Biomet bounces; Parker, Nabors drop; Netflix flies as Amazon, Audible slip; Broadcom better

By Ronda Fears

Memphis, June 7 - Orthopedic device maker Biomet Inc. on Thursday accepted a sweetened takeover bid of $11.4 billion, or $46 per share, from private equity firms Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and Texas Pacific Group. But one trader said he thinks the $2-per-share hike may still not be enough to win stockholder approval.

Amid another sharp decline in the broader markets, however, there were many red screens.

Parker Drilling Co., the subject of takeover speculation for many weeks now, is not for sale, chief executive Robert Parker said Thursday at a conference in New York, and the stock took a dive. That also put pressure on Nabors Industries Ltd., another driller that has had takeover chatter circulating about it for months. One trader attributed their declines again to the broader market's weakness and increased skittishness regarding takeover speculation stories; yet, this trader was a buyer of these drillers.

A lot of special situations equities that were beaten down this week during the widespread declines in stocks were seeing heavy buying in after-hours activity Thursday, this trader observed.

Broadcom Corp. was a stand-out, he said, after news of winning a patent suit against Qualcomm Inc. hit the tape after the close. Infineon Technologies AG has eyed Broadcom as a potential takeover target, he said, and the win against Qualcomm could increase interest in Broadcom. But Qualcomm has some heavies in its corner, another trader remarked, noting that Verizon Wireless is appealing to President Bush to veto the International Trade Commission ruling.

Netflix Inc. took another leap Thursday on persistent rumors that Amazon.com Inc. is eying it for a takeover, but one trader said the more likely target of the online book retailer would seem to be Audible Inc., and he noted that Netflix was rapidly retreating in after-hours trading.

Dow Jones & Co. Inc. still remained little changed amid the roiling rumors of a brewing bidding war, the latest of which put Brian Tierney, who bought the Philadelphia Inquirer and Philadelphia Daily News for $515 million last year with a group of investors, in the fray. Supermarket king Ron Burkle of the Yucaipa Cos. is helping the Independent Association of Publishers' Employees union in exploring alternatives, but the $5 billion, $60-per-share, bid from Rupert Murdoch's News Corp. is still all that's on the table. The stock ended off 15 cents at $60 and was seen 34 cents higher in after-hours action.

Biomet bid still light: trader

Biomet accepted a sweetened takeover bid of $11.4 billion, up from a $10.9 billion offer, but traders said it still may not be enough. The $46 per share offer, boosted from $44, is a 32% premium over the closing price April 3, 2006 - a day before market speculation the company was on the auction block.

"The entire peer group of Biomet has moved up dramatically in price since the original buyout offer. Because of the controversy about it, there has been a ceiling placed on the stock because of the buyout risk," one trader remarked.

Biomet shares had hovered just below the original buyout price, and on the increased offer on Thursday the stock (Nasdaq: BMET) advanced $1.36, or 3.08%, to $45.56, again lingering just below the new buyout price.

"I expect an offer of $48 per share will be necessary to get approval," another trader commented. "The private equity guys didn't make their first offer as their best offer. They held back some powder as they anticipated the potential of a bidding war with some other entity."

Biomet hired Morgan Stanley on April 6, 2006, to explore strategic alternatives, and rival Smith & Nephew plc acknowledged interest in November but bowed out of negotiations in December when Biomet accepted the $44 offer from the PE group.

But the original offer met opposition - including negative recommendations from two proxy advisory firms, Institutional Shareholder Services and Proxy Governance Inc. Hence, there was the boosted offer, which also prompted Biomet to cancel a special shareholders meeting that had been slated for Friday to vote on the original deal.

The new tender offer is scheduled to begin on or before June 14. At least 75% of the shares must favor the deal. The tender offer will run for 20 business days, unless extended.

Broadcom bids may come forth

Although the battle with Qualcomm is not over, it is closer, and the latest win could be enough for Broadcom suitors to get more aggressive, one trader commented.

Broadcom (Nasdaq: BRCM) ended Thursday off 69 cents, or 2.24%, at $30.11, but after the ITC news hit the wires, the stock added back 29 cents, or 0.96%, to $30.40.

"Infineon has been on the record as looking at Broadcom," the trader said. "Broadcom has been resisting those overtures, but a win here could motivate Infineon to get more aggressive."

In the ITC ruling issued Thursday, new models of cell phones made with Qualcomm semiconductors can no longer be imported into the United States because the chips violate a patent held by Broadcom.

