Alcoa, Alcan zoom; Armor gains; Reuters up, Thomson lower; Flow better; Motorola pat; Wendy's up

By Ronda Fears

Memphis, May 7 - Remarks over the weekend from Warren Buffett, the famed Oracle of Omaha investment guru, that his company Berkshire Hathaway Inc. is looking for a potential acquisition in the neighborhood of a would-be record level of $40 billion to $60 billion fueled a surge in the broader markets Monday and yet another all-time high for the Dow Jones Industrial Average.

"Mergers and takeovers are the backbone of the market right now," commented one trader.

Another trader agreed, adding, "Throw in something like Buffett is looking for a deal and you have some extreme excitement going on."

Berkshire Hathaway class A shares (NYSE: BRK-A) advanced $1,240 on Monday, or 1.14%, to close at $110,490.

With that as a backdrop, sentiment regarding deals on the table was extremely positive, such as with Alcoa Inc.'s hostile bid for Canadian aluminum rival Alcan Inc. Alcoa aired its $27 billion offer saying that almost two years of private talks about a link-up were fruitless; Alcan shares rose well above the offer, however, suggesting the market anticipates a higher price will be necessary.

Armor Holdings Inc., which makes military vehicles and bulletproof vests, agreed to be acquired by British defense contractor BAE Systems plc for $3.37 billion. The deal pushed ballistics and blast protected vehicles maker Force Protection Inc. higher in trade, as well, as a takeover candidate if not a turnaround story.

After the close, Canadian-based financial news outfit Thomson Corp. acknowledged it was in buyout talks with Reuters Group plc, which on Friday said it had received a preliminary takeover approach from an unidentified suitor. Reuters shares gained in the United States, but traders said there was selling due to heavy risk of a deal; Thomson shares ended lower but were edging higher after hours.

News Corp. had been in the mix of rumors about the mystery suitor of Reuters. Last week, News Corp. offered $5 billion for Dow Jones & Co Inc., publisher of the Wall Street Journal. News was higher Monday while Dow Jones slipped after a big holder voiced opposition to the deal. Many traders had warned of high risk to the deal, even though it was pitched at a hefty 65% premium. News (NYSE: NWS) added 27 cents, or 1.115%, to $23.85. Dow Jones (NYSE: DJ) was off 29 cents to $55.51.

Motorola Inc. advanced in early trading ahead of the vote on billionaire investor Carl Icahn's proxy battle for a seat on its board, but the mobile phone giant's stock (NYSE: MOT) closed the session unchanged at $18.08. The company's annual stockholder meeting took place Monday in Chicago, and the company had staged an aggressive campaign against Icahn, who said at the meeting he did not expect to win.

Clear Channel Communications Inc. on Monday delayed a vote on a proposed $19.35 billion buyout of the radio and advertising billboard company as it considers a higher, revised $19.6 billion offer from private equity firms Bain Capital Partners LLC and Thomas H. Lee Partners LP. The stock was higher but still well below the new bid, although most players were standing pat, traders said.

Cablevision Systems Corp. was weaker as opposition to the boosted $10.6 billion takeover offer from the Dolan family sparked profit taking on last week's gains from the increased offer. Traders said holders who think the company is worth more will be buying on the dip, however, even though they remain skeptical of a deal getting done.

Flow International Corp. was sharply higher as rumors circulated that Third Point LLC will bid as much as $18 to $21 per share for the water pump maker. Last week, the company said the hedge fund should have named a price and detailed committed financing in his bid to take the company private. Onlookers say there is still a great deal of risk in this story but the current stock price is below target.

PDL BioPharma Inc., another Third Point target, was sharply higher in after-hours activity following news that co-founder Cary Queen had written the company's board in support of the proposals of Third Point for a new direction at PDL BioPharma. The stock (Nasdaq: PDLI) added 55 cents, or 2.13%, to $26.42 in late-day trading, after closing better by 24 cents, or 0.94%, at $25.87.

Wendy's International Inc. also gained sharply on rumors that it may have received a takeover bid of $50 per share; the company officially went on the auction block about two weeks ago, and Triarc Cos. Inc. or its chairman Nelson Peltz with other backing are thought to be among the interested parties.

