Clear Channel drops even as bid gets boosted; Mirant issues firm; BCE slips; Southwest, Delta rise

By Ronda Fears

Memphis, April 18 - Clear Channel Communications Inc. agreed Wednesday to a boosted bid of roughly $19.35 billion from the Bain Capital Partners and Thomas H. Lee Partners group's previous bid to take the advertising giant private, which had met with strong shareholder opposition. The stock was lower even with the 4% higher offer, as players bailed out amid expectations it still will not be enough.

Independent power producer Mirant Corp. said on Wednesday it has agreed to sell its Caribbean business to Japan's Marubeni Corp. for about $732 million, which rekindled buying interest in the common stock and warrants while waiting on news about the company's efforts to sell out completely.

There also was a rumor Wednesday in the distressed bond market that bankrupt independent power producer Calpine Corp. was close to announcing a deal. The San Jose, Calif., company's stock has been on the rise for several months in anticipation of a buyout offer or major equity rights offering sponsor emerging. But on Wednesday, the stock (Pink Sheets: CPNLQ) slipped in trade by a penny to $3.24.

Airlines were higher amid the earnings season and lower oil prices, plus the market revisiting the consolidation theme in the sector. Pleasing first-quarter results from American Airlines Inc. parent AMR Corp. also lifted the group. AMR, which has been viewed as a hunter in the renewed wave of consolidation speculation flying through the industry, saw its stock (NYSE: AMR) gain $1.15, or 3.73%, to $31.96.

Traders also noted the market is eagerly awaiting when-issued action in the new common stock of Delta Air Lines Inc. before it emerges bankruptcy at the end of the month. Even though the old Delta shares will be canceled, the stock (Pink Sheets: DALRQ) advanced a penny to 16 cents on Wednesday with heavy volume of 15.5 million shares. Delta fended off a hostile takeover bid from US Airways Group Inc. and has asserted repeatedly that it is not looking for a merger, but traders say the market is expecting a deal to surface "before year-end," as one distressed stock trader put it.

Otherwise, Southwest Airlines Co. was among the high-fliers as a credit analyst tagged it as one of the best takeover targets in flight. The stock (NYSE: LUV) added 46 cents, or 3.03%, to close Wednesday at $15.66 with 14.9 million shares traded versus the norm of 7.6 million shares.

"A Southwest Airlines LBO is a no-brainer in the current financial market," said CreditSights analyst Roger King. "Airlines are in play all over the place. LUV in particular has a multi-year fuel hedge portfolio, billions in unencumbered aircraft values, a significant 737 order book, excellent long-term operational and financial trends, industry tailwinds, and upside potential as temptations."

North of the border, Ontario Teachers' Pension Plan said it is considering making a move for the Montreal-based telephone giant BCE Inc., which acknowledged Tuesday that it is in play and holding talks with a group of Canadian pension funds - sans the Ontario Teachers group - and Kohlberg Kravis Roberts & Co.

Beyond deals, speculations and restructurings, traders said there was a bittersweet reaction to the broader markets as those holding short positions were "feeling a pinch" with the Dow Jones Industrial Average hitting a new all-time high Wednesday while the Nasdaq composite showed some slippage.

BCE bidding war on hook

A bidding war on the wires has already taken shape for BCE, and traders are fully expecting it will materialize, but a trader in Canada said there is some element of risk being priced into the stock since an offer has yet to be put in writing.

BCE shares (NYSE: BCE) slipped a nickel on Wednesday to settle at $34.05, following a 5% spike the day before when the Ontario Teachers' Pension Plan, its biggest stockholder with a 5% stake, said it will consider leading a group to make an offer that would compete with a bid from KKR and a group of Canadian pension-fund managers.

Joining KKR are the Canada Pension Plan Investment Board, the Caisse de Depot et Placement du Quebec and the Public Sector Pension Investment Board, which said Tuesday they had started takeover talks with Montreal-based BCE. KKR actually would be a minority partner.

