Ford shares, preferreds skid; Nasdaq, LSE slip; biotechs lower; Raytheon drops; Ventas falls

By Ronda Fears

Memphis, Nov. 27 - Ford Motor Co. shares skidded Monday on heavy short selling as players considered the ill-boding news of a new $18 billion financing package from the No. 2 domestic automaker, which could include some $3 billion of equity-linked securities.

"There was a huge amount of selling pressure, a lot of short selling, as the bondholders took a negative tack on this news," said a stock trader at one of the bulge bracket firms.

Also of note, the when-issued shares of NextWave Wireless, Inc., which had shot up to $9.90 bid from $6 last week, were retreating with the stock (OTCBB: NXWVV) off Monday by 20 cents, or 2.02%, to $9.70. The company is shifting from a private LLC to a publicly traded corporate structure with stock distributed in its bankruptcy in April 2005.

To the upside, the when-issued shares of Winn-Dixie Stores Inc. (Nasdaq: WINNV) edged up by 3 cents to settle at $10.99. The Florida-based grocery chain has just emerged from bankruptcy.

Volume for the session was 2.3 million shares.

A trader commented that the stock had gotten a good bid.

Ford falls on financing deal

Dearborn, Mich.-based Ford said the financing will partly address near- and medium-term negative operating-related cash flow and fund its ongoing restructuring efforts, plus give it some cushion against a recession or other unanticipated events. But players were leery, and traders said there was increased angst that Ford shares were severely overvalued.

"In the current market, the stock was looking pretty rich considering the state of affairs at Ford," a stock trader said.

Ford shares (NYSE: F) dropped 36 cents on the day, or 4.23%, to close at $8.16.

The package will include a new five-year senior secured revolving credit facility of roughly $8 billion to replace Ford's existing unsecured credit facilities of $6.3 billion, a senior secured term loan of around $7 billion and yet-to-be-defined unsecured capital market transactions that will total about $3 billion.

While the capital markets transactions have not been detailed by Ford, market speculation is that there could likely include unsecured notes convertible into Ford common stock.

The existing Ford Motor Capital Trust II 6.5% convertible trust preferreds due 2032 - a $5 billion issue with a par of $50 - also were lower with the issue (NYSE: F-PS) falling $1.12, or 3.13%, to end at $34.70.

Following the transactions, Ford said its automotive division liquidity will be about $38 billion at year-end, including cash, cash equivalents, loaned and marketable securities and available credit facilities. Ford expects the transactions to close before Dec. 31. The senior secured credit facilities will be arranged by Citigroup Corporate and Investment Banking, Goldman Sachs Credit Partners LP and J.P. Morgan Securities Inc.

In the first nine months of 2006, Ford lost $7 billion and has said it does not expect to return to profitability until 2009. The company has offered buyouts and early retirement packages to all 75,000 U.S. production workers and plans to shut down 16 plants to cut manufacturing capacity to match lower demand.

Hertz ride screeches to halt

Ford's former car rental unit, Hertz Global Holdings Inc., which went public the week before last, was drifting lower Monday on profit taking, traders said. The stock, which priced below-range at $15 a share, had steadily been gaining but on Monday drifted under the IPO level for the first time since it priced.

The Park Ridge, N.J.-based company went public Nov. 16 at $15, below guidance of $16 to $18, but it went as high as $16.22 last week.

Hertz stock (NYSE: HTZ) took a blow Monday, however, losing 49 cents on the day, or 3.22%, to $14.75.

"With the huge dip in the broader market and some anxiety in the auto sector, we were seeing some people execute their exit strategy," a trader said, adding, "Rumors of some of the insiders taking profits compounded this sell-off."

In addition to Ford's decline, he noted that General Motors Corp. (NYSE: GM) fell Monday by 87 cents, or 2.79%, to $30.36. GM shares came under pressure last week with the news that Tracinda Corp. had sold off about 14 million shares at $33 apiece.

