cash, versus the $17 per share offer voted down last year, but the slim 6% premium to Friday's market will likely draw more criticism, one trader said.

Riviera shares (Amex: RIV) gained $2.63 on the day, or 10.33%, to close Monday at $28.10 with 184,500 shares traded versus the norm of 36,750.

Despite the light premium, the trader said the bid "looks pretty good when you account the stock making such a run over the past year." He attributed much of Monday's rise to short covering.

The $27 per share offer would be a 6% premium to Friday's close of $25.47, and "will cause a big hue and cry," from D.E. Shaw & Co., a hedge fund that holds about 10% of Riviera stock, the trader added. D.E. Shaw was a vocal critic of the Riv Acquisition offer and instrumental in the deal getting nixed, he said.

Now, though, the trader said 65% of Riviera stock is held by "insiders who will probably support the bid."

The group's bid also is contingent on the company waiving provisions that restrict voting rights of shareholders with a 10% stake or more.

In the letter dated Monday, Kanavos said the group is prepared to help Riviera refinance its outstanding secured notes. The group requested a response to its proposal from the Las Vegas hotel and casino owner by 5 p.m. on Friday.

The investment group includes Paul Kanavos and Robert Sillerman, managers of Flag Luxury Properties LLC, Las Vegas Real Estate developer Brett Torino and Starwood Capital Group chief Barry Sternlicht.

Riv Acquisition was made up of Kanavos and Sillerman, Sternlicht, Torino and Chicago developer and casino investor Neil Bluhm.

Riviera chief William Westermhas supported the new bid; he supported the previous bid as well.

When the Riv Acquisition bid was voted down, Westerman said in a press release in June 2006: "Since the owners of Riv Acquisition announced in December 2005 the agreement for their purchase of my stock and their intention to negotiate for the acquisition of the remainder of Riviera's outstanding shares, Riviera has not received any other credible indications of interest. Speculation that one of the losers in the bidding war for Aztar Corp. would come knocking on our door has proven to be unfounded."

Beckman Coulter punished

The "big fat" buyout premium for Biosite, as one trader put it, sent the stock soaring Monday, but prospective parent Beckman Coulter was punished severely for paying so much - $85 per share versus Biosite's close on Friday of $55.38 for a 53.5% premium. The controversy kept Biosite shares from hitting the takeover price tag because it may get challenged by Beckman Coulter holders, a trader said.

Biosite (Nasdaq: BSTE) shot up $28.42 cents, or 51.32%, to $83.80. It traded as high as $84.04.

Beckman Coulter (NYSE: BEC), however, fell $4.57, or 6.81%, to $62.51.

Beckman Coulter defended the $1.55 billion outlay, in a conference call as well as an appearance on Bloomberg Television, saying it was expected to immediately accelerate the company's revenue growth, improve operating margins and be accretive to GAAP earnings in 2008 and beyond.

But the trader said the price tag still "seemed excessive in this market," the trader said. "You have to figure it's going to be challenged."

The companies said their combination is expected to create a company with a leading position in the cardiac diagnostic tests known as immunoassays. The two have developed a test known as B-type natriuretic peptide, or BNP.

San Diego-based Biosite is a medical diagnostic company that provides immunoassay diagnostic products for cardiovascular disease, drug screening and infectious diseases.

Diagnostics up in sympathy

The Biosite news, however, inspired buyers for other diagnostic testing companies like Nanogen, Medtox and NeuroMetrix, although all three are significantly smaller than Biosite, the trader added.

"All three are interesting as takeover possibilities in light of the Biosite event," he said. "There is a sense that NeuroMetrix has been approached because they recently adopted a poison pill."

Waltham, Mass.-based NeuroMetrix, which develops proprietary medical devices used to diagnose neuropathies, on March 8, NeuroMetrix Inc. adopted a shareholder rights plan, or poison pill, to ward off any future hostile takeover attempts. The stock (Nasdaq: MTOX) added 23 cents, or 2.39%, to $9.86.

San Diego-based Nanogen, Inc. provides human molecular diagnostic products focused on the identification of the nucleic acid sequences, gene variations and gene expressions and diagnostics in four categories: instrumentation, reagents, test kits and custom assays. Nanogen (Nasdaq: NGEN) rose 5 cents, or 3.88%, to $1.34.

St. Paul, Minn.-based Medtox Scientific provides specialty laboratory testing services and on-site/point-of-collection devices. Medtox (Nasdaq: MTOX) gained $1.72 on Monday, or 11.5%, to $16.72.

Rotech rumors resurface

Renewed rumors of merger for Rotech Healthcare Inc. provided a big bounce on high volume in the stock Monday, according to another trader. But, he said speculation that the company could be on the brink of bankruptcy also resurfaced and observed distressed funds were involved, but "you would expect that with this stock."

Rotech (Nasdaq: ROHI) advanced 28 cents on Monday, or 19.18%, to close at $1.75, which the trader noted followed a 5% spike in the stock on Friday.

This trader was leaning toward a merger type transaction, if anything is indeed looming on Rotech's horizon; he pointed to recent financials showing a sharp improvement. For fourth quarter, the Orlando home healthcare company posted a narrower net loss of $16.5 million, improved from a loss of $83.9 million in third quarter and a loss of $430.75 million in second quarter, the analyst said.

"The company will be around for a long time to come, I think," he said. "It will be its own entity or combined with another company, which is more probable to me than bankruptcy."

He acknowledged, however, that the company's predecessor, Rotech Medical Corp., emerged bankruptcy in March 2002.

Since the beginning of the year, there has been speculation of merger with American Homepatient Inc. Hedge fund Highland Capital Management LP is a big player in both companies, the trader said, and it has been speculated that Highland might propose a merger between the two home health care providers.

Tribune tribulations trying

Real estate mogul Sam Zell's reported $33 per share bid for Tribune, which would be an 8% premium to Friday's market, was not acknowledged by Tribune but it drew immediate criticism from failed bidders billionaire investors Ron Burkle and Eli Broad, who were saying the auction process conducted last fall by Tribune wasn't fair.

Meanwhile, Tribune shares (NYSE: TRB) gained 59 cents on Monday, or 1.93%, to $31.12.

"It's splitting the difference," said a risk arb trader. "That tells me no one is real excited about this one yet."

Burkle and Broad are claiming the company did not give their $27 per share dividend offer a fair shot and the pair are rumored to be preparing a counteroffer.

"Yadda, yadda, yadda," the trader said in reference to the speculated new bid from Burkle and Broad. "We are waiting for something you can take to the bank, and I think a lot of people are just waiting in the wings here."

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