OfficeMax rises, slips after bell; Titanium Metals, Alleghany up; Greenbrier gains; Arrow adds

By Ronda Fears

Memphis, May 9 - Speculation that retailer OfficeMax Inc. could be a takeover target sparked a rally that its sent shares sharply higher Wednesday, but late in the session and into after-hours activity the stock was trading lower as faith failed in the rumor.

Titanium Metals Corp. was higher on revived chatter that the company is the target of a takeover approach. Allegheny Technologies Inc., another titanium producer, went along for the ride and a trader said many think Allegheny is the potential buyer, with price tag speculation running from $40 per share to as much as $65.

Meanwhile, AK Steel Holdings Corp. spent much of the session pulling back from a sharp gain the previous day on rumors that Arcelor Mittal might be making a move to buy the company. But AK Steel (NYSE: AKS) still managed to eke out a gain of 16 cents to close at $35.18. A buyside source said there is "decent" amount of faith that a deal is in the works, but it may not be as "lucrative" as some expect. Traders said on Tuesday the bid was widely anticipated to be in the neighborhood of $40 per share.

Aluminum concerns Alcoa Inc. and Alcan Inc. were both in retreat Wednesday, as well, after Alcoa investors voiced opposition to its $27 billion offer for Alcan. That, a trader said, has cooled investors' idea that Alcan might get a better bid than the equivalent $73.25 cash-and-stock offer. Alcoa (NYSE: AA) lost 77 cents, or 1.95%, to close at $38.73, while Alcan fell $1.97, or 2.45%, to $78.31.

Florida East Coast Industries Inc. also was pulling back after reporting disappointing first quarter results, on the heels of its announcement of a buyout by Fortress Capital Management for the equivalent of $84 per share, including a $21.50 special division. Traders said there is waning optimism of a higher bid coming along, although some players still believe that will happen.

Greenbrier Co. Inc. surged Wednesday on the heels of the Florida East Coast buyout news; a trader said some thought the Oregon railroad freight car equipment company might catch a takeover bid. He added, though, that the stock has been considered a dividend play.

Elsewhere, Arrow International Inc., eFunds Corp. and Craftmade International Inc. each announced moves to explore strategic alternatives - the Wall Street catchphrase for going on the auction block - but traders said the market is becoming more skeptical of these types of announcements. Arrow (Nasdaq: ARRO) gained $5.98, or 18.21%, to $38.82. eFunds (NYSE: EFD) rose $3.42, or 12%, to $31.91. Craftmade (Nasdaq: CRFT) added 41 cents, or 2.4%, to $17.48.

"These rumors are because Wall Street can't find buyers to unload the boatloads of shares they have to dump before the coming crash of 2007," one trader said. "What a joke. I think people are getting less willing to jump on everything they hear, even if private equity seems to have endless access to capital."

Wendy's International Inc. may be leaning toward a recapitalization such as a big dividend, said an equity trader at one of the bulge bracket firms, adding that it doesn't appear the company is getting any buyout offers. The stock (NYSE: WEN) gained 51 cents Wednesday, or 1.3%, to $39.86 on light volume.

Synovus Financial Corp. and Total System Services Inc. were both higher Monday; a trader said there was noise behind the small gains that Synovus was about to sell its majority interest in Total System Services. Synovus (NYSE: SNV) added 21 cents to $32.71 while Total Systems (NYSE TSS) rose 58 cents to $32.04.

OfficeMax dumped on rumor

Speculation that OfficeMax could be a takeover target sizzled throughout the session as profit taking on the early surge in the stock built on itself.

"It was a great trade today," one trader said.

"I don't think there is anything to it. I think it is pure conjecture and I think everyone sort of began realizing that and started pulling out. There was some big dumping in the last half-hour and into after-hours."

OfficeMax (NYSE: OMX) closed better by $3.29, or 7.89%, at $44.97. In after hours trading, it gave back 68 cents, or 1.52%, with the last trade at $44.29.

