Tribune eases on NYT crash; Reckson, Mack-Cali, SL Green decline; Cardinal Health gains

By Ronda Fears

Memphis, Nov. 30 - Special situations equity players were frustrated Thursday, not just by the technical snafus at the New York Stock Exchange that caused trades to take longer, but more so by an increasing lack of faith in market rumors as takeover speculation takes on new proportions and in some cases doesn't pan out.

In addition to the foiled Dollar General Corp. takeover rumor, players were having to quickly unwind positions Thursday in the New York Times Co. as reports were countered that former AIG chairman Maurice Greenberg was amassing a stake in preparation of launching a battle for control over the newspaper empire.

New York Times shares (NYSE: NYT) fell 62 cents on the day, or 2.52%, to $24.14.

"There are so many guys chasing ahead of deals, it's ridiculous. And this noise is being generated and perpetuated in some of the top news agencies, like CNBC," said a hedge fund manager in New York.

"I don't have a problem sticking my toe in if there is something circulating that makes sense, and then really commit when it becomes clear what is going on. But right now there is so much money being tossed around, so much speculation on what is about to happen or going to happen, that you could really hang yourself if you're not really, really careful."

Tribune off as positions shed

The breakdown in the New York Times play also sparked a shedding of positions in The Chicago Tribune publisher Tribune Co. on Thursday, traders confirmed.

Tribune shares (NYSE: TRB) dropped 23 cents, or 0.72%, to $31.80.

"We saw a bunch of folks stop chasing TRB today, seeing the action in NYT on rumors and then the 'Oh, no!' falloff after-hours when rumors failed to be reliable. It's a set-up for big losses," said a risk arbitrage trader.

"Tribune has a mess on their hands. Bids were below expectations and outside of saying we 'failed,' they said 'let's extend this' fiasco. The technicals on TRB are suggesting the run might be over in the short-term. If you are smart, play a pullback and consolidation in the $30 range. A good rule of thumb is never chase rumors on a company with bad fundamentals."

The trader said he had a cash position in Tribune so he sold out Thursday and would look at it again at $30 or in January, whichever comes first.

On Tuesday, Tribune extended its deadline to complete a strategic review begun in September, including a potential company sale, but onlookers took that to mean it is struggling to attract premium bids. In a statement, however, Tribune chief executive Dennis FitzSimons said the process "has generated strong interest from a number of parties."

Several private equity firms, two Los Angeles billionaires and rival media giant Gannett Co. have made preliminary offers for the whole company. Other potential bidders have approached Tribune about acquiring certain assets, including the Los Angeles Times, the Baltimore Sun, several New England papers and the Chicago Cubs.

William Osborn, chairman of a special committee for this process, said he expects a final recommendation in first-quarter 2007. Previously, Tribune had said it planned to complete the review by year-end.

Reckson retreats on Green news

Extending after-hours declines from the day before, Reckson Associates Realty Corp. shares were lower along with suitors Mack-Cali Realty Corp. and SL Green Realty Corp. as their buyout fray continues to frustrate players.

Uniondale, N.Y.-based Reckson on Thursday agreed to allow Mack-Cali to partner with Carl Icahn and Harry Macklowe in their buyout bid, via Rome Acquisition LP, after Mack-Cali said it would contribute at least $300 million in cash to boost the bid to $1.5 billion from $1.2 billion.

Meanwhile, SL Green said that it has been evaluating whether to make an amended offer for Reckson but does not immediately plan to match a competing offer, but was in the market with a follow-on stock offering of 3.7 million shares that fetched $497.7 million. Green said the proceeds would be slated for acquisitions and debt repayments.

Reckson shares (NYSE: RA) fell $1.22, or 2.46%, to settle Thursday at $48.38, mirroring a 2.72% decline in after-hours activity Wednesday.

Mack-Cali shares (NYSE: CLI) lost 6 cents on the day, or 0.11%, to $54.64.

SL Green shares (NYSE: SLG) plunged $1.57 on the day, or 1.15%, to $135.24, but traders said that was largely due to the stock offering.

In August, Reckson agreed to a buyout by Green for cash and stock now worth about $4.1 billion, but the deal met criticism because it involved the simultaneous sale of $2.1 billion worth of properties. Green's offer stands at $31.68 in cash plus a stock exchange ratio of 0.10387 per share.

U.S. Energy buffeted by unit

U.S. Energy Systems Inc. initially dipped Thursday on news that its U.S. Energy Biogas Corp. unit had filed bankruptcy, but the news was seen as a positive event and buyers stepped up on the weakness, traders said. Still, the stock ended the day a tad weaker.

"Big money was coming in. There was a lot of support. I look for the stock to move to $10 over the next year," said one equity trader.

U.S. Energy Systems shares (Nasdaq: USEY) opened at $3.95 versus Wednesday's close of $4.04 and dropped as low as $3.86 in early trade on the news but bounced back on afternoon buying. Yet, the stock ended the session with a loss of 2 cents, or 0.42%, at $4.02.

"USEY just took over sole ownership of Biogas, the Canadian biofill gas part of the company, and filed for Chapter 11 protection. Note that this has no effect on the British part of the company's operations," the trader said.

"It looks like they're trying to get rid of Biogas' debt through the bankruptcy. Maybe they just close Biogas down, period, which has never been profitable, and concentrate on the newly acquired stuff that will be profitable. Or maybe with Chapter 11, Biogas can emerge debt free and become profitable without the loan repayments. One way or another, this certainly is a positive. It's about time they got rid of the albatross from around their necks."

