Northwest climbs on return; A.G. Edwards surges on offer; Critical gains on approval; PDL slips on battle

By Kenneth Lim

Boston, May 31 - Northwest Airlines Corp. flew into positive territory Thursday on its return from bankruptcy, although investors tempered the gains with concerns about the airline's debt and costs.

A.G. Edwards Inc. climbed sharply after it received a $6.8 billion cash-and-stock offer from Wachovia Corp. that analysts said had a good chance of succeeding.

Critical Therapeutics Inc. also took off after the company's extended-release asthma drug received approval from U.S. regulators.

PDL BioPharma Inc. took a modest hit after shareholder Third Point repeated a call to fire the company's chief executive and sought to add BioMarin Pharmaceutical Inc.'s chief executive as a director.

Northwest climbs but outlook uncertain

Northwest Airlines exited from bankruptcy on Thursday and immediately traded higher, but investors noted ongoing concerns about the airline's debt level and its ability to weather another storm.

The new Northwest stock (NYSE: NWA) gained about 2.65% or 65 cents to close at $25.15 on Thursday. Shares of the Eagan, Minn.-based airline were delisted in 2005 after the company filed for bankruptcy.

"They did OK," a sellside equity trader said. "They were up almost a dollar in the morning, came off a little after that but they're still up."

Northwest was the last major U.S. airline operating under Chapter 11. It said it currently has more than $3 billion in cash and is forecasting a strong summer travel season, although second-quarter demand is seen as weak.

While the stock was higher than its when-issued levels, it was lower than the rights offering price of $27, the trader noted.

"I think you saw investors kind of rewarding the airlines today because they've all managed to come out of bankruptcy," the trader said. "Investors were optimistic coming into today because Northwest has managed to cut its costs, it's restructured its debt and there's a sense that the industry may be beginning to get the oversupply problem under control."

But the trader said airlines such as Northwest and Delta Air Lines Inc. are unlikely to see their stocks run much higher as cost issues continue to plague the sector.

"Fuel prices continue to rise and the industry is still very fragmented, so all the airlines are treading a very fine line in terms of margins," the trader said. "For Northwest specifically, they're looking at a very costly fleet replacement in the near future so you're going to see them become heavily leveraged again. The big fear is that it might not take a lot to send a couple of these airlines back into Chapter 11."

A.G. Edwards surges on offer

A.G. Edwards surged on Thursday after a buyout offer from Wachovia placed a 16% premium on the company's stock.

A.G. Edwards stock (NYSE: AGE) closed at $88.16, up by 14.27% or $11.01.

"AGE was a nice surprise," a trader said. "They were up at the offer price all the way. It looks like it's got a pretty good chance of going through."

The deal, announced late Wednesday, will give 0.9844 Wachovia shares and $35.80 in cash for every A.G. Edwards share. Based on Wednesday's closing prices, the deal was worth $6.8 billion and valued A.G. Edwards stock at $89.50 per share. The acquisition is expected to close in October. Combined, the companies will be the United States' second-largest retail brokerage.

St. Louis-based A.G. Edwards is an independent brokerage firm. Charlotte, N.C.-based Wachovia is one of the United States' largest banks.

"It looks like a fair offer," a sellside analyst said. "A 16% premium seems very reasonable, especially since the stock is at a high at the moment. I think one of the shareholders also said they're supporting the deal, so it looks like this deal will happen."

Prudential Financial Inc., which owns 38% of Wachovia Securities, said it is in favor of the acquisition. Prudential said it is currently reviewing its options on that stake and could sell it back to Wachovia.

Critical takes off on approval

Critical Therapeutics also ran higher on Thursday after a longer-lasting version of the company's asthma drug won approval from the U.S. Food and Drug Administration.

Critical stock (Nasdaq: CRTX) jumped 21.39% or 57 cents to close at $3.23.

"CRTX is up about 50 cents today," a sellside trader said. "It's not a big surprise, but it's positive."

Critical said its received marketing approval for Zyflo CR, its twice-daily slow-release asthma drug. Critical already sells Zyflo, an immediate-release asthma drug that is taken four times a day. The approval came just two weeks after the FDA approved respiratory care drug Perforomist, a treatment developed by Dey LP on which Critical is a marketing partner. Critical said earlier that it expected Zyflo CR to also be approved and it was expanding its sales force to market the new drugs.

Critical is a Lexington, Mass.-based biopharmaceutical company.

"That's two for two," the trader said. "It's a nice windfall for investors."

PDL dips on proxy war

PDL BioPharma slipped slightly on Thursday after major shareholder Third Point LLC repeated its call for the company to sack its chief executive and explore strategic options.

PDL BioPharma stock (Nasdaq: PDLI) closed at $27.51, down by 0.29% or 8 cents following a statement by Third Point.

In a letter filed with the Securities and Exchange Commission on Thursday, Third Point urged PDL BioPharma to respond to its demands. In early May, Third Point first demanded that PDL BioPharma fire Mark McDade as chief executive, hire an investment bank to explore strategic alternatives and add Third Point's nominees to the board. In a subsequent letter a week ago, Third Point added PDL BioPharma chairman L. Patrick Gage and business development head Jeanmarie Guenot to its hitlist.

In its Thursday letter, Third Point said it is adding BioMarin Pharmaceutical chief executive Jean-Jacques Bienaime to its list of board nominees.

"Mr. Bienaime recently contacted Third Point to offer to join the PDLI Board and shared our concerns that company mismanagement is obscuring significant asset value," Third Point wrote in its letter. "As you know, Mr. Bienaime is a highly-respected executive in the industry...Given his impressive credentials, we trust you will support Mr. Bienaime's candidacy."

Bienaime could not be reached for comment. PDL BioPharma said it has already responded to Third Point's earlier letters.

A sellside analyst said the proxy battle so far did not seem to be helping PDL BioPharma's stock.

"I think it's fair to say that proxy battles in general tend to create uncertainty around any stock, and uncertainty usually has a negative or neutral at best effect on the stock," the analyst said. "It's hard to tell how this will play out, and it's really hard to speculate about which outcome will actually be better for shareholders."

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