CANTV rebound questionable; Mills retreats; Tribune sees tepid rise; Invacare off; Calpine plunges

By Ronda Fears

Memphis, Jan. 18 - As action cooled off somewhat in the current big takeover stories, traders remarked Thursday with concern about the run up in Compania Anonima Nacional Telefonos de Venezuela, or CANTV, in the wake of the trough hit last week on the re-election of Venezuela president Hugo Chavez, which he used as a springboard to propose an aggressive move to nationalize the country's telecommunications, electricity, energy and banking industries.

In another big reversal, Calpine Corp. took a plunge as profit takers stepped in Thursday after buy-ins pushed the stock sharply higher a day before on news that the San Jose, Calif.-based independent power company would soon launch a search for an equity sponsor for its bankruptcy exit plan.

December's unexpected 4.5% increase in monthly housing starts gave a shot in the arm to several homebuilder stocks, but traders said earnings, for which most companies in the group have warned will show significant downturns, were keeping the group fairly contained. Centex Corp., KB Homes and Lennar Corp. were all seen higher.

Of note among homebuilders, however, one trader noted well after the close that WCI Communities Inc., which has been speculated as a takeover target on a push from the likes of big stakeholder Carl Icahn, was spiking big in after-hours activity. In the regular session, WCI shares (NYSE: WCI) lost 24 cents, or 1.08%, to close at $21.88 but the trader said it moved higher by as much as 3.3% in after-hours activity and was last seen with a gain to $22.17.

Of the usual suspects, Cablevision Corp. extended gains Thursday after its board rejected a $30 per share bid to take the company private from controlling holders Charles and James Dolan. Some players said they think the ongoing merger and acquisition frenzy in the markets could make Cablevision a private equity or hedge fund target. The stock (NYSE: CVC) added $1.52 on the day, or 5.2%, to close at $30.77.

"Anyone who has watched the Cablevision soap opera over the last few years understands that this is not likely the last we will hear on this deal," said Gimme Credit analyst Dave Novosel in a report Thursday.

It was the opposite for The Mills Corp. as the stock backtracked in the wake of a surge past the surprise $21 per share takeover price agreed to a day before for the beleaguered shopping mall developer from Canada-based Brookfield Asset Management Inc. The stock still remained ahead of the offer, but traders said there were a lot of players exiting the story. Mills shares (NYSE: MLS) gave back 60 cents, or 2.67%, to close at $21.86, following a 26.39% advance on Wednesday.

CANTV trader: caveat emptor

The phrase "caveat emptor" isn't Spanish but it is in the romance languages and most accurately reflects the gist of traders' sentiment Thursday towards the run up of CANTV shares, which marked another slight gain Thursday after having plunged to a new 52-week low last week after Chavez was re-elected to a third term running through 2013 as president of Venezuela.

CANTV shares (NYSE: VNT) on Thursday added 6 cents, or 0.45%, to close at $13.48. The stock hit $9.46 on Jan. 9, immediately following the Venezuela election; Chavez was sworn in for his third term on Jan. 11.

"It could be worth $12 or it could be worth $16," said one trader in the stock.

This trader thinks there is as much upside potential as downside, and 50-50 is perhaps pretty good odds, but then, he added that there are some onlookers thinking it may be worth just $7 or $7.50.

Another trader said he has buyers for CANTV at $13 who sees it as a volatility play, but he said he is leery about the story as well.

The wildcard is how the Venezuelan government will recompense CANTV owners, which include Verizon Communication Inc. with a 28.5% stake. Venezuelan officials have said that the government will negotiate "appropriate compensation" with companies and investors that takes into account the value of their assets.

The takeover jeopardizes an April agreement by Verizon to sell its stake in CANTV to a joint venture of Telefonos de Mexico, SAB de CV and America Movil SA de CV controlled by Mexican billionaire Carlos Slim for $677 million. The sale had been awaiting Venezuelan government regulatory approval.

TelMex and America Movil shares, which also took a hit on the Chavez news, have also been clawing back but were lower in trade Thursday. TelMex (NYSE: TMX) slipped 12 cents to $26.97 and American Movil lost 98 cents to $42.98.

Calpine sold after recent buying

Calpine shares plunged Thursday on what one trader described as profit taking triggered by heavy buy ins Wednesday after the company said it was about to begin a search for an equity sponsor for its bankruptcy exit plan.

"Yesterday there was huge buy-ins, buying in the $1.70s," said a bulletin board trader. "Then today it went straight down."

Calpine shares (Pink Sheets: CPNLQ) traded off as much as 10% in a band of $1.23 to $1.43 on Thursday before closing out the session at $1.23 for a loss of 12 cents on the day, or 8.28%. It had traded up to $1.45 on Wednesday.

His color on the trade was that since there is an equity committee in the Calpine bankruptcy, buyers are figuring they will get a chance to participate in a rights offering and thus buy into the new stock. Sellers, on the other hand, are a mixture of profit takers, players who do not want to own the story going forward as the old stock will be canceled, and flippers who will buy back later when the stock bottoms out.

Indeed, there are some who think the stock will go somewhat lower before Calpine files its plan, which faces a deadline in June, and a rights offering is launched, which will likely be some months beyond the plan.

"I think it will go to $1.20 until we have more info on the scale of equity to be raised, so I'm being careful," said a buyside market source.

"Calpine said that it expects to file a motion in the near future seeking approval for its investment banker to advise and assist the company in its efforts to raise equity financing to fund its emergence. The investment banker is already actively assisting in its effort to raise debt financing.

