American Financial shares jump on Gramercy Capital merger; Hillenbrand shares fall; IAC stock climbs

By Sheri Kasprzak

New York, Nov. 5 - Shares of American Financial Realty Trust zoomed by more than 24% to kick off the week as Gramercy Capital Corp. announced plans to buy the real estate investment trust in a $3.4 billion transaction.

Both companies have approved the deal, which is expected to close in the first quarter of 2008.

Meanwhile, the chiefs of several big-name corporations are getting the ax, and a sellside trader said he feels it's just a sign of a rocky stock market.

"The shareholders want results," he said. "And they want to put someone in that they think can bring the results. If you ask me, stocks go up and down. It happens. It's going to happen. We're in a very volatile market right now, but at the end of the day, the shareholders want results, so that's why we're seeing so many shakeups."

The most recent victim is Time Warner Inc. CEO Richard Parsons, who will be replaced by chief operating officer Jeffrey Bewkes.

On Monday, Time Warner's stock was down 7 cents to end at $17.81 (NYSE: TWX).

Last week, Citigroup CEO Charles Prince stepped down and Merrill Lynch & Co. CEO Stan O'Neal resigned under pressure from shareholders.

Shares of Citigroup were off $1.83, or 4.85%, to close at $35.90 Monday (NYSE: C). Merrill's stock was down $1.40, or 2.44%, to close at $55.88 (NYSE: MER).

In other news Monday, two companies were planning splits of one kind or another.

Hillenbrand Industries, Inc. said it was splitting up its two subsidiaries - a health care company and a death care company.

Also, IAC plans to divide its business into five separate businesses.

Gramercy to buy American Financial

Under the terms of Gramercy's merger with American Financial, Gramercy will pay $5.50 in cash and issue 0.12096 shares of Gramercy stock for each share of American Financial. Gramercy will also assume all of American Financial's debt.

Once the dust settles on the deal, American Financial shareholders will hold 31% of the combined company.

In pre-market action, American Financial's stock jumped by more than 20%. The stock gained $1.56, or 24.19%, on the day to end at $8.01 (NYSE: AFR).

Meanwhile, shares of Gramercy were up 3 cents to close at $24.25 but lost 74 cents after the stock market closed (NYSE: GKK).

The transaction will create a commercial real estate financing and operating company.

"Gramercy Capital has performed well for its stockholders since the company was launched in 2004," said Marc Holliday, Gramercy's chief executive officer, in a statement.

"We believe that this major strategic acquisition will provide a powerful growth engine for the future. In a single stroke, it will make the company a leading player in commercial real estate ownership, and further differentiate us from our current peers."

"During the past 14 months, American Financial has made great strides in executing its portfolio repositioning plan," said Lewis Ranieri, American Financial's chairman, in a news release.

"While the volatility in credit markets has been challenging, we've also witnessed good opportunities for growth of our business in the banking market. Recognizing a singular opportunity to create both near- and long-term shareholder value anchored in the synergies that exist by the blending of our portfolio and Gramercy's strong balance sheet and capital markets expertise, our board unanimously approved this transaction."

Hillenbrand to separate two companies

Elsewhere, Hillenbrand Industries said it plans to split off two operating companies - Hill-Rom, its medical technology business, and Batesville Casket, its death care subsidiary.

"Hillenbrand's board and management believe that separation of the two companies is the best way to unlock value and allow each company to focus on accelerating growth in their respective industries," said a statement released by the company Monday.

"By operating independently, each company can adopt an appropriate capital structure to allow it to better execute its business plans. The separation would also allow each company to utilize its own equity as currency for strategic purposes. As two focused companies, Hil-Rom and Batesville Casket would be better positioned for investors looking for specific industry, valuation, yield and growth profiles."

On Monday, the company's stock lost $1.16, or 2.07%, to end the day at $55.01 (NYSE: HB). In after-hours trading, the stock gained 23 cents.

The company filed a Form 10 registration statement with the Securities and Exchange Commission to separate the two businesses on Monday.

"This filing represents an important milestone in our journey to separate the two companies," said Peter Soderberg, Hillenbrand and Hill-Rom's CEO, in a statement.

"We look forward to discussing the status of the separation during out earnings call on Nov. 15 and, in the coming months, sharing more details on our plans for growth for each of the companies."

Hillenbrand, according to the statement, is consulting with the SEC to ensure that the accounting treatment for a judgment sharing agreement that would apportion responsibility between the separated companies for any potential damages associated with anti-trust litigation pending against Hillenbrand, Batesville and three unrelated national funeral home businesses, the statement said.

Hillenbrand, based in Batesville, Ind., operates companies in the health care and death care sectors.

IAC to split up

Elsewhere, IAC said it will divide its business into five publicly traded companies.

The spinoffs are expected to be completed in the second quarter or third quarter of 2008.

Shares of IAC closed up $2.22, or 7.5%, at $31.84 Monday (Nasdaq: IACI). In after-hours activity, the stock gained 15 cents.

The IAC business will include its media and advertising sector; its emerging businesses sector; its Match.com, ServiceMagic, Shoebuy.com, Entertainment Publications and ReserveAmerica businesses; and its investments in Active.com, Brightcove.com, FiLife, Medem, MerchantCircle, Open Table, Points.com and SHOP Channel.

The HSN subsidiary will include the businesses in IAC's retailing segment.

The Ticketmaster subsidiary will include the company's domestic and international operations.

The Interval International subsidiary will include CondoDirect, Resort Quest Hawaii and VacationSource.com.

The LendingTree business will include RealEstate.com, Domania, GetSmart, Home Loan Center and iNest.

"We've been a complex enterprise almost from the very beginning 12 years ago, with hundreds of transactions over those years," said Barry Diller, IAC's CEO, in a statement.

"And while we've created a lot of value, I've always believed our complexity and many mouthfuls of sentences to explain who we are and what our strategy is have hampered clarity and understanding with all our constituencies, particularly investors.

"One of the reasons we've stayed with some of our more transactional businesses is that we needed their earnings to allow us to invest in emerging internet businesses. Now that we have real scale in the pure internet units, it makes nothing but sense to me to reorganize the whole.

"Each of these spun-off businesses is, in fact, a distinct business sector and each will benefit from standing on its own, with its own capital structure, its own currency which will enhance its ability to attract and retain superior talent and make acquisitions and a focused story investors can clearly understand and buy into."

© 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.