Huntsman pressures Lyondell, lifts KMG; Ventana pushes Cepheid; BCE off; Vonage up

By Ronda Fears

Memphis, June 26 - Huntsman Corp. agreed to a $9.6 billion buyout, including debt, by Dutch chemicals concern Basell on Tuesday, and traders said it sparked a sell-off in Lyondell Chemical Co., as speculation for it as a takeover candidate dimmed, but it boosted interest in agriculture chemical concern KMG Chemicals Inc.

Another diagnostic testing firm deal - Ventana Medical Systems Inc. getting a $3 billion hostile bid from biotech giant Roche Holdings AG - pushed several names in that space.

Moreover, the market is widely expecting a bidding war for Ventana to erupt, one trader said, noting Beckman Coulter Inc. was seen as a top contender since it conceded defeat last month for diagnostic testing concern Biosite Inc. following a two-month long battle with Inverness Medical Innovations Inc. He said Becton Dickinson & Co. also was considered a possible rival bidder.

Cepheid Inc., Luminex Corp. and Applera Corp.-Applied Biosystems Group were higher as other potential takeover targets in the diagnostic testing space.

BCE Inc. retreated after Telus Corp. pulled out of bidding for the Canadian telephone giant and rumors were circulating that the field of bidders had narrowed further with the bidding deadline reportedly this week. One trader said Toronto buyout conglomerate Onex Corp. and the Quebec pension fund Caisse de Depot are rumored to have pulled out of a takeover group led by the Canada Pension Plan Investment Board with backing from buyout firm Kohlberg Kravis Roberts & Co. The pension group, however, confirmed it has submitted a bid, and Cerberus Capital Management said it will make a bid for BCE. In addition, Catalyst Asset Management Inc., a boutique investment banking firm without a stake in BCE, has proposed a recapitalization plan. Yet, BCE (NYSE: BCE) pulled back sharply with a loss of $1.18, or 3.1%, to $36.86.

"With two out of the running, it just put a pall over where the bids [for BCE] will come in at," remarked an equity trader in Canada.

Elsewhere in the phone group, wireless broadband phone service provider Vonage Holdings Corp. took a leap on comments from an appellate judge suggesting a compromise in the patent dispute with cell phone giant Verizon Communications Inc., which Vonage lost last month. A buyside market source said before the news he thought Vonage was a great play in the broadband voice-over-internet protocol (VoIP) area with a lot more upside than the weakness reflected because of the Verizon litigation.

Vonage (NYSE: VG) added 17 cents on the day, or 5.5%, to close at $3.26, while Verizon (NYSE: VZ) lost 43 cents, or 1.04%, to $41.07.

Ventana might see bid war

Tucson-based Ventana skyrocketed in wild trading Tuesday after Roche went public with its hostile bid, which it said follows being rebuffed by Ventana after approaching the company about a linkup. Ventana shares ran well past the Roche price - $75 per share, or a whopping 45% premium to Monday's market - on widespread speculation of a bidding war.

"It was a wild day with Ventana. There's been lots of speculation in the diagnostics space since the Biosite situation came about. Biosite sold for a huge premium, too, but no one was really comfortable running these others [diagnostic firms] up that much," a stock trader said.

Ventana (Nasdaq: VMSI) traded as high as $77.94 before easing back to close at $76.43 for a day's advance of $24.68, or 47.72%, but the stock headed higher in after-hours activity with another gain of $1.07 to $77.50.

Another trader said there was a great deal of profit taking during the session as well, but most players envision a scenario developing for Ventana and Roche that occurred in the Biosite buyout. In fact, he said, Beckman Coulter was seen as a top potential rival to Roche, since it was keen for a diagnostic testing acquisition and lost the battle for Biosite last month to Inverness.

He said Roche's bid, which the market considers fairly "rich," suggests it also anticipated a possible bidding war. But, then, he added, "the Beckman bid for Biosite looked the exact same way."

In late March, he recalled, Beckman made a play for Biosite with a bid of $85 per share, a 53.5% premium to the previous day's close. That suggested at the time that Beckman anticipated possible competition for the Biosite buyout and hoped such a big premium would dissuade any rivals.

But, Inverness came forward with a rival bid of $90, which Beckman matched. Then, Inverness raised its bid to $92.50 and won Biosite when Beckman would not go past $90.

