Dillard's, Macy's firm; Navistar up; Build-A-Bear better; Trump gains; Yamana off on three-way

By Ronda Fears

Memphis, June 28 - Dillard's Inc. advanced Thursday on Barington Capital Group LP asking for a meeting with management to discuss ways to boost shareholder value, which many interpret as a possible sale of the company. Macy's Inc. got another bounce, too, as the Dillard's development refreshed players' minds that the retail sector is considered ripe for private equity takeovers, traders remarked.

In another retail name, Build-A-Bear Workshop Inc. shot up after announcing that it has hired Lehman Brothers to explore a broad range of potential strategic alternatives to enhance long-term shareholder value, which many thought was a long overdue exercise. Reactions were widely mixed, however. Traders said some think the measure is a sign the company is in trouble, while others think it is an opportunity to make a fat premium.

General Motors Corp. said Thursday it would sell its Allison Transmission unit to private equity firms Carlyle Group and Onex Corp. for $5.6 billion, and Navistar International Corp., seen in the running to pick up GM's medium truck line, firmed on the news as some think it might clear the way for the medium truck deal. Navistar also is a name associated with takeover speculation, which is a source of debate among traders in the name.

Trump Entertainment Resorts Inc. rolled higher Thursday after a Bear Stearns analyst upgraded the stock, saying a decline in the Atlantic City casino's stock makes it more attractive as it shops for a buyout deal. Bear analyst Carlo Santarelli doesn't think the company will get a deal, but he sees the stock at a more reasonable price at Wednesday's $12.60 close. The stock ran up on his report, however.

Yamana Gold Inc. said it would conditionally buy fellow Canadian gold miner Northern Orion Resources Inc. and proposed buying U.S.-based Meridian Gold Inc. in a three-way deal designed to build on the trio's strength in Latin America. Yamana was punished on the news, while Northern Orion and Meridian saw sharp gains; one trader thought the drop in Yamana was overdone while another said it was based on a dim view of three-way mergers.

Meanwhile, Freeport-McMoRan Copper & Gold Inc. continued to tick up. The company declared a divided Thursday, but traders said the driver for the stock is lingering takeover speculation, despite its acquisition of Phelps Dodge Corp. last year. Recently large holder Atticus Capital said it has met with and may continue to meet with third parties to encourage them to consider strategic transactions involving Freeport-McMoRan designed to maximize shareholder value. Freeport-McMoRan (NYSE: FCX) gained 25 cents, or 0.3%, to $82.32.

Capital One Financial Corp. surged on analyst remarks that the credit card company would do better under a big bank umbrella. And, Friedman Billings Ramsey upgraded the company to outperform from market perform, plus boosted the price target to $96 from $80, on the company's restructuring plan unveiled late Wednesday, which calls for job cuts and other measures to produce savings estimated at $700 million by 2009. Bear Stearns has a $100 price target on Capital One. The stock (NYSE: COF) advanced 87 cents, or 1.1%, to $79.67.

Elsewhere in financials, Boston Private Financial Holdings Inc. hit the radar of some screens as a takeover candidate Thursday as well. The company has a $250 million convertible in the market, and a source in that camp said he sees it as a likely takeover target, in part because of the stock trading at a low multiple compared to other banks with similar profiles. He likened it to First Republic Bank, which Merrill Lynch bought for $1.8 billion in cash and stock, with appeal as a firm with high net worth clients and fee income concentration. Boston Private shares (Nasdaq: BPFH), pressured by the convertible deal, lost $1.23, or 4.32%, on Thursday to end at $27.24.

Dillard's joins Macy's in mill

Dillard's joined Macy's in the rumor mill of potential takeover candidates in the retail space, which has been a sector many think ripe for private equity interest.

"It was a little hokey, the part about them not being about to get Dillard's on the phone, but I think it put Dillard's on the map insofar as a potential deal," one trader said.

Dillard's (NYSE: DDS) rose $2.76, or 8.12%, to $36.69.

Barington, representing a group of investors that owns more than 3.2% of Dillard's stock, disclosed a letter sent to the company stating a belief that the stock is undervalued, with conviction that it can assist the company in dramatically improving shareholder value.

"As we have not been able to reach you by telephone, we are writing to request to meet with you and members of your management team. We would like to discuss a number of measures that we believe will increase the company's profitability to levels achieved by its peers and better utilize the company's substantial asset base," Barington wrote.

"These include initiatives that would augment the company's existing operating strategy in areas such as merchandising, inventory management and cost containment, as well as measures to unlock the value of the company's real estate portfolio. We have substantial experience helping improve shareholder value as an investor in a number of retail, apparel and footwear companies including Syms, Warnaco, Pep Boys, Stride Rite, Steven Madden, Payless ShoeSource, Nautica and Maxwell Shoe."

