Magna rises; Hillenbrand split cheered; Griffon seen breaking up; Back Yard Burgers bounces

By Ronda Fears

Memphis, May 10 - While the broader markets took a plunge Thursday, several special situations surged. Magna International Inc. took off after announcing a $1.54 billion capital infusion from Russian Machines, a unit of Basic Element, which is seen advancing its bid with Onex Corp. for the Chrysler division of DaimlerChrysler AG.

The bidding war for Biosite Inc. heated up again Thursday with Inverness Medical Innovations Inc. upping its bid to $92.50 per share from $90 in the latest of a string of rival bids against Beckman Coulter Inc., which had matched the $90 offer last week.

Biosite said its board was evaluating the latest offer from Inverness but has remained loyal thus far to Beckman Coulter since they inked a merger deal in late March at $85 per share. Biosite shares (Nasdaq: BSTE) passed the latest bid, settling at $94.70 for a gain of 70 cents on the day, indicating the market expects Beckman Coulter to counter with a higher bid.

Otherwise, Back Yard Burgers Inc. got a bounce on a big buyer stepping up for the stock, and a trader said the company is rumored be the target of another takeover attempt soon.

Refinery servicing company Xanser Corp. took a leap, too, after reporting robust results and another trader said it was a good turnaround story that could develop into a takeover situation.

Elsewhere, Hillenbrand Industries Inc. took off after announcing plans to split into two independent companies - funerals and caskets, and medical products such as hospital beds.

Griffon Corp. also is widely considered as a break-up story, a trader said, noting majority holder Clinton Group is adding pressure to the company's effort to explore strategic alternatives, which was announced last week when the company reported disappointing results. The company makes garage doors and other building components, plastic films and telephonics.

Magna rises on infusion

Canadian auto parts supplier Magna said the investment from Basic Element, controlled by Russian billionaire Oleg Deripaska, is first aimed at an expansion into the fast-growing Russian auto market. But it also is seen giving Deripaska a hand in the bid for Chrysler, a trader said.

Magna shares (NYSE: MGA) advanced $5.38 on Thursday, or 6.82%, to $84.31.

Magna, which is thought to be a leading bidder with Canadian buyout firm Onex Corp. in the Chrysler division of DaimlerChrysler AG, also is scheduled to hold its first-quarter earnings conference call before the opening bell Friday. Chrysler accounts for some 12% of Magna's sales. The company posted first-quarter earnings Thursday of $218 million on revenue of $6.4 billion, up 7% from a year earlier.

The complicated Russian deal, which must be approved by shareholders and regulators, would give Deripaska and Magna founder Frank Stronach joint control of the diversified auto supplier through a new holding company. Deripaska also owns Russia's No. 2 automaker Gaz, maker of the Volga luxury sedan and the Gazelle minivan.

Magna chief executive Don Walker declined to discuss the pending bid for Chrysler but said Gaz could be part of expansion plans that could give Chrysler a low-cost manufacturing base and new sales opportunities. Gaz has had a relationship with Daimler and Chrysler in the past.

Under the Magna investment agreement, Russian Machines would buy 20 million newly issued class A shares of Magna at $76.83 per share. A Canadian holding company would be created to combine the equity holdings in Magna of the Stronach Trust, Russian Machines and certain Magna executives.

Xanser sees heavy buying

Xanser Corp. swung to a profit for first-quarter, and traders said heavy buying pushed the stock as a turnaround story that could soon be a takeover candidate amid refinery expansions.

The stock (NYSE: XNR) gained 50 cents, or 8.93%, to close at $6.10 with 270,300 shares traded versus the norm of 46,848 shares.

When asked about the strategy of buyers in Xanser right now, one trader said, "Turnaround then takeover. Too many refineries need service around the world for someone not to take notice."

Dallas-based Xanser, formerly Kaneb Services Inc., provides technical services in the United States, Europe, and Asia-Pacific, chiefly to the refining industry. The company said last month that it would change its name to Furmanite Corp. after approval of shareholders on May 17. It will trade under the ticker "FRM."

The company on Thursday reported net income of $1.6 million, or 4 cents a share, compared with a loss of $36,000, or break-even, a year ago, as revenue grew to $68.4 million from $54.8 million.

