Accredited Home gains; New Century up; Winston preferreds spike, common off; Google up

By Ronda Fears

Memphis, April 3 - In the wake of New Century Financial Corp.'s bankruptcy, battered Accredited Home Lenders Holding Co. shares soared Tuesday after the subprime lender announced several financings and specified it is considering a merger.

Accredited Home had previously said it was exploring strategic options to strengthen its business, including the raising of capital, but in a statement late Monday, the San Diego firm also said this exercise would include a possible merger.

New Century was higher Tuesday, as well, with distressed players extending a buying spree in the stock. It (Pink Sheets: NEWC) moved up 10 cents, or 10.38%, to $1.01, but volume was light at 2.85 million shares.

One trader said many sellside analysts "have egg on their face" with regard to continuing to support a position in New Century as recent as four to six weeks ago, skirting the market rumors of an impending bankruptcy altogether. They lost credibility with their mainstream clients because of continuing to recommend holding the stock, he said.

But, he said, a lot of distressed players believe that the investment thesis of two months ago still rings true for New Century's lending business - "that being that mortgage originations may drop off, maybe dramatically, but they are not going away and the New Century franchise is significant if they can hold the foundation together at all."

Traders said they continue to see buyers in regional banks as well as the bigger banks that back mortgage lenders.

Marshall & Ilsley Corp., a Milwaukee-based regional bank, was one of the big gainers Tuesday on chatter that it may be close to a $4 billion deal to spin off its data processing unit, Metavante, in addition to speculation that it may be a takeover target of one of the big banks. One trader said the Metavante deal is rumored to be a sponsored spinoff whereby private equity firm Warburg Pincus would pay cash for minority ownership that would be spun off. Marshall & Ilsley (NYSE: MI) traded as high as $51.48 before easing back to close at $49.83, better by $3.97 on the day or 8.66%.

Meanwhile, Winston Hotels Inc.'s acceptance of the Inland American Real Estate Trust buyout offer at $15 per share, which surfaced after the company had accepted a $14.10-per-share offer in February from Wilbur Acquisition Holding Co., caused a pull back in the common stock, but the preferreds surged.

There was renewed speculation that Starwood Hotels & Resorts Worldwide Inc. may be a buyout target after chief executive Steven Heyer resigned Monday under pressure from the board. One trader said that while Starwood founder and former CEO Barry Sternlicht of Starwood Capital Group has been making a move for the Las Vegas casino Riviera Holdings Corp., to no avail so far, many think he might back a bid to take New York-based Starwood Hotels private. Starwood Hotels shares (NYSE: HOT) advanced $2.02 on Tuesday, or 2.98%, to $69.84.

Google Inc. also was moving amid ongoing speculation about a bidding war for closely held online advertising concern DoubleClick Inc.

Winston common pulls back

Winston Hotels was pulling back a bit on the Inland news, traders said, after having run up to $15.50 over the past month since the bid emerged. It came March 9 as an unsolicited rival takeover offer, at $15 per share, topping an offer in February of $14.10 per share accepted from Wilbur.

The stock (NYSE: WXH) traded in a band of $14.62 to $14.78 versus Monday's close of $14.93, and settled Tuesday at $14.65, off 28 cents, or 1.88%.

One trader recalled that a month ago there were some hopeful players reckoning a full-fledged bidding war would ensue between Inland and Wilbur, with speculation that it could go as high as $16.50 to $17. At the same time, he noted there were always those who didn't think the price tag would go far beyond $15.

In February, Raleigh, N.C.-based Winston accepted a buyout offer from Wilbur, which is held by affiliates of Och-Ziff Real Estate and Norge Churchill Inc.

The Inland bid consists of $15 per share in cash for all of Winston outstanding common stock and $15 per unit for all of the common units of WINN LP.

Winston preferreds rocket up

Winston Hotels' preferred shares surged on the news, however, much like they did when the Inland bid surfaced.

