United Rentals driven up; Winn-Dixie gains; Ryerson rises; FBR higher as subprime group slides

By Ronda Fears

Memphis, April 10 - Equipment rental firm United Rentals Inc. was taken higher Tuesday after saying it is exploring a possible sale of the company and that chief executive Wayland Hicks will retire in June.

Even as homebuilder stocks were mostly lower Tuesday, Mexican cement maker Cemex SAB de SA soared along with Australia's construction materials concern Rinker Group Ltd. after the latter accepted a sweetened offer of $14.25 billion, or $15.85 per share, after five months of wrangling. Cemex advanced as it is seen gaining significant market share with the Rinker acquisition. Rinker shares (NYSE: RIN) added $3.25, or 4.32%, to $78.55 while Cemex (NYSE: CX) rose $1.99, or 5.97%, to $35.32.

Subprime mortgage lenders were lower alongside homebuilders as the International Monetary Fund said in its semi-annual Global Financial Stability Report that a decline in the subprime market was more rapid than expected at this point in the overall housing downturn and could spread to related lending markets.

Friedman Billings Ramsey Group Inc., however, was higher after reporting it has sold its entire stake in subprime mortgage lender Fieldstone Investment Corp. and that it plans to split its mortgage unit from its capital markets division. FBR said Tuesday in a filing with the Securities and Exchange Commission it has sold its Fieldstone position after as recently as March 12 declaring a 6.06% stake.

FBR also Tuesday said it will spin off 47%, or up to 13.5 million shares, of its FBR Capital Markets Corp. unit in an initial public offering at a price of $16 to $18 each. The real estate investment trust unit was formed in June to be the holding company for FBR's capital markets, including investment banking and institutional brokerage and research, and asset management businesses.

In addition to the majority ownership in the capital markets unit, following the IPO, FBR will focus on investing in mortgage related assets and merchant banking opportunities. FBR owns First NLC Financial Services Inc., a subprime mortgage lender that it acquired in early 2005. The company said in March that it was considering strategic alternatives for the First NLC unit after it was hit by margin calls. At that time, it also said it would close a number of centers and cut jobs at First NLC.

"By separating the capital markets and asset management businesses contributed to us from FBR Group's principal investing and mortgage finance businesses, we believe we have made it easier for shareholders to meet their desired specific investment objectives of investing in either a capital markets business by investing in us or a REIT by investing in FBR Group," FBR said in a news release.

FBR shares have lost 30% this year amid the subprime crisis. On Tuesday, the stock (NYSE: FBR) added 6 cents, or 1.09%, to close at $5.57.

United Rentals gains 17.5%

Greenwich, Conn.-based United Rentals said it is exploring a broad range of strategic alternatives - including a sale - to maximize shareholder value, and traders said there was a flood of buyers showing up, bolstered by heavy takeover activity in the sector recently.

United Rentals (NYSE: URI) was driven up by $4.81, or 17.46%, to $32.36 on whopping volume of 11.9 million shares versus the norm of 927.290 shares.

One trader said there was "considerable speculation that if they are bought out it would most likely be by an industry peer," but he said takeover activity in the group over the past year suggests to him it would more likely be a large conglomerate or a private equity investor.

In any event, he said the market was anticipating a takeover premium "in the neighborhood of 30%" to Monday's market, or about $35 per share.

Of the peers, he said NationsRent Cos. Inc., RSC Holding Inc. and NES Rentals Holdings Inc. were mentioned, he said.

Formerly controlled by The Baupost Group and Phoenix Rental Partners, in June 2006 industry rival Sunbelt Rentals Inc., a subsidiary of European rental giant Ashtead Group plc, acquired Fort Lauderdale, Fla.-based NationsRent for more than $1 billion to form the third-largest equipment rental company serving the U.S. market.

Until last year, Swedish industrial group Atlas Copco owned Scottsdale, Ariz.-based RSC, but Atlas Copco sold most of its stake in RSC to Ripplewood Holdings and Oak Hill Capital Management in late 2006 for more than $3.4 billion.

Chicago-based NES was bought out in May 2006 by private equity firm Diamond Castle Holdings, LLC for $850 million.

United Rentals' announcement caps a multi-year turnaround effort during which the stock briefly traded below $6 in 2002. It wasn't until late 2005 that the stock could even sustain a level above $20.

Scott Schneeberger, an analyst at CIBC World Markets, said in a research report Tuesday that he expects United's earnings to grow by 10% in 2007. He noted the company has improved core operations by shedding operations such as its traffic control business, which was sold in mid-February for $68 million to private equity investors Wynnchurch Capital Partners and Oak Hill Special Opportunities Fund.

United Rentals also said Tuesday that its chief executive Wayland Hicks will retire effective at the annual shareholder meeting June 4. He will continue to serve as vice chairman of the board of directors. Chief operating officer Michael Kneeland will serve as interim CEO.

Ryerson rises on news hope

In another potential buyout story, Chicago-based metals fabricator Ryerson Inc. was higher, albeit amid light volume, on hopes of a status report or update on the process soon, according to one trader.

Ryerson (NYSE: RYI) advanced 48 cents, or 1.16%, to settle Tuesday at $41.78. Only 386,600 shares traded, however, versus the norm of 1.06 million shares.

"There was a buyer for the stock, small, and there is some speculation that we will hear an update, an offer come out, or something from them [Ryerson] soon," the trader said.

In March, Ryerson postponed its annual meeting from May 11 to a yet-determined date, saying it needed more time to review a possible sale of the company or other options, actions that met with criticism from an activist shareholder.

In February, the company said it had hired an investment bank to review strategic alternatives, including a sale of the company, merger, or recapitalization. Just before that announcement, the stock was trading at around $30.