Hillenbrand split cheered

Hillenbrand got a big bounce after announcing it would spin off its Hill-Rom, which makes hospital beds and related medical equipment, through a tax-free dividend, leaving Batesville Casket as its sole operating unit under the Hillenbrand name. Even without the finer details of the split, Hillenbrand shares zoomed well past many Wall Street targets.

The stock (NYSE: HB) advanced $6.14, or 10.04%, to $67.29.

"We view the proposed separation positively as a way to improve shareholder returns," said Hilliard Lyons analyst Stephen O'Neil in a report Thursday.

"Our feeling is that HB's two segments could not be more different. In our opinion, the two resulting companies have better prospects separately than together."

Hill-Rom operates in a more dynamic, growing market, the analyst said, with a technology-driven business with shorter product cycles and high capital investment versus the casket business. Batesville, in contrast, operates in a relatively stagnant market, but one in which the company has a very strong market position with significant market share, he said.

"We feel Hill-Rom could be positioned as a growth stock in medical technology," O'Neil said. "Batesville, with its sizable cash flow, could be an income-oriented security if excess cash were paid out in dividends."

Under the plan, Batesville Casket would continue to be listed on the New York Stock Exchange under the Hillenbrand Industries name. Hill-Rom would apply to list its shares on the exchange. Shareholders of the current company would have stakes in both new entities.

Few other details, such as the financial structure of each company, were provided Thursday, but the stock went past O'Neil's $63 price target on Hillenbrand shares. With the stock moving past that level, O'Neil said he was maintaining a neutral rating with a positive view on the separation.

Griffon seen breaking up

Griffon also is seen as a break-up story after the huge New York hedge fund Clinton Group on Wednesday threatened to launch a proxy battle to gain board control of the company if it did not make changes soon.

"It would be the best thing that could happen to this company," a trader said.

Clinton Group, which has an 8.3% stake in Jericho, N.Y.-based Griffon, said in a filing at the Securities and Exchange Commission that Griffon should seek a sale of the company or a recapitalization in partnership with a private equity firm, or it would "seek a change through shareholder means."

On May 3, when the building supplies firm posted disappointing fiscal second-quarter results, it said it was undertaking various actions to address the current challenging market environment in the building products segments and had retained Goldman, Sachs & Co to assist in the exercise.

The company supplies garage doors, fireplaces and other building components to contractors, and also makes plastic films used in diapers and feminine napkins as well as information and communication systems for government and commercial markets.

In the earnings release, Griffon acknowledged that the building segment was a drag on results while telephonics showed growth. The company said it saw higher sales volume in films but lower operating income because of price concessions to a major customer. The company reported fiscal second-quarter net income fell to $255,000, or 1 cent a share, from $7.2 million, or 23 cents a share, a year ago, while sales rose to $387.4 million from $366.2 million.

Griffon shares (NYSE: GFF) on Thursday were off by 18 cents at $22.57.

Back Yard Burgers bounces

Another trader said Thursday there also was a rumor that Back Yard Burgers is again the target of a takeover. He said earlier in the week he heard that drive-in chain Sonic Corp. was making a move for the burger chain but noted that BBAC LLC, which failed in a buyout last year, has nominations pending to the Back Yard Burgers board.

BBAC and Cherokee Advisors LLC, which had an 8.81% stake in Back Yard Burgers at year-end, along with former Sonic and Shoney's Inc. chief executive Stephen Lynn made a takeover bid of $6.10 per share for Back Yard Burgers last year, but it was not successful.

"There has been a good run on the stock in the recent days. The volume is up and the price is up. If Cherokee does not take charge and make a great offer, say $8.50-plus a share, they may be asking the question 'Where's the beef?'" the trader said.

Back Yard Burgers (Nasdaq: BYBI) gained 19 cents, or 3.48%, to close Thursday at $5.65.

The former deal fell apart last August.

Then, in December, BBAC and Cherokee announced nominations of Lynn and Reid Zeising, a managing partner in Cherokee Advisors, for the slate of board of directors at the 2007 annual meeting.

Back Yard Burgers' annual meeting for 2007 has not been scheduled as of Thursday, according to the Memphis-based company.

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