Smith ropes W-H Energy; Bovail fights Melnyk proxy; BCE waits on hearing; union takes on airline deal

By Aaron Hochman-Zimmerman

New York, June 3 - Headlines from the financial sector undercut stocks, but good news came from deal-land as Smith International Inc. announced the acquisition of W-H Energy Inc., although a negative spread at the close indicated some investors are expecting a higher offer.

Shares of Biovail Corp. were also higher even as the company fired back against founder and former chairman Eugene Melnyk's bid to place a new chairman and nine board members through a dissident proxy.

In media, Clear Channel Communications Inc. was back on investors' minds as chief executive officer Mark Mays tried to dissuade the Federal Communications Commission from allowing the deal between XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc.

Also, a machinists union was busy with an attempt to throw a wrench in the deal between Northwest Airlines Corp. and Delta Airlines Inc. claiming it served neither the union nor the shareholders.

Elsewhere, Canada's BCE Inc. began the waiting period for its appeal hearing to allow its private equity buyout.

Meanwhile, the Dow Jones Industrial Average sank by 100.97, or 0.81%, at 12,402.85, while the Nasdaq Composite Index gave up 11.05, or 0.44%, to finish at 2,480.48.

The S&P 500 lost 8.02, or 0.58%, to close at 1,377.65.

Smith acquires W-H Energy

Even as oil prices dipped below $124 per barrel, W-H Energy shares (NYSE: WHQ) jumped $7.68, or 8.98%, to $93.22 after it announced Smith International would buy the Houston-based oil services firm for a per-share price of $56.10 and 0.48 Smith shares, according to a press release.

The deal is valued near $3.2 billion.

"Smith provides us the opportunity to increase the growth rate of our directional drilling services through its strong international presence. In addition, we bring new service lines to Smith's existing product and service portfolio which further diversifies and balances the sources of its revenue and income," said Ken White, W-H Energy's chief executive officer, in a statement.

Smith has over 200 million shares outstanding as is expected to issue 15.5 million to W-H Energy shareholders, the release said.

The deal is expected to close in the third quarter.

"The spread closed big-time today, it looked a little funny," an analyst said.

Based on Monday's close - before the deal was announced - the price worked out as a 10% premium for W-H Energy. By Tuesday's close that had turned into a negative $0.24 spread, "you'd think the market is pricing in some kind of bump in the bid," he said.

Shares of Smith International (NYSE: SII) dropped $1.18, or 1.51%, to close the session at $76.84.

Biovail pushes for rejection of Melnyk proxy

Biovail cautioned its shareholders that a circular distributed in conjunction with a dissident proxy filed by founder and former chairman and chief executive officer, Eugene Melnyk, and his allies "contains a number of incomplete, misleading or incorrect statements and should be viewed with skepticism," according to a Biovail press release.

Melnyk's proxy nominates former chief executive officer Bruce Brydon and nine other new directors.

"We believe shareholders will recognize the Melnyk nominees for what they are and should reject a return to a Melnyk-dominated company," the release said.

Melnyk is a 12% holder of the Mississauga, Ont.-based pharmaceutical company, who is associated by the company with a $25 million settlement stemming from federal charges of corruption in the United States.

"Essentially, shareholders face a choice between returning the company to the influence of Eugene Melnyk or moving forward with an expanded independent board, a strong management team, reduced litigation risk and a viable long-term strategy for delivering value," said chairman Douglas Squires, in the release.

Shares of Biovail (NYSE: BVF) managed to add $0.11, 0.95%, to finish the day at $11.72.

BCE steadies for hearing

Share prices of BCE (NYSE: BCE) slid just $0.12, or 0.35%, to $34.41 as the market waits for the June 17 hearing in the Supreme Court of Canada.

"They had to hear it," a market source said about the Supreme Court's decision to take the case based on its size and implication on Canadian law.

"You don't know how they're going to rule," he said, after factoring in a unanimous decision by the Quebec Court of Appeal.

"People now are expecting some kind of settlement," he said, in the vein of the Clear Channel deal.

"If I had to guess," he said, a renegotiated deal may surface at an offer price in the "high $30s," down from the current offer of $42.67 per share.

Clear Channel chief rips satellite radio deal

After a drawn out battle to see through a buyout of his own company, Mark Mays, chief executive officer of met with FCC commissioner Deborah Tate to sell her his view that the combination of the two satellite radio broadcasters would amount to a satellite monopoly, an analyst said.

Despite dwindling sales and growth satellite radio terminals and subscriptions, the deal is still closely followed, he said.

When asked if he expects the deal to go through, the analyst said: "Yes, probably ... but probably not by the June 30 deadline."

"They're such professional feet-draggers," he said about the FCC.

Shares of XM Satellite Radio (Nasdaq: XMSR) took on $0.31, or 2.86%, to finish at $11.16.

Shares of Sirius Satellite Radio (Nasdaq: SIRI) were better by $0.03, or 1.18%, to end at $2.57.

Unions try to 'scuttle' airline deal

Elsewhere, the International Association of Machinists and Aerospace Workers were interested in letting the air out of the tires of another deal.

The union issued a statement of concern for both its members and shareholders.

"I urge shareholders of Delta and Northwest to protect their interests and speak out to oppose this proposed merger," union president Tom Buffenbarger said in the release.

"In addition to my concern with the treatment of employees in the proposed merger, I also believe that this transaction destroys shareholder value by combining two vastly different entities with few expected synergies," he added, citing "a crushing long-term debt burden of $15 billion" and "a serious lack of liquidity with a working capital deficiency of $1.03 billion."

An analyst downplayed the importance of the union's comments.

"They don't vote on it," he said, estimating that the union will have little effect on shareholders.

Shares of Northwest Airlines (NYSE: NWA) tacked on $0.36, or 5.37%, to close the session at $7.07.

Shares of Delta Airlines (NYSE: DAL) improved by $0.25, or 4.27%, to end the day at $6.10.

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