Flow figures seen $18 or $21

One trader said he heard Monday that Third Point has offered Flow $18 per share, while another said he heard the buyout price was at $21. The stock gained more than 6%, but an analyst noted that there is no deal in place and some conditions that Third Point's Daniel Loeb want are not going to happen.

"Nothing is confirmed," said the latter trader.

Flow shares (Nasdaq: FLOW) traded as high as $13.25 before settling at $12.76 for a gain of 76 cents on the day, or 6.33%.

Last week, the company said that Loeb, head of Third Point LLC, should have named his price and detailed committed financing in his bid to buy Flow. Loeb said previously he was prepared to make an offer to buy the company if permitted to work with chief executive officer Stephen Light. Light, however, indicated he wasn't interested in a proposal and will retire as planned.

Third Point is Flow's largest shareholder with a 13.6% stake in the company.

"There is no deal in place," said McAdams Wright Ragen analyst Sid Parakh. "Generally speaking, their businesses are good and we have a $14 target based on those dynamics."

Wendy's bid rumored at $50

The advance in Wendy's shares was attributed to a subscription-based financial web site that said the hamburger chain may have received a takeover bid of $50 per share, and traders said it seemed the market had reasonable faith in that number, but there was some profit taking because of the risk involved.

Wendy's (NYSE: WEN) gained $1.52 on the session, or 3.98%, to close at $39.75 after trading as high as $42.22 intraday.

"Obviously, people have some belief in it if the stock trades past $42," one trader remarked.

Following the Wendy's announcement that it was considering a possible sale, analysts were saying they anticipated bids in the neighborhood of $30 to $40 per share.

The move for Wendy's to consider a sale of the whole company follows its spinoff last year of Tim Hortons Inc. A special board of directors committee is now studying strategic options for the company.

Triarc is considered an interested buyer of Wendy's, or Peltz, whose Trian Fund owns about 8% of Wendy's common stock and was behind stockholder pressure for the company to spin off Tim Hortons last year and sell its Baja Fresh Mexican-style restaurant business. Triarc shares (NYSE: TRY) on Monday added 8 cents to $18.

Alcan players see bidding war

Alcoa aired its offer of an equivalent $73.25 per share, in cash and stock - a 32% premium to Alcan's 30-day average closing price and a 20% premium to Friday's market - but Alcan holders fully expect a bidding war or that Alcoa will be force to pony up considerably more. Arbitrageurs were jumping in at the current price, but some were passing on anticipated antitrust hurdles.

"A lot of arbs were coming in here thinking it will be approved, but there are a lot of people betting there will be a bidding war," one trader said.

A risk arb on the buyside, however, said when asked if he was playing the situation, "No way, there's too many antitrust issues."

Alcoa's bid, which comes after months of speculation that Alcan could be a target of other global giants, consists of $58.60 in cash and 0.4108 of a share of Alcoa common stock for each outstanding common share of Alcan.

Alcan shares (NYSE: AL) advanced $21.08 on the day, or 34.54%, to close at $82.11 after trading as high as $82.60.

Alcoa shares (NYSE: AA) added $2.97, or 8.33%, to $38.63.

Alcoa anticipates a union would create the world's largest aluminum concern. Alcoa and Alcan were the top two producers of aluminum until Rusal of Moscow bought Glencore International AG at the end of March to create United Co. Rusal.

Reuters rise sparks selling

With considerable hazards facing a Reuters buyout, and the Dow Jones situation serving as a reminder of such risk, traders said there was heavy selling into the Reuters rally late in Monday's session.

Reuters (Nasdaq: RTRSY) traded in a band of $74.57 to $77.66 before closing at $76.50 for a gain of $1.74 on the day, or 2.33%. The London markets were closed Monday, but the stock marked a 25% gain there on Friday to 615.75p.

Thomson Financial acknowledged it was in talks with Reuters about a takeover, and media reports elsewhere valued such a deal at $15 billion to $16 billion. But a big barrier could come from Reuters' so-called Founders Share, the right held by private Reuters Founders Share Co. to prevent any takeover.

Thus, one trader said there was considerable selling late in the day.

"Some were taking 33% profit here," the trader remarked. "One guy said that's enough and he was on to the next venture. It may rise another 20% from here but it is pretty much safe to say that a lot of the stock price appreciation is capped here. I'd say hold what you got but definitely take some off the table."