"We note that it has become commonplace to do an equity rights offering as part of a large Chapter 11 exit. However, there are no implications for what will happen to the current shareholders. We know the current shares are going to be cancelled but in a less-than-worst-case scenario we will participate in the rights offering."

He sees a "door opening" to accumulate more Calpine shares, but he aims to "start nibbling again" after it drops a bit from the current price.

"Calpine has an equity committee and CEO with experience restructuring companies through massive reorganizations inclusive of all stakeholders, even oldco shareholders," the buysider said.

"Through the present, only the CEO has been publicly engaged in this process yet both will likely have an effect on its outcome. Mirant's [peer power company Mirant Corp., which emerged bankruptcy in January 2006] asset windmill tilted little until that bankruptcy's eleventh hour valuation hearing.

"From the creditors committee's perspective, they are looking at less than par, par plus interest, or near par plus huge upside with the new equity. Faced with the prospect of a consensually adopted and quickly implemented plan or years of expensive litigation adjudicated unsympathetically over topics like discounted cash flow, most committees might prefer door number three, especially with the promise of newco shares glazing the backside."

Tribune players turn away

With just a slim premium in the $31.70 a share offer buyout offer for the Tribune Co. from the Chandler Trusts, its largest shareholder, traders said there were a slew of players "throwing in the towel." In addition to the Chandler bid, market chatter put Southern California billionaires Eli Broad and Ron Burkle offering a recapitalization purportedly valued at an equivalent of over $34 a share.

Under the rumored Broad and Burkle plan, they would inject $500 million cash into the company and arrange a debt package which would pay out a special dividend to shareholders of $27 a share. shareholders would retain a majority stake of Tribune, while Broad and Burkle would get about a 30% interest and seats on the board.

"With the surge in PE [private equity] takeovers right now of course, there is a lot of chatter that there could be a bidding war, but when you look at how the stock reacted to the Chandler bid you have to think no one really believes that," a risk arbitrage trader said. "Especially when a lot of other situations where there was a bid on the table, like EOP [Equity Office Properties Trust], and the stock traded way past the offer."

Tribune shares (NYSE: TRB) gained 56 cents on the day, or 1.85%, to $30.90.

The trader said it also is widely expected that the special committee of Tribune's board that will be evaluating proposals will reject the Chandler bid because it is such a thin premium to where the stock is trading. The Chandler Trust, however, said the offer represents an 18% premium to where they believe Tribune shares would be, or $27, if not for the market's expectations of some kind of deal since last May.

Invacare decline mild to news

In the face of guiding lower and a Department of Justice investigation, traders said the drop in Invacare Corp. shares Thursday was rather mild, which they said was partly mitigated by a debt recapitalization plan outlined by the company as well. While one trader said he thinks most of the bad news has now been priced into the stock, another said the stock was still rather pricey.

"A lot of companies with this kind of news would have gotten slaughtered," said a stock trader. "Invacare is down only 4%. That's pretty remarkable. I believe they are at the turnaround."

Invacare shares (NYSE: IVC) fell 97 cents on the day, or 4.22%, to $22.03.

"My short piece played out today in one fell swoop," said another trader. "There is not much left if you are looking to play a short squeeze. A short position has no more catalysts left. But I think there could be a long-term buy-and-hold here."

The stock got hit, by the latter trader's estimation, because the news chased away players who had been buying on rumors of a private equity takeover.

"Management has been approached by private equity, I think, and they answered with a resounding 'no'," the trader said.

"At the end of the day, I think there will be some industry consolidation [among medical suppliers] but Invacare might look a little pricey here because of the 18 multiple. They have guided lower and there is a DOJ investigation. I think it has to come down a little more, but I like the story better today than I did yesterday."

The Cleveland-based maker of medical supplies such as the wheelchairs and therapeutic beds said late Wednesday that it expects a fourth-quarter adjusted profit of 27 cents to 33 cents a share on net sales of $382 million to $387 million, and pegged its 2007 guidance at an adjusted EBITDA increase of 4% to 6% over 2006 levels.

Invacare also said it is reviewing accounts receivables in the wake of recent changes in Medicare reimbursement regulations, and that there is a DOJ investigation inquiry about its reimbursement and rebate programs. In addition, the company said that due to recent changes in Medicare reimbursement regulations, there is increased collections risk so it is implementing tighter credit policies and will take a $25 million reserve against fourth-quarter financial results of $25 million.

At the same time, the company launched a new credit facility Thursday with a bank meeting. The $400 million credit facility consists of a $150 million revolver talked at Libor plus 225 basis points and a $250 million six-year term B talked at Libor plus 225 bps.

Steris catalyst may be nearing

In the special situations world, another trader mentioned as a stock play with a looming catalyst Steris Corp., saying that its upcoming earnings on Jan. 31 could provide some clarity into new management at the medical sterilization firm.

Steris shares (NYSE: STE) on Thursday closed with a gain of 12 cents, or 0.47%, at $25.52.

The trader noted that the stock is "off the radar" and has traded in a narrow 52-week band of $21.28 to $28.26 and while it is about in the middle of that range he sees significant upside.

"Hospitals and the medical field have to have medical sterilization products," the trader said.

"The chief financial officer has left and the chief executive officer is resigning. A new management with half a brain will give it a big jump start."

He said his firm has a $28 target on the stock but he thinks it could easily go to $30 and he has a buyer who thinks it could go to $50.

As for the absence of a top management team making Steris a potential takeover target, the trader said that would "theoretically" be a good argument, but he is not a buyer on that basis. Yet, he noted that the biggest holders of Steris shares are Shapiro Capital Management, Barclays and Private Capital Management, each with around 5% or more.

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