Hertz was acquired last December from Ford Motor Co. by the private equity firms Clayton, Dubilier & Rice Inc. and Carlyle Group, along with a unit of investment bank Merrill Lynch, which then took it public. They paid $2.3 billion in cash, borrowed more than $3 billion and assumed $10 billion in debt.

Nasdaq, LSE off in bid roil

In a mostly lower market, Nasdaq Stock Market, Inc. also was slumped, but onlookers were saying any dip was a good buying opportunity as Nasdaq is gaining market share and could improve on that with its pursuit of the London Stock Exchange.

Last week, Nasdaq launched a hostile takeover bid for the LSE Group plc and on Monday said it has arranged a new $3.325 billion credit facility and a $1.75 billion bridge loan for its LSE bid. The $5.1 billion package includes two term loan facilities, an unsecured bridge loan and a revolving credit facility. Lead lenders include Bank of America and Dresdner Bank.

Nasdaq shares (Nasdaq: NDAQ) were up as much as 2% on Monday before easing back on nervousness from risk exposure. The stock ended off by 63 cents, or 1.55%, at $40.

"There is a lot of risk in this one and not a lot of cushion available," one trader said.

LSE has vehemently rejected Nasdaq's offer of 1,243p as "substantially" undervaluing the company. And, traders noted reports in London last week that suggested several hedge funds, along with corporate raider Samuel Heyman, have continued to buy LSE shares above Nasdaq's offer price, indicating they see an improved offer as likely.

LSE shares (London: LSE) actually dipped Monday, however, closing off 10p, or 0.76%, at 1,311p.

Earlier this year there was heavy market speculation that the New York Stock Exchange was looking to snap up the LSE, but now conventional wisdom has it that NYSE may instead be looking at one or more of the European bourses, following its impending merger with Euronext.

Friedman Billings Ramsey analyst Matt Snowling said in a report Monday, however, that because Nasdaq is gaining market share, the stock is a good buy regardless of the LSE bid outcome. He raised his 12-month target on the stock to $45 from $39.

"We analyzed the first 24 securities switched to NYSE's hybrid trading platform, offering an early glimpse into what a fully electronic exchange means for the company [Nasdaq]," Snowling said in the report.

"Nasdaq increased its matched share 1.11% sequentially to 15.8% in October, and touched share rose a surprising 7.24% to 36.4% on a volume-weighted basis for those 24 hybrid securities that we reviewed. This should allay fears that an electronic NYSE will derail Nasdaq. Furthermore, Nasdaq's share of the hybrid securities remains above its overall levels of 13.4% for matched and 30.8% for touched, suggesting the company is well-positioned to win more NYSE volume going forward."

Raytheon lower with peers

Traders said Raytheon Co. stock fell in tandem with its peers even amid reports of strong interest in buying its aviation unit from at least three buyout firms. Reportedly, Onex Corp., the Carlyle Group and Cerberus Capital Management LP have submitted final bids for Raytheon Aircraft Co., which makes corporate jets under brand names like Beechcraft and Hawker.

"Look to weaknesses in LMT, NOC, and GD for a guide as to the direction in RTN," one trader said. "Maybe Raytheon will get another fourth-quarter boost this year, but the pension expense is still hanging over its head. Otherwise, Swanson [chief executive William Swanson] seems to be doing an excellent job for the company."

Raytheon shares (NYSE: RTN) fell 55 cents, or 1.08%, to $50.32.

Meanwhile, peers in the defense sector were sharply lower with the broader markets. Lockheed Martin Corp. (NYSE: LMT) lost $1.51, or 1.69%, to $87.82. Northrop Grumman Corp. (NYSE: NOC) dropped 83 cents, or 1.26%, to $65.22. General Dynamics Corp. (NYSE: GD) declined by $1.09, or 1.48%, to $72.56.

Waltham, Mass.-based Raytheon announced in July that it hired Credit Suisse to explore strategic alternatives for the aviation unit, which is based in Wichita, Kan. Raytheon said at the time that it was considering a potentially multibillion-dollar sale or a spinoff.