In the bankruptcy announcement, U.S. Energy said the Biogas unit's business is operationally healthy with attractive growth opportunities and was current in its payment of all principal and interest. It said no monetary defaults existed or were alleged by any creditors and that it has honored every material reporting requirement under its loans. However, it added that the unit's current capital structure was impaired by a "flawed" and unjustifiably "onerous" loan agreement negotiated by former management with Countryside Power Income Fund that, absent a restructuring, would lead to insolvency.

"Having failed in good faith efforts to renegotiate the Countryside loan, including offering to repay the loan in full, USEB's board of directors determined that Chapter 11 is the best venue for pursuing and establishing an appropriate capital structure to support the continued operation and growth of USEB's business," the statement said.

"The Countryside loan traps approximately $33 million in cash that could fund growth investments and help to meaningfully contain our cost of funds," said Asher E. Fogel, chief executive of U.S. Energy, in a news release. "We believe that resolving the flawed and unjustifiably onerous Countryside loan arrangement will unlock significant value for USEY shareholders."

Cardinal Health rises on sale

Cardinal Health Inc. announced plans to sell its pharmaceutical technologies and services segment and, while it also lowered its 2007 guidance, plans to use proceeds from the sale to boost its stock buyback program by $1 billion to $3 billion for 2007 and 2008. As a result, the stock was lifted more than 4%. No potential buyer was named for the unit, which Cardinal Health said generates $1.8 billion in annual sales.

The stock (NYSE: CAH) gained $2.79 on the day, or 4.51%, to $64.62.

"What attracts me to CAH is its fundamental strength. Despite temporary management problems, the company continues to grow sales, and except for a stumble in 2005, grow earnings per share as well as net income .Total long-term liabilities to equity is a manageable 41%. (I prefer total long-term obligations, since it gives you a better picture of actual long debt.) CAH has a market cap of $25 billion, $2 billion in cash, and a current ratio of 1.27 - all pretty healthy numbers," said an equity fund manager in New York.

"The company has dedicated its great cashflow to stock buybacks. Over the last four quarters, CAH has bought back $1.69 billion in stock (financing $402 million of it with debt, which is not all that terrible considering the amount of cash CAH can quickly accumulate). Over the last 3 years (2004 to '06), CAH bought back $2.9 billion in stock and $434 million in debt. And I like near-term prospects, since CAH is temporarily getting some relief."

Dublin, Ohio-based Cardinal Health said it will divest its pharmaceutical technologies and services segment to focus its capabilities and resources to better serve health care provider customers, such as hospitals and pharmacies.

Cardinal Health said there would have been no change to its fiscal 2007 earnings-per-share guidance had it not made the decision to sell its pharmaceutical technologies and services segment. Based on the decision, however, it now sees non-GAAP diluted EPS from continuing operations for fiscal 2007 in the range of $3.25 to $3.40. Excluding the impact of the sale, the company reaffirmed its long-term goal of 12% to 15% non-GAAP EPS growth for 2008.

Out of ASE into Atmel, Stats

With more and more doubt cast on The Carlyle Group's $5.5 billion bid for Taiwan-based chip testing and packaging concern Advanced Semiconductor Engineering Inc., market sources said Thursday that the focus on chip names with takeover potential shifted to Atmel Corp. and Stats ChipPAC Ltd.

Advanced Semiconductor shares Thursday (NYES: ASX) were lower for most of the session but closed the day with a gain of 3 cents, or 0.52%, at $5.83.

While other chip names with interest include STMicroelectronics NV and Infineon Technologies AG, one equity strategist at a hedge fund in New York said Atmel and Stats ChipPAC "are neck and neck to be the favorites in this race."

She said there also has been strong interest lately in United Microelectronics Corp. and Taiwan Semiconductor Manufacturing Co. Ltd. due to takeover speculation, which was largely extended Thursday, but "Taiwan Semi is probably the frontrunner there."

Earlier this week, Advanced Semiconductor said it had formed a special committee to evaluate the Carlyle bid, which is the equivalent of $5.94 per American Depositary Share, or roughly $5.5 billion. A stock trader also noted that the buyout deal is being aggressively investigated by the Taiwan Stock Exchange.

Another buyside market source involved in risk arb said there was indeed some doubt cast on the Advanced Semiconductor deal, and he figured lots of players were cashing out of the company to make a switch to other potential chip names that are likely takeover targets of private equity. Thus, the focus has shifted to other prime takeover candidates such as Atmel Corp.

"I am out [of ASE] as of yesterday. I am angry that I didn't get out at $6 like I vowed that I would, but with the investigation and the possibility of a correction if they announce no buyout, I am not going to get taken back down to my buy point of $4.98 average," the buysider said.

"I will take the winnings in stride and when it gaps back down to $5.10-$5.00, I might get back in, but I think the gap up was premature."

His picks, too, were Atmel and Stats

Atmel shares (Nasdaq:ATML) gained 12 cents, or 2.43%, to $5.05.

Stats ChipPAC shares (Nasdaq: STTS) rose 41 cents, or 5.13%, to $8.40.

Infineon shares (NYSE: IFX) were up 13 cents, or 1.02%, to $12.93.

STMicro shares (NYSE: STM) slipped by 7 cents, or 0.38%, to $18.12.

United Microelectronics shares (NYSE: USM) added 2 cents, or 0.57%, to $3.54.

Taiwan Semiconductor Manufacturing shares (NYSE: TSM) closed up by 28 cents, or 2.67%, at $10.75.

Carlyle's bid for Advanced Semiconductor marked the latest private equity move into worldwide chip names, including private equity buyouts of NXP BV - formerly the semiconductor division of Royal Philips Electronics - and Freescale Semiconductor Inc. - formerly the semiconductor division of Motorola Inc. Freescale's leveraged buyout in September also included Carlyle.

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