Nymex, CME confirm talks; ADS deal in doubt; Inverness buys up Matria; Landry's CEO loves company

By Evan Weinberger

New York, Jan. 28 - Nymex Holdings Inc. and CME Group Inc. acknowledged what the market's been rumoring Monday. The two commodities and derivatives trading marketplaces are in talks for what could be an $11 billion merger.

The two sides agreed to a 30-day exclusive negotiating window.

"This has been rumored for months. I don't think this can come as a surprise to anyone," a market source said.

According to a statement released by Nymex, the parent company of the New York Mercantile Exchange, and CME Monday morning, Nymex shareholders would receive $36 and 0.1323 share of CME stock in the transaction. That comes out to $119.22 per Nymex share, an 11% premium over Nymex's closing stock price from Friday.

Chicago-based CME also said that it would keep Nymex's trading operations in the New York metropolitan area and would buy all 816 New York Mercantile Exchange memberships for up to $500 million upon closing the deal.

The two sides cautioned that the negotiations are in an extremely early stage and that a final deal may have a different structure and terms.

The combination of the Chicago-based derivatives and commodities trading operation and Nymex had been rumored for a while. As early as last year, Nymex CEO Richard Schaeffer mentioned that the exchange was in talks with several potential buyers. Among the group was CME, as well as NYSE Euronext, the parent company of the New York Stock Exchange, and Deutsche Borse.

The talks between Nymex and CME are the latest in a parade of financial market consolidation. Earlier this month, NYSE Euronext agreed to buy the American Stock Exchange for around $260 million. NYSE Euronext did that deal to strengthen its option and fund trading business. That, the market source said, took NYSE Euronext out of the running for Nymex.

Despite an active round of markets consolidation in the last year or so, the source said there may be more merging to be done. "After Toronto and Montreal merge, whenever that happens, there are rumors that one of the other North American ones will take a look at the merged entity," he said.

Another player on which to keep an eye will be Borse Dubai. After the completion of its $4.99 billion bid for OMX AB, the parent company of stock exchanges in Sweden and Finland, Borse Dubai may be hungry for more.

Stock in both Nymex and CME rallied on word of their merger talks.

Nymex stock (NYSE: NMX) gained $9.34, or 8.72%, to close at $116.50.

CME stock (NYSE: CME) slipped $4.00, or 0.64%, for a $625.00 close.

Hopes for Alliance Data deal fading

After the collapse of deals for SLM Corp., United Rentals Inc. and PHH Corp., market watchers wondered which would be the next leveraged buyout deal to collapse.

The Blackstone Group's $6.43 billion buyout of Dallas-based credit card processor Alliance Data Systems Corp. (ADS) was the deal most frequently mentioned, despite denials from the company.

In the end, only the potential breakup route Blackstone took was surprising, a market watcher said. ADS announced Monday morning that it had received a letter from Blackstone after the close Friday saying that the private equity shop is unwilling to meet the requirements of a federal regulator to get the deal done.

According to the ADS statement, Blackstone said in its letter that the Office of the Comptroller of the Currency was "demanding that extraordinary measures be taken by ADS, Holdco and various Blackstone entities in connection with the 'Change in Control Notice' that 'represent operational and financial burdens on ADS, Holdco and Blackstone that cannot be reasonably assumed.'"

ADS said in its statement that it has had further talks with Blackstone, but that the buyout shop wasn't budging. "Blackstone also expressed its belief that alternative solutions that would be acceptable to Blackstone would not satisfy the OCC, and therefore that further negotiations with the OCC would be futile," the statement said.

A report in the Financial Times said that the OCC is requiring Blackstone to provide open-ended capital and liquidity guarantees for Alliance Data Systems' credit card subsidiary.

ADS "strongly" disagreed with Blackstone's position, saying that they believed the OCC was willing to play ball. "Moreover, the company believes that Blackstone has the ability to cause the condition to closing cited in Blackstone's letter to be satisfied," ADS said.

The company added that Blackstone cited no material breaches of the merger agreement by Alliance Data Systems and that ADS had made its best efforts to comply with OCC demands. As a result, ADS said that it is reviewing its options.

It looks like this is yet another LBO breakup that could end up in the courts. Whether a lawsuit goes anywhere is a different question. "I'm sure there will be a lawsuit, but that doesn't mean it'll go to trial," the market watcher said.

The source pointed to Monday's news that Sallie Mae finally settled its fight with buyout shop J.C. Flowers Monday. In the end, the Sallie Mae got a $31 billion financing package from a consortium of banks and terminated the merger agreement.

"If somebody's reached too far, they might not get as much as they hoped for," the market source said.

ADS stock (NYSE: ADS) continued its recent wretched performance, dropping $23.12, or 35.24%, for a $42.48 close.

Sallie Mae stock (NYSE: SLM) moved up 57 cents, or 2.87%, to $20.45 on the day.

Big day for deals

Monday was a good day for new deals, market watchers said.

The deals are not coming in at the levels of the seemingly busted Alliance Data Systems deal, however. "There were more new deals today than in some time," one source said, adding that a few older deals are on shakier ground than new ones. The issue is size for the old ones, he said.

Two deals that he pointed to as potentially on the rocks are Bell Canada and Clear Channel Communications Inc. "I think people are really frightened" they won't go through, the source said.

Markets end day higher

Word that new home sales dropped 26.4% in 2006 only served to feed rate cut hopes Monday and send stock markets higher.

The Dow Jones Industrial Average added 176.72 points, or 1.45%, to close at 12,383.89.

