JPMorgan looks past Bear; Barnes & Noble's bigger book club; Penn Gaming banks push for renegotiation

By Aaron Hochman-Zimmerman

New York, May 21 - Wednesday's equity drop left investors unsatisfied, but rumors held that JPMorgan Chase & Co. has hungry eyes, even after swallowing up Bear Stearns & Co.

JPMorgan is reportedly looking at the dessert tray in the form of SunTrust Banks Inc., PNC Financial Services Group Inc. or even Wachovia Corp.

Meanwhile investors were encouraged as Barnes & Noble Inc. was seen flipping through the pages of Borders Group, which was seeking buyers as recently as March.

Stocks were down on both side in the continuing saga of Yahoo! Inc. and Microsoft Corp., which gave the market a lull in the action for speculation over Carl Icahn's intentions and chances for success.

Also, shares were up for both Penn National Gaming Inc. and BCE Inc.

Both deals are facing hurdles from banks pushing for renegotiation of financing terms.

In the overall markets, the Dow Jones Industrial Average was beaten for 227.49, or 1.77%, to close at 12,601.19, while the Nasdaq Composite Index dropped 43.99, or 1.77%, to finish at 2,448.27.

The S&P 500 gave back 22.69, or 1.61%, to close at 1,390.71.

More for Morgan?

Rumors around the market suggested that Bear Stearns may have merely been the appetizer for JPMorgan, or perhaps Bear was the meal and Sun Trust or PNC are dessert.

Whichever analogy fits, JPMorgan is still on the hunt to expand its retail banking from the Mason-Dixon Line southward, a market source said.

The names that fit the bill are Atlanta's Sun Trust and Pittsburgh's PNC Bank.

What would the regulators say?

"Regulators see JPMorgan taking care of troubled financial companies on their behalf. Happy to have it happen," the market source said.

Even something the size of Wachovia may have crossed the mind of chief executive officer Jamie Dimon, the source said.

"Jamie Dimon is the go-to guy," he said.

Shares of Sun Trust (NYSE: STI) sank $1.30, or 2.35%, to $54.02.

Shares of PNC (NYSE: PNC) lost $0.80, or 1.20%, to $65.72.

Shares of JPMorgan (NYSE: JPM) were lower by $1.28, or 2.93%, to end at $42.42.

Shares of Wachovia (NYSE: WB) fell $1.07 or 4.00%, to $25.66.

Barnes & Noble's run for Borders

On the news of a possible offer from Barnes & Noble, investors wondered if Borders may be the next best seller.

The Wall Street Journal reported that a team of strategic buyers and buyout firms is already assembled and may be adding at its numbers.

Borders began looking for buyers in March with the help of JPMorgan and Merrill Lynch.

Pershing Square Capital Management also offered $42.5 million in financing as well as an offer to purchase some Borders subsidiaries with a $125 million backstop.

The loan came at a 12.5% annual interest rate, but was allowed to expire on April 4.

The proposed binding of booksellers brought up the issue of anti-competition regulation.

"They compete head to head ... there's a lot of overlap," said Paul Martin of Martin Capital Management.

Shares of Barnes & Noble (NYSE: BKS) were unchanged at $29.95.

Shares of Borders (NYSE:BGP) jumped $0.56, or 8.82%, to $6.91.

Icahn to run Yahoo!?

Even as Carl Icahn is loading his cannons for a proxy war, presumably to sell Yahoo! to Microsoft, "We are not bidding to buy Yahoo! ... we are trying to have discussions about deals with Yahoo! that might create value, but not a whole acquisition of the company," Microsoft's chief executive officer Steven Ballmer told Reuters.

Perhaps Ballmer is playing coy ahead of another round of hardball to acquire Yahoo!, this time with Icahn, but "I can see this turning against Icahn," Martin said.

Icahn's worst case scenario is to win the proxy fight, he said. "I think it's a long shot that Icahn will be able to force a merger with Microsoft." Then Icahn is stuck running Yahoo!

"He's definitely taken a higher risk than usual," Martin said about Icahn.

Meanwhile, Microsoft's current position is that it is only interested in the search ad business or the cream filling without the rest of the cupcake.

"From Microsoft's perspective they're going to wait for Icahn to put up or shut up ... then deal with him."

Shares of Yahoo! (Nasdaq: YHOO) gave up $0.15, or 0.55%, to end the session at $27.33.

Shares of Microsoft (Nasdaq: MSFT) lost $0.51, or 1.77%, to close at $28.25.

New terms for Penn too?

Following the recent trend of banks renegotiating financing terms, Wachovia Bank and Deutsche Bank are trying to do just that.

This time it involves the $6.1 billion or $67 per share deal for Fortress Investment Group and Centerbridge Partners LP to buy Penn National Gaming.

The deal was struck in June of 2007 and now that shares of Penn National Gaming (Nasdaq: PENN) are at $44.50 (after adding $1.07 or 2.46% in trading Wednesday), the lenders want a better price as well.

"I think everyone is just scrambling to find way to reduce risk," Martin said about the struggling major banks.

"Most people think we have a ways to go before this credit crisis is resolved," he said.

"That's going to be an ongoing process," which includes banks trying to negotiate other deals, he added.

BCE still talking terms

The deal to privatize BCE serves as another example.

The syndicate of buyers led by the Ontario Teachers' Pension Plan will stand with the already arranged deal despite attempts by the financing banks to renegotiate the terms.

The buyers are hesitant to accept a new deal which would require further approval from shareholders and regulators, a market source said.

"We are working very hard to fulfill our obligations and we expect that everyone else will fulfill their obligations. When I say we, I am talking on behalf of our [private equity] partners," chief executive officer Jim Leech of the Ontario Teachers' Pension Plan told the Financial Times.

Shares of (NYSE: BCE) were better by $0.08, or 0.21%, to end at $27.83.

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