Manor Care spikes; Giant gains, Western Refining falls; Clear Channel steady; Take-Two rises

By Ronda Fears

Memphis, April 11 - Nursing home and rehabilitation center operator Manor Care Inc. surged to a new 52-week high Wednesday after announcing it had retained JPMorgan as financial adviser to explore strategic alternatives - a euphemism for going on the auction block in most market players' view.

"It wasn't a huge surprise; there have been rumors for a couple of months," remarked one trader, saying that Manor Care shares have risen steadily on takeover speculation since the private equity buyout of nursing home operator Genesis Healthcare Corp. in January.

Manor Care shares (NYSE: HCR) climbed $5.93 on the day, or 10.64%, to close at $61.68.

He said speculators are thinking Manor Car could fetch as much at Genesis, which is $63 per share, or possibly as high as $65 per share, which he noted was where Banc of America Securities analyst Gary Taylor raised his price target for the stock to - from $56 - on the news. A $63 price tag would be a 13% premium to Tuesday's market; $65 would be a 16.5% premium.

Toledo, Ohio-based Manor Care said it is not pursuing any particular transaction and said it would not be commenting on any plan of action unless its board has approved it.

Genesis deal not certain

Genesis' deal is not certain, as it has drawn opposition from 5.1% stockholder Northbrook GH, LLC, but on Wednesday independent proxy advisory firm Proxy Governance Inc. recommended shareholders vote in favor of the $1.65 billion buyout by Formation Capital LLC and JER Partners.

The stock (Nasdaq: GHCI) slipped 24 cents, or 0.38%, to close at $62.76.

The trader above said the market was pricing in the risk of the deal not getting approved, but added that there is some who believe the offer could be boosted "by a dollar or two" if it fails to get enough votes.

When the deal was announced in mid-January, the $63 per share price was a 31.1% premium to the average closing price for Genesis stock during the previous 30 trading days.

Northbrook said two weeks ago that it will vote its 1,011,683 shares against the merger at the shareholders meeting on April 19.

Kennett Square, Pa.-based Genesis, which reported fiscal first-quarter profit fell 6% on costs of going private, on Tuesday urged shareholders to vote in favor of the transaction.

Giant spikes despite setback

Despite a regulatory hurdle in Giant Industries Inc.'s $77-per-share acquisition by Western Refining Inc. and indeed considerable doubt that it will go through, Giant shares leaped Wednesday while Western Refining shares took a dive.

While Giant shares have remained well under the buyout price due to the deal risk, traders said it is being propped up by rising gasoline prices going into the summer and other fundamental optimism in the story beyond the merger.

Giant (NYSE: GI) shot up $1.51 on the day, or 2.1%, to close at $73.39.

Western Refining (NYSE: WNR) fell $2.89, or 7.63%, to $34.97.

The Federal Trade Commission on Tuesday said it will seek a temporary restraining order and preliminary injunction to halt Western Refining's $1.13 billion acquisition of Giant, saying the proposed buyout would lead to reduced competition for the bulk supply of light petroleum products, including motor gasoline, to northern New Mexico, where the two companies are direct competitors.

Western Refining and Giant said late Tuesday after the FTC ruling that they would file a challenge, but traders said it seemed a "rather large hurdle to overcome." Yet, no one was overly concerned.

"The merger doesn't matter," the trader said.

"With the big fat pipeline in New Mexico about ready to fill the two tea kettles there, Giant will make piles of money and the stock will reflect that come rain or shine on the deal."

Another trader said there is some flicker of hope, too, that another bidder might come to fore and make an offer for Giant, such as Marathon Oil Corp., a Houston-based oil and gas exploration company that also has refining operations. Marathon (NYSE: MRO) on Wednesday settled off a penny at $101.35.

Western agreed to buy Giant last August for $83 per share in a deal worth $1.8 billion but lowered its bid to $77 per share in November because of disappointing financial performance at Giant after fires temporarily disabled two refineries.

Western Refining's pullback was chiefly because the Giant addition would be such a great boost to its refining capacity. The trader said the run-up in that stock of more than 50% this year was largely based on the Giant acquisition; so, now that it is in trouble, players are bailing out.

Clear Channel pat amid doubt

Considerable doubt about the $19 billion management-led leveraged buyout of Clear Channel Communications Inc. has been priced into the stock price, and arbitrageurs playing the story seem to be standing pat on their positions ahead of the vote coming April 19, traders said Wednesday. Many are bracing for a slide if the deal falls through, however.

Clear Channel (NYSE: CCU) closed better by 8 cents at $35.90 - well under the $37.50-per-share buyout bid.

"We're standing pat," said a risk arb trader. "I think it won't get done but we're OK. There will be a run for the door if it fails, though, you watch."

Bain Capital Partners LLC and Thomas Lee Partners LP, along with members of the founding Mays family, made the $37.60-per-share offer to take the radio station operator private in November, which immediately came under fire by Fidelity Investments - Clear Channel's biggest shareholder. And, two weeks ago, Highfields Capital Management said it will vote its entire position of nearly 25 million shares against the deal. Together, Fidelity and Highfields own nearly 15% of Clear Channel shares.

Additionally, the Institutional Shareholder Services, a respected New York-based proxy advisory firm, has urged shareholders to vote against the transaction.

Fidelity argued the company was worth $39.71 to $41.40 a share, but another trader said he doesn't foresee another bid coming forth.

"I don't think there is any interest," the trader said.

"This started almost six months ago, if there was any interest, we'd have heard something by now. We haven't heard a peep."

