Jupitermedia, Getty gain; Loral in focus on SatMex sale; Whole Foods, Wild Oats rise; Novastar falls

By Ronda Fears

Memphis, Feb 21 - After the close Wednesday, Whole Foods Market Inc. announced it will buy rival Wild Oats Markets Inc. for about $565 million - or $18.50 per share, an 18% premium to the closing stock price - to better compete with larger grocery chains that are increasing their organic food selections.

Bear Stearns grocery analyst Robert Summers said there could be limited leveraged buyout interest in the supermarket sector, particularly for the major chains like Kroger Co. and Safeway Inc. But a trader said equity investors are positioning for consolidation within the industry, rather than participation from private equity, noting there was new buzz Wednesday that a Roundys Supermarkets Inc. unit is a buyout target of Kroger.

Winn-Dixie Stores Inc., which has been speculated as a takeover target since it emerged from bankruptcy in November, was unchanged Wednesday with the stock (Nasdaq: WINN) at $16.56, after a 6% drop the day before when it reported its first financial results since emerging bankruptcy. A key factor in the sell off Tuesday, one trader said, was the 0.5% decline in same-store sales for the quarter ending Jan. 10.

In another sector currently in focus, beyond the merger plans of Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc., a trader said Wednesday that there is increased attention on the satellite operators themselves, like Loral Space & Communications Inc. and Globalstar Inc. He said bids for Satelites Mexicanos SA de CV, a former Loral unit that it still holds a major stake in, are expected imminently and the capital injection will be a plus for Loral as it wraps up its acquisition of Telesat Canada from BCE Inc.

Additionally, another trader said Wednesday that the prospect of the Sirius merger with XM falling through has rekindled rumors that EchoStar Communications Corp. and DirecTV Group Inc. would pursue a merger, or one of those satellite television companies would look to snap up one of the satellite radio concerns.

On another front, Central Parking Corp. shares were boosted by a going-private buyout. The Nashville-based company said it has accepted a takeover bid of $733 million, or $22.53 a share, from a private equity consortium that includes Kohlberg & Co., Lubert-Adler and Chrysalis Capital Partners. The offer is a 6% premium to Tuesday's market but the buyers said the purchase price was a 31% premium to the stock share price on Nov. 27, the day before Central Parking hired The Blackstone Group to evaluate strategic alternatives. The stock (NYSE: CPC) on Wednesday gained 92 cents, or 4.34%, to $22.14.

Elsewhere, Jupitermedia Corp. jumped Wednesday after a report that the company was being targeted for a takeover by Getty Images Inc., which also was higher. There were reports that the price tag would be $11 to as much as $12.62, but a source close to the situation told Prospect News that at least the $11 figure, which would be a 37% premium to Tuesday's market, was "way off."

In the biotech sector, Dyax Inc. was sharply lower on news that it lost a partnership deal with Genzyme Corp., but the stock rallied back to end with only a slight decline. Pharmacyclics Inc., however, ended with a huge drop on a surprise rejection by the Food and Drug Administration of its application for the prospective drug Xcytrin for brain metastases of lung cancer. Dyax (Nasdaq: DYAX) was off as much as 30% but came back to close with a loss of 8 cents at $4.25. Pharmacyclics (Nasdaq: PCYC) fell $1.85, or 36.71%, to close at $3.19, also coming off the session low of $2.50.

India-based Ranbaxy Laboratories Ltd. was unchanged after a volatile session on a report in The Economic Times that major shareholders from inside the company were preparing to sell up to a 7% stake to private equity investors to raise funds for its anticipated purchase of the generic drug division of Merck KGaA. Ranbaxy denied the report and the stock (Bombay: RANBAXY) closed unchanged at Rs. 382.

Subprime mortgage names were back in focus Wednesday on Novastar Financial Inc.'s warning of losses due to rising delinquencies and defaults, with no profits expected for the next five years, starting another wave of sell offs in the sector. Novastar (NYSE: NFI) fell $7.46, or 42.48%, to $10.10. New Century Financial Inc. and Countrywide Financial Corp., which had been staging a comeback in recent sessions, reversed course and were both firmly back in negative terriotry. Fieldstone Investment Corp., which has inked a controversial acquisition deal with Credit-Based Asset Servicing and Securitization LLC, or C-Bass, was also lower. C-Bass affiliates MGIC Investment Corp. and Radian Group Inc., which also have a merger pending, were lower as well.

A couple of other names with subprime mortgage exposure outside the routine pack of names involved in this activity also were lower Wednesday ahead of earnings - H&R Block Inc. and Friedman Billings Ramsey Group Inc.

SatMex buyers circling

Satellite analysts are predicting that recovery in the sector will accelerate along with further consolidation, and XM Satellite's proposed merger with Sirius Satellite, is just one piece of the puzzle, observers said Wednesday. There is considerable focus right now on the physical satellite end of the business with the Satellite 2007 Conference in Washington wrapping up Thursday.

