Virgin Media higher; BCE rises; Dobson pushes Rural Cellular; Manor Care better; Trump slides

By Ronda Fears

New York, July 2 - A takeover bid for British cable giant and United States wireless phone provider via T-Mobile networks, Virgin Media Inc., pushed the stock, but trading was "wobbly," as one trader put it, because of a wide range in the speculated purchase price.

The trader said renewed takeover speculation also boosted investment banking firm Jefferies Group Inc., ImClone Systems Inc. and Juniper Networks Corp.

A couple of shareholder activism moves pushed certain situations, as well.

Medical device maker Kensey Nash Corp. was sharply higher on heavy volume, which one trader attributed to a 13D filing by Ramius Capital, disclosing a 9.9% stake, which included a letter to the company suggesting several measures to boost the value of the shares, including a Dutch auction tender offer for 31% to 42% of outstanding shares, at a 20% premium to the current market. "A big buyer showed up around noon, and that caught a lot of attention," one trader said. The stock (Nasdaq: KNSY) settled up by 87 cents, or 3.25%, at $27.68.

Hospital linens service Angelica Corp. also saw a big bounce after Pirate Capital filed an amended 13D filing showing a 9.8% stake and encouraging the board to take immediate steps to unlock long-term shareholder value by retaining an investment banking firm to explore all strategic alternatives, including a sale. In lieu of that, Pirate Capital inferred it might launch a proxy battle to install another slate of directors at the upcoming annual shareholders' meeting, which is anticipated in August.

Angelica last year settled a proxy fight with Steel Partners by placing two of its representatives in vacant board seats; in return, Steel Partners agreed not to pursue a tender offer or other hostile acquisition of the company. On Monday, Angelica shares (NYSE: AGL) advanced $1.45, or 6.88%, to $22.53.

There were several firm deals announced on Monday, as well, with the market ready to get as much business done as possible despite the Fourth of July holiday that will split the work week, traders said.

"Merger Monday came on like regular, which really sort of surprised me, but then once the 4th is over there will be a lot of people gone on vacations, that sort of thing," the trader said. "We expect it to be a busy summer, though, for deals. Nothing much can really stop this [buyout] train."

Canada phone giant BCE Inc. agreed to be taken private for a total of $48.5 billion - marking the largest buyout ever - but players also are largely expecting a bidding war in that name.

Nursing home operator Manor Care Inc., however, is not expected to find a higher bid than the $6.3 billion takeover by The Carlyle Group and, in fact, traders said considerable risk to the deal was getting priced into the stock.

In another phone name, Cellular One mobile provider Dobson Communications Inc. shot up on its purchase by AT&T Corp. for $5.1 billion in cash, and the event sparked activity in other small wireless names - Rural Cellular Corp., Ntelos Holding Corp. and United States Cellular Corp. - on hopes of getting a deal.

Reddy Ice Holdings Inc. agreed to a $1.1 billion buyout at $31.25 per share - a 9.6% premium to Friday's market - by GSO Capital Partners. The company also lowered its guidance for 2007, but the stock (NYSE: FRZ) gained $1.96, or 6.87%, on the deal to $30.48.

Houston-based independent oil and gas producer Linn Energy LLC took a big leap on its $2.05 billion acquisition of the Mid-Continent oil and gas properties from Dominion Resources and plans to raise its cash distribution to an annual rate of $2.52 per unit beginning in fiscal fourth quarter. The deal propels Linn Energy in the independent producers circle, boosting its borrowing base to $1.6 billion to $1.8 billion from $765 million; related to the deal, Linn executed a private placement of $1.5 billion of equity securities to third-party investors. Linn shares (Nasdaq: LINE) shot up $4.44, or 13.49%, to close at $37.35.

In the face of brisk takeover activity Monday, Trump Entertainment Resorts Inc. announced it has concluded the review of strategic options without a deal - as many expected. Traders have said for a week that there were many players bailing out of the story, even in the face of reports that a deal could be imminent and upgrades to the stock. The shares (Nasdaq: TRMP) fell $2.09, or 16.61%, to end at $10.49.

Online brokerage Charles Schwab Corp. also delivered a widely anticipated special dividend and big stock buyback to be funded with proceeds of its sale of U.S. Trust last year to Bank of America Corp. for $3.3 billion. The company said it will pay a $1-per-share special dividend that will return $1.2 billion to stockholders, and repurchase $2.3 billion in shares. The stock (Nasdaq: SCHW) climbed $1.48, or 7.21%, on the news to settle at $22 flat.

Virgin shy of bid rumors

Virgin Media acknowledged it has received a bid but nothing else, and traders said players were loathe to bid the stock very close to the rumored price tags even though there was some speculation that there may be more than one bid on the table.

"The numbers were all over the map - everything from $8 billion to $20 billion with debt, and those don't match the per-share rumors of anywhere from $30 to $35," one trader pointed out.

"It went up to $30 but came off that a lot. No one wants to be hanging out there too far."

Virgin Media (Nasdaq: VMED) settled at $28.67 for a gain of $4.30 on the day, or 17.64%. The trader noted that most of the July options activity in the name was buying in the $27.50 and $30 calls.

The Carlyle Group was the private equity bidder rumored to be the bidder Virgin Media referred to, but many players expect other bids to surface - particularly from Kohlberg, Kravis Roberts, Permira and Providence Equity, which made a failed play for the company at $10 billion last year. Richard Branson, Virgin Media's largest investor with a 10.5% stake, also is said to be considering a buyout deal.

Huff Asset Management, which was the blocker to the previous bid for Virgin Media, has reduced its stake to 4.9% from 6.7% and is no longer considered an obstacle to a buyout, the trader noted.

