Phelps Dodge, Freeport-McMoRan plunge on slide in metals; Conseco off; Young Broadcasting higher

By Ronda Fears

Memphis, Dec. 21 - In addition to mounting doubts about the proposed merger of Phelps Dodge Corp. and Freeport-McMoRan Copper & Gold Inc., metals futures extended big losses Thursday that put heavy pressure on the two mining concerns' stock.

Insurance firm Conseco Inc. also was lower, even in the face of an announced stock buyback plan, which one player said was due to some chatter that there may be a buyout offer in the wings at a less-than-appealing price.

Bankrupt auto parts supplier Delphi Corp. skyrocketed, however, Thursday on a competing hedge fund to back a reorganization plan.

Shares of regional airline MAIR Holdings Inc. also climbed after bankrupt Northwest Airlines Corp. said it might sponsor the reorganization of bankrupt Mesaba Airlines, a unit of MAIR that operates as the feeder carrier Northwest Airlink. As for Northwest Airlines, the stock was unchanged on the session.

Takeover speculation continued to spark interest in online advertising names in the wake of Publicis Group SA's buyout of interactive marketing firm Digitas Inc. at $1.3 billion, traders said, despite a pullback in several of those stocks on Thursday.

Elsewhere in distressed stocks, Young Broadcasting Inc. saw heavy volume and a big spike on interest as a fallout of support seen recently for bankrupt Granite Broadcasting Inc.

Conseco launches buyback

Carmel, Ind.-based insurance provider Conseco said Thursday its board has approved the buyback of up to $150 million of its common shares, but it failed to provide any buying interest in the shares.

The stock (NYSE: CNO) had taken a big hit Wednesday on news of its chief operating officer leaving and ended Thursday with another loss of 19 cents, or 0.94%, to $20.09.

As of Sept. 30, Conseco had roughly 152 million shares outstanding. The company said the share buybacks are part of its ongoing plan to improve performance for shareholders. Conseco said Wednesday that James Hohmann, its president and chief operating officer, was leaving to join rival insurance firm Allstate Corp.

"This company has tried to resurrect itself on its own but just continues to trip on every crack in the sidewalk," said an equity trader, who said there have been rumblings of putting the company on the auction block.

"Even though selling out now would eliminate the remaining tax benefits from coming back into book value, holders now believe that selling out to someone with good management in a stock transaction would be the best thing at this point. There are a few holders buying up stock and will push the board to recommend selling the company now. They are tired of waiting! Just selling out for 115% of book value would give you a 50% return and make holders feel warm and fuzzy."

Conseco emerged bankruptcy reorganization in September 2003 and has been the subject of takeover rumors almost ever since, the trader added, "so whether they could get a nice price is questionable."

Phelps Dodge, Freeport dive

Phelps Dodge has a takeover offer on the table from Freeport-McMoRan, but it has been challenged by major holders of Phelps Dodge and further negativity has been cast on the deal by plunging metals prices, trader said.

Phelps Dodge shares (NYSE: PD) plunged $2.58 on the day, or 2.14%, to $118.21.

Freeport-McMoRan shares (NYSE: FCX) fell $3.53, or 6.05%, to $54.85.

Copper futures dropped $0.074 to $2.8805 a pound on the New York Mercantile Exchange on Thursday, while gold settled off by $2.70 to $621.60 an ounce and silver lost $0.155 to $12.49 an ounce - all extending losses from the previous session.

SAC Capital Management, which owns 5.1% of Phelps Dodge shares, has already come out in opposition to Freeport-McMoRan's $25.9 billion bid for Phelps Dodge, and traders said that has caused some concern that as a result Freeport-McMoRan might just pull out of the deal altogether.

"The doubt in this one is mounting as we speak," one risk arb trader said.

He also noted a recent Prudential analysis that suggested Phelps Dodge shareholders might argue the proposed transaction favors Freeport-McMoRan in that the transaction was too favorable to the latter.

"But if they [Freeport-McMoRan] can't get in on their terms, they could just walk away," the trader said. "There is a great deal of risk in this one, and it is building with metals prices in a tailspin."

Online ad names buffeted

In the wake of Publicis Group SA's buyout of interactive marketing firm Digitas Inc. at $1.3 billion, traders said that, despite a pullback in several online advertising names Thursday, Wall Street still expects more Madison Avenue mergers with Silicon Valley presences in the offing.

"We saw some profit taking early today [Thursday] because of the spike yesterday, but after noon the buyers started coming back in to add on the weakness," one stock trader said.

"The whole tech sector was soft today, but in the online ad space there is still an overall positive tone because of the great M&A potential here."

Publicis is paying a 23.5% premium for Digitas, and the deal initially pushed rival firms aQuantive Inc., 24/7 Real Media Inc. and WebSideStory Inc. all sharply higher Wednesday, although most were retracing somewhat on Thursday. ValueClick Inc. also is considered by some to be a nice target in that space, one trader said, but it did not participate in the online ad party at all.