The Nasdaq picked up 23.71 points, or 1.02%, for a 2,349.91 close.

And the Standard & Poor's 500 closed at 1,353.96, an addition of 23.36 points, or 1.76%, on the day.

Inverness adds Matria

Inverness Medical Innovations Inc. announced a merger agreement with Matria Healthcare Inc. Monday morning.

Inverness will pay $39 per share of Matria stock. The Waltham, Mass.-based medical diagnostic equipment maker will pay Matria shareholders $6.50 in cash and $32.50 in convertible preferred stock. The preferreds will be convertible at $69.32, a 30% initial conversion premium.

The total deal for the Marietta, Ga.-based wellness program operator will cost Inverness to around $1.18 billion - $900 million for the acquisition and the assumption of $280 in Matria debt. The deal represents a 27% premium on Matria's close Friday.

Matria announced earlier in the month that it was looking into its strategic options.

Inverness plans to fold Matria into a unit with its recently acquired Paradigm and Alere arms to enhance its position in the health management market.

"Matria's oncology services are the market leader in value-added services for oncology and fit with our Paradigm acquisition and with Paradigm's complex case management capability in oncology and neonatal intensive care," Inverness CEO Ron Zwanzinger said in a statement. "Coupled with Alere's market leadership position in cardiac disease, the addition of Matria provides Inverness with health and disease management market leading positions in women's health, oncology and cardiology, three critical areas of strategic focus for Inverness."

Matria stock (Nasdaq: MATR) rallied on the takeover early but faltered late. The stock lost 2 cents, or 0.07%, to close at $30.67.

Inverness stock (Amex: IMA) lost $4.26, or 8.16%, for a $47.97 close.

Landry's CEO goes all in

Tilman J. Fertitta, president and CEO of Landry's Restaurants Inc., really likes his company.

In fact, he likes his company so much that on Sunday he proposed to buy the whole thing outright. Fertitta sent a letter to Landry's board of directors Jan. 27 proposing to buy all outstanding shares of the company for $23.50 in cash each. That represents a 41% premium on Landry's closing stock price Friday.

The deal is valued at a total of $1.3 billion.

Fertitta already has a 39% equity ownership in the company and is confident that he can get the financing necessary to complete the transaction, a statement issued by the company Monday said.

The statement added that the board had set up a special committee to study the chief executive's proposal. The committee is hiring legal and financial advisers. It is also empowered to review any alternative proposals that head Landry's way.

Landry's is a Houston-based restaurant chain operator. The company's restaurants include the Rainforest Cafe, the Saltgrass Steakhouse and The Chart House. It also owns the Golden Nugget Casinos in downtown Las Vegas and Laughlin, Nev.

Landry's stock (NYSE: LNY) jumped $3.78, or 22.68%, to $20.45 on the offer.

Hedge funds write letter to Times editor

Two hedge funds are trying to put a slate of directors onto the board of the New York Times Co.

Firebrand Partners and Harbinger Capital Partners are trying to put four members onto the Times board. Harbinger made the announcement Friday.

Together, the two funds control roughly 5% of New York Times stock.

In a letter Sunday to Times chairman Arthur Sulzberger Jr. and CEO Janet Robinson, Firebrand chief executive Scott Galloway said the two hedge funds were not trying to change the way the Times runs its corporate affairs. Instead, the two funds want the Times to sell some of its assets and concentrate more on digital media, the New York Times reported.

"The New York Times is a great institution controlled by the Sulzberger family, and we have no illusion about, or desire to change, that fact," Galloway wrote in his letter, the paper reported.

Among the assets the two funds are targeting for sale are the Times' stake in the Boston Red Sox baseball team.

The Ochs-Sulzberger family, which has controlled the company for more than a century, controls nine of 13 seats on the board.

New York Times stock (NYSE: NYT) was up $1.41, or 9.62%, to close at $16.07.

Kellwood gives in

When Sun Capital Securities Group, LLC offered $21 per share for St. Louis-based clothing manufacturer Kellwood Co. on Jan. 16, the company geared up to fight back.

Kellwood announced a $60 million bond tender offer that was meant to raise enough capital to prevent an affiliate of Sun Capital from buying up the 75% of Kellwood stock needed for a takeover. Kellwood had intended to buy back 17% to 18% of outstanding shares.

Sun Capital had one hammer, however. It threatened to lower its purchase price to $19.50 per share if Kellwood didn't rescind its tender offer.

On Monday, Kellwood gave up the ghost and removed any and all impediments to Sun Capital getting the deal done. Kellwood rescinded the tender offer and said that the company would not take a position on the offer, allowing shareholders to make their own decision.

"While it is our strong preference to continue as an independent company, we believe that stockholders should be able to make their own decisions on a $21.00 per share cash offer that is not subject to due diligence or financing," Kellwood chairman, president and CEO Robert Skinner said in a statement.

The deal values Kellwood at $762 million, including debt.

Sun Capital was predictably pleased with the news. "We are pleased that Kellwood's board intends to allow stockholders to decide for themselves on Sun Capital's $21.00 per share cash tender offer and we also support Kellwood's decision to terminate its previously announced debt tender," Sun Capital vice president Jason Bernzweig said in a statement.

Kellwood authorized Banc of America Securities and Morgan Stanley, its financial advisers, to look for other, higher offers.

Kellwood shareholders have until Feb. 12 to act on Sun Capital's tender offer.

Kellwood stock (NYSE: KWD) leaped $3.20, or 18.71%, for a $20.30 close on the day.

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