Chaparral rises; K2 higher; Delta on tap; Wendy's up; Alcoa firms; Sepracor spikes; Bally up on sale

By Ronda Fears

Memphis, April 25 - Delta Air Lines Inc. on Wednesday got the official bankruptcy court nod to exit bankruptcy as planned April 30, and traders said the new common shares to be distributed in the reorganization plan to creditors were verbally quoted ahead of trading on a when-issued basis Thursday. Delta said the stock will begin trading on the New York Stock Exchange on May 3.

Meanwhile, several companies went on the auction block Wednesday or announced planned spinoffs that moved those respective stocks higher.

Wendy's International Inc. was soaring in after-hours activity on its late-day announcement that it was considering strategic options to enhance shareholder value, including the possible sale of the company. The Dublin, Ohio-based fast-food chain spun off its Canadian unit Tim Hortons Inc. last year. The stock (NYSE: WEN) gained 58 cents, or 1.81%, to $32.68 in the regular session ahead of earnings due after the close. The company reported first-quarter net profits fell to $14.7 million, or 15 cents a share, from $51.2 million, or 45 cents a share, a year ago, while revenue grew to $590.2 million from $578.7 million. At 6:12 p.m. ET, Wendy's shares were seen higher by $4.37, or 13.37%, at $37.05.

Chaparral Steel Co. announced it has retained Goldman, Sachs & Co. to assist in review of strategic alternatives including possible strategic partnerships, mergers, acquisitions, a sale of the company or a recapitalization.

That sparked a gain in Steel Dynamics Inc., according to a trader; Steel Dynamics has been rumored to be a potential bidder for Ipsco Inc., as well, which acknowledged merger talks last week. Steel Dynamics (Nasdaq: STLD) gained $1.649, or 3.67%, to $46.639. However, Ipsco (NYSE: IPS) closed off by 23 cents to $151.25.

Sporting goods and sportswear maker K2 Inc. announced a buyout by consumer products firm Jarden Corp. for $1.2 billion; the shares rose to near the buyout price, and traders said many wanted a better price but thought the deal was "fair." The deal sent small appliance maker Salton Inc. shares lower, however, while conglomerate Nacco Industries Inc., with a consumer products unit, gained ground.

Aluminum giant Alcoa Inc. announced Wednesday that it is exploring strategic alternatives for its packaging and consumer business as well as its electrical and electronic solutions and automotive castings businesses, and the stock (NYSE: AA) gained $1.81, or 5.33%, to $35.76. The news also pushed Canadian aluminum producer Alcan Inc. higher, with the latter stock (NYSE: AL) advancing $2.65, or 4.66%, to $59.48.

Also of note, a biotech equity trader pointed out that Sepracor Inc., a name the market has considered a takeover target for a long time, was a big riser Wednesday. He said takeover chatter was renewed with MedImmune Inc.'s buyout by AstraZeneca plc earlier in the week, at a 53% premium to before the company went on the auction block. He added Sepracor shares had taken a beating Tuesday when the company missed Wall Street revenue projections for first quarter, although earnings doubled. Sepracor (Nasdaq: SEPR) added $4.69 on the session, or 9.67%, to $53.20.

Elsewhere, troubled Bally Total Fitness Holding Corp. got a bounce after revealing that is has inked a deal to sell its 16 Canadian facilities for about C$19.6 million to focus on American operations. The company is still seeking waivers from bondholders related to previously announced defaults, but traders said the market now feels the company may be able to avoid bankruptcy, which the company warned about last month. Bally shares (NYSE: BFT) rose 16 cents on the day, or 17.58%, to $1.07.

Delta waiting on the runway

The market was eager to begin trading Delta's new common stock, even on a when-issued basis, and one trader pegged it verbally at $24 while another said he expects it to open at around $25.90. Delta said the stock would begin trading on a when-issued basis Thursday; the market had hoped for Wednesday.

"We were all waiting for the court to sign off on it," one trader said. "I am hearing about $24."

The bankruptcy court on Wednesday gave Delta the all-clear to exit Chapter 11 on April 30 as expected, closing the door on 18 months of operating while in bankruptcy. But the official nod did not come in time for trading.

Another trader said he reckons the new Delta stock will go a little higher than $24, although it may open a little lower as the market "puts some feelers out" on whether there is a lot of buying interest or if a lot of claims holders are indicating they want to dump it.

Based on how many shares are being distributed, some 386 million shares, and Delta's assertion of the value of the distribution, $10.7 billion, this trader said a good "starting point" for the shares would seem to be at $25.90.

"That's just the basic math," he said.

"But something's only worth what someone else will pay you for it. So, we'll see."

Regular trading on the NYSE is expected to begin on May 3 with the old Delta ticker "DAL."

Chaparral may need reining in

The gain in Chaparral Steel's stock to another new high on a possible sale was alarming to one trader, although he acknowledged the market is hot for steel right now and Midlothian, Texas-based Chaparral is the second-largest producer of structural steel beams in North America.