Thomson shares (NYSE: TOC) closed off 62 cents, or 1.43%, at $42.83 but were seen in after-hours trade adding back 20 cents to $43.03.

Armor pushes Force upward

Armor agreed to the BAE buyout at $88 a share in cash - a 7% premium to Friday's market - and despite a "somewhat disappointing premium" the deal pushed Force Protection higher on the thinking that a BAE competitor like General Dynamics Corp. might make a move for it. To boot, a trader said Force Protection has been in a turnaround mode for the past year.

Armor shares (NYSE: AH) gained $4.45, or 5.42%, on the BAE deal to close at $86.60.

The Armor price tag was not a huge disappointment, the trader said, because the stock ran up 6% on Friday as a result of rumors of the BAE deal. Jacksonville, Fla.-based Armor makes defense products, including the special armored lining for the High Mobility Multi Wheeled Vehicle, better known as the humvee.

The Armor deal sparked big jumps in Force and General Dynamics, though, according to the trader.

Force Protection manufactures ballistics and humvees. It serves the U.S. Army, the U.S. Marine Corps and the U.S. Department of Defense, as well as the Iraqi Army and the British Military of Defense. The Ladson, S.C.-based company also is working on a blast protective vehicle capable of carrying cargo and troops. This prototype, the Mine-protected Utility Vehicle/Rapid Deployable, or MUV-R dubbed the Mover, as a potential replacement of the humvees.

"So, what happens now, after the BAE deal has to be good for Force getting a possible deal, like from General Dynamics," the trader said.

"It's not likely that BAE would buy Force Protection; they just blew their load. Does General Dynamics buy Force Protection? Maybe, but I think they may now try to partner with them. If General Dynamics makes a play for them, though, I think the premium will be much greater than the BAE/Armor deal."

Force Protection (Nasdaq: FRPT) gained 45 cents, or 1.95%, to $23.55.

General Dynamics (NYSE: GD) added $1.72, or 2.16%, to $81.41.

Clear Channel fate murky

Clear Channel on Monday delayed a vote on a proposed going-private bid that was upped to $39.20 per share from $39 per share, but players were still holding the stock well under that level because the deal has had such staunch resistance. Yet, many were holding out for more money.

The stock (NYSE: CCU) settled at $37.30, up 95 cents on the day, or 2.61%.

"I am standing pat on Clear Channel," said one risk arb trader in New Jersey.

"It's too fluid a situation to get out now. I'm holding out for more money."

The company had already received enough proxies to defeat the proposed buyout, which would require a two-thirds vote for approval. The shareholder meeting scheduled for Tuesday was postponed until May 22.

Clear Channel said its board also was talking with Bain and Thomas H. Lee about letting shareholders pick between getting paid in cash or stock of the new company, with current shareholders limited to a combined stake of 30%.

The Clear Channel board turned down a similar proposal last week, saying the changes would delay the vote by up to 90 days with no certainty it would be approved.

Clear Channel rejected the $19.6 billion, or $39.20, bid, made last week by the buyout firms, arguing that accepting the offer would delay the date of a special meeting by up to 90 days, with no certainty the transaction would be approved by shareholders.

But shareholders later put pressure on Clear Channel to reconsider.

Cablevision push tough

Cablevision was lower in the face of opposition from a couple of big fund managers, who last week criticized the boosted $36.26-per-share takeover offer from the Dolan family, which owns 20% of the company. Traders attributed it to profit taking, mostly, but one seller said he got out of the situation because of the Dolan wildcard.

The stock (NYSE: CVC) ended off by 15 cents to $35.45.

"We are not involved anymore; we do not trust the Dolans. They are the worst," said a buyside risk arb trader.

"Cablevision stock is really undervalued, but you're dealing with the Dolans and that is very scary. I don't know how anyone can be bullish on this situation."

But high profile Cablevision stockholders have estimated the company worth $45 to as much as $50 per share.

"Can they push the Dolans to $45? That's going to be tough," said a sellside trader.

"We think the company's still cheap here, but we're seeing some profit taking. I'd be a buyer today and figure when the bid is rejected it will move down some more, and I'd buy more then."

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