A decision on the deal is expected to come before year-end, the trader said, with estimated price tags on the offer expected to come in around $3 billion.

Raytheon Aircraft had $2.9 billion in sales last year but is no longer a market leader and competes directly with General Dynamics' Gulfstream unit, Textron Inc.'s Cessna unit and Canada's Bombardier Inc., which makes Lear jets.

Angiotech plans note deal

Angiotech Pharmaceuticals Inc. was off Monday as the Canadian biotech announced plans to sell $325 million in floating-rate senior notes in a private placement with proceeds, along with cash on hand, earmarked to repay and retire its senior secured term loan facility.

Traders said there was not a great reaction to the news but noted some buying on the weakness.

Angiotech shares (Nasdaq: ANPI) lost a nickel, or 0.59%, to settle the day at $8.48.

"There are more reasons to like Angiotech than not," one equity trader remarked.

"Drug-eluting stents are still huge business and that's why Johnson & Johnson wants in and paid $1.5 billion for CONR [Conor Medsystems, Inc.]. Conor uses paclitaxel, and Angiotech and Boston Scientific are suing CONR over patent issues. Litigation is never predictable but BSX and ANPI have won a couple of rounds. BSX has affirmed earnings will continue in the double-digit growth range. They aren't sure when they DES stent fury will subside but they laid out an articulate argument for why they are confident DES stent sales will resume. BSX, with the largest market share, pays royalties to ANPI.

"Momentum investors don't like to wait for a stock to return. They buy back in after an uptick. ANPI is a value stock pickers dream right now and if it takes three months, six months or more, the returns should be great. This is a promising stock with a very interesting pipeline [that] is selling for an amazing fully mature value type P/E ratio of 12.5. If drug-eluting stents were not going to resume their international growth, you wouldn't have seen JNJ buy CONR, or Abbott want to expand into this business, or JNJ sue BSX over losing a deal.

"The average stock, large or small cap, in any given 12- to 18-month period, goes up or down 50% and then adjusts. Angiotech is at an incredibly low valuation based on nothing but fear. When a positive surprise hits the headlines, the stock should benefit tremendously. With big pharma looking for growth through acquisition and currently loaded with cash through repatriated dollars, Angiotech would be a reasonably priced acquisition target."

New River, Shire speculation

As it was Monday, there also was a report out from the Merrill Lynch & Co. shop on several biotech concerns seen as takeover targets. Although the sector as a whole was sharply lower with the broader markets, Merrill broke out one report specifically highlighting New River Pharmaceuticals, Inc. as a likely target of Shire plc.

New River shares (Nasdaq: NRPH), were lower with the biotech sector Monday, falling $1.57, or 3.05%, to $49.85.

Merrill Lynch & Co. biotech analyst David Munno said in the report that by year-end or in 2007 he expects focus on New River to narrow on the potential that Shire may seek to acquire New River as a whole or buy out its portion of the joint venture for the attention deficit hyperactivity disorder drug NRP104. He also sees more value given to New River's next pipeline drugs, NRP290 for acute pain and NRP409 for thyroid dysfunction, which are going into phase 3 trials, and potential partnering for NRP290.

"We expect a partnership on NRP290 is likely to follow any potential deal with Shire," Munno said in the report. "However, an earlier-than-expected partnership on NRP290 would not interfere with any negotiations with Shire or raise the price of an acquisition because we believe it would not affect the value of NRP104. If Shire decides to acquire New River, we expect a spin out of New River's pipeline."

Biotechs ripe for M&A

Merrill's top biotech analyst, Eric Ende, had a separate report out identifying his top picks among potential takeover targets in the sector, adding to New River Pharma, Alexion Pharmaceuticals, Inc., BioMarin Pharmaceutical, Inc., Cubist Pharmaceuticals, Inc., MGI Pharma Inc., ZymoGenetics, Inc., Amylin Pharmaceuticals, Inc., OSI Pharmaceuticals Inc. and Altus Pharmaceuticals, Inc.

