Puget gets 50/50 odds on closing; Foundry, Brocade to close by Dec. 24; BCE demands breakup fee

By Cristal Cody

New York, Dec. 11 - Puget Energy Inc.'s chances of closing on its $30 a share buyout are probably about even, with the market keeping the stock hovering at $24, one analyst said Thursday.

The company said Thursday that the deal now is not expected to close this year.

In other deals, a market source said Foundry Networks Inc. and Brocade Communications Systems Inc. should close by Dec. 24 if shareholders approve the deal Dec. 17.

Also, BCE Inc. and the buyout consortium plan to fight it out over a C$1.2 billion termination fee after the privatization deal was called off Thursday.

Meanwhile, market uncertainly prompted Marathon Oil Corp. to put off a decision on splitting the company into two publicly traded businesses.

Market anxiety spilled over onto Wall Street as well Thursday, sending the Dow Jones Industrial Average down 2.24% to 8,565.09.

The Standard & Poor's 500 Index also fell 2.85% to 873.59, and the Nasdaq Composite Index fell 3.68% to 1,507.88.

Puget looks to '09 to close deal

Puget Energy said in a regulatory filing Thursday that the $7.4 billion buyout is not expected to close this year as it still awaits approval from the Washington Utilities and Transportation Commission.

Bellevue, Wash.-based Puget Energy said that all equity and debt financing is in place from the buyout group led by Macquarie Infrastructure Partners, the Canada Pension Plan Investment Board and British Columbia Investment Management Corp.

Puget Energy agreed in October 2007 to be acquired by the group for $30 a share.

Puget Energy shares rose 1.71% to close at $24.41 Thursday.

"The stock price is currently suggesting the overall market is handicapping it at about even odds" of the deal closing, said James Bellessa, an analyst with D.A. Davidson & Co. "My calculation of the downside of the stock is [it will go] down to $18 if the deal gets denied."

The company filed the merger application with the Washington Utilities and Transportation Commission on Dec. 17, 2007.

The commission is not required to make a decision within a certain timeframe.

"The regulators have done their due diligence and hearing process and the final briefs have been filed. They're just weighing the pluses and minuses," Bellessa said. "There is no stipulated time, but it's assumed it would be a December decision."

Puget noted that with the number of business days left in 2008, the transaction could not close because the merger agreement provides for the deal to close 15 days after all conditions are met.

The company said it has received all federal regulatory and shareholder approvals required for the merger.

Foundry, Brocade to wrap up by Christmas

Foundry Networks reached a memorandum of understanding with the shareholders who filed suit in California Superior Court and agreed to provide supplemental disclosures regarding the acquisition by Brocade Communications Systems, a market source reported Thursday.

Shareholders are expected to vote on the $2.6 billion, or $16.50 a share, acquisition on Dec. 17.

"Besides the price coming more in line with market conditions and the ability to get it done without the risk of refinancing a bridge loan sometime in the future, we're pretty certain it's going to happen," said Matt Robison, a communications technology analyst with Pacific Growth Equities.

Foundry shares moved up a penny to close at $15.78 in trading Thursday.

Robison, who has a buy rating on Foundry, expects the deal to close before Dec. 24.

"It's our understanding that Brocade is going to shut down between Christmas and New Year's, their normal pattern, and they'll probably want to get everything done before then," he said. "Foundry typically runs every day until the end of the year, so there's a little bit of disparity in terms of operating mechanisms of the two companies."

Brocade shares fell 4.64% to close at $3.29.

Stick a fork in BCE, it's done

As expected, Thursday came and the C$34.8 billion BCE buyout deal went.

Now that it's all over, BCE is demanding a C$1.2 billion termination fee, but the investor group that pursued the deal said it's not paying anything.

The deal was expected to fall apart after KPMG said the company could not pass a solvency test, a condition of the closing, because of its huge debt load.

However, the final opinion was due Thursday, and the buyout group notified BCE on Wednesday night that it had terminated the agreement.

The group prematurely delivered the termination, so it is "therefore invalid," BCE said.

The buyout group led by the Ontario Teachers Pension Plan Board and affiliates of Providence Equity Partners Inc., Madison Dearborn Partners LLC and Merrill Lynch Global Private Equity said in a statement that BCE insisted the closing condition be included in the original acquisition agreement.

"It is very clear that neither party has a right to a termination fee in those circumstances. Should BCE commence such baseless litigation, we are confident that it would not succeed," the group said.

Shareholders approved the C$42.75 a share offer in September 2007.

Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank, the four banks that committed to finance the $34.35 billion in loans needed to fund the deal, said their financing obligations also ended Thursday.

BCE said it plans to reinstate the company's share dividends starting with the fourth quarter dividend to be paid on Jan. 15, 2009. Before the company suspended dividends, it had paid out a C$1.46 a share a year.

BCE's stock fell 2.08% Thursday to close at $17.91.

Marathon mulls split

Marathon Oil said Thursday that the board of directors continues to consider a company split but did not give a new timeframe.

Shares closed Thursday at $25, down 1.73%. The stock has traded from $19.34 to $63.22 over the past year.

The Houston-based company said in July it was considering creating one publicly traded company that deals with exploration and production and a second that focuses on refining and marketing and would give a decision by the end of the year.

"Our review thus far indicates that a separation of the businesses may enhance shareholder value, however, the recent extreme volatility in the capital and commodity markets requires further evaluation before a decision can be reached," Clarence Cazalot, Jr., Marathon's president and CEO, said in a statement.

Mark Gilman, an analyst with the Benchmark Co., said Marathon Oil has justification for doing a split with the values assigned to two subsidiaries believed to be greater than the company as a whole.

"I would concur that such a value based on present market conditions is in fact there," he said. "Whether they do it or not probably depends more on the external environment."

Mentioned in this article:

BCE Inc. NYSE: BEC

Brocade Communications Systems Inc. Nasdaq: BRCD

Foundry Networks Inc. Nasdaq: FDRY

Marathon Oil Corp. NYSE: MRO

Puget Energy Inc. NYSE: PSD

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