Omnicom Group Inc., WPP Group plc and Interpublic Group of Cos. Inc. are the likely pursuers, all of which have already been snapping up small online ad companies.

aQuantive shares (Nasdaq: AQNT) lost 33 cents on the day, or 1.31%, to $24.81.

24/7 shares (Nasdaq: TFSM) dropped 10 cents, or 1.05%, to $9.40.

ValueClick shares (Nasdaq: VCLK) slipped 21 cents, or 0.88%, to $23.70.

The only gainer in the group was WebSideStory shares (Nasdaq: WSSI), which added 60 cents on the session, or 5%, to settle at $12.60.

Delphi stock pot growing

Bankrupt auto parts supplier Delphi saw its shares zoom Thursday as Highland Capital unveiled a buyout plan worth $4.7 billion to compete with a plan presented by Delphi earlier in the week in which an investor group led by Appaloosa Management LP, Harbinger Capital Partners Master Fund I and Cerberus Capital Management LP would plug $3.4 billion into the flagging auto parts maker as it exits bankruptcy.

Delphi shares (Pink Sheets: DPHIQ) gained $1.03 on the day, or 37.05%, to close at $3.81.

The biggest difference between the two plans was the treatment of current equity, at the expense of bondholders.

Delphi on Monday submitted a preliminary reorganization plan backed by an investor group led by Appaloosa, Cerberus and Harbinger, along with investment banks Merrill Lynch & Co. and UBS Securities LLC. Appaloosa was the largest Delphi stakeholder in that plan, with 9.3%. Under that plan, the Appaloosa group would buy 30% to 72% of Delphi's new stock, depending on how many current stockholders participate in the equity rights offering component.

With an 8.9% stake in Delphi, Highland Capital said the previous plan is unfair in part because some debtholders would get cash and equity worth more than par at the expense of common stockholders and it would give Appaloosa and Cerberus control of Delphi's board by allowing them to name six of 12 directors.

Under Highland Capital's plan, existing Delphi stockholders will be able to participate in a $4.7 billion rights offering. All existing stockholders with more than 0.5 percent of the common shares would have the right to purchase any unsubscribed shares in the rights offering.

Terms related to former Delphi parent General Motors Corp. would remain the same, Highland Capital said, meaning GM would get 7 million, or 5%, of the 135.5 million new Delphi shares issued. GM has estimated that it is liable for $6 billion in Delphi employee benefit costs, and Delphi has said GM may take on as much as $2 billion of its pension obligations.

A hearing has been scheduled for Jan. 5 to consider Delphi's plan, but Highland Capital said Thursday that it would request more time for its plan to be considered.

MAIR up on Northwest interest

MAIR Holdings Inc. shares got a nice bounce Thursday on news that Northwest Airlines is in discussions to buy its feeder carrier Mesaba Aviation Inc.

MAIR shares (Nasdaq: MAIR) added $1.05 on the session, or 18.65%, to settle at $6.68. Northwest Airlines shares (Pink Sheets: NWACQ) were unchanged at $4.42.

Northwest Airlines said it might sponsor the bankruptcy reorganization of Mesaba Airlines, which operates as a Northwest Airlink affiliate.

Discussions include the possibility that Northwest would become the owner of Mesaba in a principally non-cash transaction, but specific figures have not yet surfaced. Northwest provides Mesaba's planes, passengers and revenue. When Northwest Airlines filed bankruptcy in September 2005, Mesaba followed a month later, as some 90% of its revenue came from Northwest Airlines.

"Northwest is working with Mesaba to conclude a more definitive agreement," said Northwest spokesman Kurt Ebenhoch. "This agreement would be part of Mesaba's reorganization plan that must be approved by Mesaba's bankruptcy court in the first half of 2007."

MAIR Holdings also operates regional carrier Big Sky Airlines, flying 19-seat aircraft to cities in Montana, Colorado, Idaho, Oregon, Washington and Wyoming, but it was unclear if that was part of Northwest Airlines' purchase plans.

Young finding new interest

Elsewhere, Young Broadcasting was finding strong interest in its stock Thursday, which one trader said might be linked to the reorganization terms that rival Granite Broadcasting was able to nail down in its recent bankruptcy filing.

Young Broadcasting shares (Nasdaq: YBTVA) gained 68 cents on the day, or 33.01%, to $2.74 with just shy of 2 million shares versus the norm of 84,646 shares. The trader also noted that overall the broader markets were very quiet in the pre-holiday activity.

"If the value of Granite means those bonds are worth par and the stock is worth something, then the same could be true for Young Broadcasting," the trader said.

"Certainly, there was huge volume in Young Broadcasting shares today, and we saw the bonds move up a little. I'd say they were moving on the back of what's happening with Granite."

Young Broadcasting owns and operates 10 television stations, of which five are American Broadcasting Cos. Inc. affiliates, three are CBS Inc. affiliates, one is a National Broadcasting Co., Inc. affiliate and one is an independent station.

© 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.