Zell homes in on Starwood Hotels; Dynegy quits joint venture

By Cristal Cody

New York, Jan. 2 - One deal fell apart and another one moved forward in the first day of trading in 2009.

Shares of Starwood Hotels & Resorts Worldwide Inc. jumped $2.90, or 16.2%, to close Friday at $20.80 after the company disclosed in a regulatory filing with the U.S. Securities and Exchange Commission that it has signed a confidentiality agreement with Equity Group Investments LLC.

Equity Group Investments is owned by real estate billionaire Sam Zell.

Starwood's stock is up because they "signed a pact with Zell, which is always good," said Michael McCarty, chief equity and options strategist at New York-based broker-dealer Meridian Equity Partners.

Equity Group Investments already owns about 8% of Starwood's outstanding shares.

Otherwise, Friday's situations were few and far between.

McCarty said virtually nothing was moving.

"We're basically trading in a vacuum. It's an incredibly light volume day," he told Prospect News. "There is a view that maybe with the new year, there will be some more coming in off the sidelines."

Activity should pick up again in the weeks ahead as everyone shakes off 2008.

"This is the day where you're just looking to get to the close and get home. There is virtually nobody here," McCarty said. "Fridays after a holiday always are pretty light."

A few deals did close during the holiday week, including Bank of America Corp.'s acquisition of Merrill Lynch and Wells Fargo & Co.'s buyout of Wachovia Corp.

Also on Friday, drug developer Valeant Pharmaceuticals International said it closed on the $285 million acquisition of Dow Pharmaceutical Sciences.

Valeant shares rose 10 cents, or 0.44%, to $23 in trading Friday.

Meanwhile on Wall Street, the markets shot up on the first day of trading, though it was on light trading volume.

The Dow Jones Industrial Average rose 258.3 points, or 2.94%, to 9,034.69 on Friday.

The Standard & Poor's 500 index jumped 28.55, or 3.16%, to 931.8 and the Nasdaq Composite index rose 55.18, or 3.5%, to 1,632.21.

Gettin' out while gettin' is good

In what may be the first deal of the year to fall apart, Dynegy Inc. said Friday it will dissolve the development joint venture with LS Power Associates LP.

"The development landscape has changed significantly since we agreed to enter into the development joint venture with LS Power in the fall of 2006," Bruce Williamson, chairman, president and chief executive of Dynegy Inc., said in a statement.

"In light of these market circumstances, Dynegy has elected to focus development activities and investments around our own portfolio where we control the option to develop and can manage the costs being incurred more closely."

The news sent Dynegy's stock up 38 cents, or 19%, to close Friday at $2.38.

As part of the agreement by both companies to end the venture, Dynegy will pay LS Power $19 million in the first quarter for the assets that have been exchanged.

Dynegy said it will record an undisclosed loss in 2009 from the transaction.

January action

Moving to action coming up in the week ahead, Exelon Corp.'s $5.8 billion stock hostile bid for NRG Energy Inc. is set to expire on Tuesday.

Exelon has said it plans to extend the offer as it awaits regulatory approval of the merger.

NRG's board has repeatedly urged shareholders to not tender shares and said the offer undervalues the company.

Exelon shares climbed $1.56, or 2.81%, on Friday to close at $57.17.

NRG shares closed at $23.64, up 31 cents, or 1.33%.

Looking ahead to later in the month, Johnson & Johnson's $31-a-share cash tender offer for Mentor Corp. is set to expire Jan 12.

Mentor shares rose 3 cents, or 0.1%, to $30.96 Friday to close in on the bid price.

The $1.07 billion deal is expected to close in the first quarter of 2009.

Johnson & Johnson shares rose 82 cents, or 1.37%, to $60.65 on light trading Friday.

Mentioned in this article:

Dynegy Inc. NSE: DYN

Exelon Corp. EXC

Johnson & Johnson NYSE: JNJ

Mentor Corp. NYSE: MNT

NRG Energy Inc. NYSE: NRG

Starwood Hotels & Resorts Worldwide Inc. NYSE: HOT

Valeant Pharmaceuticals International NYSE: VRX

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