Nacco oscillates; Wendy's gains; Applebee's rises; Biosite bows; Harman up; new Delta slow, low

By Ronda Fears

Memphis, April 26 - Nacco Industries, Inc. was cheered Thursday for its move to spin off its Hamilton Beach/Proctor-Silex division, but some holders were disappointed with the structure of the transaction. Yet, traders said buyers want a position in the small appliance business as it's seen poised to be an acquirer or acquisition target.

Wendy's International Inc.'s shares took off Thursday after its announcement late the day before to go onto the auction block. Triarc Cos. Inc., owner of Arby's restaurants, is widely considered a bidder for Wendy's as Triarc chairman Nelson Peltz is a big Wendy's stockholder and sits on the Wendy's board. Some think Wendy's shares on Thursday may have gotten too expensive for the sale process, however.

Applebee International Inc. said it has gotten four takeover bids that are under consideration and, meanwhile, the company conceded in the proxy battle with Breeden Capital Management by appointing Richard Breeden and Laurence Harris to its board of directors.

Biosite Inc. bowed to pressure to accept Inverness Medical Innovations Inc.'s hostile $90 per share bid to a previously accepted $85 per share offer from Beckman Coulter Inc., as many players were betting. While Beckman has the right to meet or beat the Inverness bid, traders said the market was less confident that it would pursue Biosite past the current stock price. Biosite (Nasdaq: BSTE) lost 10 cents to $93.05. Inverness (Amex: IMA) rose 99 cents to $40.99. Beckman (NYSE: BEC) lost 26 cents at $62.15.

Speculation heightened Thursday that drug giant Bristol-Myers Squibb Co. is a takeover target, even after it elevated interim chief executive James Cornelius to its permanent leader; the stock was lower, however, ahead of earnings. Also Thursday, Bristol inked a partnership with peer Pfizer Inc. to co-develop the anticoagulant apixaban, and one trader said that fueled speculation the two might consider a merger. Bristol-Myers (NYSE: BMY) ended off 47 cents, or 1.58%, at $29.23. Pfizer (NYSE: PFE) added 40 cents, or 1.52%, to $26.72.

There also were a couple of new deals inked Thursday.

Harman International Industries Inc. agreed to a private equity buyout at $8 billion but has a 50-day go-shop period, and the stock went past the takeover offer on hopes the upscale audio equipment maker would catch a bigger bid, according to one trader.

Covansys Corp. jumped Thursday after El Segundo, Calif.-based information technology service provider Computer Sciences Corp. said it was buying the IT service provider in a cash deal valued at $1.3 billion, or $34 per share - a nearly 27% premium to Wednesday's market. Covansys shares (Nasdaq: CVNS) advanced $6.49, or 24.22%, to $33.29; Computer Sciences (NYSE:CSC) lost 14 cents, or 0.25%, to $55.83.

Elsewhere, Delta Air Lines Inc.'s new common shares began trading Thursday on a when-issued basis and opened at a surprisingly low $22.80. Interest was high, but the shares traded very lightly, with only 2 million changing hands in what one trader referred to as a "stalemate" among holders trying to get a feel for the market.

Nacco nudged up, then down

Nacco's spinoff of its small appliance unit, which will be known as Hamilton Beach Inc., was not a surprise and was cheered as a strategic move. But traders said the fact that Nacco would take $110 million from Hamilton Beach in the form of a special dividend prior to the spinoff was a point of contention for some holders.

Nacco shares (NYSE: NC) traded up to $171.10 but closed the session off by 17 cents at $169.61.

"It's about time that Nacco spun off Hamilton Beach, except that they can't even do that right. By making them pay for the right to spin off the company, they are just using our own money for the spinoff," one trader said.

He said the move also doesn't go far enough, but it is a nice start.

"If Nacco wants to maximize investor returns, they should spin off the coal division, sell the Kitchen Collection and run material handling as a separate company. I also am interested in knowing what the company is going to do with the influx of cash from the spinoff. Are they going to pay off debt or what?"

Still, he said a lot of Nacco buyers, many of which bought in on Wednesday, are motivated by recent takeover activity in the small appliance sector.

On Wednesday, Nacco got a big boost from news that Jarden Corp. was buying sporting goods and sportswear maker K2 Inc. for $1.2 billion in a stock and cash transaction. Nacco, which has intimated plans to spin off or separate its consumer products unit for almost a year, gained on the news as a potential target for Jarden as well, the trader said.

Earlier this year, Nacco lost a takeover battle for small appliance maker Applica Inc. to hedge fund Harbinger Capital Management, which then merged Applica with another small appliance maker, Salton Inc. Nacco had 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.

Wendy's price theories beefy

One trader said Thursday he thinks Wendy's could fetch $37 to $45 in a buyout scenario. Another, a risk arbitrageur, said he was set up to make money so long as the price tag is at least $35, and he thought the market pushed the stock too far Thursday on the development and that a $45 offer is a "pie in the sky."

Wendy's shares (NYSE: WEN) on Thursday shot up to $38.70 before easing back to settle at $37.99 for a gain of $5.31 on the day, or 16.25%. The stock also was weaker in after-hours trading, another trader noted.

The news absorbed the sting of the company's 71% drop in first-quarter profit and was a surprise coming on the heels of Wendy's spinning off its Canadian unit, Tim Hortons Inc., last year, chiefly under pressure from Triarc chairman Peltz, who won a proxy battle to fill three board seats on the Wendy's board.