Oscient sees some sell pressure

Oscient Pharmaceuticals Corp. advanced Wednesday after saying it expects first-quarter revenue to more than double following the acquisition of the cholesterol reducer Antara from Reliant Pharmaceuticals. That transaction was a thorn to some players in the biotech story, however, and traders said there was some profit taking on the rise.

The stock (Nasdaq: OSCI) traded in a band of $6.39 to $6.72 before easing back to settle at $6.46, a gain of 12 cents, or 1.89%, on the day.

"It was coming under a little selling pressure in the afternoon," said one biotech stock trader.

"This has been seen as an underperformer. There were some guys who didn't like the Antara deal, some sour grapes, looking for an excuse to sell out."

Thomas Weisel Partners analyst Joe Slavinsky continues to see the Waltham, Mass.-based biotech as a potential takeout candidate, though, which has been speculated in the market for quite some time.

"Although we have always thought that Oscient will have a tough time effectively competing in the primary care physician space with only 250 sales reps, we continue to believe that both Antara and Factive are good drugs," Slavinsky said in a report.

"In order to realize the full revenue potential from both of these assets, however, a much larger sales force would be needed, which is where a potential acquirer could come into the picture."

Oscient expects quarterly revenue of about $23 million, up from $11 million in total revenue in the year-ago first quarter, due to the addition of about $12 million from Antara. The company will report first-quarter earnings in early May.

Take-Two hit seen coming

Video game maker Take-Two Interactive Software Inc., which recently under went a complete board and management shakeup following a failed merger attempt, ticked higher Wednesday, but one trader said he expects some heavy profit taking over the near term.

"We are seeing a price target of like $13 and the stock is over $20," the trader said. "Then, we had RIMM [Research In Motion Ltd.] tonight come out with a really bearish forecast, so I figure Take-Two will take a hit in short order."

Take-Two shares (Nasdaq: TTWO) on Wednesday advanced 49 cents, or 2.4%, to close at $20.87.

Following the company's conference call after the close Tuesday, Bear Stearns analyst Edward Urban on Wednesday rated the stock at underperform with a price target of $13, saying that while Take-Two's new management seemed upbeat, there are "no easy answers" to the challenges it faces.

During the conference call, newly appointed senior executives said Take-Two was still on track to release another game in its popular "Grand Theft Auto" series as well as other titles slated for release this year and said it isn't changing its financial guidance for 2007.

Take-Two said it still expects 2007 revenue of $1.2 billion to $1.25 billion, and second-quarter revenue is still expected to decrease 25% from last year.

Research in Motion, which was considered a potential buyer of Take-Two, said late Wednesday its fiscal fourth-quarter profit surged tenfold from a year ago on a 66% surge in demand for its Blackberry wireless devices, but sales missed analyst estimates and the company left its profit forecast for the current quarter essentially unchanged. That stock (Nasdaq: RIMM) lost $2.29, or 1.54%, in the regular session to close at $146.02 and in after-hours activity nosedived with a loss of $9.95, or 6.81%, to $136.07.

Ahead of the shareholder revolt last month, Take-Two's former executive team was in talks with several parties to buy Take-Two. Interim chief executive Ben Feder and chairman Strauss Zelnick said on the call that they are still in contact with potential buyers, but inferred that a quick sale was unlikely. They said new controls at the company are not likely to produce results until next year.

"We feel it incumbent to stabilize the situation before we get a new CEO in here because we don't want the permanent CEO to have to deal with this," Feder said.

On Monday, the chief financial officer resigned and the New York-based company also is under a formal investigation by the Securities and Exchange Commission over stock options practices. The company said Tuesday is has regained compliance with the Nasdaq Stock Market's listing requirements.

PDL BioPharma bounces

PDL BioPharma Inc. shot up on the prospect of a shakeup, urged Wednesday in a letter from big stockholder Third Point LLC. The New York hedge fund, which has boosted its stake to 9.7% from 7.5% over the past month, said the company should split into two publicly traded entities and called for the resignation of the chief executive.

The stock (Nasdaq: PDLI) gained $1.68 on the session, or 7.78%, to $23.27.

Third Point demanded that PDL chief executive Mark McDade be terminated or resign and is insisting the company pursue cost-cutting measures and consider options to maximize shareholder value.

In early March, Third Point chief executive Daniel S. Loeb offered in a letter to PDL to work with management to streamline the cost structure and asset base, saying he believed cost cutting could boost the stock by $1.00 per share in 2008 and by $1.50 per share in 2009.

At that time, Third Point held a 7.5% stake in the company; on Wednesday, Third Point declared a 9.7% stake. PDL shares were trading a little above $18 at the time of the letter.

On Monday, Wilmington, N.C.-based PDL announced that Max Link has resigned as chairman and director in order to avoid a conflict of interest in the company's recent lawsuit against Alexion Pharmaceuticals Inc. Fremont, Calif.-based PDL replaced him with Patrick Gage, who has worked on its board since 2003.

Link is chairman of Alexion. PDL has filed a patent infringement lawsuit against Alexion over Soliris, which was approved to be marketed by Alexion by the Food and Drug Administration on March 16 to treat paroxysmal nocturnal hemoglobinuria.

PDL's product line includes Cardene for hypertension, Retavase for heart attacks in adults and IV Busulfex, an intravenous formulation of the chemotherapy drug busulfan, for use in combination with cyclophosphamide prior to bone marrow transplantation for chronic myelogenous leukemia.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.