Archstone-Smith advances; Freeport-McMoRan gains; Sterling plunges; Delphi spikes

By Ronda Fears

Memphis, May 25 - Archstone-Smith Trust, the second-largest domestic apartment real estate investment trust, surged Friday after a sellside analyst cited an industry publication reporting it was in talks with Tishman about being acquired.

Other apartment REITs, such as Equity Residential, which is linked to real estate mogul Sam Zell, and Avalonbay Communities Inc., were pushed higher by the news. Traders said also helping the group was news earlier in the week that Crescent Real Estate Equities was being bought for $22.35 per share, a 5.5% premium, by the real estate unit of Morgan Stanley.

On a down note, Sterling Financial Corp. plunged on massive selling in what one trader described as a "bloodbath" after the Lancaster, Pa.-based regional bank disclosed an ongoing investigation of a loan scheme by employees at an affiliate. He said that given the tighter lending standards adopted recently by the financial community, the news was a "black eye" on the group and prospects for consolidation.

It was back to higher ground, though, for the miners and metals group.

Freeport-McMoRan Copper & Gold Inc. also resumed its upward path Friday, as traders had predicted after the stock slid a day before amid the broader market's weakness, on continued speculation of a private equity takeover. Midweek, a rumor that Freeport-McMoRan was the target of a private equity takeout at $100 per share pushed the stock sharply high and propelled much of the metal and miner group, traders said. The stock (NYSE: FCX) gained $2.32, or 3.21%, to $74.61.

Cleveland-Cliffs Inc. spiked on renewed speculation the iron ore pellet producer is a possible takeover target, again with heavy action in call options.

Canadian aluminum maker Alcan Inc., Australian metals concern BHP Billiton Ltd. and domestic rival Alcoa Inc., which has made a $27 billion bid for Alcan, were all higher as well. Amid that, market rumors put Alcan in talks with BHP to fend off Alcoa, while chatter renewed that put Alcoa as a takeover target. Alcan (NYSE: AL) gained 61 cents, or 0.72%, to $85. Alcoa (NYSE: AA) added 69 cents, or 1.72%, to $40.90. BHP (NYSE: BHP) advanced $1.35, or 2.72%, to $50.95.

General Motors Corp. is now saying a sale of subsidiary Allison Transmission is "probable" although the market has cooled somewhat on the notion since GM put it up for sale in January, traders said. One trader said some think that unit could fetch about $3 billion and the most likely buyers are expected to be private equity shops like the Blackstone Group, Centerbridge and the Carlyle Group. GM shares (NYSE: GM) were flattish Friday, edging up 2 pennies to $30.49 after slumping a day before on its $1.3 billion convertible offering.

Delphi Corp., the bankrupt auto parts supplier and former subsidiary of GM, also surged on news from GM that its part of the costs related to Delphi's bankruptcy will amount to $7 billion, $1 billion more than the automaker had put aside. A distressed equity trader said that because this theoretically means higher recovery rates for Delphi claimants, the stock (Pink Sheets: DPHIQ) shot up 22 cents, or 9.95%, to $2.43.

Dura Automotive Systems Inc., another distressed name, did not move much, the above trader said, but he said the market is keenly watching for developments on the auto parts supplier's anticipated equity right offering, which would be a cornerstone in its bankruptcy reorganization.

Archstone pushes REITs

According to one trader, REIT Wrap, published by long-time industry watcher Barry Vinocur, reported the Archstone-Smith rumor, and a UBS analyst cited it in a report Friday, that the REIT is purported to be in talks with Tishman about being acquired.

Archstone-Smith (NYSE: ASN) climbed $4.10, or 8.02%, to $55.23. The trader also noted heavy volume and gains in the June $55 and $60 call options.

"The analyst thinks Archstone-Smith is one of the most attractive PE [private equity] candidates," the trader said. "They are in some of the hottest markets."

Englewood, Colo.-based Archstone-Smith owns and operates an unreplicated portfolio of high-rise and garden apartment communities in the Washington, D.C. metropolitan area, southern California, the San Francisco bay area, the New York City metropolitan area, Boston, Chicago, southeast Florida, and Seattle.

It also propelled action in several peers, the trader said, mentioning Avalonbay and Equity Residential. Equity Residential (NYSE: EQR), the largest publicly traded domestic apartment owner, gained $1.19, or 2.54%, to $47.55. AvalonBay (NYSE: AVB), the third-largest apartment REIT, added $3.16, or 2.73%, to $118.90.

Sterling sale sullied: trader

Sterling Financial plunged on the revelation of the alleged loan scheme by employees at affiliate Equipment Finance LLC, and traders said the news would severely hamper its abilities to find buyers. The bank also said it plans to stop paying dividends and has hired Keefe, Bruyette & Woods to explore options, including raising additional capital, selling some assets, or a merger.

"Right now the bank's capital is depleted. The biggest questions in my mind are: Is there E&O insurance coverage and for how much? What is the legal exposure of the outside auditors? And, how valuable are the bank's branches to a third party purchaser who is looking to expand into this region," one trader said.

"How can they talk about finding a buyer now without knowing these answers?"

Sterling shares (Nasdaq: SLFI) fell $6.19, or 38.3%, on the day to settle at $9.97 and was lower in after-hours activity.

Sterling said the affiliate, Equipment Finance LLC or EFI, is a unit of Sterling's Bank of Lancaster County NA. EFI provides commercial financing for the soft pulp logging and land-clearing industries, primarily in the southeastern United States.

Sterling said the investigation, which is still ongoing, revealed "evidence of a sophisticated loan scheme, orchestrated deliberately by certain EFI officers and employees over an extended period of time" to conceal credit delinquencies and falsify financing contracts.

Sterling said the scheme was limited to EFI and did not include other affiliates.

The company expects to record a charge to 2006 financial statements of about $145 million to $165 million, based on the investigation's preliminary findings. Sterling hasn't yet determined the final financial impact of the loan scheme.

Cleveland-Cliffs climbs

Recent activity in Alcan and the speculation on Freeport-McMoRan rekindled such speculation for Cleveland-Cliffs again Friday. Traders mentioned Cleveland-Cliffs to Prospect News as a takeover target being chased on May 14, noting that such speculation first surfaced in September. The move Friday was largely sparked by comments from analysts, traders said.

The stock (NYSE: CLF) climbed to $78.13, gaining $7.33 on the day, or 10.35%.

One trader noted the stock has added nearly $5 in just the past two weeks and the options activity Friday was focused on $80 and $85 calls, whereas the heaviest volume had previously been centered on $75 and $80 calls.

"The conviction with this name is getting stronger," the trader said.

Amid widespread consolidation in the steel industry, he said talk of a buyout targeting Cleveland-Cliffs in September pushed the stock from around the $35 area at that time.

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