Palm surges; Monsanto plunges; Moody's off highs; Clearwire IPO eyed; XM, Sirius weaker

By Ronda Fears

Memphis, March 2 - Palm Inc. shares rose nearly 8% Friday, spiking on market speculation that the handheld device provider will be bought by a larger phone maker, such as Nokia Corp. or Motorola Inc. Such has been the case for several weeks ahead of the weekend, observed one trader, and he was a seller into the rally.

Perpetuating extreme fear of bankruptcies in the subprime mortgage lending industry, Fremont General Corp. led another sweeping decline in the group Friday, traders said, and extended losses in after-hours activity on news that it was shuttering its subprime mortgage unit following a cease-and-desist order from the Federal Deposit Insurance Corp. Fremont shares (NYSE: FMT) fell 39 cents, or 4.29%, to $8.71 in the regular session and at 5:30 p.m. ET was seen lower by another 16 cents to $8.55 in after-hours trade. The stock is off the 52-week high of $23.98 and down from around $17 three months ago.

"Every day there is ongoing speculation about which of the subprime lenders will file bankruptcy," one trader said. "Everyone is very nervous about this."

Recommended guidance from the Federal Reserve for better disclosure to applicants of subprime adjustable-rate mortgages contributed to the wave of selling in mortgage lenders, which has spread to ancillary groups such as brokers and investment banks that underwrite lending packages for the sector. Yet, to the latter group, Moody's Corp. spiked early in the session on positive comments from a Bear Stearns analyst but gave up all the gains as "buyers ran out of nerve," as another trader put it.

Action in TXU Corp. all but dried up Friday, traders said, after news of a Securities and Exchange Commission allegation that unknown individuals made $5.3 million in illegal profits by buying call options on TXU just days ahead of the $45 billion buyout at $69.25 per share was announced. The "hot potato," as one trader put it, compounded free-floating anxiety about the deal getting a nod from utility regulators. The stock (NYSE: TXU) closed Friday unchanged at $66.50 with 7.7 million shares traded.

Anxiety also still lingers for the proposed merger between Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. amid antitrust hearings this week, in which the companies reasserted Friday that the deal would not make the radios in either system obsolete. Sirius (Nasdaq: SIRI) was off 1.93% at $3.55 while XM (Nasdaq: XMSR) fell 2.65% to $13.98.

Florida-based property and casualty firm Bristol West Holdings Inc. surged on its acquisition by Farmers Group for $742 million in cash, or $22.50 per share - a 29% premium to Thursday's market. The stock (NYSE: BRW) gained $5.87, or 36.21%, to $22.08.

On the heels of Oracle Corp.'s purchase of Hyperion Solutions Corp. for $3.3 billion, application software firm Dendrite International Inc., based in Bedminster, N.J., surged on a buyout by Cegedim SA at roughly $751 million in cash, or $16 per share, a 25% premium to Thursday's market.

Monsanto deal hits snag

Farmer and consumer groups have dug their heels in with opposition to agriculture giant Monsanto Co.'s plans to acquire cotton seed producer Delta and Pine Land Co., citing antitrust concerns. It put pressure on the stocks Friday and sparked buying in put options on Monsanto.

"Six months after Monsanto agreed to pay $1.5 billion for Delta and Pine Land - the largest cottonseed company in the country - the pot bubbles with intrigue," said a trader.

"When you have hue and cry from the heartland in Washington, they [federal legislators] tend to listen. This could derail the whole deal, so people are trying to position for that possibility."

Monsanto (NYSE: MON) fell $1.45 on the day, or 2.79%, to $50.92. The trader said there was heavy open interest in buying March $55 puts and April $50 and $60 puts.

Delta and Pine shares (NYSE: DLP) slipped 5 cents to $40.83.

In August, Monsanto announced the $1.5 billion deal, at $42 per share, to buy Delta and Pine, which was approved by the latter's shareholders in December. Monsanto said on Thursday it had arranged a $2 billion credit facility to fund the acquisition.

The American Corn Growers and National Black Farmers Association are among petitioners asking for hearings before the House Judiciary Committee as the Department of Justice weighs whether or not the acquisition would violate antitrust rules.

The trader said Monsanto rivals Switzerland-based Syngenta AG, and Pioneer Hi-Bred International also are probably nervous about the deal. E.I. DuPont de Nemours & Co. owns Pioneer Hi-Bred. DuPont shares (NYSE: DD) on Friday ended lower by 78 cents, or 1.53%, at $50.09 but were seen in after-hours activity sharply higher. Syngenta shares (NYSE: SYT) closed Friday better by 7 cents at $35.40.

Palm players pleased

Shares of Palm were pushed up 11% on Friday amid a fresh round of speculation that the maker of handheld wireless devices might be acquired by wireless giant Nokia Corp. It has been the subject of repeated takeover talk, which has included another mobile phone giant, Motorola Inc., as a potential buyer, propelling gains of nearly 30% over the past month.

There were still plenty of buyers Friday on hopes that the media splash might spark a bidding war for Palm, according to traders, but also a healthy amount of selling into the rally.

Palm (Nasdaq: PALM) gained $1.81 on the day, or 10.98%, to $18.30 with a whopping 33 million shares traded Friday versus the norm of 4.64 million shares.

Noting one big seller, one trader said, "It's hard to imagine anything going on with this."

Palm could fetch up to $20 a share, industry web site Unstrung reported, citing sources close to Palm and investment bankers familiar with the deal. Some thought the price might go higher if rival bidders express interest in Palm.