"This could very well turn out to be another game of chicken, but I think that even though Beckman Coulter obviously wants to make a diagnostics acquisition, they are a lot smarter about the whole process than they were three months ago," he added.

Beckman shares (NYSE: BEC) edged up 6 cents to $64.92.

Ventana's board of directors urged shareholders to take no action while it reviews the Roche offer. The company said it would make a recommendation within 10 business days of the formal start of a tender offer.

Roche said it is pursuing Ventana to widen its diagnostic product offerings and complement its in-vitro diagnostic systems and cancer therapies. Roche said it made multiple efforts to discuss a possible deal with Ventana but was rebuffed and decided to proceed with a tender offer. Roche said, however, that it is still willing to discuss a negotiated deal and would prefer that to a hostile bid.

The first trader said there was some chatter that medical equipment maker Becton Dickinson might consider making a bid for Ventana, as well. That stock (NYSE: BDX) slipped 32 cents to $73.90.

Huntsman hovers under bid

Huntsman, however, was lingering below the buyout bid of $25.25 per share - a 33.6% premium to Monday's market - by Basell because of players pricing in risk of antitrust scrutiny as well as some time value loss since it is not set to close until around year-end, one trader said.

The stock (NYSE: HUN) closed up by $5.31, or 28.1%, at $24.21 after trading in a band of $24.10 to $24.39 on volume of 24 million shares versus the norm of 778,208 shares.

Basell is owned by privately held U.S. industrial group Access Industries and is a leading producer of polypropylene, which is used in products like textiles, reusable containers and laboratory equipment. Access, controlled by Russian billionaire Leonard Blavatnik, is a joint venture between BASF and Royal Dutch Shell, which was acquired in 2005 by Access Industries just six months after Huntsman completed its own initial public offering. Basell recently lost out to Saudi Arabia's Sabic in the bidding for General Electric Co.'s $11 billion plastics division.

Private equity fund MatlinPatterson LP and the Huntsman family, who collectively own a 57% stake in Huntsman, have agreed to the transaction, however. But the trader said there was some concern about regulatory scrutiny.

The deal would broaden Basell's holdings and give it access to Huntsman's technology in paints, footwear and cleaning products. He said Basell is paying about 8 times EBITDA and that is considered a good price for Huntsman, since the company sought a deal last year but broke off talks saying that bids had been inadequate.

Lyondell lags on Huntsman

Another chemical buyout candidate, Lyondell, fell on the Huntsman news as it was interpreted as suggesting a takeover of Lyondell was less likely since Access Industries was considered to be considering a buyout of Lyondell.

The stock (NYSE: LYO) fell $1.73, or 4.61%, to $35.76 on volume of 10 million shares versus the norm of 3.85 million shares.

"It was ugly for Lyondell," the above trader said.

Access has a forward contract to buy 8.3% of Lyondell stock from Occidental Petroleum Corp., a Los Angeles-based oil and gas company. Last month, Blavatnik's company disclosed the forward contract in a regulatory filing. It gives an Access Industries unit the rights to buy 21 million shares of Lyondell for $674 million.

At that time, Blavatnik's company said it intended to close on the deal and said it may acquire more shares, or pursue a merger, depending on the outlook for Lyondell and the chemical industry, and that sparked a buying spree in Lyondell shares that sent it to a string of new 52-week highs, hitting $39.99 on June 15.

"Now, it looks like the Lyondell deal will not go through," the trader said. "To be sure, no one thinks they could pull off both deals. But, it could be that Lyondell gets another deal."

KMG up in sympathy

Yet, the trader continued that pricing in the commodity chemicals business is weakening as new capacity comes on stream in the Middle East, so the Huntsman news did little for other big chemical names like Dow Chemical Co., which has recently been rumored to have garnered takeover interest. But, he said markets for specialty chemicals remain strong, particularly agricultural chemicals.

Thus, he said Houston-based agricultural chemicals concern KMG Chemicals gained in sympathy with the Huntsman news. The stock (Nasdaq: KMGB) gained 85 cents, or 3.87%, to $22.79.

"Huntsman got a huge premium and that sector is not so strong right now," the trader said.

"I think KMG is the next one to run. The agriculture group is very strong right now."

A buyside market source, however, was a seller on the uptick.

"The lure of a buyout is nice but I don't really see that happening with KMG," the buysider said. "It seems support could be in the low $20s but I'm thinking with no catalyst in the near term that the stock is likely to trade sideways to moderately down."

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