"There was a rumor that the offer by the CPP group is $40 to $42," the trader said. "Teachers' said they will come to the table too after the market closed. There will be a bidding war. I would say Teachers' may offer $45."

BCE shares are up 28% since March 29, when the Globe and Mail newspaper said KKR approached pension funds about bidding for BCE, the trader noted, but if bids reach the mid-$40s neighborhood, that would be another 30%-plus premium.

"That seems like it would be a big stretch," he said.

He noted that reports suggest U.S. buyout firm Providence Equity Partners Inc. has said it expects to take part in any Ontario Teachers'-led bid for BCE.

Clear Channel players bail out

Some Clear Channel players were bailing out despite the higher bid due to the level of risk the situation has shown. The offer of $39 per share, up from $37.60, came a day before the scheduled vote on the previous offer that had met strong opposition from several big shareholders.

"CCU is still a crap shoot; we are not playing," said a risk arbitrage trader who had previously been involved in the situation. When asked if there were a lot of players bailing out, he remarked, "Yes; but there [are] buyers lower. Sellers came out aggressively when the stock was higher."

Clear Channel (NYSE: CCU) traded Wednesday in a band of $35.85 to $37.99 before settling at $36.23 for a loss of 49 cents on the day, or 1.33%. A whopping 31.95 million shares changed hands, versus the norm of 6.26 million shares.

The new offer now faces a shareholder vote on May 8. Remaining unchanged, shareholders of record as of March 23 are eligible to vote on the transaction.

Fidelity Management & Research, Highfields Capital Management LP and the California Public Employees Retirement System have said they would vote against the original offer of $37.60 per share. A noted proxy advisory firm also had recommended shareholders vote against a deal at that price.

Fidelity was thought to be still in opposition to the $39-per-share buyout price. Dave Novosel, senior analyst at bond research firm Gimme Credit, said in a note Wednesday that "the talk we heard was that $40 per share seemed to be the Holy Grail. In other words the improved offer may still not be enough to gain sufficient shareholder support."

Mirant buyers show up

Atlanta-based Mirant agreed on Wednesday to sell its Caribbean business to Japan's Marubeni Corp. for about $732 million. That, in addition to the company being in the process of selling its Philippines assets to Marubeni and Tokyo Electric Power Co., brought out more buyers for Mirant shares and warrants on the thinking that a more sweeping deal is close.

Earlier this month, Mirant hired JP Morgan to explore the sale of the entire company. The company emerged bankruptcy reorganization in early 2006.

"Mirant was $40 when they made the announcement. Minimum value on a buyout is $50 to $52 per using non-buyout parameters, and would be $10 to $20 higher using those parameters, so even at $45 we feel it's a bargain," said one trader.

Mirant common shares (NYSE: MIR) advanced 51 cents on the day, or 1.14%, to $45.46.

Mirant warrants also continued to climb. The series A warrants (NYSE: MIR-WTA) added 60 cents, or 2.33%, to $26.38. The series B warrants (NYSE: MIR-WTB) rose 23 cents, or 0.85%, to $27.18.

"Depending on how long it takes for offers to roll in, I think the price moves within that band (up to $52 to $53) depending on when the offer deadline is over - and, more importantly, whether someone has already approached Mirant with a buyout price," the trader continued.

"Mirant has a pretty simple structure, post-bankruptcy; therefore, it should be pretty easy to make an offer (especially since the Caribbean assets price is probably getting clearer). I would guess that the stock price moving up is also in part due to that this process will not be very easy to hide as suitors start looking for firm funding - and that the Chinese wall that is supposed to keep that info from investment bankers and traders is breached one more time."

Net proceeds from the Caribbean sale are expected to be about $565 million, and Mirant said it expects to realize a pretax gain of about $65 million. Marubeni also will assume about $350 million in debt.

Mirant agreed last year to sell its Philippines business for $3.4 billion. It is also selling six U.S. natural gas-fired plants for $1.4 billion to private equity firm LS Power Group. Those deals are expected to close by mid-year.

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