DuPont earnings continue rumors; Sallie Mae deal near; Ryerson agrees to buyout, but not everyone's happy

By Evan Weinberger

New York, July 24 - Tuesday saw big drops in both the Dow Jones Industrial Average and the Nasdaq. And while that doesn't always mean a busy day in the special situations universe, that's exactly what traders reported Tuesday.

The volume especially picked up in the last 30 minutes to an hour of trading, one market source reported. "People were trying to take profits," he said. "Whoever was thinking about getting out of something decided to do it."

One stock that the source highlighted for making a contrary move was SLM Corp, better known as Sallie Mae. On a day when the Dow lost 226.47 points, or 1.62%, Sallie Mae was one of the notable gainers. The stock (NYSE: SLM) picked up $1.87, or 3.67%, to close at $52.80.

A market source said that the uptick could mean that J.C. Flowers & Co.'s $25 billion bid for the Reston, Va.-based student loan behemoth could be on its way to a conclusion soon.

"I've got to assume people think this deal is going to get done," the source said. "It traded up at the end of the day, so somebody knows something."

Overall, the markets closed way down Tuesday. After its 226-point fall, the Dow closed at 13,716.95. The Nasdaq finished the day down 50.72 points, or 1.89%, to close at 2,639.86.

Disappointing second-quarter earnings reports from companies including EI DuPont de Nemours & Co., better known as DuPont, and continued subprime mortgage jitters created a vortex that the markets couldn't escape. DuPont announced that its revenues were essentially flat compared to the second quarter last year.

The prompted another round of speculation as to whether or not the company would join in the recent chemical industry consolidation.

"I think the market's tired," one equities analyst said. "We probably are due for some consolidation here as people work through all the information. Everyone's looking for that safe harbor, or that safer ship."

But the drop didn't seem to be catching the market off guard. "[The] market's been in need of some correction, so I don't think anyone was surprised by this," another market source said.

The biggest takeover story of the day Tuesday was the announcement that Ryerson Inc. had agreed to a $2 billion merger agreement with Platinum Equity, a private equity firm from Beverly Hills. The all-cash deal works out to $34.50 per Ryerson share, a 15% premium from Feb. 13, when Ryerson announced that it was looking at its strategic alternatives.

However, the agreement is 1.3% below Ryerson's (NYSE: RYI) closing price Monday of $34.96.

Ryerson and its financial advisor UBS Investment Bank contacted over 50 potential suitors, the company said. Both Ryerson and Platinum Equity saw the deal as boding well for Ryerson's growth.

In minor takeover news, Total System Services, Inc. also known as TSYS, confirmed that Synovus Financial Corp., which owns 80.8% of TSYS' outstanding stock, will ask its board of directors to consider whether to distribute its ownership interest in TSYS to Synovus' shareholders in a spin-off transaction.

TSYS is a payment outsourcing company located in Columbus, Ga. Its tock closed down Tuesday, finishing at $4.61, a drop of 14 cents, or 2.95%. Synovus is a financial services company also based in Columbus, Ga. Its stock (NYSE: SNV) couldn't escape the fall, closing at $29.70, a slip of 52 cents, or 1.72%.

And Liberty Property Trust announced that it had reached a merger agreement with Republic Property Trust that will cost Liberty around $14.70 per Republic share for a total of around $415 million, based on Republic's March 31 closing stock price. Including the assumption of debt, the total price of the deal is around $900 million.

The deal is expected to close in the fourth quarter of 2007.

Liberty is a Malvern, Pa.-based real estate investment trust with properties in the United States and the United Kingdom. Acquiring Republic, a REIT based in Herndon, Va., will be Liberty's first foray into the greater Washington, D.C. area. Liberty stock (NYSE: LRY) closed down $2.81, or 6.55%, at $40.10. Despite subprime worries, Republic's stock (NYSE: RPB) leaped Tuesday, closing at $14.03, a gain of $2.55, or 22.21%.

DuPont earnings prompt talk

Along with continued concerns over the subprime mortgage fallout, worse-than-expected earnings news from several well-known companies steepened the slope.

One of those reporting poor earnings news was DuPont. The Wilmington, Del.-based chemical giant announced that its second quarter earnings flatlined Tuesday.

Net income for the company was $972 million in 2007's second quarter, compared to $975 million in the same quarter last year. Earnings per share were flat at $1.04.

The chemicals sector has seen a fair amount of takeover activity in recent days. Huntsman Corp. agreed earlier this month to a $6.5 billion deal, worth $28 per share, with Hexion Specialty Chemicals, a portfolio company of private equity firm Apollo Management Ltd.

Soon after, Basell Polyolefins Co, a portfolio company of Lev Blavatnik's Access Industries Holdings announced that it was going to buy out Lyondell Chemical Corp. for $48 billion. Basell lost out in the bidding for Huntsman.

As usually happens, one buyout spawns rumors of other buyouts. And two buyouts make those rumors pick up steam. So it was no surprise when DuPont, the big boy on the chemicals block started to appear in them.

The flat earnings news will probably keep those rumors in play.

"I would think, if anything, they would still look to acquire smaller companies with higher growth prospects," one equities analyst said. "You see that in a number of different industries. I don't see why that would be different for DuPont. If anything, there would be more pressure from shareholders to be more active."

Wall Street didn't care for DuPont's report, and the stock (NYSE: DD) lost $3.36, or 6.31%, to close at $49.90 Tuesday.

Ryerson deal displeases some

Ryerson Inc.'s $2 billion merger, including debt, is being hailed by the company and Platinum Equity, the private equity firm that agreed to buy it. The $2 billion deal includes Platinum taking on Ryerson's debt obligations.

"Platinum Equity brings the operating expertise and capital that will allow Ryerson to build upon our successes, execute the strategic plan and grow the business," Neil Novich, Ryerson's chairman and chief executive officer, said in a statement.

"It's a good fit for Platinum, which brings an operational focus that will help the company build value in the future," Platinum founder and chairman Tom Gores added.

The $34.50 per share deal is a 15% premium on the company's closing stock price from Feb. 13, the day before Ryerson announced it was looking for options. But it is a 1.3% dip from Monday's closing stock price of $34.96.

That discrepancy that appears to have left some people less than pleased. Harbinger Capital Partners' Master Fund I Ltd. and Special Situations Fund LP own 9.6% of outstanding Ryerson stock, and were not pleased with the strategic alternatives the Chicago-based metals processor and distributor chose.

"We are disappointed in the price and we are reviewing our options," Harbinger spokesman Dan Gagnier told the Associated Press.

Both Standard & Poor's and Moody's Investors Service said they would have to reassess Ryerson's bonds and threatened to downgrade the company's credit rating.

Ryerson stock finished the day down $107, or 3.06%, at $33.89. The company's 8¼% bonds due 2011 remained at around 98.5.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.