Regulators eye Merck, Fidelity; Anglo American may be ripe for pact; Tower needs investor OK

By Cristal Cody

Tupelo, Miss., June 22 - Two complex deals are gaining a second look from U.S. antitrust authorities.

Merck & Co., Inc. and Schering-Plough Corp. said Monday they have received requests for additional information from the Federal Trade Commission for their merger.

Fidelity National Information Services, Inc. and Metavante Technologies, Inc. also said on Monday that the Department of Justice has requested additional information for their transaction.

Analysts told Prospect News on Monday that both proposals should clear the standard reviews.

Meanwhile, British mining firm Anglo American plc said Monday it considers buyout terms by rival Xstrata plc to be "totally unacceptable," but an analyst said the company needs to do a deal.

In other situations, shareholder approval will be watched in Tower Group, Inc.'s plans announced on Monday to acquire Specialty Underwriters' Alliance, Inc. for about $107 million in stock, an analyst told Prospect News.

On Wall Street, dreary global economic news dampened the markets Monday.

The Dow Jones Industrial Average lost 200.72 points, or 2.35%, to close at 8,339.01.

The Standard & Poor's 500 index slid 28.19 points, or 3.06%, to 893.04, and the Nasdaq Composite index dropped 61.28 points, or 3.35%, to end at 1,766.19.

Government requests

Merck and Schering-Plough said in a statement Monday that the FTC's second request was anticipated under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

David Moskowitz, an analyst with Caris & Co., said in an interview Monday that the additional request is fairly standard in a large, complex acquisition.

"The primary overlap for Merck and Schering really is around the animal health business," he said. "In that area, it makes sense the FTC would come back and make a couple of inquiries in terms of overlapping products."

Kenilworth, N.J.-based Schering-Plough produces products in prescription medicines, animal health vaccines and consumer health products.

Whitehouse Station, N.J.-based Merck's biggest-selling products include the allergy medicine Singulair.

Regulators in Europe, Brazil and Japan and shareholders of both companies also must clear the $41.1 billion deal.

Merck and Schering-Plough said they continue to expect the transaction to close during the fourth quarter.

"There's still plenty of time to remain on track," Moskowitz said. "We still expect the deal to close on time."

Under the terms, Schering-Plough shareholders will receive $10.50 in cash and 0.5767 of a Merck share for each Schering-Plough share.

Merck shares fell 73 cents, or 2.82%, to close Monday at $25.18, while Schering-Plough's stock lost 46 cents, or 1.93%, to $23.34.

Fidelity deal's closer look

The complexity of Fidelity National's acquisition of Metavante Technologies also probably caused the additional review requests by the Justice Department, David Koning, a senior research analyst with Robert W. Baird & Co., told Prospect News on Monday.

Fidelity made the all-stock offer to acquire Metavante for about $2.94 billion in April. Under the terms of the deal, Metavante shareholders will receive 1.35 shares of Fidelity National's stock for each share of Metavante.

Jacksonville, Fla.-based Fidelity and Milwaukee-based Metavante pushed back their expected deal closing to the fourth quarter because of the extended review.

"There's not that much deal activity happening right now, so we think the government has more time to look at each deal," Koning said. "We still expect the deal to close. Fidelity's revenue is small [and] will be about 10.00% of all U.S. bank spending."

The two companies provide processing transaction and banking and payment services to the top 200 banks in the United States.

Metavante's stock dropped 87 cents, or 3.30%, to close at $25.53.

Fidelity shares closed off 19 cents, or 0.96%, at $19.57 on Monday.

Anglo says no way

Anglo American left no doubt how it felt about an offer from Xstrata announced on Sunday.

In a statement released Monday, London-based Anglo American's board said the terms were "totally unacceptable."

A combination was expected to create a company valued at $68 billion.

Xstrata said in a statement released Monday to Prospect News that the company is "disappointed by Anglo American's rapid rejection of our proposal for an all-share merger of equals. We are also surprised that the Anglo American board has not seen fit to engage with Xstrata to discuss our proposal."

Anglo American's board said in a statement that a merger would dilute the company's exposure to platinum, iron ore and diamond markets and increase its exposure to lower-priced nickel and zinc.

Zug, Switzerland-based Xstrata mines commodities that include copper, coal, nickel and zinc.

Emiliano Leggieri, an analyst with Pali International Ltd., said in a Thursday research note that a transaction is more than desirable for Anglo American.

"We have regarded Anglo as a company with tier 1 assets but underperforming management and politicized working environment for years, and in our opinion, the hope of an effective turnaround implemented by its CEO, Cynthia Carroll, is fading," Leggieri said.

Anglo American shares gained 4.62% to close at 1,698p while Xstrata's stock dropped 6.83% to 634.46p on the London Stock Exchange.

Insurers unite

Under the terms of the agreement, Specialty Underwriters' Alliance shareholders will receive 0.28 shares of Tower stock for each share to equal $6.72 a share. The offer's exchange ratio is subject to adjustment based on Tower's stock price.

The transaction is expected to close by the end of the year, subject to approval from shareholders of Specialty Underwriters' Alliance and regulatory clearances.

An analyst told Prospect News on Monday that no regulatory issues are expected in the combination of Tower, a property and casualty insurance firm, and specialty property and casualty insurance firm Specialty Underwriters' Alliance.

"People will be more or less concerned with making sure shareholders approve the acquisition," the analyst said. "A lot of investors probably got into Specialty Underwriters in the last year or two. On the other side, Specialty Underwriters did an IPO at a much higher price, around $9.00 - so the question is: Are those investors still in the stock?"

The boards of directors of New York-based Tower and Chicago-based Specialty Underwriters' Alliance have approved the transaction, and the companies plan to host a conference call for investors on Tuesday.

Shares of Specialty Underwriters' Alliance jumped $2.21, or 55.81%, to close Monday at $6.17, a new yearly high.

Tower's stock closed down 94 cents, or 3.92%, at $23.06.

Mentioned in this article:

Anglo American plc London: AAL

Fidelity National Information Services, Inc. NYSE: FIS

Merck & Co., Inc. NYSE: MRK

Metavante Technologies, Inc. NYSE: MV

Schering-Plough Corp. NYSE: SGP

Specialty Underwriters' Alliance, Inc. Nasdaq: SUAI

Tower Group, Inc. Nasdaq: TWGP

Xstrata plc London: XTA

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