Greenfield dumps Quad, opts for mystery buyer; Thornburg up despite warning; Cott off on lower guidance

By Paul Deckelman

New York, Aug. 26 - Greenfield Online Inc. said Tuesday that a takeover proposal it has received from an unidentified strategic buyer is a better deal than the $15.50 per share it was offered under its existing merger agreement with Quadrangle Group LLC - so Greenfield is giving Quadrangle till Friday to beat the mystery suitor's bid, or it will walk away, even if it has to pay Quadrangle the agreed-upon termination fee.

Also on the merger-and-acquisition front, they say it takes two to tango - and the prolonged mating dance between Take-Two Interactive Software Inc. and Electronic Arts Inc. moved into a new phase, as the two companies entered into a confidentiality agreement that promises to give Electronic Arts a look at heretofore secret data, as Take-Two tries to convince it to up its recent buyout offer.

Elsewhere, Thornburg Mortgage Inc.'s shares, which had already firmed solidly Monday ahead of the company's release of its second-quarter numbers, continued to rise on Tuesday as the Santa Fe, N.M.-based lender reported a quarterly profit versus an ocean of red ink in the previous quarter - but while the numbers appeared better, Thornburg also warned that a new round of margin calls seeking more loan collateral could prove to be its undoing.

Soft-drink-maker Cott Corp.'s shares slid badly on the company's anything-but-bubbly 2008 outlook, and the withdrawal altogether of its previously issued 2009 guidance.

Overall, stocks were mixed Tuesday as fears of the coming Hurricane Gustav pushed oil prices higher, while Federal Reserve comments about rising inflation sent investor morale lower, offsetting a better-than-expected reading on August consumer confidence. The bellwether Dow Jones Industrial Average zig-zagged back and forth between positive and negative territory before ending up 26.62 points, or 0.23%, at 11,412.87. The Standard & Poor's 500 index rose 4.67 points, or 0.37%, to 1,271.51, while the Nasdaq composite fell 3.62 points, or 0.15%, to 2,361.97.

Greenfield says mystery bid is greener

Greenfield Online, a Wilton, Conn.-based online survey company, said that its board had decided that the $17.50 per share acquisition offer which it had received from an unidentified suitor, described only as "a Fortune 100 strategic buyer" - is superior to the offer already on the table from New York-based private-equity firm Quadrangle Group, which had agreed in mid-June to buy Greenfield for $15.50 per share, or $426 million.

Greenfield received the competing offer during the "go-shop" period that ran from mid-June to early August. While it originally said that the Quadrangle deal was still on track when it announced receipt of the second offer in early August, it has now said that it intends to terminate the Quadrangle deal if the latter does not come back with an improved offer by Friday. In that event, Quadrangle would be entitled to a $5 million break-up fee. Greenfield said that the new offer is not contingent on receipt of financing.

As of press time on Tuesday evening, Quadrangle had not responded to a request for comment on Greenfield's move.

Analyst Mark May of Needham & Co. in New York said in a research note on Tuesday that he thinks that Quadrangle is "unlikely" to raise its bid in order to compete with the strategic buyer - and he opined that the as-yet unidentified suitor is likely a deep-pocketed communications behemoth, suggesting that it might be either Time Warner Inc., Microsoft Corp., Comcast Corp. or News Corp., in that order. May, who rates the stock a "hold," further said that Greenfield is likely to complete the deal with the strategic buyer.

Greenfield (Nasdaq: SRVY) jumped $1.26, or 7.88%, to $17.25. Volume of 2.9 million shares was almost six times the average daily turnover.

Take-Two, Electronic Arts in confidentiality pact

Also on the M&A scene, Take-Two Interactive Software and Electronic Arts moved a step closer to a possible combination between Take-Two, the New York-based producer of the wildly popular Grand Theft Auto video game series and its Redwood City, Calif.-based suitor.

The companies signed a confidentiality agreement that will let Electronic Arts see certain closely-held financial data which Take-Two believes will convince Electronic Arts to up its $25.74 per share bid, which Take-Two had previously rejected as too small.

Electronic Arts last week said that it would allow its hostile tender offer for Take-Two shares to die on the vine at the scheduled expiration date, as it sought to convince the target company of the benefits of a voluntary combination. Electronic Arts said at that time that since a takeover could now not be accomplished in time to let it benefit from sales of Grand Theft Auto and other Take-Two titles during the all-important holiday shopping season, it would have to re-evaluate its bid - a veiled threat to come back offering less money rather than more. However, Take-Two chairman Strauss Zelnick has expressed optimism that the detailed financial data that Electronic Arts will now be privy to will convince that latter to raise its price to an acceptable level rather than lower it.

Take-Two (Nasdaq: TTWO) rose 67 cents, or 2.74%, to $25.13 on volume of 2.2 million shares, almost twice the norm, while Electronic Arts (Nasdaq: ERTS) was up 42 cents, or 0.90%, to $47.24, on volume of 3 million shares, about two-thirds the usual amount.

