Confidence grows in Xerox deal-making; Aquiline's friendly buyout expected to be completed

By Cristal Cody

Tupelo, Miss., Oct. 29 - Shares in Affiliated Computer Services, Inc. and Xerox Corp. traded up on Thursday as confidence grows in the companies' $6.4 billion merger, an analyst told Prospect News.

In other situations, silver prices sent shares of Aquiline Resources Inc. and Pan American Silver Corp. up, moving the companies' stocks ahead of an expected deal, an analyst told Prospect News on Thursday.

Meanwhile, Wall Street jumped on Thursday and reversed losses from a day earlier.

"Equity markets have moved sharply higher," Bill O'Grady, chief market strategist with Confluence Investment Management LLC, said in a research note released Thursday. "Overall, today is following the pattern seen this autumn; stronger equities beget higher commodity prices, a weaker dollar and softer Treasuries."

The Dow Jones Industrial Average climbed 199.89 points, or 2.05%, to close at 9,962.58 on Thursday.

The Standard & Poor's 500 index ROSE 23.48 points, or 2.25%, to 1,066.11, while the Nasdaq Composite index closed up 37.94 points, or 1.84%, at 2,097.55.

Xerox, ACS deal uncertainty falls

Xerox said on Sept. 29 it will acquire managed services provider Affiliated Computer Services for $63.11 a share in cash and stock.

Under the terms of the agreement, Norwalk, Conn.-based Xerox will pay Affiliated Computer Services shareholders $18.60 per share in cash plus 4.935 Xerox shares for each Affiliated Computer Services share.

The deal spread since has widened by about 8.25%.

"As we get closer we'll see Xerox's stock move up closer to make this a reasonable deal," Bhavan Suri, an analyst with William Blair & Co., LLC, told Prospect News on Thursday.

Both Affiliated Computer Services and Xerox shareholders must approve the transaction. The deal also requires regulatory clearances in the United States and the European Union.

Dallas-based Affiliated Computer Services is the largest provider of managed services to government entities in the United States.

Xerox said in an Oct. 23 form S-4 filing with the U.S. Securities and Exchange Commission that the company filed for termination of the waiting period with U.S. regulators on Oct. 15 and plans soon to file its E.U. application.

The transaction is expected to close in the first quarter of 2010.

Suri said that investor confidence has grown since the transaction was first announced.

"There was a little bit of uncertainty about the deal initially because some folks were questioning the synergies between the two companies," he said. "That said, I'm fairly confident the deal will close. Xerox's shareholders vote will probably take place early next year."

Affiliated Computer Services founder and chairman Darwin Deason, who holds the company's class B shares and about 42% of the voting rights, has agreed to support the deal.

Xerox shares rose 22 cents, or 2.94%, to $7.71.

Affiliated Computer Services shares closed up $1.01, or 1.94%, at $53.01.

No worries on Aquiline closing

Shares in Aquiline and Pan American Silver climbed on Thursday with the silver market rather than any merger news, Michael Curran, an analyst with RBC Capital Markets Corp., said in an interview with Prospect News.

"Silver prices have been down for about a week or two until today. Now, we have a strong move in silver prices and both Aquiline and Pan American are up 5%," he said.

Pan American Silver said on Oct. 14 that it will acquire silver miner Aquiline in a transaction valued at C$626 million.

Under the terms, Pan American Silver offered 0.2495 of a share plus 0.1 of a Pan American share purchase warrant for each Aquiline share. The offer values Aquiline at C$7.47 per share.

Toronto-based Aquiline's board has recommended shareholders tender their stock and merge with Vancouver, B.C.-based Pan American Silver, which has eight mines in Mexico, Peru, Argentina and Bolivia.

The proposal terms include a C$18 million break-up fee.

"It's a friendly deal," Curran said. "There are no concerns about the deal not going through."

Aquiline's stock added C$0.21, or 3.61%, to close at C$6.02 on Thursday.

U.S.-listed shares of Pan American rose $1.22, or 5.96%, to $21.69.

Mentioned in this article:

Affiliated Computer Services, Inc. NYSE: ACS

Aquiline Resources Inc. Toronto: AQI

Pan American Silver Corp. Nasdaq: PAAS

Xerox Corp. NYSE: XRX

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