Washington Mutual restructures; UBS, MBIA get cash infusions; MGI, Adams merge with foreign drug firms

By Evan Weinberger

New York, Dec. 10 - Following a solid gain Monday, Washington Mutual Inc. stock was getting hammered in after-hours trading following a $3.7 billion capital infusion and cost-cutting plan the company announced immediately after the close.

WaMu will issue $2.5 billion in convertible perpetual preferred stock, expected Tuesday after the close, cut non-interest expenses by around $500 million - much of that through job cuts - and change its home-lending focus.

Washington Mutual also announced it was cutting its fourth-quarter dividend payment to 56 cents per share, a drop of 15 cents per share.

At the bottom of its announcement, Washington Mutual said that it expects its fourth-quarter loan write-down costs to be somewhere in the $1.5 billion to $1.6 billion neighborhood - not a good one to be in.

"A substantial infusion of new capital, significant expense reductions, the major change in our home loans business, and our planned dividend reduction all combine to further fortify WaMu's strong capital and liquidity position," WaMu chairman and chief executive officer Kerry Killinger said in a statement. "These actions will also better position us to pursue various initiatives, particularly in our leading retail banking business - which is at the core of our business strategy."

Along with around 2,600 layoffs in its lending operation and 550 job cuts in support and corporate staff, WaMu announced it was no longer going to make home loans through its subprime channel. And Washington Mutual Capital Corp., WaMu's institutional broker-dealer business, and the company's mortgage banker finance warehouse lending operation will be shuttered.

WaMu expects, due to its write-downs, to have a loss for the fourth quarter, but the loss will not have an effect its tangible or regulatory capital or liquidity.

Washington Mutual stock posted a solid gain Monday, partly on the backs of private cash infusions for UBS AG and MBIA Inc. Seattle-based Washington Mutual stock (NYSE: WM) closed up 85 cents, or 4.47%, at $19.88 on Monday.

After-hours trading following the cost-cutting and capital raising plans came to light was a different story. A little before 6 p.m., Washington Mutual's stock was down $1.55, or 7.80%.

MBIA gets a needed infusion

Armonk, N.Y.-based loan guarantor MBIA got a much-needed $1 billion cash injection from private equity shop Warburg Pincus on Monday.

With ratings agencies poking around at MBIA's financing - and possibly threatening the company's vaunted AAA rating - the infusion came at just the right time.

"Capital coming, hits taken," was how one trader described the deal.

Other market watchers were less sanguine. One cited media reports that both MBIA and Ambac Financial Group, Inc.'s credit was trading at far less than AAA ratings - somewhere in the 330s basis points at the low end over the last few months.

"They basically sell their rating," he said. "These things are trading at not only not like AAA, but far from it."

Still, $1 billion goes a long way, however, and MBIA stock (NYSE: MBI) jumped $3.95, or 13.17%, to $33.95 on Monday.

UBS gets a boost

Monday was a big day for capital infusions. Zurich-based UBS announced that it was going to have to write off another $10 billion due to - surprise, surprise - bad loans in the subprime mortgage sector. Including its third-quarter losses, UBS has written down $12.6 billion for the year.

Two saviors rode in on white horses to help out UBS on Monday.

The Government of Singapore Investment Corp., the island city-state's sovereign wealth fund, pumped $9.75 billion into UBS, and an unnamed Middle Eastern investor added $1.77 billion to that total.

UBS stock in New York (NYSE: UBS) moved up $1.12, or 2.34%, to $51.66 on Monday.

The UBS injection and the expectations of a Federal Reserve rate cut Tuesday pushed stocks up strongly on Monday.

The Dow Jones Industrial Average closed at 13,727.03, a gain of 101.45 points, or 0.74%.

The Nasdaq picked up 12.79 points, or 0.47%, to close at 2,718.95.

The Standard & Poor's 500 added 11.30 points, or 0.75%, to close at 1,515.96.

Myers extends GS Capital timetable

Akron, Ohio-based polymer maker Myers Industries, Inc. announced Monday that it was granting GS Capital Partners, a private equity arm of Goldman Sachs, until April 30 to complete the agreed upon $1.1 billion acquisition of the company.

The deal had been scheduled to close Dec. 15.

A press release from Myers said GS Capital Partners wanted the extension to "further evaluate conditions in certain industries in which Myers operates."

