Alltel may see better bid; Cytyc climbs, Hologic hit; Pioneer up; Atlas Energy advances; WCI off

By Ronda Fears

Memphis, May 21 - Alltel Corp., the fifth-biggest domestic wireless company and Little Rock, Ark.-based owner of the nation's largest geographic network, agreed over the weekend to a $27.5 billion buyout by TPG Capital and GS Capital Partners at a premium of only about 10% over Friday's market, as the stock made a run in recent weeks on takeover speculation.

Traders said the market was pricing in some deal risk, focused on a questionable bid process, and Alltel's stock did not reach the buyout price; but, traders said there also were some hope of rival bids coming to fore.

A great deal of profit taking occurred on news of the $6.2 billion cash-and-stock merger between Hologic Inc. and Cytyc Corp., according to traders. Cytyc holders would get the equivalent of $46.46 per share, or a 33% premium to Friday's market. Traders in Cytyc said the price was somewhat disappointing, given the market's appetite for biotech securities Monday, but the stock had made a big run this year. As for Hologic, traders said the timing was questioned but most think it will be a good move long term.

"Biotech was on the run today," one trader remarked.

He noted that major drug names were reacting to GlaxoSmithKline plc's 8% plunge on a study that one of its best-selling products, diabetes drug Avandia, could increase the risk of heart attack or death. But in biotech, much of the sector was lifted by Antigenics Inc., which was better by more than 40% at one point of the session, on positive news of a phase 3 trial for its cancer drug Oncophage.

In distressed names, Northwest Airlines Corp.'s when-issued stock (NYSE: NWA-WI) saw almost no activity and traded in a tight band of $24.75 to $25 before settling the session at $24.80. Volume was a mere 276,800 shares, and one trader said the bulk of that took place right at the open. The Eagan, Minn.-based carrier is set to exit bankruptcy on May 31, after its reorganization plan won final approval Friday to give creditors recovery levels of about 66% to 83%.

Traders said Northwest is suffering from "second place syndrome," as the market watched Delta Air Lines Inc. emerge bankruptcy earlier this month and the new stock steadily drift lower. Delta (NYSE: DAL) on Monday slipped by 31 cents, or 1.61%, to $19; it opened on May 3 at $21.75.

Water treatment firm Pioneer Cos. Inc. agreed to a $414.4 million buyout at $35 per share - a 19% premium - by chemical and metals concern Olin Corp. to create a large supplier of products used in water treatment and various industrial segments. One trader said Pioneer had been eyed for the past four or five weeks, basically since market chatter was circulating that Dow Chemical Co. was about to get a takeover offer - which never materialized - but "it didn't really move, so this news was a bit of a surprise." Pioneer (Nasdaq: PONR) gained $4.81, or 16.37%, to $24.19 while Olin (NYSE: OLN) added 51 cents, or 2.68%, to $19.51.

Atlas Energy Resources LLC surged, along with its majority owner, Atlas America Inc., on its acquisition of the DTE Gas & Oil unit from DTE Energy Co. for $1.2 billion. Atlas America, which owns an 80% stake in Atlas Energy, said the deal will sharply increase distributions to Atlas America. Atlas Energy (NYSE: ATN) shot up $4.55, or 14.72%, to $35.45; Atlas America (Nasdaq: ATLS) advanced $9.99, or 16.43%, to $70.79. DTE (NYSE: DTE) added 82 cents, or 1.53%, to $53.73.

WCI Communities Inc. weakened Monday after dissident shareholder Carl Icahn's tender offer at $22 per share expired with no shares purchased due to the Florida homebuilder's poison pill. The company said it would continue to move forward with its sale process, but one trader said "it's not very hopeful" given the slump in the housing market. WCI (NYSE: WCI) lost 60 cents, or 2.94%, to $19.80.

Defense electronics contractor Aeroflex Inc. gained smartly Monday after receiving a revised acquisition proposal from Veritas Capital at $14.50 per share in cash; option holders would be cashed out at the excess of $14.50 and the option exercise price. Aeroflex said it would consider the new proposal, which compares to Veritas Capital's previous bid for a leveraged recapitalization in which holders would receive a cash dividend of $14 a share plus retain 21.2% ownership of the company. Aeroflex inked a deal with General Atlantic and Francisco Partners, however, at $13.50 in early March and has not backed down from that deal. The stock (Nasdaq: ARXX) gained 66 cents, or 4.75%, to close Monday at $14.55.