Even though the first-quarter dividend on the preferreds of $0.50 per series B cumulative preferred share is payable on April 16 to holders of record on March 30, the trader said a premium cash payment on the issue due to the change of control triggered by a merger makes it a bargain under the par price of $25.

The issue (NYSE: WXH-PB) gained $1.70 on the day, or 7.26%, to settle at $25.10 amid heavy volume. The trader said the issue had traded up to $26.15 since the Inland bid came out; it was below $23 before the Inland bid came along.

Accredited aplomb seen risky

Accredited Home surged Tuesday on the financing news and speculation that it may be close to a merger transaction, but one trader said there was "decent" selling into the rally and he believes some analysts' projections for the price tag may be a bit too optimistic.

The stock (Nasdaq: LEND) traded up to $10.65 but closed at $10.04 for an advance of $1.56 on the session, or 18.4%. Volume was 11.2 million shares versus the norm of 7 million shares.

There were some projections from sellside analysts that Accredited Home could fetch $14 to $16 per share in a merger, the trader said. But, he said options activity in the name suggests the market sees the price tag more in the neighborhood of $10 to $12.50.

"LEND is priced to perfection. This is irrational exuberance," the trader said. "I think, like with New Century, there is a business base that has value and probably more than the market has assigned right now, but not 40% to 65% more. I don't think they are going to get that kind of premium, and that is after the 20% advance [in the stock] today."

Late Monday, Accredited said it closed on a $230 million loan from San Francisco hedge fund Farallon Capital Management LLC, one of its largest investors, and that was $30 million more than was expected. It also said it obtained a new $500 million warehouse line of credit to help fund loans, renewed a $600 million line and is in talks to renew a $650 million line.

The company said it paid off a majority of its warehouse facilities. It also said it sold $800 million of loans at a premium, after last month selling $2.7 billion at a discount.

As a result, Accredited said it ended March with $350 million of cash.

Accredited said it plans to continue lending while it looks for a new auditor, unlike peers such as New Century and Fremont General Corp. The company said it made $1.8 billion of mortgage loans in the first quarter, less than half the previous quarter's $3.9 billion.

Google gains on deal buzz

Google, rumored since last week to be in the bidding for online advertising concern DoubleClick Inc., was higher Tuesday amid buying on chatter that a deal could be close, said a trader on the West Coast.

The stock (Nasdaq: GOOG) added $14.07 on the session, or 3.07%, to close at $472.60.

In addition to Google, traders said last week that Microsoft Corp. and IAC/Interactive Corp. were thought to be bidding for DoubleClick, but one trader said many players expect that there is a strong possibility DoubleClick will return to the market as a public company again.

DoubleClick was taken private by San Francisco private equity firm Hellman & Friedman in a $1.1 billion buyout in 2005. Hellman is now seeking at least $2 billion for the company, according to reports.

RBC Capital Markets analyst Jordan Rohan said in a report Tuesday that DoubleClick would be a smart addition for Google, and traders said the market mirrors that sentiment.

"Sure, Google could build its own DoubleClick-ish network, but why not just buy it for a couple billion. After all, Google paid $1.65 billion for YouTube, which had nearly zilch for revenue," the trader said.

In October, Google bought YouTube for $1.65 billion following a reported bidding war for that popular user-generated video web site. The trader said Google could still swing a $2 billion outlay for DoubleClick, saying the company statistics show $11 billion in cash and $1 billion in free cash flow at year-end 2006.

"Google could surely pay the $2 billion DoubleClick's owners want for something that resembles a real business. For those keeping score at home the DoubleClick auction process shapes up like this: Microsoft is annoyed; Google is like the wealthy kid that giggles as he keeps poking you; and the private equity firm that owns DoubleClick is downright giddy."

Microsoft also has a hefty war chest of cash, he added, so the situation could well turn into a bidding war. But, he said, Hellman & Friedman also are probably talking to bankers about a public stock offering, and if they don't get a "worthy" price, then they will just issue public stock.

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