Bel Fuse talks M&A to Power One; Alliance Data move hints Blackstone deal is off; financials weak again

By Paul A. Harris

St. Louis, March 14 - On Friday Daniel J. Bernstein, the chief executive officer of Bel Fuse Inc., took an opportunity to remind Jay Walters, chairman of Power One, Inc., and Richard Thompson, the CEO of that company, that on Feb. 25 Bel Fuse announced that it had purchased approximately 5% of Power-One's stock, opening a campaign in a style that Bel Fuse has used before.

In Bernstein's letter, posted Friday in a filing with the Securities and Exchange Commission, the Bel Fuse CEO asserted that "Power-One and Bel focus on product families that are the same or closely related, and our technologies, products, and know-how strongly complement each other.

"There are significant opportunities for the realization of synergies resulting from the combination of our businesses.

"Combining our operations on a global basis would result in the broadest range of products in the industry.

"In short, the strategic fit between Bel and Power-One is ideal. It is our strong belief that such a transaction would enable our two organizations to best serve our respective customers, shareholders and employees."

Acquisitive guy with $110 million

An analyst who covers the sector said Bernstein is a very acquisition-minded guy with a war chest of approximately $110 million of cash.

"He needs to build some scale within his business, and this is a way for him to achieve that," the analyst said.

With respect to the Friday press release, the analyst said that it represents a tactic analysts have seen before, three years ago when Bel Fuse acquired Galaxy Power of Westborough, Mass., for approximately $18 million, and in July 2006 when Bel Fuse attempted to acquire Japan's Toko, Inc. (an endeavor which also saw Bel Fuse taking a 5% stake in that company).

"Both times Bernstein tried to get management to the table, and both times that was unsuccessful," the analyst recalled.

The source said that ultimately Bernstein is attempting, via the Friday press release, to keep the possible relationship between Bel Fuse and Power-One in the public eye.

"The idea would be that it might entice Power-One shareholders to pressure that company, which really has a history of execution issues and whose stock price has lately underperformed, to talk to Bel Fuse," the analyst said.

Power-One shares (Nasdaq: PWER) dropped 2.05% in value, down a nickel to close at $2.39, versus a 52-week high of $6.37.

"Bel Fuse sees that Power-One has some compelling IP [intellectual property] within their product line," the analyst said.

"And Bel Fuse can also take advantage of efficiencies through some of the lower cost manufacturing which they have set up in Asia. Power-One still has a lot of operations here in the U.S."

When Prospect News asked the analyst whether Bel would soon tender for Power-One's shares the source, who only agreed to speak on background, declined to comment.

Bel Fuse A shares (Nasdaq: BELFA) gave up 1.6%, or $0.48 per share, to close at $29.52 on Friday. The company's B shares (Nasdaq: BELFB) lost 3.17% on Friday, down $0.88 to close at $26.86.

Alliance Data, a gone deal

On Friday a special situations equities analyst reflected that during a Thursday conference call Alliance Data Systems Corp. reiterated its 2008 guidance and disclosed that the company is exploring the sale, during the coming year, of their merchant services and utility services business units, saying they no longer fit into company strategy.

The special situations source noted that when an Alliance Data official was asked if the company had discussed the sale with the Blackstone Group, the official did not provide an answer.

Last May Alliance Data agreed to be acquired by Blackstone for $81.75 per share, or about $7.8 billion.

On Friday the company's (NYSE: ADS) shares outperformed the market but closed more than $35.00 below the tender price: $46.63, up $0.11 on the day, 0.24% higher.

The special situations source said that Bear Stearns has indicated that given the company's current share price, there is very little expectation of a deal with Blackstone.

Moreover, the analyst added, Noonday Asset Management reduced its active stake in Alliance Data to 7% from 10%.

An analyst who covers the credit card services space said that although the Alliance Data deal appears dead, some arbitrage players are maintaining their positions.

"Pretty much everyone I talk to, on a fundamental basis, thinks that the deal is off, but there are definitely still some arbs involved," the source said.

"It could be they got in, and they're in the hole, and just hoping the stock rallies a little before they close out."

Asked why the Alliance Data shares were outperforming the market on Friday the analyst said that the asset sale news was a factor.

"They basically endorsed their earnings numbers last night," the source said.

"They took the numbers down, but only by a nickel.

"So there is a relief there that they seem more resistant to the economic conditions than the overall credit card market."

The broad market backdrop for Friday's situations saw all three major U.S. stock indexes give up more than 1.5% of their respective values.

The Dow sustained the least damage, losing 1.6%, or 194.65, to close at 11,951.09.

The Nasdaq and the S&P 500, meanwhile, both dropped by more than 2%.

The S&P 500 gave up 2.08%, ending 27.34 points lower to close at 1,288.14.

The Nasdaq fell 2.26%, or 51.12 points, to close at 2,212.49.

Financials: the chop continues

The chop in the financial sector continued on Friday.

Countrywide Financial Corp. attorney Richard Connop said that the Justice Department probe of Countrywide's treatment of bankrupt homeowners launched this week will have "staggering" implications for other lenders, according to a special situations equities analyst.

Countrywide's shares (NYSE: CFC) dropped 5.66% on Friday, down $0.27 to close at $4.50.

Meanwhile Bank of America Corp., which pumped $2 billion into Countrywide late last summer, and has proposed to merge with Countrywide, saw its shares (NYSE: BAC) drop by 3.9%, $1.45 lower, to close at $35.69.

However Friday's true bombshell from the financials came from Bear Stearns Cos. Inc. which announced in a press release that it had reached an agreement with JPMorgan Chase & Co. and the Federal Reserve Bank to provide a secured loan for an initial period of up to 28 days allowing Bear to access liquidity as needed.

Alan Schwartz, president and chief executive officer of Bear Stearns, said that the investment bank "has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations."

The Fed, via its discount window, will provide non-recourse, back-to-back financing to JPMorgan, which does not believe the bailout deal exposes its shareholders to any material risk.

Asked to comment on Friday's bailout news, an analyst who covers the financial sector simply replied that Bear Stearns is too big to fail.

Shares of Bear Stearns (NYSE: BSC) plummeted 47.37%, losing $27.00 to close at $30.00.

Meanwhile shares of JPMorgan (NYSE: JPM) lost 4.12%, or $1.57, to close at $36.54.

Overall, however, the week to March 14 was a "good news-bad news" week for the financial sector.

The good news came from Standard & Poor's, which announced on Thursday that "The end of write-downs is now in sight for large financial institutions."

The agency added that write-downs of subprime asset-backed securities by financial institutions worldwide are expected to total $285 billion, $20 billion higher than its previous estimate.

While S&P said it expected to see more write-downs in intermediate term, the massive write-downs might be bottoming out, the report said.

Prospect News asked the analyst who covers the financial space which - the good news, S&P's report about the write-downs bottoming out, or the bad news, the Bear Stearns bailout - was more significant.

The source replied that the possible end to the write-downs trumped bad news Bear.

"Rising water does lift most boats," the source said.

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