C-COR hits dangerous ground; Harman comes back; Sallie Mae deal in trouble; clear sailing for Clear Channel

By Evan Weinberger

New York, Sept. 25 - C-COR Inc. moved into dangerous territory one day after the announcement of its merger with Arris Group Inc. And Harman International Industries Inc. moved slightly higher as the news of its canceled acquisition by two private equity firms faded a bit.

In another potential trouble spot for a private equity takeover, Sallie Mae is on the verge of having its federal subsidies slashed later in the week. But the takeover of Clear Channel Communications Inc. by two big private equity players appears to be on track and just waiting for Federal Communications Commission approval.

Chatter surrounding a potential takeover of ValueClick Inc. by Microsoft continued for a second day, as the online advertising fight continues. There is talk that AOL might jump in as well.

Equity markets hovered around the break-even mark even as bad news outweighed good news on the day. Consumer confidence was down markedly, and the housing sector continued its tumble. The National Association of Realtors announced that sales of existing homes fell for the sixth straight month in August and reached their lowest point in five years.

Oil prices were down, though, which investors like. The continued downbeat economic news sparked renewed talks of further Federal Reserve interest rate cuts, just a week after the Fed reduced its benchmark federal funds rate by 50 basis points.

The Dow Jones Industrial Average picked up 19.59, or 0.14%, on the day for a close of 13,778.65. The Nasdaq closed at 2,683.45, a gain of 15.50 points, or 0.58%. The Standard & Poor's 500 was the downer Tuesday, slipping a negligible 0.52 points, or 0.03%, for a close at 1,517.21.

C-COR heads into rough waters

As part of the merger agreement between Suwanee, Ga.-based Arris Group and State College, Pa.-based C-COR, the two companies agreed to a floor of $11.41 over an extended period for C-COR stock. If C-COR stock stays at that floor, Arris can walk away from the deal.

Well, just a day after posting big gains after the announcement of the $730 million deal, C-COR stock (Nasdaq: CCBL) tumbled Tuesday. The stock lost 74 cents, or 6.16%, for a close of $11.28 on the day. That's 13 cents below the floor, for readers scoring at home.

Market watchers said they doubt that C-COR will stay at that level long enough to give Arris the right to scuttle the deal. Nor do they think Arris has any interest in scuttling it. "It's premature, but it's something to keep in mind," one market source said.

As part of the deal, Holders of C-COR shares will receive $13.75 per share of C-COR, representing an approximately 19% premium to C-COR common stock's 30-day trading average and a 39% premium C-COR's closing price on Sept. 21. Holders can also receive 0.9642 share of Arris stock per share of C-COR stock. Holders will receive cash, Arris stock or a combination of the two.

The deal, which is expected to close in January 2008, will form the largest provider of pure play equipment and products for the cable industry, with a combined $1.2 billion earnings over the course of the last year, according to a statement released by the two companies Monday.

Arris stock (Nasdaq: ARRS) also closed lower Tuesday, sliding 44 cents, or 3.67%, to $11.54.

Harman shows signs of life

On Friday, private equity firms Kohlberg Kravis & Roberts Co. LP and GS Capital Partners VI Fund, LP announced they were backing out of their $120-per-share agreement to buy Washington, D.C.-based Harman International Industries. Wall Street was not pleased, and the stock lost around 25% of its value.

On Monday, the electronics and audio equipment company announced a severe downturn in third-quarter earnings because of what it said in a statement were increased research and development costs. The combined news sent Harman stock down a further 5.52% Monday, although market watchers said that the continued drop had much more to do with the collapse of the deal than the third-quarter earnings.

But Tuesday brought at least some signs of life for Harman's stock. The stock (NYSE: HAR) picked up 31 cents, or 0.39%, Tuesday to close at $80.62.

That rise may be short-lived however, as Harman stock was trading lower in after-hours action.

More troubles for Sallie Mae deal?

On Thursday, President George W. Bush is scheduled to sign H.R. 2669 into law. H.R. 2669 is better known as the Higher Education Access Act of 2007. The bill will slash subsidies given to Sallie Mae and other student lenders as well as increase Pell Grants and other measures.

The law follows the discovery of shady business practices by many education lending institutions.

The law, as well as the credit squeeze, has already caused a great deal of acrimony in the long-discussed takeover of Sallie Mae by a consortium led by private equity shop J.C. Flowers & Co. The deal was originally set at $60 per share of Sallie Mae in April, for a total of around $25 billion.

But Sallie Mae stock has taken a tumble, and J.C. Flowers wants to renegotiate the price. Sallie Mae says they see no reason to change the terms. J.C. Flowers said Sept. 20 that the deal might not get done.

The only thing that is certain is that the deal is on shaky ground and that Sallie Mae stock continues to fall. The stock, which is traded as SLM Corp. (NYSE: SLM), fell a further $1.54, or 3.22%, to $46.25 on Tuesday.

Clear Channel has clear sailing

One deal that looks like it might get done soon is the takeover of Clear Channel Communications by Thomas H. Lee Partners LP and Bain Capital Partners LLC. Shareholders in the San Antonio-based radio and television station and outdoor advertising operator voted to accept the $39.20-per-share agreement, or $19.5 billion, Tuesday. The deal has been long-negotiated and seriously sweetened over the course of those negotiations.

According to a statement released by Clear Channel, 98% of votes cast were in favor of the takeover. "We are pleased with the outcome of today's vote," Mark Mays, Clear Channel's chief executive officer, said in the statement. "We look forward to completing this transaction with T.H. Lee and Bain as quickly as possible."

One hurdle remains. Clear Channel is the largest operator of radio stations in the United States, although it has been getting rid of some of its stations in recent years. The FCC will have to approve the deal, although no date has been set for those hearings.

Clear Channel stock (NYSE: CCU) added 29 cents, or 0.79%, Tuesday to close at $37.05.

Online advertising battle continues

Westlake Village, Calif.-based online advertising firm ValueClick has for several days been the subject of takeover rumors. Some of those rumors have Microsoft looking to buy the company as part of its fight to regain some of the advertising revenue that the Seattle-based software behemoth lost to Google Inc.

Other rumors have Time Warner's AOL unit looking to buy the advertising firm.

ValueClick is one of the few remaining independent, publicly traded online advertising firms. Most have been bought up by Google, Microsoft, AOL and Yahoo! Inc., among others.

While there are hurdles to overcome in any purchase of ValueClick by any of these firms, the chatter continued for a second day, a market source said, and it keeps getting louder.

That speculation is doing wonders for ValueClick stock (Nasdaq: VCLK), which gained $2.85, or 12.95%, to close at $24.85 on Tuesday.

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