The statement also says that GS Capital agreed that there was no material adverse change that could cancel the deal.

"Both sides continue to work closely to complete this transaction. In light of GSCP's request for an extension, which we received the evening of Dec. 7, 2007, the board of directors determined that it is in the best interest of Myers' shareholders to preserve this opportunity," Myers president and chief executive officer John C. Orr said in the statement.

Myers didn't grant the extension without getting something in return. GSCP agreed to pay Myers $35 million and the company can solicit bids and listen to unsolicited offers.

Myers also declared its regular 6-cent-per-share dividend and a 28-cent-per-share special dividend on Monday.

The buyout extension left investors rattled, and Myers stock (NYSE: MYE) got hammered to a $6.58, or 30.52%, loss, for a $14.98 close.

Reckitt Benckiser pays $2.3 billion for Adams

London-based household products maker Reckitt Benckiser Group plc paid $2.3 billion for Adams Respiratory Therapeutics, Inc. in a deal announced Monday morning.

Chester, N.J.-based Adams produces over-the-counter respiratory drugs. The company's profit leader is Mucinex, an expanding brand of expectorants.

Reckitt Benckiser will pay $60 per share for Adams, which will give the British firm a foothold in the American market.

"The acquisition of Adams Respiratory Therapeutics is another step forward in Reckitt Benckiser's growth strategy in consumer health care," Reckitt Benckiser chief executive officer Bart Becht said in a statement. "Adams will add to our portfolio a new, rapidly growing power brand in Mucinex, a market and innovation leader in cough and congestion relief in the USA. Equally important, it will provide Reckitt Benckiser an entry into health care in the USA, the world's largest OTC market."

Reckitt Benckiser plans to pay for the transaction with cash on hand and existing credit facilities.

The deal met with approval on this side of the pond, as Adams stock (Nasdaq: ARXT) surged Monday to a close of $59.30, a gain of $15.62, or 35.76%.

Eisai buys MGI

Tokyo-based Eisai Co., Ltd. announced Monday morning that it agreed to a merger with Bloomington, Minn.-based cancer drug maker MGI Pharma Inc. for a total of $3.9 billion.

The $41-per-share deal represents a 23% premium over MGI's closing stock price Friday.

Eisai is a pharmaceutical company that focuses on neurology, gastrointestinal disorders, oncology and critical care.

The merger is expected to close by the end of the first quarter of 2008.

A statement released by the two companies said that Eisai saw its merger with MGI as a way to increase its footprint in the lucrative American market.

"Strategically, we expect this transaction to allow Eisai to significantly strengthen its oncology business and increase the likelihood of achieving our current strategic plan targets and our future revenue and earnings growth," Eisai president and CEO Haruo Naito said in a statement.

The deal marks the culmination of a months-long search for strategic alternatives.

"During that time, we have had the opportunity to share the MGI Pharma vision and business opportunity with many of the leading companies in the pharmaceutical and biotechnology industry. This transaction represents the successful conclusion of that process," Lonnie Moulder, president and CEO of MGI, said in the statement.

The deal met with roaring approval from investors. MGI stock (Nasdaq: MOGN) surged $6.55, or 19.58%, to $40 Monday.

HP gets new printers

Hewlett-Packard Co. agreed to purchase "substantially all the assets" of Lod, Israel-based NUR Macroprinters Ltd. for $117.5 million in cash, NUR announced Monday morning.

NUR produces wide-format inkjet production printers for the publishing industry.

The deal is expected to close as soon as possible, although no timetable was given.

"Two years ago, when Fortissimo Capital acquired control of NUR, the company was losing money and was in a precarious position. However, Fortissimo Capital recognized that NUR had the potential to build on its strong market presence, installed base and technology leadership, and infused the requisite capital to fund its growth. Together with the banks, we restructured the debt, recruited stellar management, and implemented a new strategy that resulted in an impressive improvement and growth." Yuval Cohen, managing partner of Fortissimo Capital and chairman of NUR's board of directors, said in a statement.

"We believe that NUR is at a point where it requires the HP resources in order to bring its line of business to a new level."

Palo Alto, Calif.-based Hewlett-Packard (NYSE: HPQ) nudged up 21 cents, or 0.41%, to $51.97 on Monday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.