Dow Jones spikes, News slides; MAF, Community Bank higher; Genesis firm; Jones Apparel off

By Ronda Fears

Memphis, May 1 - Dow Jones & Co. Inc., publisher of The Wall Street Journal, confirmed Tuesday it has received a hostile takeover bid from News Corp. to buy the company for $5 billion, or an equivalent of $60 per share.

The whopping 65.15% premium to Monday's market caught the market off-guard and sparked heavy short covering, but buyers were pricing in risk since a deal hasn't been inked and specifics of the payout are unknown. Well after the market closed, the Bancroft family, which controls Dow Jones, said it would vote against the takeover.

National City Corp., the eighth-largest domestic bank, announced it will buy MAF Bancorp Inc. for $1.9 billion in stock to expand in the Chicago area and enter Wisconsin. Shareholders of MAF Bancorp, parent of MidAmerica Bank, would receive an equivalent of $56 per share, a 39.5% premium over Monday's close. Traders said that while many liked the premium on the face of it, with no collar on National City shares, downside risk there held MAF Bancorp shares back.

Bank holding company Susquehanna Bancshares Inc. said it agreed to acquire smaller rival Community Banks Inc. for $860 million to expand in southeastern Pennsylvania and the Mid-Atlantic region. Under the deal, Community Banks shareholders can choose to receive either $34 or 1.48 shares of Susquehanna for each Community share.

Peers of both MAF Bancorp and Community Banks were higher on the news, and there was some spillover into mortgage banks, but traders said the sentiment there was still pretty negative. Fremont General Corp. (NYSE: FMT) advanced 38 cents, or 5.03%, to $7.93 while Novastar Financial Inc. (NYSE: NFI) lost 14 cents, or 1.9%, to $7.22.

"The mortgage companies will get deals [buyouts] if they want them, but they will be at big discounts, not premiums and not premiums like we saw in the regional banks today," said a distressed equity trader.

Genesis HealthCare Corp. ticked up Tuesday as Formation Capital and JER Partners upped their buyout offer to $65.25 per share from $64.25 to match a boosted bid from Fillmore Capital Partners on Monday to $65.25 from its previous offer of $64.75. The company has sided with the Formation and JER bid, but one trader said the shares are "pretty much locked up into a handful of accounts" so there is not a lot of new buyers. Genesis shares (Nasdaq: GHCI) gained $1.16 on the day, or 1.81%, to $65.16.

Elsewhere, campaigns launched in the proxy fight between Motorola Inc. and activist investor Carl Icahn - with both volleying scathing remarks to the other to advance their agendas - caused some brisk trading in Motorola shares but in a tight trading range ahead of the stockholder vote next week. The stock (NYSE: MOT) settled at $17.49 for a gain of 16 cents on the day, or 0.92%.

Jones Apparel Group Inc. was sharply lower Tuesday, a day before earnings are due to be reported, as the market expects a weak showing with lowered guidance likely. But, one trader said any sign of the company putting the upscale Barneys New York chain up for sale, as speculated in reports over the weekend, would be a big boon.

Dow Jones risk priced in

After trading in its shares was temporarily halted shortly after 11 a.m. ET, Dow Jones reopened to spike immediately higher by 60% before easing back to close the session well under the $60 bid from News Corp. to price in some risk as well as a time value lapse.

"A lot of people think they are probably going to take it, believing it's too good to walk away from," one trader said.

But there is an element of risk since nothing has been inked and the Bancroft family has expressed opposition to a sale. In addition, specifics of any cash and stock transaction are undefined as yet.

Dow Jones' board of directors said it and members and trustees of the Bancroft family, who hold shares representing a majority of Dow Jones voting power, are evaluating the offer - to be paid in cash or in a combination of cash and News Corp. securities.

Dow Jones (NYSE: DJ) traded in a band of $36.04 to $58.47 before settling at $56.20 for a gain of $19.87 on the day, or 54.69%.

News Corp. (NYSE: NWS) fell $1.01, or 4.21%, to $22.99.

"Right now, at $57-ish, one could make roughly 2.25% on the deal," the trader remarked. Thus, he said some people were taking profits off the table on the run-up during the session to put to work elsewhere.

