Stocks rally on monoline affirmation; Take-Two software plays hardball; exchanges move closer

By Aaron Hochman-Zimmerman

New York, Feb. 25 - Equity trading got a healthy lift from S&P's affirmation of monoline insurers Ambac Financial Group Inc. and MBIA Inc., which will keep their AAA ratings for now.

Take-Two Interactive Software Inc. told Electronic Arts Inc. to take a walk with its $2 billion buyout offer.

The heads of the companies exchanged written words, but Take-Two's chief still insisted the offer underestimated his company's value.

An unnamed shareholder came forward with a suit in Ohio to prevent Fifth Third Bancorp's $1.1 billion merger with First Charter Corp.

Nymex Holdings Inc. gained along with stock of CME Group Inc. as they drew closer to a merger.

The consolidation of Delta Air Lines and Northwest Airlines hit some light chop from unions not representing the pilots, which feel their members would be harshly affected by the merger.

Taking a cue from better than expected housing sale numbers and the monoline rating affirmation, the Dow Jones Industrial Average ended higher by 189.20 or 1.53% at 12,570.22, while the Nasdaq Composite Index added 24.13 or 1.05% to finish at 2,327.48.

The S&P 500 tacked on 18.69 or 1.38% to close at 1,371.80.

Take two gives zero

Take-Two Interactive Software (Nasdaq: TTWO) stock was better by $9.53 or 54.90% to close at $26.89 after rejecting a $2 billion or $26 per share offer from Electronic Arts (Nasdaq: ERTS).

Electronic Arts stock fell by $2.60 or 5.23% to end the day at $47.14.

The offer had been raised from $25 per share and represented a 64% premium over Take-Two's Feb. 15 closing price, but the board of Take-Two considered it "opportunistic," according to a market source.

Still, both sides have agreed to sit down for discussions.

"Our all-cash proposal is a unique opportunity for Take-Two shareholders to realize immediate value at a substantial premium, while creating long-term value for EA shareholders," Electronic Arts chief executive officer John Riccitiello wrote to Strauss Zelnick, the executive chairman of the board of directors of Take-Two.

"Take-Two's game designers would also benefit from EA's financial resources, stable, game-focused management team, and strong global publishing capabilities," he added.

Zelnick responded in a company press release: "In addition to undervaluing key elements of our business, EA's proposal fails to recognize the value we are building through our ongoing turnaround efforts, which will further revitalize Take-Two," he said.

"While we have made substantial progress already, the turnaround of our business which we initiated in June is not yet complete, and we believe its benefits have not been recognized in either our current stock price or in the value of EA's proposal," he added.

"They're making [Take-Two] out to be a piece of junk, so why would they want something like that?" a market source said about Electronic Arts.

S&P affirms monolines

Shares of Ambac Financial Inc. (NYSE: ABK) soared $1.70 or 15.87% to end at $12.41 while shares of MBIA Inc. (NYSE: MBI) jumped $2.40 or 19.70% to close at $14.58 as the S&P bond rating agency affirmed both insurers in their current AAA rating.

The equity market's strength was attributed, in large part, to investor confidence brought on by the affirmation and the prospect of a recovery program for Ambac, a market source said.

Ohio hurdle

An unnamed shareholder sued in Ohio to prevent Fifth Third Bancorp.'s (Nasdaq: FITB) $1.1 billion merger with First Charter Corp. (Nasdaq: FCTR).

Fifth Third's stock added $0.22 or 0.89% to end at $24.94.

Shares of First Charter slipped by $0.02 or 0.08% to finish the session at $24.27.

The lack of a major reaction led a source to believe that the instability caused by the suit "is priced into the deal already."

Microsoft fills gaps for employees

Shares of Microsoft Inc. (Nasdaq: MSFT) were better by $0.16 or 0.58% to $27.84 as the company's president of platforms and services division, Kevin Johnson, wrote a letter to the employees making the case for the acquisition of Yahoo! Inc. (Nasdaq: YHOO).

The letter discussed how the Microsoft plus Yahoo! entity would handle logistical questions and deal with blending the two operations.

Shares of Yahoo! were off by $0.29 or 1.02% to $28.13.

NYMEX, CME in talks

Shares of the New York Mercantile Exchange (NYSE: NMX) added $4.40, or 4.43%, to end at $103.80 as its talks with prospective buyer CME Group (NYSE: CME) are expected to conclude this week, according to a market source.

CME Group stock tacked on $5.90, or 1.12%, to finish the day at $531.00.

Holders of NYMEX shares would receive $36 per share plus 0.1323 of a share of the new exchange.

However, the discussions are limited by a 30-day negotiating period set to expire on Feb. 28, but which may be extended to March 14.

The merger between the two would create a $40 billion futures trading market.

The deal may be announced in March, the source said.

Everyone expects the transaction to go through, a market source said.

Airline merger drifting off course

Delta Air Lines (NYSE: DAL) stock to lost $0.22 or 1.34% to $16.15, while Northwest Airlines (NYSE: NWA) shares fell $0.41 or 2.52% down to $15.86.

As the pilots' unions continue discussions about seniority, unions representing airline machinists, baggage handlers and ticket agents have expressed concerns over the mergers' effects on their members and may not approve a deal.

Shares of United Airlines (Nasdaq: UAUA) lost $0.24 or 0.68% to end at $35.25 while Continental Airlines (NYSE: CAL) stock was better by $0.70 or 2.43% to close the day at $29.50 as the news circulated.

Air France-KLM expects to invest $750 million in a merged Delta and Northwest, a market source said.

Most of the news can be attributed to grasping at straws over a lack of information from other facets of the deal, a market source said.

When asked if the deal will still go through the source said: "The chatter still says that."

Hellman & Friedman snaps Getty

Getty Images Inc. (NYSE: GYI) shares screamed higher by $7.22, or 29.53%, to $31.67 as it announced the board of director's approval for its acquisition by the private equity firm Hellman & Friedman LLC for $2.4 billion or $34 per share.

The offer represents a premium of 55% over the closing price on Jan. 18.

With 15% of shareholders already agreed to the deal, the expected closing is in the second quarter of 2008, a market source said.

"Hellman & Friedman brings specific industry expertise and support for the vision of the Company's management team that will benefit our employees, customers and partners," said Jonathan Klein, co-founder and chief executive officer of Getty Images in a press release.

Financing commitments have been offered by Barclays Capital, GE Commercial Finance and RBS Greenwich Capital.

Goldman Sachs is acting as financial advisor to Getty Images, while Barclays Capital and RBS Greenwich Capital are acting as financial advisors to Hellman & Friedman.

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