Yahoo! plays hard to get with Microsoft; Kellwood goes with the flow; time running out on HLTH-WebMD deal

By Evan Weinberger

New York, Feb. 11 - Yahoo! Inc. played hard to get with Microsoft Inc. Monday. The market still expects that deal will go through.

Meanwhile, Kellwood Co. gave up the fight with Sun Capital Securities Group LLC.

And HLTH Corp.'s bid to take control of all of WebMD Health Corp. appears to have hit a snag.

Axcelis Technologies Inc. confirmed that it's been receiving unexpected attention from Japan.

And Possis Medical Inc. agreed to become a part of one of German health care company Bayer HealthCare's American affiliates.

Stocks were shaky for most of the day, buoyed by some corporate earnings and hopes for a further rate cut. American International Group Inc.'s warning that it may have more credit write downs on the way tamped down the good feelings Monday.

The Dow Jones Industrial Average rose 57.88 points, or 0.48%, to 12,240.01.

The Nasdaq picked up 15.21 points, or 0.66%, for a 2,320.06 close.

And the Standard & Poor's 500 gained 7.84 points, or 0.59%, to close at 1,339.13.

Yahoo flirts with Microsoft

The rejection was rumored all weekend, and on Monday morning it arrived.

Yahoo officially rejected Microsoft's $31-per-share offer for the internet portal that was initially made Feb. 1.

In a statement released Monday morning, Sunnyvale, Calif.-based Yahoo said that after a review of Microsoft's offer, the deal was not in the best interests of the company or its stockholders. In short, Yahoo didn't think Microsoft was offering enough.

"After careful evaluation, the board believes that Microsoft's proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments," the statement went on to say.

Redmond, Wash.-based Microsoft could raise its offer, lobby Yahoo shareholders or start a protracted fight to replace Yahoo's board of directors. All of Yahoo's directors are up for re-election.

It appears that Microsoft is pursuing option two, for now.

"It is unfortunate that Yahoo! has not embraced our full and fair proposal to combine our companies," Microsoft said in a statement after the market close Monday. "Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties."

According media reports, some Yahoo shareholders are trying to rally support for the deal, but they make up a small minority of the stockholders.

Market watchers pointed to the relatively bland rejection notice Yahoo sent to Microsoft as a clue that the deal will eventually get done, and that Microsoft will eventually pay the price.

"Yahoo's board is just doing what it needs to get the price higher and see if anyone else cares," a trader said. "No one can pay better. Google can't do anything - the E.U. and U.S. would call it a monopoly. It will be over soon."

Yahoo (Nasdaq: YHOO) moved up 67 cents, or 2.29%, to $29.87 Monday.

Microsoft (Nasdaq: MSFT) slid 35 cents, or 1.23%, to $28.21 on the day.

Everyone wins in Kellwood deal

When Sun Capital first proposed a merger with Kellwood in September and then followed up with an official offer on Jan. 16, the St. Louis-based clothing manufacturer vowed to fight. Kellwood said it wanted to remain an independent company and that its restructuring plan was superior to the private equity shop's ideas.

The company even proposed a $60 million bond tender offer to prevent Sun Capital from buying up the 75% of Kellwood stock it needed to force the deal through. Kellwood wanted to buy back between 17% and 18% of the shares.

Sun Capital stood firm, saying that it would lower its offering price to $19.50 per share from their initial $21 per share. The hammer beat Kellwood into submission.

By Jan. 28, Kellwood was backing away. The company said it would no longer go through with the bond tender offer and would not advise shareholders to vote against the deal.

And on Monday, the deal was done. Kellwood said the $21-per-share offer was fair value for the company.

"As a strong, private company, Kellwood will continue to execute on its strategic priorities to position the company as a brand-focused marketing enterprise," Robert C. Skinner Jr., Kellwood's chairman, president and CEO, said in a statement.

The deal is expected to close Tuesday, when Sun Capital's tender offer is set to expire. The private equity shop is expected to take over the company's board assuming that enough shareholders participate in the tender offer.

