Rumors on the telephone; Grey Wolf rejects Basic Energy purchase; ViroPharma snaps up Lev

By Aaron Hochman-Zimmerman

New York, July 15 - A wild ride for equities on Tuesday ended with a rumors that smaller SK Telecom Co. Ltd. may be working out a deal to buy bigger and stumbling Sprint Nextel Corp.

Sprint stock shot up on the rumors to become slightly less stumbling.

Other market rumors included buzz that Microsoft Corp.'s Steve Ballmer has an intricate plan to ensure that Yahoo! Inc. has a deal-friendly board after Aug. 1.

The problem with the theory for many investors was that the plan hinges on the idea that Ballmer is able to play Yahoo! investor Carl Icahn for a fool.

Elsewhere, after fending off competing offers from Precision Drilling Trust in favor of a merger with Basic Energy Services Inc., Grey Wolf Inc. finally decided not to go ahead with its deal to buy Basic Energy.

Its shares improved as it moved closer to a deal with Precision.

Also in energy, Chaparral Energy Inc. agreed to merge with Edge Petroleum Corp. in an all-stock deal that will result in Chaparral becoming a new publicly traded company.

In pharmaceuticals, ViroPharma Inc. shares dropped as it announced an agreement to acquire Lev Pharmaceuticals Inc.

Meanwhile, the Dow Jones Industrial Average ended off by 92.65, or 0.84%, at 10,962.54, while the Nasdaq Composite Index managed to add 2.84, or 0.13% to finish at 2,215.71.

The S&P 500 shed 13.39, or 1.09%, to close at 1,214.91.

Grey Wolf turns up nose at Basic Energy

Grey Wolf shareholders turned tail and walked away from its proposed deal with Basic Energy Services.

Shareholders voted down the merger to the disappointment of Basic Energy.

"With the termination of the merger agreement, Basic can now return to our focus of building value for our shareholders as we address numerous opportunities to build our business through acquisitions, expansion of our footprint and internal growth within our established markets," said Ken Huseman, president and chief executive officer of Basic Energy in a statement.

Shareholders likely spurned the deal in the hopes of a more lucrative arrangement.

"I think the view that a number of shareholders have expressed ... specifically suggest better value in the prospect of a deal with Precision [Drilling]," said CIBC World Markets analyst Jeff Fetterly.

"Precision has communicated that they will offer at $10 per share," he said which is $1 better than the initial offer Precision made in an attempt to break apart the union of Grey Wolf and Basic Energy.

There are other firms which may go on the hunt for Grey Wolf or Grey Wolf may try to stand alone, but "I can say this ... I think the likelihood of them succeeding greatly increased today," Fetterly said about Precision's chance for a completed deal with Grey Wolf.

Grey Wolf has retained UBS to search for strategic alternatives.

Shares of Grey Wolf (AMEX: GW) took on $0.31, or 3.48%, to close at $9.23.

Shares of Basic Energy Services (NYSE: BAS) gave back $0.94, or 3.10%, to end the day at $29.40.

Shares of Precision Drilling (NYSE: PDS) dropped $0.40, or 1.60%, to close at $24.60.

OMG! SKM 2 buy S?

Mobile operators lit up the wires as the market was struck by the late-day rumor that South Korea's SK Telecom may be in talks with Sprint.

CNBC broke the story, citing an unnamed source, but added that any deal is still weeks away.

"That's what gave equities a little spike," said an emerging markets trader who specializes in Asian credit.

"Even if it's not a full acquisition... they could invest equity in Sprint," an equity analyst said.

"One way to play it is to be long on the bonds and short the stock," he said, adding that whether it is a complete sale or a heavy investment in suffering Sprint, "adding equity is going to help the balance sheet."

Shares of Sprint (NYSE: S) rang up a gain of $0.78, or 9.44%, to $9.04.

Shares of SK Telecom (NYSE: SKM) slid by $0.52, or 2.47%, to $20.57.

Ballmer plays, Icahn dances?

The New York Post ruffled feathers with a story citing unnamed sources who suggested that Microsoft's chief executive officer Steve Ballmer played veteran investor Carl Icahn like the proverbial fiddle.

The story suggests that Ballmer intentionally offered Icahn deals which were certain to be rejected by Yahoo!, which was in fact the case with the most recent Microsoft offer to buy just the search portion of Yahoo! if the board was replaced.

Ballmer's motive, the Post said, was to further sap confidence in Yahoo!'s board in order to have them replaced with Icahn's slate, clearing the way for a deal.

"It was interesting to read and that's about it," said a market source.

If that is Ballmer's grand plan, the foil is that while he makes Yahoo!'s board look inflexible and unmotivated, he also makes his supposed partner, Carl Icahn, look foolish by handing him fruitless deals, the source said.

Shares of Yahoo! (Nasdaq: YHOO) fell $1.03, or 4.56%, to $21.54.

Shares of Microsoft (Nasdaq: MSFT) was better by $1.00, or 3.98%, to $26.15.

Chaparral catches an Edge

Chaparral Energy and Edge Petroleum agreed to combine forces in an all-stock deal which will give Edge shareholders 0.2511 Chaparral common shares per every share of Edge they hold, according to a press release.

The deal, which is already approved by both boards, will take Chaparral public where it will trade under the New York Stock Exchange symbol "CPR."

"We are extremely excited about this transaction as it allows us to achieve two of our corporate strategic initiatives of increasing our production and cash flow and also accessing the public equity markets," said Chaparral's chief executive officer Mark Fischer.

"The combined company will have the stability of Chaparral's production profile and long reserve life with long term growth potential from their exciting CO2 EOR [enhanced oil recovery] program combined with our short term growth potential through our established exploration program," added Edge chief executive officer John Elias.

Shares of Edge (Nasdaq: EPEX) jumped up $0.84, or 17.91%, to $5.53.

ViroPharma bottles up Lev

In pharmaceuticals, ViroPharma announced that it will snap up Lev Pharmaceuticals for $443 million or $2.25 per share in cash and $0.50 per share of ViroPharma stock, according to a press release.

"This transaction is consistent with ViroPharma's stated objective of broadening our portfolio of therapies for serious life-threatening conditions in selected specialty markets," said Vincent Milano, ViroPharma's president and chief executive officer, in a statement.

"Lev's orphan drug Cinryze is a life-saving therapy treating a very dangerous disease," he said.

"We believe this transaction recognizes the value we have created at Lev and provides our shareholders with attractive financial terms, through the upfront payment and the opportunity to continue to share in the success of Cinryze through the ownership of ViroPharma shares and the contingent value rights," said Judson Cooper, Lev's chairman in the statement.

Shares of ViroPharma (Nasdaq: VPHM) sank by $1.92, or 15.31%, to close at $10.62.

The transaction is expected to close by the end of the fourth quarter.

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