Virgin Media is the product of Virgin Mobile's merger with NTL Inc. in 2006 just a few months after NTL acquired Telewest Global Inc., and the trader noted that savings from those transactions "are about to kick in," as the company projected some $250 million in annual synergistic benefits by 2008.

Virgin Media in February began a review with Goldman Sachs of strategic alternatives, including a possible sale.

U.S. Cellular a top pick

In light of Dobson's deal along with the Virgin Media speculation, United States Cellular Corp. was a top pick among other potential mobile takeover candidates, although market sources said this company getting a deal was a source of debate because of its majority ownership sitting at Telephone & Data Systems Inc., which pushed the latter higher.

"U.S. Cellular is a really nice target, no doubt, but the analysts who are in touch with the company say it would be a hard deal to get done," one trader said. "There might get some pressure for TDS to divest if the price is right, though."

U.S. Cellular shares (NYSE: USM) added $2.13, or 2.35%, to close Monday at $92.73.

Telephone & Data (NYSE: TDS) gained $1.66, or 2.65%, to $64.23.

Morningstar analyst Michael Hodel said U.S. Cellular would make a good takeover target, and likely could fetch upwards of $92 per share in such a scenario, based on the Alltel Corp. buyout earlier this year, but he said the biggest obstacle would be its ownership structure. The Carlson family controls fixed-line carrier Telephone & Data Systems, which in turn owns 81% of U.S. Cellular.

"We are skeptical of the family's willingness to part with its crown jewel. Also, we don't think U.S. Cellular's competitive position measures up to Alltel or Sprint," Hodel said.

Bear Stearns analyst Philip Cusick agreed that while U.S. Cellular would seem to be an attractive buyout candidate, with the stock trading at only 7.2 times his 2008 EBITDA estimates, "I do not see the management team selling."

Dobson deal a home run

Dobson's buyout at $13 per share - a 17% premium to Friday's close - was cheered and helped push AT&T as well on projected savings from the link-up.

"We didn't hear a lot of speculation about another bid coming, although a lot of guys would have been happier at $14 or $15," a trader remarked.

"For most of us, it's a home run even at $13."

Dobson (Nasdaq: DCEL) gained $1.31 on the day, or 11.79%, to close at $12.42, and had made a run in the past several weeks on speculation that a buyout was brewing.

AT&T expects EPS dilution of $0.03-$0.04 in year one, with a positive impact on EPS and free cash flow from year two. It is maintaining its financial outlook for double-digit EPS growth in 2007 and 2008. AT&T said it expects potential synergies of around $2.5 billion. Dobson has been providing AT&T with roaming service since 1990.

Rural cellulars track Dobson

For the most part, other rural cellular providers followed Dobson higher on speculation of potential takeover bids, traders said. The market's top pick was Rural Cellular Corp., traders said, although some analysts think Ntelos Holding Corp. is perhaps the most attractive as a takeover candidate.

Rural Cellular traded up, although one trader said he thought the stock "is very pricey" and seems to be "getting ahead of itself." He noted that Rural Cellular shares have been on a steady upswing since reporting robust first-quarter results in mid-April.

"There is not a lot of upside from here [in Rural Cellular] I don't think. I'm a seller into this rally," the trader said. "The herd mentality set in and I don't' think there's much left. It's been on a nice run for three months now and I'd be happy to cash out here."

Rural Cellular (Nasdaq: RCCC) added $2.01 on the day, or 4.59%, to close at $45.82.

Bear Stearns analyst Cusick said he likes Rural Cellular as an operational and financial turnaround story, rather than as an M&A target.

Cusick said Ntelos "could eventually be a takeover candidate" as well although the stock traded off on the Dobson news. The above trader said he felt like Ntelos was a better buy on the downswing and a better candidate than Rural Cellular on a valuation basis.

Ntelos (Nasdaq: NTLS) slipped 30 cents, or 1.09%, to close at $27.34.

BCE bid war yet possible

BCE's agreement with the Canada teachers for a private equity buyout could still see some competition, a couple of traders said Monday, although the market was loathe to run the stock up as if a full-fledged bidding war would erupt.

The stock (NYSE: BCE) gained $1.66, or 4.39%, to $39.45.

"I do not think the last word has been said on this deal," said a trader in Canada. "I think there are more surprises on the way."

BCE agreed to be acquired by an investor group led by Teachers Private Capital, the private investment arm of the Ontario Teachers Pension Plan, Providence Equity Partners and Madison Dearborn Partners in an all-cash transaction valued at $48.5 billion, including debt, preferred equity and minority interests. The $40.13 per share price was a 6.2% premium to Friday's market and a 40% premium to the stock's average in first quarter before BCE revealed that it might be bought out.

One of the losing BCE suitors, Cerberus Capital Management is rumored to be mulling a hostile bid, the trader said. In addition, he said there were rumors that BCE rival Telus Corp. might be considering a bid, even though Telus pulled out of the auction process a week ago.

"There is a strong under current that this story is not over yet," the trader said.

Manor Care held back

Manor Care shares were held well below its buyout price of $67 per share - a 2.6% premium to Friday's close - by Carlyle as some hurdles are anticipated, another trader said. The stock in fact lost ground on the news, which the trader characterized as "major profit taking."

"The price was more than we'd been expecting; we were looking for $63 to $65," the trader remarked. "But there had been some guys betting they would get $69 so they were disappointed. What we saw were a bunch of folks cashing out, moving on."

The stock (NYSE: HCR) dropped $1.19, or 1.82%, to settle at $64.10 after trading in a tight band of $64 to $64.55 during the session.

This represents a premium of 20% from April 10 - the day before Manor Care announced it was exploring strategic alternatives.

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