BCE denies minority stake report; Icahn seeks Microsoft deal; Constellation holders weigh EDF offer

By Aaron Hochman-Zimmerman

New York, Dec. 5 - Equity activity remained slow until Hartford Financial Services Group Inc.'s roman candle-esque performance started the party for stocks on Friday afternoon.

One investor described Hartford as a microcosm of AIG Inc. and the rest of the insurance industry.

Still, despite the rally, the deal market remained slow and under-financed, an arbitrage analyst said.

Once the market begins to turn around, many deals that were sidelined will begin to appear, he said.

"There will be significant activity," he added.

For now, old friends Yahoo! Inc. and Microsoft Corp. continue to do their eternal dance around a deal.

In this episode, Carl Icahn was in contact with Microsoft in order to broker some sort of transaction, although no progress was announced.

Elsewhere, BCE Inc. dropped slightly as it denied rumors that its buyout is being scrapped in favor of selling a minority stake to the would be suitors, even though "it is BCE's policy not to comment on rumors or speculation," a statement said.

In energy, Constellation Energy Group Inc. shareholders seemed more willing to consider the offer from EDF Group, rather than the original offer from Warren Buffett's MidAmerican Energy Holdings Co.

The French EDF Group offer is slightly smaller but still viewed as superior by many in the market.

Also, Merrill Lynch & Co. put to bed any remaining doubt about its fate. Shareholders approved the takeover by Bank of America Corp. Friday morning in New York.

In the broader market, the Dow Jones Industrial Average ended better by 259.18, or 3.09%, at 8,635.42, while the Nasdaq Composite index added 63.75, or 4.41%, to finish at 1,509.31.

The S&P 500 added on 30.85, or 3.65%, to close at 876.07.

Constellation deal realigning?

Many of Constellation Energy's investors favor the deal with Electricte de France over the attempted $4.7 billion bid by MidAmerican Energy.

The $4.5 billion offer from the French firm is lower but because of its structure "is clearly superior," a market source said.

"The thing will probably end up taking 10 months total," the source said.

The MidAmerican deal may be voted down by Constellation shareholders on Dec. 23, and "I hope it does," the source said.

There are issues which will naturally arise relating to the French ownership of American nuclear facilities, but "they should clear that," the source said.

Shares of Constellation Energy gave up 11 cents, or 0.40%, to close the session at $27.58.

BCE denies minority stake 'rumors'

At this point it is becoming more and more clear that BCE is "not going to get bought out," an analyst said.

By Thursday, the deal must be approved by BCE's consultants KPMG, but "there's hardly any chance they'll get it," he said.

The next step down is a much-discussed buy of a minority stake in the Canadian telecom, but the company was compelled by the chatter to dispel the rumors.

"BCE is today confirming that no such offer has been made to the company," a company statement said about "a possible minority investment in the company by some or all of the investor group led by Teachers' Private Capital, the private investment arm of the Ontario Teachers' Pension Plan, and affiliates of Providence Equity Partners Inc., Madison Dearborn Partners LLC and Merrill Lynch Global Private Equity."

The entire deal in any form seems to be squashed, the analyst said, but "they've got to act like they're still interested," he said.

Shares of BCE slipped by just 12 cents, or 0.67%, to finish the day at $17.81.

Merrill vote goes quietly

Controversy, negotiation and the hope that Merrill Lynch may be able to rise and save itself from the 2007-2008 financial crisis ended at the Merrill Lynch shareholder vote on Friday.

Shareholders approved the acquisition of the company by Bank of America, as expected, and in orderly fashion.

Merrill Lynch stockholders will receive 0.8595 of Bank of America stock for each share of Merrill Lynch common stock held immediately prior to the merger, a Merrill Lynch statement said, and "it will become a wholly owned subsidiary of Bank of America Corporation."

"By approving this transaction, Merrill Lynch stockholders expressed confidence that the combination of our firm and Bank of America will create one of the most powerful financial institutions in the world, with unmatched capabilities and service," said John Thain, chairman and chief executive officer of Merrill Lynch, in the statement.

"This combination will create great value for our stockholders and clients around the world," he continued.

Bank of America has also received E.U. approval for the takeover.

Shares of Merrill Lynch jumped by $1.13, or 9.49%, to $13.04.

Shares of Bank of America were better by 90 cents, or 6.28%, to $15.24.

"Merrill should close in about a week and a half," an analyst said.

Carl Ic-rosoft?

Carl Icahn, with nearly $2 billion on the line, has been in talks with Microsoft in order to work out a transaction for Yahoo!'s search business, a market source said.

The talks, noted in a 13D filing, produced no preliminary arrangements, the source said.

Whether or not Icahn can produce a deal for himself and his albatross, Yahoo!, is still very much in doubt, but "he sure hopes so," a merger arbitrage analyst said.

"It's all up to Ballmer," although "it may take several months," he said.

Many see it as a matter of pride for Microsoft's chief executive officer, Steve Ballmer, but he also may just "see how far Yahoo! can fall," the analyst said.

An offer now may come at "half of what they were going to pay before," he said about the original Feb. 1, 2008 offer of $31 per share.

If Microsoft can work out a deal exclusively for the search business, "that's even better for them," the analyst said. "That's their bread and butter," he said about Yahoo!

Meanwhile, Microsoft brought a former Yahoo! Executive into the fold as it hired the former Yahoo! search executive Qi Lu, according to a Microsoft statement.

Lu will take the control of molding Microsoft's search and web-based business, which trails Google Inc. and Lu's former employer, Yahoo!

"I'm looking forward to working with them to help transform the way people and businesses use the internet to find and share information," Lu said in the statement.

Shares of Yahoo! added 61 cents, or 5.52%, to close at $11.66.

Shares of Microsoft improved by 76 cents, or 3.98%, to $19.87.

FBR drops Capital One price target

Capital One shares tacked on $1.73, or 5.58%, to end at $32.72 as Friedman Billings Ramsey cut its price target to $25 per share, down from $35 per share, on Capital One Financial in the wake of its $520 million buy of Washington, D.C.-area Chevy Chase Bank, according to a research note.

"We increased loss expectations for the credit card segment and the bank, reflecting worsening macroeconomic conditions since our last model update," the report continued.

Still, the financial crisis will not last forever.

"In the long run, the acquisition benefits Capital One by providing a strong footprint in a fairly resilient market with attractive demographics," the note said.

Mentioned in this article:

Bank of America Corp. NYSE: BAC

BCE Inc. NYSE: BCE

Capital One Financial Corp. NYSE: COF

Constellation Energy Group Inc. NYSE: CEG

Merrill Lynch & Co. NYSE: MER

Microsoft Corp. Nasdaq: MSFT

Yahoo! Inc. Nasdaq: YHOO

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