Moreover, he said, "The stock is holding below the takeover price to account for time value, like if it takes four to five months to close, you'll make 8% to 10%."

Dow Jones is controlled by the Bancroft family through a special class of shares and cannot be taken over without their consent.

Like other newspaper publishers, Dow Jones' shares have been beaten down over the past few years amid sluggish advertising and as more readers and advertising dollars move to the internet. Just Monday there were headlines that newspaper subscriptions were hurting, so the trader said many players were shorting stocks in the space.

"I don't have the figures but I believe there was a huge short position in Dow Jones," the trader said. "There were some short covering early but they got shot in the head."

National City slides on deal

National City was hit on news it will buy MAF Bancorp, and without a collar on the all-stock transaction traders said that translated to downside risk for MAF Bancorp holders. Shareholders of MAF Bancorp are to get the equivalent of $56 per share - a 39.5% premium over Monday's market.

MAF Bancorp (Nasdaq: MAFB) gained $14.29, or 35.59%, to close at $54.44.

"They agreed to pay a fixed price to MAF Bancorp in stock with no collar on their own," one trader remarked.

"It can get expensive if their stock sells off; plus, they now have to halt their [National City stock] buyback, so I see it vulnerable to lower levels."

Indeed, National City shares (NYSE: NCC) lost 48 cents, or 1.31%, to $36.07.

An analyst at another shop said that the transaction is thought to be accretive in 2008, but how that is achieved, what with paying such a relatively high price, seems somewhat of a stretch. Moreover, this analyst said the reason why National City is making the acquisition is because it is trying to steer away from being a bank heavily influenced by mortgage profits to one with stronger retail banking.

He suggested those not already involved in either story remain on the sidelines for now.

The purchase is National City's third in five months. National City expects the transaction to result in a $135 million charge, a 30% cost savings over 15 months and to boost earnings per share by 1.7% in 2008 and 3.7% in 2009.

The deal values MAF Bancorp at about 19.2 times expected 2007 earnings and 1.8 times book value.

Susquehanna criticized

Susquehanna paid a little more for Community Banks and was punished by the market as well. Under the deal, Community Banks shareholders can choose to receive either $34 or 1.48 shares of Susquehanna for each Community share.

Susquehanna (Nasdaq: SUSQ) lost 43 cents, or 1.93%, to $21.85.

Community Banks (Nasdaq: CMTY) gained $8.49, or 35.93%, to $32.12.

"Will someone tell me why Susquehanna bought another bank when management can't increase shareholder equity with the current operations?" remarked one trader.

"They way overpaid, and what I wouldn't give for someone to give me a 30% premium for my Susquehanna shares."

If Community Banks holders accept the cash, it would be a 44% premium to Monday's close and values the bank at 20.4 times its estimated 2007 earnings. In a conference call, Susquehanna said it expects the acquisition to add 7 cents a share to its 2008 earnings.

Jones New York taken down

Jones Apparel, better known for its Jones New York label, was taken lower by "cagey" players not quite sure how trading will shape up Wednesday when the clothing retailer reports quarterly earnings before the opening bell.

The stock (NYSE: JNY) closed off by $1.03, or 3.08%, at $32.36, but a trader noted that it added most of that back in after-hours action. He last saw the stock up by 2.9% at $33.30.

Barney's is not yet in play and Jones is not saying anything in advance of earnings, the trader said. The stock was off big Tuesday because the market is expecting Jones New York will lower guidance as many other retailers have, he added.

"I believe this stock can move up higher," the trader said. "If they give any hint that the rumors over the weekend are true, that they will investigate selling off Barney's, then we will get a big bounce."

The 2004 purchase of Barneys for $400 million was questioned by analysts as inconsistent with Jones' moderate portfolio, which includes Nine West and Gloria Vanderbilt. Barneys has thrived, however, vindicating the high-end purchase.

If Jones sells Barneys, it would be a boon to the stock, the trader said, but it also might make the remaining Jones New York company more vulnerable to weakness in the apparel sector. He said there is further uneasiness among players because of the company's failure to garner bids last year in an attempt to go private.

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