Investors size up Bear deal; airlines look for options; Countrywide faces another suit; 3Com vote goes on

By Aaron Hochman-Zimmerman

New York, March 19 - As the market gave back a good deal of Tuesday's rally, investors with differing interests considered which is the best way forward for the deal between Bear Stearns Co. and JPMorgan Chase & Co.

Countrywide Financial Corp. shares held still despite a class action lawsuit filed by Hurricane Katrina victims in Mississippi.

Meanwhile, the Alibaba Group announced its intentions to slip out from under Yahoo! Inc. in order to distance itself from the Microsoft Corp. takeover bid.

National City Corp. made a withdrawal by selling its stake in Visa Inc. after the credit card giant completed the United States largest ever IPO.

Also, Dillard's Inc. frustrated stakeholder, Barington Capital Group, announced it will nominate four new board members.

The Dow Jones Industrial Average ended down by 293.00, or 2.36%, at 12,099.66, while the Nasdaq Composite Index dropped 58.30, or 2.57%, to finish at 2,209.96.

The S&P 500 shed 32.32, or 2.43%, to close at 1,298.42.

Bear trapped for good?

Bear Stearns (NYSE: BSC) stock fell $0.58, or 9.82%, to end at $5.33 as investors tried to predict where Bear's $2 per share deal with JPMorgan (NYSE: JPM) will end.

New bidders, such as Citadel's rumored $20 per share offer, are going to surface, a market source said, "which would eliminate the firing of 8,000 plus folks in New York City."

A deal of that nature "would find favor in the likes of [New York senators] Chuck Schumer, Hillary [Clinton] ... and therefore probably get Fed backing too, in time," he said.

However, "I think we all agree that Bear is worth more than $2 a share," a market source said, but JPMorgan is still in a strong position to repel any bidders looking to best its offer.

JPMorgan already has the honor of being first to buy 20% of Bear Stearns at $2 per share. Plus, JPMorgan also has the right to prevent Bear Stearns from accepting a rival bid until March 16, 2009, a market source said.

Lawsuits are expected to challenge many of the facets of the deal, another market source said.

While there are many parties involved with various interests in whether Bear Stearns lives or dies, senior managing directors from the firm, Joe Triarsi and John Tyers, sent a letter to Bear's shareholders.

"JPMorgan Chase is a great fit for Broker Dealer & Investment Advisor Services. In particular, our business fills a hole that JPMorgan has been trying to fill in their business for some time. Over the past few days, we have met with executives at JPMorgan. They are enthusiastic about our business and we have their assurances that they are eager to work with us, to invest in and grow our business and our platform," the letter said.

JPMorgan shares slipped $0.24, or 0.56%, to $42.47.

National City cashes out

Shares of National City (NYSE: NCC) added $0.76, or 8.72%, to finish at $9.48 after it sold its holding in the now publicly traded Visa (NYSE: V).

The $450 million sale represents 33% of National City's holdings, "so the remaining two-thirds with stock at $60.00-ish gives them $2 billion total gains on this," a market source said.

The money "will help them weather the storm quite a bit," he said.

Visa's new shares priced at $44 per share, completing the largest ever initial public offering in the United States at a total value of $17.9 billion.

The sale came in above the expected $37.00 to $42.00 range. There is a greenshoe for 40.6 million shares.

Visa new shares jumped higher by $12.50, or 28.41% to $56.50.

Alibaba to crawl from under Yahoo!

Yahoo! (Nasdaq: YHOO) shares lost $0.59, or 2.13%, to end at $27.07 as some investors reacted cynically to Yahoo!'s new three-year plan to save itself from Microsoft's (Nasdaq: MSFT) bid, a market source said.

The plan is seen by many as a hollow attempt to convince shareholders that Yahoo! will survive separately from Microsoft in the long-term, the source said.

Meanwhile, the Alibaba Group (1688 HK) is in discussions to step out from under Yahoo!'s umbrella.

The Chinese e-commerce group is 39% owned by Yahoo! and is attempting to preserve its independence in the event of a takeover by Microsoft, the source said.

Microsoft stock dropped $0.80, or 2.72%, to close the day at $28.62.

Class action against Countrywide

Shares of Countrywide (NYSE: CFC) closed unchanged at $5.11 as another class action lawsuit was raised against the mortgage firm.

The suit, brought in the United States District Court in the Southern District of Mississippi, alleges Countrywide refused to "fulfill promises made to Gulf Coast hurricane victims," according to a press release from the James Hoyer Law Firm representing the plaintiffs.

"The suit alleges Countrywide took advantage of these disaster victims by offering them mortgage deferrals with no penalties attached and then reneging on that promise. The company turned its disaster relief assistance into a twisted, money making venture," the release continued.

Airlines grasp for merger

Shares of Delta Air Lines (NYSE: DAL) managed to add $0.34, or 3.37%, to close at $10.34 while Northwest Airlines (NYSE: NWA) tacked on $0.58, or 5.82%, to end at $10.55 the day after many had shovels ready to bury the airline deal.

The union representing the Northwest pilots encouraged Delta's pilots to accept "expedited arbitration," but a Delta representative quickly put an end to the idea, according to the Associated Press.

Still, Northwest's chief financial officer, Dave Davis said the need for consolidating the two carriers is "stronger than ever" during an investor's conference call Tuesday, according to a market source.

3Com, Bain to meet without deal

Shares of 3Com (Nasdaq: COMS) sank $0.64, or 22.38%, to finish at $2.22 as it announced that the company intends to proceed with a meeting on Friday to approve a deal to be bought by Bain Capital Partners for $5.30 per share, according to a press release.

However there is currently no deal after Congress' Cfius (Committee on Foreign Investment in the United States) raised objections to the original arrangement which would have put 16% of 3Com, a government software provider, in the hands of China's Huawei Technologies.

3Com's leadership insisted that all parties to the deal are working to meet Cfius' demands.

"While we remain committed to exploring alternatives that would enable us to complete the merger transaction contemplated by our existing merger agreement, we also remain confident in our long-term prospects" said 3Com president and chief executive officer, Edgar Masri. "The company and our strategy, which attracted Bain Capital to 3Com in the first place, have not changed."

No date has been set to resubmit a proposal to Cfius.

Holding the meeting and the vote preserves 3Com's right to pursue a break-up fee under certain circumstances, the company said.

Barington's four for Dillard's

Shares of Dillard's (NYSE: DDS) were better by $0.44, or 2.65%, to close the session at $17.05 after it was informed by the Barington Capital Group that it intends to nominate four new members of the company's boards of directors.

Barington owns about 5.6% of Dillard's outstanding shares.

"The Barington Group believes that the company's vast value potential is not being realized and lacks confidence in the ability of Dillard's current board, which is composed of directors with an average tenure of almost 20 years," according to a press release.

"Dillard's stock price has fallen by approximately 54% from June 30, 2007 through the close of trading on March 18, 2008, erasing more than $1.6 billion in shareholder value. In addition, Dillard's same store sales growth rate has lagged its peer group by an average of nearly 400 bps per annum over the past five years and the company has not posted an increase in annual same store sales since 1999. Moreover, Dillard's has the third worst corporate governance profile of all the companies in the Standard & Poor's 500 Index, as measured by Institutional Shareholder Services," the release continued.

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