Others poaching for Bear; pilot communications end; Yahoo! fights on; Alliance eggs on Blackstone

By Aaron Hochman-Zimmerman

New York, March 18 - On a day that mixed a 75 basis point cut from the Federal Reserve with encouraging news from Lehman Brothers and Goldman Sachs, investors were optimistic and intent to keep prices up.

Still, more importantly than the rate cut or bank earnings, "the Fed decided to open the discount window to investment banks," said Paul Martin of Martin Capital Management. "That's giving the market the sense that the worst is behind us."

Bear Stearns Co. stock jumped over 22% as investors were skeptical that they have heard the last from Bear despite the Fed-backed deal with JP Morgan Chase & Co.

Communication between the pilots of Delta Air Lines Inc. and Northwest Airlines Corp., which had been broken and unreadable, finally cut out, leaving some ready to put the airline deal in mothballs.

Meanwhile, Yahoo! Inc. continued to wriggle away from the jaws of Microsoft Corp. by proposing new initiatives aimed at doubling the company's earnings over the next three years.

Alliance Data Systems Corp. accused Blackstone Group of being in breach of their merger agreement and urged the private equity firm to move quickly on obtaining the necessary federal approvals - and suggested a lower price to move the transaction forward.

Also, pharmaceutical software producer Allscripts Healthcare Solutions Inc. agreed to a merger with the United Kingdom's Mysis plc.

The Dow Jones Industrial Average ended the day on the upswing as it rifled higher by 420.41, or 3.51%, to end at 12,392.66, while the Nasdaq Composite Index added 91.25, or 4.19%, to finish at 2,268.26.

The S&P 500 was better by 54.14, or 4.24% to close at 1,330.74.

$2 per share enough to stuff Bear?

Shares of Bear Stearns (NYSE: BSC) soared $1.10, or 22.87%, to $5.91 as the market was hardly ready to concede the embattled bank for as little as $2 per share, said Martin.

"There are a lot of people who believe the deal isn't going to stand," he said, "There still has to be a shareholder vote and as I understand it that can take up to 12 months."

Another market source heard a rumor that the Citadel Investment Group will bid $20 per share for Bear Stearns.

"If I had the money, I'd bid $30," Martin said, adding "[Bear Stearns] is worth a lot more than $2 per share ... this was a transaction under duress."

"[The Federal Reserve] literally took a shotgun and put it to Bear's head," he said.

JPMorgan (NYSE: JPM) put aside more money for impending lawsuits than they did to actually buy Bear Stearns, he said.

"The good news is that it settled things out," he said, adding that the market may have turned a corner.

"Historically it takes some kind of crisis, like what happened to Bear Stearns, to put in a bottom" for the market, he said.

Shares of JPMorgan added $2.40, or 5.95%, to $42.71.

Transmission garbled

Meanwhile, the pilots of Delta Air Lines (NYSE: DAL) and Northwest Airlines (NYSE: NWA) announced the breakdown of communications between the two groups on Monday.

The stalemate is considered a catastrophic failure for the airline merger, the New York Times reported.

Delta stock was up 0.86, or 9.32%, to end the day at $10.09, while Northwest stock gained $1.05, or 11.77%, to close at $9.97.

The issue of mingling pilot seniority between the two airlines was key to the pilot's approval of the deal.

In order to appease the pilots, they were offered stock in the combined entity as well as a renegotiated contract and a voting seat on the board of directors. Still, too few flyers were willing to give up their spot in line for better pay, better aircraft and more job security.

With near-record oil prices, the airlines are expected to make cuts to service.

Internationally, the Italian government approved the purchase of its national carrier Alitalia by Air France-KLM for a lower price than had originally been expected.

Alitalia will fetch €138 million or €0.10 per share which represents an 81% discount to its closing price last Friday.

Yahoo! won't go easy

Shares of Yahoo! (Nasdaq: YHOO) added $1.81, or 7.00%, to finish at $27.66 as it unveiled a three-year plan intended to get rid of Microsoft (Nasdaq: MSFT) and its $44 billion offer, according to a company press release.

Shares of Microsoft were up by $1.12, or 3.96%, to close the session at $29.42.

The plan forecasts an increase in cash flow to $3.7 billion from $1.9 billion, the release said.

Yahoo!'s board rejected Microsoft's offer, clinging to "Yahoo!'s global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as its substantial unconsolidated investments, as factors in its decision," the release said.

"Yahoo! is positioned for accelerated financial growth - we have a powerful consumer brand, a huge global audience and a highly profitable operating model," said Jerry Yang, Yahoo!'s co-founder and chief executive officer.

"With industry-leading tools, technology, people and platforms, Yahoo! is poised to capture growth in display advertising where we believe growth will be greatest ... Yahoo! is well positioned to provide the broadest range of products to our advertisers while delivering the most compelling experiences to users," he said.

"They're just trying to get a better bid," Martin said, "And that's the right thing to do."

"Microsoft is going to buy them eventually," he added.

Hurried Alliance drops price

Also in the software sector, shares of Alliance Data Systems (NYSE: ADS) were better by $0.69, or 1.56%, to $44.79 after it offered to drop the deal price to $76.00 per share from $81.75, according to an Alliance press release.

Alliance has accused Blackstone (NYSE: BX) of stalling in order to reach April 17 when either side may end the $6.7 billion deal initially agreed upon on May 17, 2007.

Blackstone shares tacked on $0.66, or 4.54%, to $15.21.

"Blackstone's affiliates are contractually obligated to use their reasonable best efforts to satisfy their respective obligations under the merger agreement and complete the transaction," said Robert Minicucci, chairman of the special committee of the board of directors of Alliance Data, in a press release.

A lawsuit was filed on Jan. 30, 2008 in Delaware's chancery court in order to force Blackstone to negotiate the appropriate regulatory approvals from the Office of the Comptroller of Currency and the Federal Deposit Insurance Corporation.

"The terms of the agreement are very clear. Instead, Blackstone and its affiliates continue to refuse to meet reasonable and customary regulatory requirements as an excuse to avoid completing the transaction," he said.

Mixed scripts

Shares of Allscripts (Nasdaq: MDRX) gained $0.99, or 11.30%, to end at $9.75 as the pharmaceutical software maker announced that it will merge with the United Kingdom's Misys.

Mysis will take a 54.5% stake in the new entity in exchange for Mysis Healthcare and $330 million or $4.90 per share in cash, according to a joint press release.

"This agreement changes the landscape in healthcare information technology by creating a single company that will serve roughly 150,000 physicians with our portfolio of electronic health record, practice management and other software solutions," said Allscripts' chief executive officer, Glen Tullman, in the release.

The new company, which will trade under Allscripts' current ticker, expects to post pre-tax cost synergies of $15 million to $20 million in the first full year after the deal's closing and $25 million to $30 million in subsequent years, the release said.

The deal is expected to close in four to six months, a market source said.

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