Ryerson has been the target of a proxy battle in which Harbinger Capital Partners, which owns 9.7% of the company, has vowed to replace the board with its own nominees after criticizing the company's performance.

Harbinger is seeking the election of seven independent directors to replace the majority of Ryerson's board. In early March, Ryerson said it had elected James Kackley, a private investor and former Arthur Andersen accountant, to its board.

Winn-Dixie pick of grocers

Leveraged buyout talk didn't move Kroger Co. much, or peer grocer Safeway Inc., according to one buyside market source, but Winn-Dixie Stores Inc. was a top pick in the sector on merger buzz.

Winn-Dixie (Nasdaq: WINN) gained 76 cents on Tuesday, or 4.15%, to close at $19.07. Volume on Tuesday was about 1.1 million shares versus the norm of 759,232 shares.

Jacksonville, Fla.-based Winn-Dixie has been speculated as a potential winner akin to Kmart Inc. since Winn-Dixie exited bankruptcy last November, but there have been many skeptics who say it still has a long way to go. After Kmart's bankruptcy in 2002 it merged with Sears Holdings Corp. and the stock skyrocketed. Sears shares (Nasdaq: SHLD) on Tuesday were better by $3.37, or 1.8%, at $190.27.

This buysider acknowledged that Winn-Dixie, indeed, has a long way to go competitively to Wal-Mart Stores Inc. and Publix Inc., but he sees it as a long investment that also has a good potential of snagging a merger with the likes of Kroger or Safeway.

"I'll play the devil's advocate when it comes to Winn-Dixie," the buyside source said. "I am recommending Winn-Dixie as a long investment. It has some striking similarities to Kmart when it emerged from bankruptcy. Winn-Dixie was a weakened No. 3 player in many of its markets that was thought to be marginalized and permanently impaired. It emerged debt-free with a significant cash balance. It has strategically important locations that could be a back stop for value."

Kroger (NYSE: KR) gained 28 cents on Tuesday to $29.50 but was lower Monday following a Wall Street Journal report on Friday that the Cincinnati-based supermarket chain might be exploring a possible buyout, assisted by adviser Goldman Sachs Group Inc.

David Dillon, chief executive of Kroger, however, responded via a letter to employees, stating that "neither management nor our board of directors has any interest in pursuing a leveraged buyout transaction. Our focus is on the execution of our business strategy, which is to serve our customers, and in that way continue to grow Kroger as an independent public company and create value for our shareholders."

That, the buysider said, could mean it is looking to grow with an acquisition, and Winn-Dixie's post-bankruptcy balance sheet position could make it a prime target for Kroger, or even Pleasanton, Calif.-based Safeway. On Tuesday, Safeway shares (NYSE: SWY) slipped 25 cents to $36.93.

If not, he still likes Winn-Dixie as a staple in his holdings.

"The grocery business is stable; that's a given," he said. "Everyone thought Wal-Mart would drive everybody out of business; that hasn't happened and it's not going to happen. The whole group is trading at multi-year highs now that the impact of Wal-Mart has been digested. On top of that, Wal-Mart's growth is slowing down."

Biosite bidding seen going up

Diagnostic testing firm Biosite Inc. said Tuesday that it is and will continue to evaluate the rival $90 per share bid from Inverness Medical Innovations Inc. to an $85 offer accepted by Beckman Coulter Inc., but the tone of Biosite's remarks moreover suggested that the bids will go higher.

Thus, Biosite shares (Nasdaq: BSTE) advanced another $1.43, or 1.55%, to $93.69.

"The slumbering [Biosite] board of directors has been exposed," one trader said. He said his firm's analyst expects Beckman will have to boost its bid by $5 over that of Inverness, putting it at $95, but if the bidding war goes further it will taper off to much smaller increments.

After Inverness suggested several times it had been rebuffed by Biosite, on Tuesday Biosite said its board, after consultation with financial and legal advisers, determined that Inverness' offer on April 4 is "reasonably likely to lead to a superior proposal as defined in the merger agreement that Biosite entered into with Beckman Coulter on March 24." Based in part on this determination, the company said its board has authorized Biosite to engage in discussions and negotiations with Inverness.

Under the merger agreement with Beckman Coulter, Biosite must provide Beckman Coulter with at least 48 hours notice prior to initially engaging in discussions or negotiations with or initially furnishing non-public information to Inverness in response or with respect to the Inverness acquisition proposal.

Mirant warrants spark interest

A day after saying it would explore going on the auction block, Atlanta-based independent power producer Mirant Corp. shares dipped a bit, but the warrants that were issued in its bankruptcy were still seeing big buyers, according to traders.

Mirant common shares (NYSE: MIR) slipped 5 cents, or 0.11%, to $44.03.

The series A warrants (NYSE: MIR-WTA) gained 26 cents, or 1.06%, to $24.88. The warrants, for 35.3 million shares with a strike price of $21.87, were distributed to common stockholders in Mirant's reorganization plan.

The series B warrants (NYSE: MIR-WTB) gained 2 cents, or 0.08%, to $25.82. The warrants, for 17.65 million shares with a strike price of $20.54, were distributed to preferred stockholders in Mirant's reorganization plan.

"A lot of people are looking to buy the warrants instead of the common, and we saw plenty of sellers who had picked them up for like $15 or $16," said one trader. "The warrants continue to outperform the common, you see, and I don't see this changing.

Activity in Mirant call options dropped off Tuesday sharply, he added, following reports of the spike in activity. He said there didn't seem to be any misdeeds regarding options activity, noting a spike in the options as early as mid-week last week.

As for Mirant shares, the trader said that, given a sale is a "pretty aggressive speculation," he thinks a "runaway gap" was forming as common holders were "taking whatever profit is on the table rather than waiting for a better one."

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