Thornburg throttled despite quarterly profit

Thornburg Mortgage's bones - which had already jumped by 21% in Monday's dealings on twice their usual volume - continued on the upside Tuesday, with investors apparently downplaying the Santa Fe, N.M.-based mortgage lender's considerable negatives to accentuate the positive news contained in its latest earnings report.

Thornburg - among the hardest hit of mortgage lenders since the advent of the mortgage lending crisis a year ago, even though it does not do subprime mortgages - reported that in the second quarter, it had net income available to common shareholders of $412.3 million, or 84 cents per share, well up from $78.1 million, or 66 cents per share, in the year-earlier period. The year-over-year quarterly gain stood in stark contrast to its first-quarter loss of $3.306 billion, or $20.64 per share.

However, while the net earnings showed substantial improvement on a year-over-year basis, as well as sequentially, the company said that the latest gain was largely due to those large one-off gains, including a $536.9 million fair-value gain related to a liability; a $24.9 million fair value gain related to senior subordinated notes; a $14.3 million net gain on the sale of certain assets; and a $23 million gain on the extinguishment of debt.

It said that after eliminating these special items, adjusted income for the quarter was $22.7 million. Net interest income was $53.3 million - just 48% of the $102.3 million for the same quarter of 2007.

While the numbers, at first blush, seemed to represent an improvement, presumably fueling the big stock surge, company executives were considerably less sanguine on their morning conference call with analysts and investors.

Given the sharp deterioration in the mortgage securities market - which has pretty much choked off the company's efforts to generate operating funds by selling securities backed by its mortgages, forcing it to turn to outside sources of capital - Thornburg's chief executive officer, Larry Goldstone, lamented that "whoever thinks it's being fixed and getting better out there - it's not."

The virtual drying-up of the mortgage securities market has forced Thornburg to turn to outside lenders for capital on what the CEO called "onerous" terms.

Threatened with possible bankruptcy earlier this year when counterparties for some of its short-term mortgage-backed borrowing demanded additional collateral as the worth of the company's mortgage securities eroded, Thornburg managed to keep the wolves from its door at that time by entering into a $1.35 billion rescue plan with investors led by MatlinPatterson Global Advisers LLC. One provision of that rescue package called for Thornburg to conduct an exchange offer for some of its preferred stock. Holders of at least two-thirds of each of four classes of those preferred securities must tender their shares. Thornburg said that more-than two-thirds majority of each of the four classes had, in fact, tendered their shares as of this past Friday, although the percentage of series F preferred holders had fallen to an uncomfortably close 68.8% from over 90% just a few days earlier - and holders of all of the classes retain the right to withdraw their shares, right up to the now-extended Sept. 3 deadline. Even so, Goldstone expressed optimism that the tender offer would be completed, allowing the company to remain solvent.

But in announcing its results after the market close on Monday, Thornburg revealed a new threat - possibly to its very existence. Recent downgrades in the ratings of its various mortgage-backed securities have further eroded the value of those securities, sparking a new round of margin calls demanding further payment. Last Thursday, Thornburg paid $219 million to settle such calls, but said that it could face at least another $25.9 million of such calls.

It warned that given these potential liabilities - and Thornburg bluntly said in its Securities and Exchange Commission filing that "...[t]here can be no assurances that the company will be able to reach a successful resolution with any or all of the counterparties to the Override Agreement or that the company will not receive further margin calls . . . or that the company will not receive margin calls from one or more of the counterparties that will exceed the balance of the Liquidity Fund," out of which it has been paying its margin calls so far - there remains "substantial doubt about the company's ability to continue as a going concern for the foreseeable future."

Despite that somber backdrop - which caused the company's 8% bonds due 2013 to slide about 3 ½ points to the 71.5 level from prior levels around 75 - Thornburg's shares continued to climb, although after having zoomed as much as 55% at one point early in intraday dealings, to a high of 62 cents per share, they came off that peak and settled for half that gain. Thornburg (NYSE: TMA) ended up 9 cents per share, or 22.50%, at 49 cents, on volume of 50 million shares, about 7½ times the usual turnover.

Cott fizzles amid gloomy forecast

Another loser was Cott, which cans and bottles store-brand soda for retailing giant Wal-Mart Stores Inc., among other customers, as the Mississauga, Ontario-based bottler lowered its outlook for its 2008 operating profit and completely retracted its previous guidance for next year's earnings.

As recently as July 31, when it reported its second-quarter results, Cott had predicted that its operating profit for 2008 would rise by anywhere from 50% to 70% from its 2007 profit of $36.3 million, implying an operating profit of between $54.45 million and $61.71 million.

However, on Tuesday it said that 2008 operating profit would likely come in anywhere from 28% below the 2007 level to just 5% above it, which translates to a range of between $26.1 million at the low end and a maximum of $38.1 million.

Cott also withdraw its previously offered 2009 guidance.

The company's interim CEO, David Gibbons, declared that "we are no longer on track to deliver our targets." He explained that the "disappointing results we have seen over the past few weeks, at the beginning of our most critical quarter, indicate that we will fall substantially short of our expectations for 2008."

Cott (NYSE: COT) slid 41 cents, or 16.60%, to end at $2.06. Volume of 1.48 million shares was more than three times the usual daily handle.

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