Thus, Peltz is speculated to be a potential bidder for the company, a buyside trader said. Pershing Square Management, which sided with Peltz on the Tim Hortons matter, also is likely involved, he said. After the Tim Hortons ordeal last year, Peltz agreed not to try to take over Wendy's or wage another proxy battle; that pact ends June 30, however.

Wendy's specified in a press release that "a number of stakeholders have offered suggestions about strategies to improve performance and create additional value."

Highfields Capital Management is another big Wendy's stockholder, the buysider said. Thus, Wall Street analysts seem to believe that Wendy's will be taken private. But, he said Burger King Holdings Inc. might be looking at a transaction, too. Yum! Brands Inc. probably doesn't have the means to complete a transaction, he said, but could with support from a private equity firm or big hedge fund.

Speculation that Triarc may make a play for Wendy's is intensified, the trader said, by news Friday of the company making the final switch from a more diversified investment manager to a restaurant company as Triarc announced it was selling its controlling stake in investment adviser Deerfield & Co. to focus on fast food chain Arby's.

Applebee's profits off the table

In addition to ending the proxy fight with Breeden Capital, Applebee's provided an update on its strategy committee by saying it has received four preliminary nonbinding proposals to buy the casual restaurant chain. The stock traded up to a new 52-week high intraday, one trader said, before heavy profit taking kicked in.

"The stock has come up over $2 in the last month, six weeks, and there still hasn't really been a deal, just talk of a deal, talk of some interest but no offers," the trader said.

"So, we were seeing a lot of folks take some profits off the table."

Applebee's (Nasdaq: APPB) traded up to $27.59, which would have eclipsed the 52-week high of $27.32, but it pulled back to close at $26.93 for a gain of $1.09 on the day, or 4.22%.

In March, Breeden had rejected the company's offer to put two of its representatives on its board but has now accepted the gesture, amid Applebee's acknowledging that while it has had some interest in its auction process there have been no firm bids.

Thus, the company said it would enter into a second round of detailed due diligence discussions before asking potential buyers to submit definitive, binding proposals.

Concurrently, the company said it is discussing a possible recapitalization. The company also is continuing its review of returns on capital, the mix of company-owned versus franchised restaurants, overhead cost structure and strategies for improving same-store sales. A month ago, Applebee's announced the sale of 24 restaurants.

Applebee's in February said it was exploring strategic alternatives including a possible sale as the company came under pressure from Breeden.

Harman could see better bid

Trading activity suggested Harman might get a better bid than the $120 per share deal inked with Kohlberg Kravis Roberts & Co. and GS Capital Partners, but with its earnings miss one trader said he was skeptical. At $120, the price was a 17% premium to Wednesday's market.

Harman shares (NYSE: HAR) advanced $19.94 on the day, or 19.44%, to close at $122.50. It had traded up to $125.13.

"Where the stock traded today suggests investors may be holding out for a better deal - we heard there was one sellside shop targeting a Harman buyout will go to $150 or $160 - but I don't think they can get it," the trader said.

He said the structure of the deal might get sweetened but he doesn't think it will get to $150 or $160. Instead of cash, holders of up to 8.3 million shares in Harman also may opt to take shares in the company created by the group that is buying it. Based on the cash offer price, the new shares would be worth about $1 billion, or 27% of the equity value of the new company.

Harman can solicit competing bids for the next 50 days, and the company's board will work with its independent advisers to do that.

But the trader said fiscal third-quarter results also announced Thursday that missed Wall Street's estimates seemed to be a barrier for any heated interest in the Washington, D.C.-based electronic equipment maker.

The company posted fiscal third-quarter net income of $71 million, or $1.07 per share, compared with $64 million, or 94 cents per share, a year earlier as sales gained to $882.8 million from $801.5 million. Analysts had expected earnings of $1.09 per share on sales of $882.5 million, the trader said.

Delta holders hit a stalemate

There was a lot of interest in the new Delta common shares, but the when-issued stock ended the day right where it started, which was much lower than expected, and there was very little actually changing hands.

Delta's when-issued stock (Pink Sheets: DALIV) opened at $22.80 and traded up to $23.25 before easing back to close at $22.80, according to one distressed stock trader. He said a mere 2 million shares traded; some 386 million will be distributed in the bankruptcy plan.

"Two million for this stock is like 5 shares for another," he said. He said there were no big chunks moved, only blocks of around 25,000 to 50,000 shares.

Another trader referred to the trading action in the when-issued stock's debut as a stalemate, another a bluff, as holders - bondholders who were distributed stock for their claims in the Atlanta-based carrier's bankruptcy - attempted to get a feel for the market for the stock.

"Everyone is calling each other's bluff," one trader said. "Lots of people were poking around, dealers, everybody, but you couldn't get anyone to hit a bid."

That occurred, another trader said, in spite of the bond market figuring that the stock at $22.80 was trading at a premium of about a half-point to the bonds. "Still, holders were not selling much into the bids," he said.

On Wednesday, when the bankruptcy court gave the official nod to Delta's emergence, there were traders speculating the when-issued stock would start at $24 or maybe as high as nearly $26.

Delta got the go-ahead 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.

Regular trading on the NYSE is expected to begin on May 3 under the pre-bankruptcy Delta ticker "DAL."

© 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.