It all started with a Credit Suisse report suggesting consolidation in the retail industry is extending to retailers looking to grow by purchasing existing stores rather than build new ones. Consolidation has been a major theme in the apparel industry and grocery chains for five years, the analyst said, and probably has not entirely played out.

But, OfficeMax is not a great catch, he added, noting the stock dropped 16% on the No. 3 office supplies retailer's earnings report last week. OfficeMax weighs in behind Staples Inc. and Office Depot Inc., which the trader said "don't seem like willing buyers with OfficeMax in the middle of a turnaround."

He said OfficeMax has made progress, however, reporting profits of $57.5 million, or 76 cents a share, compared with a loss of $26.1 million, or 37 cents a share, a year before. That, the trader said, coupled with the recent stock decline leant some credibility to the thought that OfficeMax might be the target of a takeover.

Titanium sees big buying

There was big buying in Titanium Metals, however, as Allegheny Technologies bubbled up as a bidder in rekindled chatter that the company has a takeover approach. Market sources said speculation about the price was rampant, ranging from $40 per share to as much as $65.

Titanium Metals (NYSE: TIE) shot up $3.64, or 10.56%, to settle at $38.10 on volume of 9.4 million shares versus the norm of 2.3 million.

"There was a big buyer stepping in Wednesday, a hedge fund, and he heard the target was $40 to $45 with a deal coming soon," one trader said. "Then, I also heard it could be north of $50 and another guy saying Allegheny was the buyer at $65."

A spokesman for Dallas-based Titanium Metals was on the wires saying that the company knew of no reason for the stock move, but the trader said that in light of consolidation in virtually every sector of the metals industry it makes sense.

"There have been so many rumors as of late and the pattern has usually been a pop around 10 [a.m.] that sucks everyone in, then there's a sell-off into close," the trader said. "TIE actually gained momentum into close. It was a much different trading pattern than most of the recent rumors flying around."

Another, more skeptical source, on the buyside, however, said, "My gut says there is no buyout but, you never know these days. I just know I didn't do anything with it today."

Florida holders less hopeful

After Florida East Coast reported first-quarter earnings that came in below last year, traders said players became less enthusiastic of a higher bid coming in for the railroad than Fortress' $84 per share offer, which includes a $21.50 special dividend.

The stock (NYSE: FLA) lost $1.23, or 1.45%, to settle at $83.68.

"There were not too many happy shareholders on the [earnings] conference call," one trader said.

"I liked the guy who said it was worth over $108. I couldn't tell if there were multiple bidders or not [that brought about the Fortress bid]. I guess we'll find out in the proxy. But if not, even though I agree with whoever said that management was hardwired into this deal, I don't think the shareholders will let it fly."

Florida East Coast posted first-quarter net income of $9 million, or 26 cents a share, down from $18.7 million, or 57 cents a share, a year before, while revenues declined to $107.7 million, from $136.1 million.

For fiscal 2007 the company said railway segment revenue is expected to range between $265 million and $280 million and operating profit is expected to be between $72 million and $76 million. Realty rental revenues are expected to range between $105 and $115 million and operating revenue is expected to be between $65 and $69 million.

Another market source said he doesn't think there will be a bigger bid and that Fortress will succeed.

"Not much learned from today's management call. Apparently the company's sales process/negotiation was closed with Fortress as the only participant so there was no other competing bids sought out or obtained," the latter said.

"One call-in presented his value for shares as over $100; management simply said they negotiated fully and that the price was approved by the board, with the CEO noting that the sale price is a 97% increase over the share price when he took over as CEO 2 years ago.

"Unless there is a very aggressive party that badly wants FLA and is willing to go directly to shareholders with a better offer I get the feeling this deal is going to be pushed through. As a positive, I did not hear mention nor do I see any mention about break-up fees if the buyout is dissolved to take up a better offer. It appears that any other offer would not receive the support of management."

© 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.