Markets fall again; BCE spread to stick around; Clearwire plunges on merger OK; Jarden adds poison pill

By Cristal Cody

New York, Nov. 20 - Stomachs churned for a second day on Wall Street after the markets fell more than 5% again.

The sell-off sent the Dow Jones Industrial Average down to its worst two-day loss - 10.6% - since October 1987.

The Dow fell 5.28% to close at 7,552.29.

The S&P 500 sank past its previous 2002 low of 776.76 to close down 6.71% at 752.44.

The Nasdaq Composite Index also fell 5.07% to 1,316.12.

Concerns about getting deals done moved into closing stock prices Thursday.

The spread on BCE Inc. shares continued ahead of a planned buyout set to close Dec. 11.

Clearwire Corp.'s stock plunged 32.93% after shareholders approved a plan to merge with Sprint Nextel Corp.'s wireless broadband network and said no other hurdles remain to closing the deal.

Jarden Corp.'s stock also fell 29.4% Thursday after the company passed a shareholders rights plan to head off any future takeover attempts.

BCE spread to stick around

Canadian telecommunications giant BCE has said the C$42.75 per common share deal to take the company private is set to close Dec. 11, but investors are finding a hard time believing the banks will come through with the financing.

BCE's stock traded at C$36 Thursday compared to the C$42.75 share offer.

Shares fell 5.23% to close at US$27.55 on the New York Stock Exchange.

"That spread is likely to stay until the day it closes in my view," said John Henderson, managing director of telecom research at Scotia Capital. "We've seen other precedents like that. There's just uncertainty until the very end."

An investor group led by Ontario Teachers' Pension Plan and affiliates of Providence Equity Partners Inc., Madison Dearborn Partners LLC and Merrill Lynch Global Private Equity is pursuing the C$34.8 billion buyout. The deal is valued at $52 billion with the assumption of BCE's debt.

The deal is being financed by Citigroup Inc., Deutsche Bank AG, Royal Bank of Scotland and Toronto-Dominion Bank.

The banks should honor their commitments even with the crummy financial markets, Henderson said.

"If one of the banks in the consortium goes out of business between now and the close, then the deal busts," Henderson said. "But we think given the government support for banks to date, the odds of that are very low."

Sachin Shah, an analyst with ICAP Corporates, said concerns remain whether the banks will want to add more debt.

"The biggest question is how much leverage the banks want to take on their balance sheet aside from what's going on already," he said. "With everything going on with the financial situation right now, especially with Citigroup, among others, there should be concern about this deal going through. The spread is dictating that with approximately a little over C$6 left."

Citigroup shares lost 26.41% to close Thursday at $4.71, down from the previous low of $6.25 over concerns whether the bank can withstand billions of dollars of losses in loans.

Deutsche Bank shares also fell 11.45% to close at $22.82.

Royal Bank of Scotland shares rose 3.11% to close at $12.58.

Toronto-Dominion Bank's stock dropped 15.24% to close at $33.60, down from a $75 yearly high after the company said it expects to take trading losses of C$350 million in its wholesale banking division. TD Bank is scheduled to reports fiscal fourth quarter earnings Dec. 4.

Citigroup faces market fears

Citigroup was a particular focus of attention in trading Thursday.

"I heard it got slammed," a trader said. "The stock just fell through the bottom, people are worried they might be in trouble."

Saudi investor prince Alwaleed Bin Talal Bin Abdulaziz Alsaud said Thursday that he was raising his stake in Citigroup to 5%, but the vote of confidence failed to rally the company's stock. Citigroup, which said Wednesday that it was taking over the remaining $17.4 billion of off-balance sheet structured investment vehicle assets, issued a statement saying that the company has a "very strong capital and liquidity position."

Speculation on Thursday raised the possibility that Citigroup could report another quarterly loss in the fourth quarter and may have to seek more capital.

"Investors who are already nervous have been spooked," the trader said. "First the company had to lay off a large number of workers, and then they say they're taking on billions of dollars of risky assets. In other times this investment by this prince could be positive, but I think now people are worried. It's now, 'Oh no, they need to raise more money!' And the economy's not doing well, so there's even more concern that they're not going to be able to recover."

The trader said further capital raises were possible scenarios.

"They're losing money every quarter, and it's like a vicious cycle," the trader said. "The riskier your credit gets, the more capital you need to have to make sure creditors and counterparties and customers don't get spooked and run away, but it also costs more to raise capital. You're either paying too much interest on debt or diluting your stock. The more you raise, the deeper the hole."

But the trader thought that a default was unlikely.

"I don't think you're going to see another Lehman," the trader said. "That would send us back to October. I think in the worst case scenario Citigroup gets sold, which could be good or bad. But that's the worst that could happen. I saw a report someone was still recommending buy on the stock. It's hard to know these days. Everything gets magnified."

Clearwire's plunges after merger approved

Clearwire's stock plunged 32.93% to a new low of $3.89 on nearly three times the average trading volume Thursday after shareholders approved a plan to merge with Sprint Nextel's wireless broadband network.

A trader said the Kirkland, Wash.-based company has "problems in general."

The merger is expected to close by the end of the year to form the new independent company, also called Clearwire, in a $14.6 billion venture to develop a faster mobile network.

Google Inc., Intel Corp., Comcast Corp., Time Warner Cable, Bright House Networks and Trilogy Partners will invest $3.2 billion in the new Clearwire.

Clearwire said Thursday that no other consents are needed for the deal to close.

Sprint shares dropped 27.13% to close Thursday at $1.37, down from the previous yearly low of $1.77.

Jarden rights plan sends stock down

Investors showed how much they liked Jarden's new shareholders rights plan and sent the stock down 29.4% to close at $8.19.

The Rye, N.Y.-based company said in a statement Thursday that its board adopted the stockholder rights plan that grants a dividend of one stock right for each share of common stock held as of Dec. 1. This entitles the holder to buy one one-thousandth of a share of a new series of junior participating preferred stock for $51.

The rights are triggered if a person or group acquires 10% or institutional investors acquire 15% of Jarden's common shares.

The rights expire Nov. 19, 2011.

"The adoption of the rights plan is not in response to any current accumulation of shares or specific effort to acquire control of Jarden, but rather the potential for exploitation given the current macro market conditions," Martin Franklin, chairman CEO, said in a statement.

"It is our hope that once market conditions return to a more normal state, the company will no longer need the protection of a rights plan and we will be able to terminate the plan as we did back in 2003 with the prior rights plan."

The appliance and consumer products manufacturer makes a variety of products, including Coleman outdoor gear, Mr. Coffee products and Rival crock-pots.

Mentioned in this article:

Citigroup Inc. NYSE: C

Clearwire Corp. Nasdaq: CLWR

Deutsche Bank AG NYSE: DB

Jarden Corp. NYSE: JAH

Royal Bank of Scotland NYSE: RBS

Sprint Nextel Corp. NYSE: S

Toronto-Dominion Bank NYSE: TD

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