"If Nokia is after it, Motorola will get into the bidding," another trader said. "I still think Dell would make sense, too. If Dell wants into this market, there isn't a much cheaper way to jump in than Palm at $25 or even $30."

Palm has been viewed as a buyout target for years, but since the end of January the chatter has intensified.

Sunnyvale, Calif.-based Palm is increasingly viewed as a takeover target because of its smaller size in a market where competition is rapidly increasing. Palm felt the squeeze in its most recent fiscal second quarter, when revenue fell almost 12% and the vendor issued a weaker sales forecast.

Many sellers of Palm on the spike were buying on the decline in rival Research In Motion Ltd., which makes the popular Blackberry handheld device, the first trader said. Research In Motion (Nasdaq: RIMM) lost $4.94, or 3.51%, to close Friday at $135.97.

Clearwire IPO looking hot

Despite controversy about the pricing of an initial public offering coming next week from WiMax wireless high speed internet provider Clearwire Corp. - founded in 2003 by Craig McCaw of McCaw Cellular that was sold to AT&T Corp. for over $13 billion - traders said there is extreme interest in the deal.

"There has been some skepticism about it in the press, but people are very anxious for this one," said an IPO trader at a mid-market boutique in New York. "We think the IPO level is a great entry point. Within a year you could double your investment in a buyout scenario."

The Kirkland, Wash., company plans to sell 20 million shares, about 13% of the company, at an indicated price range of $23 to $25 per share.

The trader noted that Clearwire's corporate investors are impressive and very likely candidates for a buyout at some point in the future. Last summer, Clearwire filed and then quickly withdrew plans for an IPO, after Intel Corp. injected $600 million into its coffers and Motorola Inc. bought its equipment unit for $300 million. In December, however, the company re-filed the IPO to raise another $480 million.

Last week, the Wall Street Journal had an article that questioned whether Clearwire might suffer the same fate as Teledesic, another Kirkland, Wash., enterprise funded in part by McCaw that nearly went under with the failures of Iridium LLC and Globalstar, the trader said. He said the article also said small investors may want to shy away from the IPO since Clearwire is burning through cash at a rapid rate as it attempts to attract customers and buy spectrum.

Clearwire's IPO is scheduled to price in the week of March 5. Underwriters are Morgan Stanley, Merrill Lynch, J.P. Morgan Securities, Bear Sterns and Wachovia Capital Markets. The stock is to be listed on Nasdaq under the ticker "CLWR."

Pathmark, A&P deal play

On speculation that deal terms could gel Monday from the talks disclosed by supermarket chain Great Atlantic & Pacific Tea Co. to acquire Pathmark Stores Inc., or that a rival bidder might emerge, a stock trader noted a big buyer for A&P shares after the close.

Both have been lower since Montvale, N.J.-based A&P announced Feb. 27 that it was in negotiations to buy Carteret, N.J.-based Pathmark Stores in cash and stock transaction with the price tag at roughly $652.5 million, or the equivalent of $12.50 per share - a premium of 3.7% over the Feb. 26 market.

A&P shares (NYSE: GAP) ended Friday with a loss of 76 cents, or 2.4%, to $30.86 on volume of 657,100 shares versus the norm of 391,447 shares, but the trader said one purchase of 9,800 shares after the close at $31.62 added back the 76 cents.

Pathmark (Nasdaq: PTMK) closed off 5 cents at $11.25 on volume of 1.7 million shares versus the norm of 501,553 shares.

The trader said both stocks were pressured on the deal because of the slim premium, which many speculate would be contested by Yucaipa Cos. - a big holder of Pathmark. He said speculation heated up late Friday that Yucaipa chief Ron Burkle, a big investor in other grocery chains such as Supervalu Inc., was shopping for another Pathmark buyer.

"There is more belief in another deal getting done; there is not a whole lot of confidence in a deal with A&P, but some people think Pathmark is a good target for one of the big chains," the trader said.

Moody's erases gains

Moody's, parent of the credit rating agency Moody's Investors Service, traded sharply higher, but selling into the rally wiped out all of it by the end of the session. The early buying, which sent the stock up by more than 2%, according to one trader, was due to a Bear Stearns upgrade. But, he continued, profit taking "was irresistible."

The stock (NYSE: MCO) traded up to $68.25 before easing back to close off by a nickel at $66.10. Some 3.78 million shares changed hands during the session, compared with the norm of 1.4 million shares.

Bear Stearns analyst Michael Meltz upgraded the stock to outperform, saying recent weakness was a buying opportunity. His price target for the stock is $80.

Meltz said Moody's shares are down 13% since roughly a month ago, primarily due to concern over subprime mortgage exposure, but he sees the stock oversold on his estimate that the company generates only 7% to 8% of its revenues from subprime RMBS and subprime-oriented CDOs.

"This has been a fast-growing revenue stream for Moody's in recent years; however, it's just one of many fast-growing streams," Meltz said, saying he expects Moody's to allay investors' fears about this matter at the Bear Stearns 20th Annual Media Conference on Monday in Palm Beach, Fla.

Moreover, the analyst said the ongoing M&A boom and private equity's penchant for debt-laden takeouts are very good for Moody's, as increased popularity of repackaging such debt in CDOs means that Moody's can often benefit twice from M&A activity.

Meltz said there could be 20%-plus upside in Moody's shares.

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