Merrill's departure of CEO sends shares down; Bradley Pharma shares zoom on Nycomed merger

By Sheri Kasprzak

New York, Oct. 30 - Merrill Lynch & Co. chief Stan O'Neal stepped down on Tuesday after the investment bank posted the largest quarterly loss in its history following the nation's massive subprime mortgage fiasco.

The news threw Merrill's stock down by 2.76%, or $1.86, on Monday to close at $65.56 (NYSE: MER). The stock gained 74 cents after hours.

Sources said the stock is likely down just because the investment bank's operations are up in the air.

"Investors like permanency, they like to know that solid management is in place," said one sellside trader. "In a case like this, it has less to do with who the CEO was and more to do with the fact that there really is no CEO right now."

"[Deutsche Bank analyst] Mike Mayo was on TV yesterday saying MER was worth $120," said one market source.

The insider said the only thing to help the stock is to get into the process of finding a new CEO.

"Back to issues of further write downs," he said.

Mayo said earlier this week that Merrill may have to write down another $4 billion in complex debt instruments. Mayo scaled back his fourth-quarter estimate for Merrill to a 53 cent per-share loss from a $2.08 per-share gain.

Looking to merger news from Tuesday, Bradley Pharmaceuticals, Inc. and Nycomed US Inc. announced a $346 million merger agreement Tuesday that sent shares of Bradley through the roof.

Bradley's stock jumped by 22.88% on word of the agreement.

It is "absolutely what they needed," enthused one sellside trader. "I'm really pretty surprised they were able to sell at a 25% premium but I guess it shows that anything is possible."

An analyst familiar with the name also lauded the deal as a good thing for Bradley.

"They were looking for other opportunities, and I think they took the right one," he said. "In terms of the price, I don't think they could have done much better. The timing was good and I think the other alternatives they were considering may not have been as good as this. So, good for them."

The other alternatives included a possible sale to its chief executive officer, Daniel Glassman.

The analyst said he didn't feel the sale to Glassman would have yielded the same premium to market price.

Trader comments on Penn Treaty

Elsewhere, a sellside trader Tuesday had some opinions on the recent notice from investor Monarch Activist Partners to Penn Treaty American Corp.

On Monday, Monarch sent a letter to Penn Treaty to voice its displeasure at Penn Treaty's failure to file its Dec. 31, 2006 form 10-K with the Securities and Exchange Commission in a timely manner.

In the letter, Monarch said it felt that Penn Treaty American is worth at least $10 per share.

"The guy who thinks this is worth $10 is out of his frigging mind," said the trader. "I had been involved with this one since 2003. They have never been able to figure out reserves on their long-term care [business]. Never had accounting right, always late in filings ... Nice folks there. But it isn't going anywhere. [They] have a poor rating. They do subprime LTC."

On Monday, Monarch said it feels Penn Treaty's board should hire an investment banker to explore strategic alternatives. Those alternatives, Monarch said, should include the sale of the company.

Bradley to merge with Nycomed

Moving back to the Bradley/Nycomed merger, Nycomed agreed to convert all shares of Bradley into Nycomed shares at $20.00 each, a 25% premium over the company's $16.00 closing stock price on Monday.

On Tuesday, Bradley's stock gained $3.66 to close at $19.66 (NYSE: BDY).

In May, Bradley's board had formed a special committee to consider strategic alternatives. Those alternatives included the sale of its stock to another company or the sale of its stock to Glassman.

The sale is set to close in the first quarter of 2008.

"We are pleased that Nycomed will acquire Bradley," said Seth Hamot, non-executive chairman of Bradley's board, in a statement.

"The auction process was thorough and our board believes that this transaction is in the best interest of our stockholders."

"The acquisition of Bradley provides us with a unique opportunity to strengthen our dermatology expertise in the U.S. with successful products and capabilities that match ours perfectly," said Hakan Bjorklund, Nycomed's CEO, in a news release.

"The acquisition enables us to gain critical mass in the dermatology market and provides significant momentum for further add-on investments."

Based in Fairfield, N.J., Bradley is a specialty pharmaceutical company focused on dermatology products.

Nycomed, a subsidiary of Nycomed S.C.A. Sicar, is a pharmaceutical company that provides medicine for hospitals, specialists and general practitioners.

E-Z-EM, Bracco to merge

In other news, Bracco Diagnostics Inc. agreed to buy E-Z-EM, Inc. in a $241 million stock transaction.

Bracco agreed to pay $21.00 per share for all of E-Z-EM's stock, a 32% premium over the 10-day average closing stock price of E-Z-EM as of Monday.

"This transaction represents the culmination of a comprehensive strategic alternatives process conducted by the E-Z-EM board of directors over the past year to identify the best alternative to create value for E-Z-EM's shareholders," said a statement released Tuesday by E-Z-EM. "The independent members of the E-Z-EM board of directors have unanimously approved the merger agreement, and recommend adoption of the agreement by the E-Z-EM shareholders."

The merger is set to close in early 2008.

On Tuesday, E-Z-EM's stock jumped by 24.91%, or $4.09, to end at $20.51 (Nasdaq: EZEM).

"E-Z-EM has had a long association with Bracco Group, as we manufacture one of their oral imaging products and Bracco represents E-Z-EM in Italy as our distributor. Bracco is a world leader in developing contrast agents for diagnostic imaging and is well-respected in the global marketplace," said Anthony Lombardo, E-Z-EM's CEO, in a news release.

"The E-Z-EM and Bracco brands are well-recognized and respected for quality and clinical performance, and we believe the combination will create significant synergies in our product platforms."

Lake Success, N.Y.-based E-Z-EM makes contrast agents for gastrointestinal radiology.

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