Dobson spikes; Doral off; GLG pushes Freedom; U.S. Energy falls; Trump rises; BCE better

By Ronda Fears

Memphis, June 25 - Dobson Communications Corp. soared Monday amid speculation of a possible takeover bid fueled by a report the company had hired bankers to explore a possible sale. Coming on the heels of the Alltel Corp. private equity buyout last month, traders said the rumor was eagerly embraced.

The rival bid for Puerto Rico bank Doral Financial Corp. has been withdrawn by FBOP Corp., and, instead, FBOP, as a major stockholder in Doral, said it would vote for the original bid from a group led by Bear Stearns Merchant Banking bid, which was lower from an equity valuation standpoint.

Meanwhile, the bidding war for Canada telephone giant BCE Inc. - which perhaps oddly has erupted without a single number getting bandied about - has heated up with Catalyst Asset Management Inc., a boutique investment banking firm without any ownership stake in the company, tossing into the pot plans to recapitalize the telecom giant and hike its payouts to shareholders.

BCE shares (NYSE: BCE) gained 37 cents, or 0.98%, to $38.04. Catalyst's move also served to push the envelop among other interested parties and late Monday the Ontario Teachers Pension Plan, which had been rumored to be prepping a bid, said it plans to submit a bid. On Friday, BCE rival Telus Corp. said it would propose an exchange offer for BCE. On the Catalyst development, however, Telus shares (NYSE: TU) dropped $1.88, or 3.18%, to $57.17; a trader said Telus is seen as the "lame duck in this race," because it would likely face harsh antitrust scrutiny in a linkup with BCE.

In another out-of-the-norm situation, London-based GLG Partners LP, the third largest hedge fund in Europe, announced plans to go public in a $3.4 billion reverse merger with the so-called blank check corporation, Freedom Acquisition Holdings Inc. and some think this tactic is coming into vogue after several years of being frowned on as a shady type of transaction.

Trucking firm U.S. Xpress Enterprises Inc. took off Monday after a management-led buyout at $20 per share - a 41% premium to Thursday's market - was announced Friday after the close. U.S. Xpress founders Patrick E. Quinn and Max L. Fuller, which together already hold a 42% stake in the company, formed Mountain Lake Acquisition Co. and said they would launch a tender offer soon. The stock (Nasdaq: XPRSA) shot up $4.74, or 35.38%, to $18.94.

Dow Jones & Co. Inc., however, fell back amidst chatter that the controlling Bancroft family is close to making a deal with Rupert Murdoch's News Corp. on measures to protect the editorial integrity of the Wall Street Journal in the event of a Murdoch takeover. With General Electric Co. and Pearson plc now out of the picture, one trader said there doesn't seem to be much faith in another bid emerging to rival Murdoch's $60-per-share offer, or $5 billion. "In fact, you see that there is still a whole lot of risk priced into this deal," he continued. Dow Jones (NYSE: DJ) lost $1.30 on the day, or 2.21%, to close at $57.50.

Trump Entertainment Resorts Inc. is feeling "close to announcing a deal," though, by one trader's account of the market chatter.

"What we have heard is that Trump is asking in excess of $2.2 billion for the Taj Mahal, Trump Plaza and Trump Marina casinos, which includes $1.5 billion in debt," he said. "That works out to $22.50 a share, which in my minds sounds astronomically high. I thought it would be closer to $18."

Trump acknowledged earlier this month that a private equity group led by former Taj Mahal executive Dennis Gomes and JEMB Realty, formed by New York real estate magnate Morris Bailey, has emerged as the leading bidder and supposedly had an exclusive right to negotiate a purchase of Trump that expired June 19. Trump shares (Nasdaq: TRMP) closed Monday better by 26 cents, or 1.87%, at $14.14.

As for Cadence Design Systems, Inc., however, one trader said he was becoming ever more "depressed" that no news from the company has hit the tape following rumors that takeover talks with two private equity firms were in a stalemate from a week ago.