Chaparral (Nasdaq: CHAP) closed at a new 52-week high of $71.86 for an advance of $7.8967 on the day, or 12.34%. Intraday, the stock hit $75.60 and had marked a string of new highs over the past two weeks, the trader remarked.

"This is the most expensive steel stock in the market," he said, adding in a sarcastic tone, "I'm sure the buyers are lining up for this one."

The company, with a market capitalization of around $3 billion, also is a recycling company and supplies steel bar products to the railroad industry, homebuilders and other markets. On March 20, the company posted fiscal third-quarter net income of $62.5 million, or $1.29 per share, compared with $49.2 million, or $1.03 per share, a year before, while net sales grew to $420.2 million from $374.6 million.

Chaparral also on March 20 forecast fiscal fourth-quarter profit to be around $1.35 per share, well ahead of the First Call analyst consensus for $1.26. A year before, strong demand and rising steel prices drove earnings to $2.33 per share. However, the company said more than two times as many shares are outstanding now versus a year ago at 48.3 million shares.

The company said the strategic review process could results in a strategic partnership, merger, acquisition or recapitalization.

K2 higher on 'fair' price

K2 players would have liked to have gotten a better takeover price, but most think what Jarden is paying is "fair," according to market sources. In any event, a rival bid is not anticipated.

In a deal combining two makers of prominent consumer products, Rye, N.Y.-based Jarden agreed to pay the equivalent of $15.50 per share in cash and stock for Carlsbad, Calif.-based K2.

"It's only about a $3 premium," said one trader. "I'd take it, but it sure seems like K2 could have got more."

K2 shares (NYSE: KTO) gained $2.52 on the day, or 20.02%, to close at $15.10.

Under terms of the deal, Jarden will pay $10.85 a share cash plus 0.1086 of its shares for each K2 share.

K2 said its strength is in specialty and multi-store sporting goods, marine and outdoor retail channels. Its brands include Penn, Rawlings, Shakespeare and Ex Oficio. Jarden's brands include Bee and Bicycle, Coleman, Mr Coffee, Oster and Rival. The transaction is expected to be accretive to Jarden's earnings and close early in third quarter.

Also Wednesday, K2 reported first-quarter net earnings climbed to $4.8 million, or 9 cents per share, from $3.6 million, or 8 cents per share, in the previous year. Adjusted net income rose to $7.1 million, or 14 cents per share, from $5 million, or 10 cents per share. Revenue gained to $372.7 million from $348.1 million, which missed Wall Street's estimate of $373.8 million.

B. Riley & Co. analyst Iam Corydon said that while the buyout price might not be extraordinary, it did seem fair as far as multiples go. He pegged it at 8.4 times adjusted EBITDA, compared to a range of around 8 to 10 times seen in other recent deals.

When K2 reported 2006 and fourth-quarter results, Corydon said he expected some sort of acquisition event would be needed to compel interest in K2 shares.

Salton slides on K2 news

Jarden's buyout of K2, however, pretty much snuffed out any lingering hopes among Salton holders that Jarden would make a move for the latter, according to one trader.

Salton shares (NYSE: SFP) lost 13 cents on the session, or 5.83%, to closet at $2.10.

Another trader said, however, that he always figured the Jarden noise regarding Salton was just wishful thinking as he didn't figure Harbinger Capital Partners would let go of Salton since they worked so hard to get Applica and merge those two.

After five rounds of bidding that started at $6 per share in October, in February Harbinger ultimately won Applica for $8.25 per share and merged it with Salton, in which Harbinger gained a majority 83% stake following the Applica merger.

Lake Forest, Ill.-based Salton's products include the George Foreman line of electric hot dog and hamburger grills, among other kitchen and small appliances. Mirimar, Fla.-based Applica's products include small household appliances under the Black & Decker brand, such as the Gizmo, and others like Spacemaker.

Nacco gains on Jarden action

But the trader said he does see Jarden continuing its acquisition spree, and he said many think Nacco's consumer product division would be a good fit.

Nacco shares (NYSE: NC) gained $4.78 on the day, or 2.9%, to end at $169.78.

"Jarden's strategy has been to acquire well-known brands that are leaders in their categories," the trader said.

"Franklin [chief executive Martin Franklin] said Jarden is still looking for acquisitions, and said it plans to keep expanding its outdoor solutions division. With Jarden trading at 38 times earnings, their stock is a pretty cheap currency."

In its pursuit of Applica, Nacco, a Mayfield Heights, Ohio, conglomerate, said it formed Apex Acquisition Corp. and had been planning since July 2006 to spin off its Hamilton Beach/Proctor-Silex business in a merger with Applica. The trader noted, too, that chatter that Nacco's consumer goods division was a takeover target of Jarden's has been heard in the market since February.

Jarden, however, also reported earnings Wednesday - a net loss for first quarter on one-time items, in part due to its recently acquired Pure Fishing. Jarden posted net income of $1.4 million, or 2 cents a share, compared with $5.7 million, or 9 cents a share, in the year-ago quarter. Revenue rose to $820.9 million from $791.7 million.

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