"M&A activity in the biotech sector has increased and should continue to rise during the coming years. The number and value of deals, the average size of each M&A deal, and the premium being paid for each acquisition has generally risen during the 2000 - 2006 period, suggesting that acquirers are becoming more aggressive," Ende said in the report.

"We've identified companies that fit key criteria that we believe increases the chances they will be acquired within the next year and created a 'BIO-Acquisition' score to assess the relative attractiveness of our coverage companies. We expect continued activity for five key reasons, including licensing deals are becoming increasingly expensive, which encourages potential partners to become acquirers, strong balance sheets at large biotech companies has allowed them to become more active in M&A, management teams are more realistic about staying independent, large partners are more likely to acquire smaller partners and venture capital companies are pushing for earlier sale."

Characteristics of companies that are most likely to be acquired, Ende said, are having a late-stage product, retained U.S. co-promo rights, positive late-stage data, meaningful market opportunity, possible arbitrage opportunity for larger partners, product on the market, a drug to replace first generation products and novel technology platform.

Of Merrill's highest scoring targets, all were lower like New River with the sector, except for Amylin, which edged higher by 10 cents, or 0.24%, to $41.14.

Altus panned by analyst

Some biotechs were lower because of downgrades, too, such as Altus Pharma for which JGiordano Securities Group analyst Cathy Reese began coverage on Monday with a sell rating and a 12-month price target of $8.25, versus the market price of $18.74 on Friday, citing heavy competition for its drug candidates.

Altus Pharma shares (Nasdaq: ALTU) dropped 71 cents on the day, or 3.79%, to $18.03.

"We have significant concerns that Altus' two most advanced products will not meet revenue expectations due to substantial competition and restrictive limited market potential. Additionally, developmental and regulatory announcements for other companies' similar products will likely create an increase in investor anxiety as the competitive landscape becomes more widespread."

Altus' lead product candidate is a pancreatic enzyme replacement therapy, ALTU-138. It also has ALTU-238 in development, a long acting human growth hormone drug. Reese pointed out that Altus' drugs will be competing in the growth hormone market with products of much larger companies, such as Novo Nordisk A/S, Eli Lilly & Co. and Genentech, Inc. Also, she noted that Axcan is expected to be filing New Drug Applications for two pancreatic drugs in the first half of 2007.

Other biotech names in view

Another sellside market source said 2006 M&A activity in the biotech sector also put Nabi Biopharmaceuticals, InterMune Inc., Oscient Pharmaceuticals Corp., Medarex, Inc. and Cubist Pharmaceuticals, Inc. on the list of potential takeover targets in his view.

"There have been 13 deals so far totaling $19 billion, eight deals in the second half totaling $16.6 billion," he said.

"Large cap pharma has a total of $135 billion in cash, that's billions, and generates between $77 and $85 billion in free cash flow per year. In nine months, Big Pharma could buy ALL of the U.S. publicly traded biotech companies with cash on hand and operating free cash flow. Premiums have averaged this year 62%. All deals have been cash takeovers, except the Gilead Sciences Inc. purchase of Corus Pharma Inc."

His takeover ideas were lower, as well, but like many other fans in certain names, he said the decline was a buying opportunity.

Ventas off on convertible

Ventas, Inc. shares were lower Monday as the health care real estate investment trust plunged into the market with a $200 million convertible senior note deal, which was being talked to yield 3 3/8% to 3 7/8% with an initial conversion premium of 20% to 25%.

The stock (NYSE: VTR) fell $1.94 on the day, or 4.91%, to $37.56.

Ventas was slated to price the new convertible debt after Monday's close.

Louisville, Ky.-based Ventas, which owns and leases hospitals and nursing homes, said proceeds would be used to paydown bank debt. In September, the company said it planned on using borrowings under its existing revolving credit facility initially to help fund the roughly $649 million acquisition of 67 health care and seniors housing properties from entities affiliated with Canada's Reichmann family.

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