REITS not right; Sale of Macy's?; Alfa being sold to Alfa?; Reddy ready for rival bids

By Evan Weinberger

New York, July 18 - Concerns over subprime mortgages and the virtual collapse of two Bear Stearns hedge funds heavily invested in them caused real estate investment trusts to be the biggest movers Wednesday.

But rumors that Macy's Inc. may be the next target of private equity firm Kohlberg Kravis Roberts & Co. sent Macy's stock soaring on a day when the rest of Wall Street was for the most part down, and could lead to even greater interest in the retail giant.

Meanwhile, Alfa Corp. stock also shot up as Alfa Mutual Insurance Co., Alfa Mutual Fire Insurance Co. and Alfa Mutual General Insurance Co. offered to take the insurance company private.

And Reddy Ice Holdings, Inc. was forced to defend itself from angry investors unhappy with a $1.1 billion buyout offer the company is currently contemplating.

In other activity, Canadian Pacific Railway Ltd. disclosed that it rejected a takeover offer earlier in 2007. After a published report Wednesday first brought the bid by real estate company Brookfield Asset Management, along with Goldman Sachs and pension fund Caisse de dépôt et placement du Québec, Canadian Pacific announced that it rejected the offer because it was too low.

The news that Canada's second largest railway was the apple of some very cash-rich eyes sent Canadian Pacific stock skyrocketing. The stock (NYSE: CP) closed $11.01, or 14.88%, higher, at a close of $85.

At the same time, word that the sale of Dow Jones & Co. Inc. to News Corp. was sitting with the Bancroft family, who have owned Dow Jones and its flagship Wall Street Journal for over 100 years, made investors a little wobbly. The stock fell 80 cents, or 1.42%, to $55.65. News Corp. stock (NYSE: NWS) traded up a penny, or 0.04%, to $24.26.

The Bancroft family is still split on the offer from Australian media tycoon Rupert Murdoch's company, according to news reports. Dow Jones' board of directors approved the deal late Tuesday.

REITs vulnerable as subprimes sink

One market source said investors were angling to get out of real estate investment trusts. "Whenever there's some subprime worries, they seem to get hurt a day or two later," the source said.

With Bear Stearns announcing Tuesday that two of its hedge funds that invested in the riskiest loans were all but worthless and Federal Reserve chairman Ben Bernanke telling Congress that the mortgage crunch was going to get worse before it got better, REITs heavily invested in mortgages took a downturn Wednesday.

"Rising delinquencies and foreclosures are creating personal, economic and social distress for many homeowners and communities - problems that likely will get worse before they get better," Bernanke said in his statement.

Rumors are swirling about hedge funds from other prominent banks linked to the subprime slump. According to the market source, word has been circulating that Lehman Brothers and Deutsche Bank, among others, may have lost money as a result of investments in subprime mortgages.

But the source added that these rumors may well be unfounded. "They sort of found some levels, and it just seems like rumors at this point," the source said.

With all of this, it was unsurprising that several REITS closed lower Wednesday.

SL Green Realty Corp. (NYSE: SLG) closed down $1.37, or 1.04%, finishing at $130.08. The Manhattan-based REIT, which specializes in Manhattan office space, was trading lower in after-hours trading after news that it had bought a share in a Manhattan office tower known as the Lipstick Building. SL Green and Gramercy Capital Corp. paid $317 million for a 79% fee interest and 21% leasehold in the building, located at 885 Third Ave. SL Green owns 55% of the investment.

Also dropping was Boston Properties Inc. The Boston-based commercial property developer saw its shares (NYSE: BXP) fall 47 cents, or 0.45%, to $104.03. The stock was trading lower in after-hours trading.

A REIT that broke the trend was Vornado Realty Trust. After trading lower most of the day, stock in the Manhattan-based REIT (NYSE: VNO) closed 30 cents higher, finishing at $114.06.

A big sale on Macy's?

Macy's is a name big enough to have Santa Claus make an appearance at the end of its namesake Thanksgiving Day Parade each year. But Santa may be arriving a little early for Macy's and its investors.

Word leaked Wednesday in Women's Wear Daily that private equity firm Kohlberg Kravis Roberts & Co. was considering a $24 billion bid for the marquee retailer. Also rumored to be in on the $52-per share offering are The Principal Investment Area, Goldman Sachs Group Inc.'s private equity arm, and its real estate group, although Goldman Sachs earlier in the day denied any involvement in negotiations.

The rumors sent Macy's stock rising. Shares in the Cincinnati-based retailer (NYSE: M) finished at $43.09, a gain of $3.06, or 7.64%.

Macy's has been struggling in recent years to retain shoppers. It converted its May Department stores into Macy's department stores, increasing Macy's national profile. But the turnaround hasn't been smooth and rumors of a private equity takeover have been swirling for some time.

Both Macy's and KKR did not comment on the rumored buyout. KKR, which filed plans to go public earlier this month, has been increasing its retail holdings in recent months. The private equity firm recently completed it $7.3 billion acquisition of Dollar General Corp. The firm completed a $7.1 million takeover of U.S. Foodservice, a division of Dutch supermarket-chain owner Royal Ahold NV, along with private equity firm Clayton, Dublier & Rice Inc., earlier this month.

Alfa may be bought buy Alfa

Alfa Corp. stock shot up Wednesday on word that it may be taken private by Alfa Mutual Insurance Co., Alfa Mutual Fire Insurance Co. and Alfa Mutual General Insurance Co., referred to collectively as Alfa Mutual.

The offer is $17.60 per share in cash for each share, a 15.8% premium on the close Tuesday. Alfa Corp. stock (Nasdaq: ALFA) closed Tuesday at $15.20.

"An offer has been made which provides an opportunity to consolidate these great companies," said Jerry Newby, president and chief executive officer of Alfa Corp. "In order for the Alfa companies to compete effectively in an increasingly competitive personal lines insurance industry over the long term, we must accelerate our investment in technology and expansion of our distribution channels, while taking other actions designed to promote long-term growth.

"We believe this can be accomplished with a simpler and more nimble corporate structure."

Alfa Corp. named a special committee of its directors to evaluate the offer.

The Montgomery, Ala.-based insurer saw its stock leap 21.05%, $3.20, to $18.40 Wednesday.

Reddy ready to fight

Reddy Ice saw itself fighting off investors angry over its $1.1 billion takeover offer from GSO Capital Partners. GSO and Reddy Ice agreed to the deal July 2.

The GSO bid represents a $31.25 per share offer, but Shamrock Activist Value Fund LP says that is not enough for the Dallas-based packaged ice and bottled water manufacturer and distributor. Shamrock, which owns a 5.4% stake in Reddy Ice, says its own valuation came out in the $42 to $44 range. The fund then proposed a $33 self-tender.

"The assumptions and projections used as a basis for the leveraged recapitalization strategy proposed by Shamrock were neither provided nor endorsed by the company and do not reflect the company's view," Reddy Ice's board of directors said in a statement. "The special committee remains strongly committed to the transaction with GSO and believes it is in the best interests of the company's stockholders."

But that doesn't mean the GSO offer is the end of the story. In the statement, the Reddy directors said the GSO agreement allowed the company to solicit rival bids for up to 45 days, and that they are actively looking for higher bids.

Reddy Ice stocks (NYSE: FRZ) finished lower Wednesday, dropping 14 cents, or 0.45%, to $31.04.

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