Alltel deal heavily hedged

Traders said players were hedging risk in the Alltel deal, although many at the same time are anticipating the wireless phone company could see other bids emerge.

"There's a big hubbub that the company jumped the gun on the bidding process," one trader said. "That could flush out the other bidders, and spark a bidding war. But there is a lot of risk getting priced in, because some of the so-called experts were saying TPG and Goldman's bid was high enough to discourage that."

The $27.5 billion deal, including debt, comes to $71.50 in cash - a 10% premium to Friday's close. Alltel shares (NYSE: AT) closed better by $4.40, or 6.75%, at $69.61 after trading only to $70.45.

"I heard there were higher offers and the auction was supposed to end in June," another trader said, noting that information was splashed all over the wires.

"CNBC reported that there was at least one private equity bidder willing to pay 'several' dollars more. Bids were due on June 6 but for some reason the board accepted this bid early. We haven't heard the last of this."

Alltel shares have made a run from around $60 at the first of the year on widespread takeover speculation, he said.

Sellside analysts have estimated Alltel could be sold for $25 billion to $30 billion, he added, with potential buyers including industry rivals such as Verizon Wireless, AT&T Inc. and Sprint Nextel Corp. There also has been speculation that private equity firms Providence Equity Partners and the Blackstone Group had teamed up for a bid for Alltel, he said, and The Carlyle Group and Kohlberg Kravis Roberts & Co. had been mentioned regarding a bid for Alltel.

Alltel pointed out that the $71.50 buyout price is a 23% premium over its stock price before word of a possible buyout first appeared in the media on Dec. 29.

Cytyc deal a huge home run

Diagnostic imaging company Hologic's purchase of medical device maker Cytyc will pay Cytyc shareholders 0.52 shares of Hologic common stock and $16.50 in cash, or the equivalent of $46.46 per share - a 33% premium.

"This was a massive home run; the stock is up like 72% in the past six months," remarked a trader on the West Coast. "It opened at $44.60 and pretty much we saw all the selling pull it down all day. It's your typical profit taking on the news. I expect it will be a little higher by the end of the week."

Cytyc (Nasdaq: CYTC) settled at $43 for a gain of $7.95 on the day, or 22.68%, after trading in a band of $40.33 to $44.62 amid volume of 22.4 million shares versus the norm of 1 million shares.

"The offer is low, in my opinion, but it's a good deal," said a buyside market source.

"Both companies are leaders in women's health care: Hologic is known for its digital breast cancer screening and Cytyc for its minimally invasive surgical treatment for menorrhagia, a menstrual disorder."

Marlborough, Mass.-based Cytyc also markets its diagnostic and surgical products in Canada, Europe, Australia, and Hong Kong, as well as in Japan and China.

Hologic punished for deal

Hologic said for fiscal 2008, combined sales are projected at more than $1.7 billion and combined adjusted earnings per share at $2.35 to $2.40; a trader said that while many think Hologic needed an addition like Cytyc, it paid too much.

Hologic (Nasdaq: HOLX) lost $3.61, or 6.27%, to close Monday at $54.

"As for Hologic, this merger isn't all bad. The timing is horrible because the market is correct in feeling that Hologic has not fully finished assimilating R2 and Suros as of yet," the trader said. "Secondly, based on the current environment, I don't think Cytyc would have been trading much higher a year from now - and I venture to say they would have been lower, maybe much lower - so I don't understand the urgency to pull the trigger right now."

In April 2006, Bedford, Mass.-based Hologic bought the computer-aided detection (CAD) firm R2 Technology Inc. for $220 million and Suros Surgical Systems, Inc., a maker of devices used for minimally invasive biopsy and tissue excision, for $240 million. Hologic also distributes extremity magnetic resonance imaging systems for rheumatology and orthopedics markets; it operates in the United States, Pacific Rim countries, and Latin America, including Argentina, Brazil and Chile.

"I don't think any other companies were interested in paying this kind of premium for Cytyc," the trader continued. "Having said all that, I do think it is good in the sense that it makes Hologic more diversified. This company [Hologic] is so leveraged to mammography imaging that if the technology dramatically changes from what you have then you are dead."

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