He said the "low-key" scuttlebutt was that the company wanted $30 per share while the potential bidders were willing only to go to $27.60.

"The stock has just been drifting slowly lower and lower. There hasn't been a lot of sellers, but it will add up as more time passes," he said. He reckons dragging out the negotiations raises the risk that the deal gets called off altogether. Another market source, however, has said the downside appears limited so he's willing to wait it out. The stock (Nasdaq: CDNS) slipped 14 cents Monday to $21.76 on volume of 3.34 million shares versus the norm of 4.6 million.

Elsewhere, US Energy Systems Inc., whose unit U.S. Energy Biogas Corp. filed bankruptcy last November, took a huge dive Monday after warning that it faces potential defaults that may force it into bankruptcy. The company also plans to hire bankers to explore refinancing strategies and other alternatives, and traders said the stock was higher in after-hours activity on speculation that the company could find interested buyers.

Dobson deal seen probable

Dobson catching a deal "seems highly likely" given the recent Alltel transaction, as one trader put it. He said where such a deal might come, however, is a bit trickier to gauge. The Wall Street Journal, was reporting that Dobson has hired Morgan Stanley to consider all strategic options, including a sale, but there has been no formal announcement of such a move by the company.

"I think the move in the stock was reasonable to where the price might come in at for Dobson," the trader said.

"Rural phone companies like Dobson, Alltel may not draw a huge premium but it is very decent. We saw plenty of guys today who just put the 10 points in their pocket and moved on."

Dobson shares (Nasdaq: DCEL) ran up to $11.28 before easing back to close at $11 for an advance of 91 cents on the day, or 9.02%. Some 15.13 million shares traded versus the norm of 2.2 million.

Oklahoma City-based Dobson is a wireless communications services provider. It offers digital voice, data, and various featured services primarily through global system for mobile communications (GSM), general packet radio service and enhanced data for GSM evolution networks.

On May 21, Little Rock, Ark.-based Alltel, the fifth-biggest domestic wireless company, agreed to a $27.5 billion buyout by TPG Capital and GS Capital Partners at a premium of only about 10%. Alltel pointed out that the $71.50 buyout price was a 23% premium to its stock price before word of a possible buyout first appeared in the media on Dec. 29.

Doral scenario unchanged

FBOP's reneged offer for Doral leaves the group led by Bear Stearns Merchant Banking with its bid to buy a 90% stake for $610 million, or roughly 63 cents per share. One trader said Bear Stearns may not be any happier than Doral stockholders, but others said most Doral players have bought in based on the Bear Stearns buyout so FBOP bowing out really was not a huge deal.

"Volume would be way up if this was a big deal. It was heavy, but not like everyone ran for the door," one trader remarked.

"Nothing really changes for the guys who were involved because of the Bear Stearns deal, and most of those were already involved because they were bondholders. There's no reason for the big holders to sell because of this news."

The Bear Stearns buyout, announced May 16 at a discount to the then-market for Doral shares, was intended to help Doral repay debt that matures on July 20 and avert possible bankruptcy.

Meanwhile, FBOP, a privately held Oak Park, Illinois-based banking company, had submitted an unsolicited offer on June 1 to take an 80% stake in Doral for the same $610 million price tag, thus boosting the per-share amount to $1.41.

Doral stock had been trading above both takeover offers, suggesting that investors had expected a bidding war, but instead FBOP walked away from its offer and said it would support the Bear Stearns group's offer.

"It was like they saw as a Doral stockholder they were not helping themselves with this offer," another trader said. FBOP owns a 4.6% stake in Doral.

Other members of the Bear Stearns group include Canyon Capital Advisors, Eton Park Capital Management, General Electric Co.'s GE Asset Management, Goldman Sachs Group Inc., Marathon Asset Management, Perry Capital, D.E. Shaw Group and Tennenbaum Capital Partners.

Doral further announced that it is soliciting proxies from shareholders of record as of June 11 for the Bear Stearns offer. Doral has set a July 17 shareholder vote on that offer. Doral board members Edgar Cullman and John Ernst and their families, who collectively hold a 10.7% stake, have pledged support.