Last week, Macy's was rumored to be near a mega buyout speculated in the $52 per share area, or around $24 billion, with Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc. as possible bidders. The above trader said he thought that price tag "seems pretty steep, but I think they will get a decent premium."

Macy's (NYSE: M) advanced 48 cents, or 1.22%, on Thursday to $39.67.

Navistar comfort level rises

Navistar gained ground Thursday in what one trader characterized as some players feeling more comfortable about adding to their positions in light of the GM news and Navistar's healthy forecast earlier in the week. Market sources said there was some thought that GM sealing up the Allison sale might speed up a transaction on the medium truck division.

The stock (Pink Sheets: NAVZ) shot up $2.29, or 3.76%, to $63.14.

Yet, one buyside market source said it was just short covering.

"Why do stocks need a reason to move?" he remarked.

"Too many people are short. They are trying to cover, that simple."

Another buysider said that the big snag in Navistar's negotiations on the GM truck division is related to the United Auto Workers union's concern that Navistar might go bust, noting the company is behind on filing its financials. The union wants health care and pension benefits to flow back to GM in the event that Navistar severely falters, similar to the situation involving GM's former subsidiary, the bankrupt auto parts supplier Delphi Corp. GM is said to be resisting that twist, since it has found itself on the hook for an estimated $7 billion in the Delphi case.

A trader said Navistar is still considered a takeover speculation play, as well. But he said most people think the company would have to get current on its financials before a potential buyer would step up; that is widely anticipated to happen this fall sometime, he said.

The takeover hype that has driven Navistar shares higher in recent months is not altogether well-founded by the second buysider's view, however. He pointed to improving fundamentals at the company. Navistar said earlier in the week that a tough economic climate led to a 31% plunge in second-quarter truck sales, but it forecast that the remainder of the year, boosted by expansion markets, should improve.

"What is clear is that management does not want to sell," he said. "Management thinks they can now get margins up to 10%. They've never done what they've said. If they do, there's a lot of upside. If management screws up in '09 [on that projection] then they might get bought."

Build-a-Bear bounce edgy

Build-A-Bear's news to possibly be shopping a deal sparked a variety of reactions, traders said. In the end the stock (NYSE: BBW) gained $3.19, or 14.17%, to $25.70, and one buysider noted that the stock closed down from the intraday high of $26.59, which he attributed to sellers taking profits as they saw limited upside.

"This dire step will certainly damage BBW business prospects. Now the world has confirmation that BBW is struggling. This story will make every retail, mall and licensing publication. Shorts will look brilliant," the buyside source said.

"I expect fewer buyers for BBW overseas franchises. Aside from the huge expense of hiring consultants, partners in this business will be wary of BBW. Malls may no longer offer them sweetheart deals - the best locations at low rent. This isn't great news as I see it. The BBW image is in big trouble."

He noted that more than 38% of the stock is shorted, indicating a very negative view on the equity story because of strained retail sales and a pall on the U.S. economy.

A sellside trader, however, said the company has been considered a potential takeover target for a little while and buyout estimates range from $33 per share at Credit Suisse to $35 at Wedbush Morgan, although he conceded that those estimates were lowered from estimates before the news. He noted Susquehanna Financial also upgraded Build-A-Bear shares Thursday on the news.

Susquehanna analyst Thomas Filandro upgraded the stock and estimated a buyout price target on Build-A-Bear would be in the mid $30s, and that is the most positive driver in the stock he sees on the horizon. Based on recent private equity retail deals, such as Claire's Stores, he sees a potential buyout valuation range of $34 to $36, which would equate to a range of 8 to 10 times EBITDA.

"Private equity valuation [is] a real catalyst," Filandro said.

"Given the difficulty in predicting licensed skin [from movies like "Happy Feet" and "Shrek"] demand, as well as generating consistent positive same-store sales, we see an increasing probability that management will consider going private. Given the uniqueness of the concept and what we believe is strong and growing brand recognition, both domestically and overseas, we see a private equity buyout as the only near-term potential driver to [the stock]."

Build-A-Bear said in a statement Thursday that it will stop providing earnings forecasts while it considers strategic alternatives.

Ahead of that hush period, however, the company said on June 14 that slumping sales may lead to its least profitable quarter since it went public in October 2004 and lowered its second-quarter profit projection to 7 cents to 10 cents; same store sales have been falling for three consecutive years. The St. Louis company is scheduled to report second-quarter results on July 26.

Trump sellers still prevail

Trump shares marked a gain Thursday, but traders said there was still a considerable amount of players exiting the story as the stock headed north on the Bear Stearns upgrade, while some die-hard investors modestly added to their positions.