Loral was a particular focal point for one trader, noting that Loral has its hands in both fixed satellite service and mobile satellite service and while Loral is preparing to purchase Telesat Canada and fold its Skynet subsidiary into Telesat, the company also is taking bids for SatMex and the buyers are swarming in.

Based in Mexico City, SatMex is a joint venture between Loral Space & Communications, Mexican telecom company Principia and the Mexican government following SatMex's emergence from bankruptcy in December. Loral exited Chapter 11 in August 2005.

In trade Wednesday, Loral shares (Nasdaq: LORL) were off by 59 cents, or 1.15%, at $50.89 with light volume. The trader said the stock declined Wednesday on a little profit taking after a string of strong gains that took the stock to a new 52-week high of $53.10 on Feb. 14.

Loral announced in December that it and Canadian pension fund Public Sector Pension Investment Board would buy Telesat Canada for nearly $3 billion, plus the assumption of $150 million of debt, from BCE, or Bell Canada Enterprises.

Thus, the sale of SatMex would bring in some much needed cash, which many think Loral also would use to bolster its former subsidiary Globalstar, a mobile satellite service provider in which Loral still holds a big stake.

The trader said there has been market scuttlebutt that Loral may move to bring Globalstar back under its wing with a buyout offer. He said the stock has seen buying this week after hitting a new 52-week low of $9.45 on Feb. 8, a day after the company warned of its deteriorating orbital equipment.

Globalstar shares (Nasdaq: GSAT) were up 24 cents, or 2.14%, to $11.46 on Wednesday.

"Loral needs the money. They want to invest some money in Globalstar," said satellite analyst Marco Caceres at Teal Group Corp. "They are doing well on the manufacturing side with strong orders" but on the service provider end the company is looking for a leg up.

Globalstar plans to launch its next generation of satellites in 2009, a $1.2 billion expenditure that many onlookers expect will require the company to stage some sort of capital-raising effort. A deal with Loral also would be a funding solution.

As for Loral's coffers, there has been chatter that bids for SatMex are expected in late February or early March and as many as nine or 10 bidders anticipated, the analyst said.

Loral declined to comment on the process when contacted by Prospect News on Wednesday but SatMex chief executive Romain Bausch has been quoted in recent reports that the company itself has declared 2007 will produce a change of ownership.

On Monday, Luxembourg-based satellite operator SES Global SA said it is interested in SatMex. SES Global shares (Paris: SESG) on Wednesday were off by €0.03 to €14.20.

DISH-ing it out DirecTV-ly

The mobile satellite services sector, which has benefited from increasing demand for global wireless voice and data services, faces consolidation pressures similar to those already reshaping the satellite radio industry, said Andrew Sukawaty, chief executive of British satellite company Inmarsat plc at an industry conference in Washington on Wednesday.

XM and Sirius are the first example of the satellite radio consolidation, but another trader said that the potential for that merger plan to fall through - because of antitrust scrutiny - has rekindled speculation that satellite television providers DirecTV and EchoStar would merge or that one of those would look to buy one of the satellite radio companies. Both DirecTV and EchoStar also have been speculated as takeover targets of cable companies and other media concerns.

After big surges on the merger news Tuesday, which traders largely attributed to short covering, XM and Sirius were both pulling back Wednesday. Sirius (Nasdaq: SIRI) traded as low as $3.73 but came back to settle the session unchanged at $3.92. XM shares (Nasdaq: XMSR) ended with a loss of 15 cents, or 1.04%, at $15.25.

EchoStar (Nasdaq: DISH) closed off 82 cents, or 1.9%, at $42.35. DirecTV (NYSE: DTV) lost 48 cents, or 2.01%, to $23.40

The declines in EchoStar and DirecTV, along with the vast majority of the satellite sector, were attributed by the trader to a comment from Inmarsat's Sukawaty at the conference that many mobile satellite companies are seeking billions of dollars in financing based on "deeply flawed and unrealistic business plans."

Inmarsat shares (London: ISAT) were off Wednesday by 3.75p to 413.75p.

The trader said many onlookers also think Inmarsat is on the hunt for acquisitions, noting that in January Inmarsat and Carlsbad, Calif.-based ViaSat Inc., a provider of digital communications for commercial and military applications, announced a co-funded project to develop a new mobile satellite communications terminal for the defense sector.

ViaSat shares (Nasdaq:VSAT) gained 24 cents to close Wednesday at $35.54.

Jupitermedia jumps on rumor

Jupitermedia rocketed higher Wednesday after a report said the Darien, Conn., company was being targeted for a takeover by visual content concern Getty Images, which also was higher in trade, but the rumored price tags for such a deal was seen by one source as far too low.

Citing unnamed sources "with knowledge of the negotiations," the New York Post said Seattle-based Getty Images was in talks to buy Jupitermedia, which sells digital images and other content to information technology and creative professionals and Web designers.