GLG deal a coup

While Fortress Investment Group LLC became the first publicly traded hedge fund to go public in the United States with a standard initial public offering, GLG Partners is essentially trading right now - contingent of course on regulatory approval of its reverse merger with Freedom, one trader commented.

Freedom shares (Amex: FRH) moved up by $73 cents, or 6.99%, to $11.18 on the news.

GLG Partners said the transaction values GLG at $3.4 billion based on Freedom's closing price of $10.45 on June 22. Under the terms of the agreement, the owners of GLG will receive from Freedom $1 billion in cash and 230 million shares of Freedom common stock on a fully diluted basis.

In February, Fortress priced its $633 million IPO at $18.50 - at the top end of the range for $16.50 to $18.50 - and on its debut the stock spiked as high as $37. That has been the stock's high, having traded as low as $23.04. On Monday, Fortress shares flirted with a new low, hitting $23.05. But the stock also traded as high as $24.99 on Monday; it settled at $23.25 for a day's loss of $1, or 4.12%.

Now, with private equity firms like Blackstone Group LP hitting the IPO market, and Kohlberg Kravis Roberts & Co. rumored to be considering such a move, some think reverse mergers could see a rise.

Theodore F. di Stefano, managing partner at Capital Source Partners, said he thinks reverse mergers are back in vogue, although the stream of these transactions has been dry so far this year. The GLG deal, however, could change that.

"About three years ago, it seemed as though reverse mergers were falling out of favor with the SEC. The agency sanctioned some of the companies that were created by this process and some were actually suspended from trading," di Stefano said, noting that the Sarbanes-Oxley Act was a hamper to reverse mergers.

"Now it seems that reverse mergers are once again regaining their popularity. The SEC seems to have learned to live with this somewhat novel way of going public by the back door. These are very legitimate now. If done properly it can be ease and relatively inexpensive" compared to going public with an IPO.

GLG said the transaction "is an important step in building GLG's global business, affording us the opportunity to increase brand awareness and expand in major targeted markets," said Noam Gottesman, co-chief executive of GLG.

New York-based Freedom Acquisition is a "blank check" company, an investment vehicle that allows the parent company to raise money for acquisitions by listing on the stock exchange. Such companies reveal acquisitions after putting shares on the market.

U.S. Energy up after-hours

U.S. Energy Systems said its board suspended the chief executive of its British subsidiary, and warned that the energy services provider faces potential defaults that may force it into bankruptcy, while also saying it planned to retain financial advisers to evaluate a potential refinancing, restructuring or other strategic alternatives.

"It gapped down, opening at $1.25 and then gained to around the $1.58 level with a lot of stability. It was strong after-hours, too," one trader remarked.

"There was a lot of big buying, more than selling. These guys believe, as I do, that the key lenders will not want to foreclose - they will restructure their financing. The large holders have only one obvious exit strategy - the development to profitability of the U.K. gas assets, and the eventual sale of the company to a larger energy company, at a considerable profit."

The stock (Nasdaq: USEY) traded in a band of $1.25 to $1.58 with roughly 2 million shares changing hands, versus the norm of 166,653 shares, before closing with a session loss of $1, or 44.05%, at $1.27. In after-hours action, the stock regained 15 cents, or 15.79%, to $1.42.

On Sunday, the board suspended U.K. Energy Systems CEO Grant Emms, with pay, pending an investigation by the audit committee, about which it did not elaborate. U.S. Energy Systems also confirmed it has insufficient funds for the planned expansion of its British gas assets. The company said the capital expenditure requirements are expected to exceed the $36 million budget by more than double.

U.S. Energy Systems said failure to complete the expansion will result in a revenue shortfall and could lead to default under its financing agreements, with key obligations approaching in August and September.

The company projects a $3.2 million shortfall in working capital in Great Britain in 2007 and is evaluating cost saving measures to reduce a shortfall.

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