Pier 1 slammed on merger offer; HRH skyrockets on deal; Icahn pushes his case with Bostock

By Aaron Hochman-Zimmerman

New York, June 9 - Even without a formal offer, Pier 1 Imports Inc. was left tattered at the end of trading on Monday after the home furnishings retailer proposed a merger with Cost Plus Inc.

Conversely Hilb Rogal & Hobbs Co. was sitting pretty, almost 42% better than its open after the announcement of its acquisition by Willis Group Holdings Ltd.

Elsewhere, Carl Icahn took his recent complaints directly to Yahoo! Inc. chairman Roy Bostock with a personal letter which was heavy on business and light on ceremony.

Shares of both Yahoo! and Microsoft Corp. were hardly affected.

In the defense sector, Honeywell International Inc. saw mildly improved shares as it sold a division to B/E Aerospace Inc.

Also, medical technology firms Hologic Inc. and Third Wave Technologies Inc. signed a $580 million agreement to combine forces.

Meanwhile, the market was mostly positive after Friday's bloodbath as the Dow Jones Industrial Average ended higher by 70.51, or 0.58%, at 12,280.32, while the Nasdaq Composite Index gave up 15.10, or 0.61%, to finish at 2,459.46.

The S&P 500 tacked on 1.08, or 0.08%, to close at 1,361.76.

Pier 1 plus one

In a letter to the board of Cost Plus, Pier 1 suggested a merger between the two could be completed by the third quarter.

To combine the retail outlets, Pier 1 offered $4 per share of Cost Plus which represents nearly a 31% premium to Friday's close.

"We believe that the combination of Pier 1 Imports and Cost Plus is extremely compelling and would create significant value for the stakeholders of both companies," Alex Smith, president and chief executive officer of Pier 1, said in a statement.

"Furthermore, we believe the combination will result in improvements in Cost Plus' operating margins and significant synergies, anticipated to come from organizational efficiencies in the supply chain management, shared services, store operations and other general administrative costs. Cost Plus shareholders will enjoy significant benefits from the combination, including improved operational liquidity of the combined company as well as a more active trading market for their shares," he said.

"It's just a prospective offer," said Laura Champine, an equity analyst with Morgan Keegan, whose parent company Region's Financial does accept non-investor compensation from Pier 1.

"It's a long way from a done deal."

However, she said, "the companies have a lot of overlap," particularly in non-consumable furniture items.

"That is a sector which is under intense economic pressure," she said, adding that "it's tough to say" whether or not that pressure will drive the two together or apart.

"It's a tough environment," she said for Pier 1 to manage its own business much less add another.

Shares of Pier 1 (NYSE: PIR) burrowed by $1.41, or 21.14%, to $5.26.

On the other hand, shares of Cost Plus (Nasdaq: CPWM) jumped $0.32, or 10.49%, to close at $3.37.

Willis and Hilb Rogal

The Willis Group announced that it will acquire fellow insurer Hilb Rogal & Hobbs for a $46 per share or $2.1 billion deal, according to a press release.

Willis will pay half in cash and half in stock and is subject to a collar at a premium of 49% of Friday's closing price.

Willis also plans to buy back $1 billion of shares under a buyback program.

"This dynamic transaction is all about growth. It's truly transformational for our North America business. Only HRH has the scale and fit in attractive growth areas to take our business to the next level," said Joe Plumeri, chairman and chief executive officer of Willis, in a news release.

The deal is planned to close in the fourth quarter of 2008, although for the transaction to be completed state insurance approvals are necessary in Florida, New York and Texas, according to a market source.

Shares of Hilb Rogal & Hobbs (NYSE: HRH) launched $12.93, or 41.86% to end at $43.82.

Shares of the Willis Group (NYSE: WSH) dropped $2.16, or 6.02%, to close at $33.72.

'Dear Roy'

Carl Icahn sent a letter to Yahoo! chairman Roy Bostock which dispensed with most of the pleasantries (except perhaps for "Dear Roy"), but outlined Icahn's intentions for a new board in five points.

"Much like the rhetoric in many well known political campaigns, you keep repeating misstatements in the hopes that by repeating misstatements enough times it will convince your shareholders that these misstatements are valid," Icahn writes.

He follows with an answer to Bostock's previous question over what would happen if Icahn wins his proxy fight and seats a new board.

First, Icahn would replace "your 'poison pill' severance plan," he wrote to Bostock.

Second, replace chief executive officer Jerry Yang.

Third, have the board notify Microsoft that if an alternative transaction can guarantee $33 per share "of which I am skeptical," Icahn wrote. "All talks of alternative transactions are over."

Fourth, offer a public and friendly sale of the company to Microsoft.

Finally, if Microsoft will not make an offer, the board will pursue a search deal with Google Inc. that would not hinder a future deal with Microsoft.

Icahn left Bostock with stinging questions over why Yahoo! has not already tried to pursue a similar path.

"Sincerely yours, Carl C. Icahn"

Shares of Yahoo! (Nasdaq: YHOO) added $0.14, or 0.53%, to $26.58.

Shares of Microsoft (Nasdaq: MSFT) was also better by $0.22, or 0.80%, to end at $27.71.

Honeywell sells division for $1.05 billion

Honeywell Aerospace announced the sale of its Consumables Solutions division to B/E Aerospace for $1.05 billion including $800 million in cash and the remainder in B/E stock, according to a press release.

In 2007, the division showed a revenue of $524 billion from providing aerospace fasteners and hardware and custom logistics services.

"While Consumables Solutions is a growing business, it no longer fits with Honeywell Aerospace's strategic focus on more advanced technologies for the entire aircraft," said Rob Gillette, Honeywell Aerospace president and chief executive officer in a release.

"B/E Aerospace's focus on the distribution of commodities makes this business a better place for Consumables Solutions' growth over the long-term. We look forward to working with B/E Aerospace under long-term supply and license agreements," he said.

Shares of Honeywell (NYSE: HON) were better by $0.78, 1.44%, to finish the day at $54.79.

New wave for Third Wave

Hologic signed an agreement to acquire Third Wave Technologies for $11.25 per share of $580 million, according to a joint press release.

The price comes at a 7% premium to Friday's close, but approximately a 24% premium to Third Wave's average stock price over the last three months.

Among other products, Third Wave recently asked the Food and Drug Administration to approve two human papilloma virus (HPV) tests.

Hologic entered into the agreement with the expectation that the $200 million HPV testing market in the United States will grow to $800 million within the next few years.

"We expect our acquisition of Third Wave to help accelerate the growth of our diagnostics division," said Jack Cumming chairman and chief executive officer of Hologic.

""If and when Third Wave's HPV tests receive FDA approval, which we hope will be in the first half of calendar 2009, we will be well positioned to take these products quickly and effectively to market," he said.

If no regulatory problems are presented, the deal is expected to close in mid-August, an analyst said.

Shares of Hologic (Nasdaq: HOLX) slipped by $0.22, or 0.94%, to end at $23.19.

Shares of Third Wave (Nasdaq: TWTI) took on $0.64, or 6.10%, to close the day at $11.14.

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