The stock (Nasdaq: TRMP) settled with a gain of 37 cents, or 2.94%, at $12.97 after trading in a band of $12.83 to $13.49 during the session.

Bear Stearns analyst Carlo Santarelli upgraded Trump Entertainment to peer perform from underperform but said unless Trump gets a buyout deal, the stock is only worth $11.

Santarelli, in fact, said he does not think Trump will get a deal, but in that event he estimates the stock would only lose about 9%. And at cheaper prices, noting the stock is down almost 22% this year, it is a more prudent wager on the situation. If a deal does surface, however, a buyer would likely pay a premium.

Market chatter this week, however, puts the bidders - former Atlantic City casino executive Dennis Gomes and real estate developer Morris Bailey's JEMB Realty - offering a little more than $11, which would be a discount to Trump's current market. That, on Wednesday sparked what traders referred to as a run for the exit door with many players simply walking away from the table.

Yamana pounded by deal

Toronto-based Yamana was punished in the face of its proposed three-way linkup with Vancouver, B.C.-based Northern Orion and Reno, Nev.-based Meridian Gold. While one trader thought the hit to Yamana was unfair, a buysider said history shows this type of deal is not successful.

Yamana (Toronto: YRI) lost C$1.19, or 9.14%, to C$11.83; in the United States, the stock (NYSE: AUY) dropped $1.01, or 8.32%, to $11.13.

Meanwhile, Northern Orion (Toronto: NNO) added 32 cents, or 5.49%, to C$6.15; in the United States (NYSE: NTO) it gained 35 cents, or 6.42%, to $5.80.

And, Meridian Gold (NYSE: MDG) shot up $3.15, or 12.91%, to $27.55.

The deal with Northern Orion is conditional on Yamana acquiring a two-thirds stake in Meridian. If a deal with Meridian cannot be reached, Yamana said it and Northern Orion together would seek to buy Meridian outright.

Shortly after Yamana's announcement, Meridian issued a statement saying no formal offer had yet been made but it did not rule out the possibility of a merger.

Under Yamana's proposal, Meridian shareholders would receive 2.235 Yamana shares plus C$3.15 in cash; based on Yamana's closing price on Wednesday, the offer works out to an equivalent of C$32.25. On Thursday, Meridian shares (NYSE: MDG) $3.15, or 12.91%, to close at $27.55.

Northern Orion shareholders would receive 0.543 Yamana shares under the proposal, which based on Wednesday's closing price equals C$7.07. On Thursday, Northern Orion shares (Toronto: NNO) gained 32 cents, or 5.49%, to close at C$6.15, and in the United States (NYSE: NTO) the shares gained 35 cents, or 6.42%, to close at $5.80.

Yamana shares took a dive Thursday on the development, however, which trimmed the value of the transactions. The stock on Thursday (Toronto: YRI) fell C$1.19, or 9.14%, to C$11.83 and in the U.S. (NYSE: AUY) dropped $1.01, or 8.32%, to $11.13.

"About a year ago, Goldcorp did a similar three-way transaction, saying what a great fit and bargain it was, according to the ebulient Goldcorp CEO yada, yada, yada. In the meantime the analysts thought the whole thing was a dumb move. Since then Goldcorp stock has gone nowhere but down - guess the analysts were correct," the market source said.

"Sounds like Yamana is doing a similar thing with this messy acquisition that probably no one can figure out or have confidence in. I suspect the Yamana stock price will have the same fate as Goldcorp, down to nowhere (i.e. this is another case of 'let's get bigger for some nebulous future payoff that may or may not pay off and screw the shareholders in the meantime with lots of dilution')."

In May 2006, Vancouver, B.C.-based Goldcorp formed a three-way joint venture with Eastmain Resources Inc. and Azimut Exploration Inc. to explore the Eleonore field. On Thursday, Goldcorp shares (Toronto: G) lost 40 cents, or 1.58%, to C$24.90; in May 2006 the source said the stock was at about C$42. In the United States on Thursday, Goldcorp shares (NYSE: GG) dropped 16 cents, or 0.68%, to $23.49.

The trader said that Goldcorp's downdraft over the past year, as he sees it, was due to the company's aggressive acquisitions over the past several years. He noted that in 2002 the three-way merger of Kinross Gold Corp., TVX Gold Inc. and Echo Bay Mines Ltd. won approval, so there has been precedent. Toronto-based Kinross was the surviving entity in that three-way merger and the stock at that time was trading at around C$3 to C$4; Kinross shares (Toronto: K) on Thursday closed at C$12.15, which was a loss of 27 cents, or 2.17%.

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