The import ban, however, would not apply to mobile phone models that were imported on or before June 7 - representing a compromise between a ban on all phones with Qualcomm chips, as Broadcom requested, and a ban only on the chips themselves.

Broadcom's patent in dispute covers a battery-conserving feature used in mobile phones that transmit voice, video and data at high speeds. The phones are used in third-generation wireless networks operated by Sprint Nextel Corp. and AT&T Inc.'s AT&T Mobility, formerly Cingular, as well as Verizon Wireless.

Qualcomm buddies flex muscle

Qualcomm can appeal within 60 days or could settle the patent dispute with Broadcom. But the latter is not likely, the trader added, noting that Qualcomm has some muscle on its side.

Verizon Wireless, the second biggest U.S. mobile service provider, said late Thursday it plans to ask President Bush to veto the ITC decision. Verizon Wireless is a joint venture of Verizon Communications Inc. and Vodafone Group plc.

"Most analysts expected an order that simply blocked the importation of the infringing chips - not the actual phones," the trader commented.

"This order went much further than this. It is blocking phones with the infringing chips made after June 7. Whether this is enough time for Qualcomm to implement a work-around is unknown."

Because of the support in fighting the issue, Qualcomm shares moved up sharply after the close. The stock (Nasdaq: QCOM) closed with a loss of $1.21, or 2.87%, at $41.02 but in after-hours activity regained $1.24, or 3.02%, to $42.26.

Parker, Nabors still prime

Even with Parker Drilling's chief executive espousing Thursday that the company is not for sale, it and Nabors are both "still prime for a takeover or merger," one trader said. This trader also said he was a buyer on the declines in both names Thursday as "consolidation just seems too logical to ignore."

Robert Parker was quoted from the Reuters Global Energy Summit in New York on Thursday as saying, "We're not positioning ourselves to be sold; we're positioning ourselves to increase our shareholder value."

Parker shares (NYSE: PKD) lost 46 cents, or 3.87%, to $11.42.

Nabors (NYSE: NBR) dropped 92 cents, or 2.63%, to $34.01.

"I'm a buyer on the weakness," the trader said.

"We still think the drilling sector will see some consolidation. That would be insulation from the wild swings and gyrations from the price of oil and cost of drilling."

Netflix retreats after hours

Shares of Netflix rose sharply in the down market, still moving on renewed speculation that Amazon would buy the online movie rental company despite analysts' skepticism. One trader noted a sharp pullback in after-hours activity, which he said could indicate that some who were covering short positions were rethinking that move.

"There was a pretty big short position, 19%, in Netflix that maybe was getting covered and with some of pretty strong skepticism they came off that," the trader said.

Netflix (Nasdaq: NFLX) closed with a gain of $1.33, or 5.88%, at $23.93, which followed a 6% gain on Wednesday as well. But in after-hours activity Thursday the trader said the stock was off $1.20, or 5%, trading down to $22.73.

"There has been a rumor that Netflix would be bought at $34 a share. That just seems outrageous to me," the trader continued. "A lot of analysts don't believe Amazon would pay that, either. In fact, a lot of analysts don't believe Amazon is interested at all."

Amazon (Nasdaq: AMZN) ended Thursday off by 25 cents, or 0.35%, at $72.04.

Audible a more likely target

Amazon probably is on the hunt, this trader said, but he thinks the target is Amazon's existing partner on audiobooks - Audible.

Audible shares (Nasdaq: ADBL) traded up to $10 on Thursday but closed the session with a loss of 25 cents, or 2.51%, at $9.72.

"Rumors have been circulating about a pending buyout by Amazon. But the target is not Netflix, I don't think. It's more likely to be Audible. Audiobooks are becoming more popular with the proliferation of MP3s, and high-speed internet also helps," he said.

"Downloadable audio books are hot; Amazon's recent purchase of Brillance Audio Book is a testimony. The next piece for Amazon is to buy an integrated internet distributor with proprietary compressing and coding technology and distribution channels through iTunes/iPods and many MP3 devices. Audible is the leader in this area and growing fast, plus has positive cash flow with no debt."

Between last year's launch of Amazon Unbox and its upcoming MP3 music store, he said "it's really just a matter of time" before Amazon starts selling digital audiobooks in a much bolder way than its low-key CustomFlix on-demand service.

Amazon's purchase of Brillance in May sparked criticism, he said, but "this buyout [Audible] makes more sense."

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