"We look forward to working collaboratively with Kellwood to ensure a smooth and expeditious transition and urge all shareholders to tender their shares to guarantee they receive prompt payment for their holdings," Sun Capital vice president Jason Bernzweig said in a press release.

"As we have said before, we are prepared to commit substantial resources beyond the purchase price to build Kellwood's business, and we will work closely with management and employees at Kellwood to strengthen the company and develop its branded portfolio."

Sun Capital already owns 11.4% of Kellwood stock, which moved within striking distance of the tender price Monday.

Kellwood stock (NYSE: KWD) picked up 41 cents, or 2%, to close at $20.94.

HLTH deal not done

Last November, Elmwood Park, N.J.-based health information provider HLTH announced plans to try to merge with WebMD. HLTH already controls a significant interest in the health information web site and wanted to have more control over its operations.

Fast forward a few months and HLTH still hasn't been able to seal the deal.

On Monday, HLTH said that its representatives and a special committee of WebMD's directors have been unable to come to an agreement on the terms.

HLTH said in a statement that it would give the negotiations a little while longer before concluding them but gave no guarantees about a deal getting done.

In other HLTH news, the company announced that it had completed the sale of its 48% stake in Emdeon Business Services to an affiliate of General Atlantic LLC and investment funds controlled by Hellman & Friedman LLC for $575 million Monday morning.

HLTH said it will use a portion of its federal net operating loss carry forward to offset the taxable amount of the sale of its stake in Emdeon.

And the company said there was significant interest in its VIPS and Porex units since announcing they would consider selling the two affiliates.

On top of that, HLTH released guidance for WebMD's fourth-quarter and full 2007 earnings and 2008 outlook. The company expects revenues at the top end of estimates and earnings before EBITDA and profits above Wall Street estimates. Those estimates are taking into account the sale of its offline medical reference and textbook business, which closed Dec. 31.

However, HLTH lowered WebMD's earnings outlook for 2008.

HLTH is expected to present those numbers on Feb. 21.

HLTH stock (Nasdaq: HLTH) slipped 23 cents, or 2.17%, to $10.37 on the day.

WebMD (Nasdaq: WBMD) fell $3.27, or 10.19%, for a $28.83 close.

Sumitomo makes offer for Axcelis

Axcelis Technologies, a Beverly, Mass.-based maker of semiconductor components, confirmed Monday that it had received an unsolicited bid from Japanese industrial goods producer Sumitomo Heavy Industries last week.

The $5.20-per-share offer Sumitomo initially presented Feb. 4 is a 29% premium to Axcelis' closing stock price Friday. Sumitomo made the same offer again Monday.

Axcelis responded to the offer Feb. 7, the company said Monday. In its response, Axcelis said that the offer is 10% less than the average close of Axcelis stock over the previous year.

Axcelis said in its statement that the offer is undergoing the appropriate due diligence and that shareholders do not have to make any decisions at this point.

The company also said Sumitomo was using Axcelis' depressed stock price from recent weeks as its rationale for the purchase.

Axcelis stock (Nasdaq: ACLS) surged 93 cents, or 23.27%, to $4.98 Monday.

Medrad picks up Possis

Medrad, Warrendale, Pa.-based affiliate of German health care giant Bayer Healthcare, and Minneapolis-based Possis Medical announced Monday that they had reached a merger agreement.

Medrad, which produces diagnostic equipment used to detect cardiovascular disease, will purchase Possis stock for $19.50 per share. The purchase price represents a 39% premium over the average of Possis' close in the 30 trading prior to Friday.

Possis produces equipment used to treat narrowed or blocked arteries and veins. Medrad will begin a tender offer within the next 10 days.

The deal is valued at a total of $361 million.

The tender offer is expected to close in the first quarter.

"This merger will capitalize on both companies' strengths to deliver growth in our current markets, and create a formidable cardiovascular portfolio in the future," John P. Friel, Medrad's president and CEO, said in a statement announcing the deal.

Possis (Nasdaq: POSS) jumped $5.01, or 34.91%, to $19.36 on the deal.

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