The Post cited sources saying the price could exceed $11 per share, including Jupitermedia debt. According to a trader, Bloomberg radio was reporting Jupitermedia would sell for about $450 million, which at 35.65 million shares outstanding would translate to $12.62 per share.

Jupitermedia shares (Nasdaq: JUPM) traded in a band of $9.60 to $10.48 versus Tuesday's close of $8.02 and closed Wednesday at $10.07 for a gain of $2.05 on the day, or 25.56%.

Getty Images (NYES: GYI) advanced $3.77, or 7.21%, to 56.06.

Jupitermedia chief executive Alan Meckler's response when contacted by Prospect News was that it was just a rumor, which he said he "wouldn't comment on."

Getty Images did not return calls.

Kroger seen eyeing Roundys

With the Whole Foods acquisition of Wild Oats, supermarket consolidation has resurfaced as a topic on the Street, with talk rekindled by an online report from the Wall Street Journal late in the day Wednesday pegging the Pick N Save stores of closely-held Roundys Supermarkets Inc. again as a target by Kroger. Roundys has repeatedly denied rumors of a buyout, rather, telling Prospect News earlier this month that it is a buyer of Pick N Save stores.

As for Whole Foods and Wild Oats, both were higher in after-hours activity on the merger news after both marking slight declines in the regular session.

Whole Foods (Nasdaq: WFMI) was off in the session by 37 cents to $45.70 but after the news moved up with the last trade at $47.94, a gain of $2.24, or 4.9%, from the close. Wild Oats (Nasdaq: OATS) slipped on the day by 6 cents to $15.72 and in after-hours action traded up to $18.43, a gain of $2.71, or 17.24%, from the close.

The Journal was reporting that Roundys' was looking for a possible buyer for its Pick N Save grocery stores and that the unit could sell for as much as $2 billion based on the value of some recent supermarket chain deals. The report cited people familiar with the matter and noted that rumors of a possible Roundys sale have arisen in the past with Cincinnati-based Kroger mentioned frequently as a potential buyer.

On Feb. 8, Roundys spokesperson Vivian King declined to comment on the possible Pick N Save sale when contacted by Prospect News. However, she pointed out that Roundys just purchased five new Pick N Saves and has plans to open a new store in March.

Roundys is owned by an investment fund of Willis Stein & Partners, a Chicago-based private equity firm that acquired the Milwaukee-based grocery chain in June 2002.

Kroger shares (NYSE: KR) meanwhile, ended Wednesday off by 4 cents at $26.47.

Grocery LBOs limited: analyst

Before the Whole Food acquisition of Wild Oats and the speculation of the Kroger asset purchase from Roundys, Bear Stearns analyst Robert Summers was saying there is limited opportunity for LBO buyouts in the supermarket sector, but he sees Kroger and Safeway as the best targets.

"Most food and drug retailers would be unlikely LBO candidates ... because meeting return objectives requires aggressive assumptions, in most cases," Summers said, using an investment rate of return of 20% over five years.

There are some opportunities, he said, but mostly limited to the larger grocers like Kroger and Safeway, the two top supermarket chains.

The consistent cash flows and debt capacity of certain food and drug retailers "may attract the attention of private equity investors, especially given the significant amount of capital to invest," Summers said.

"The major supermarkets - Kroger and Safeway - have the most characteristics that would attract LBO suitors, [that being] solid cash generation, debt capacity, improving fundamentals and underlying sources of funding in real estate holdings or divestible divisions."

On the downside, he said supermarkets would likely be hampered in an LBO context by concern over sustainability of margins and limited exit strategies.

H&R Block, FBR lower

Kansas City-based H&R Block is best known for its tax services but the company also provides investment advisory services, and mortgage originations and servicing. And with fourth-quarter and 2006 results looming Thursday, which many expect will shed light on its subprime mortgage exposure, the stock was lower amid heavy selling Wednesday.

It was the same situation for Friedman Billings Ramsey.

"Smart folks are shorting H&R Block," said one trader. "They have been unable to sell their Option One Mortgage division, and the subprime performance numbers should show why."

H&R Block (NYES: HRB) closed with a loss of 67 cents, or 2.92%, at $22.30. The company is scheduled to report results after Thursday's close.

Another trader said H&R Block shares also have been declining this week because of Berkshire Hathaway Inc. reducing its stake in the company. He noted the stock lost 2.5% on Tuesday. In a Securities and Exchange Commission filing last week, Berkshire Hathaway reported that it has cut its ownership of H&R Block to about 4.1 million shares from 11 million shares at the end of September.

FBR (NYSE: FBR) lost 15 cents, or 2.12%, to $6.91. FBR is slated to report fourth-quarter and 2006 results before Thursday's open.

"FBR is/was a huge subprime mortgage originator," said the first trader. "They are having huge non-performing issues."

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