Alcan soars after close; Fremont lifts subprimes; MGM boosts Trump; OSI rises; IGT higher

By Ronda Fears

Memphis, May 22 - Alcan Inc. was climbing in after-hours activity as the company in a late-day press release rejected the $27 billion hostile takeover bid of Alcoa Inc.; a trader in Canada said the market is widely expecting a higher bid to come down the pike, upwards of $82 per share versus the equivalent of $73.25 on the table.

Billionaire investor Kirk Kerkorian's plans to buy the Bellagio Hotel & Casino and City Center from MGM Mirage Inc. and pursue "financial restructuring transactions" for MGM as he holds a 56% stake in MGM through Tracinda Corp. sent MGM shares skyrocketing Tuesday and boosted the field of gaming stocks.

Trump Entertainment Resorts Inc., which has been on the sale block for a couple of months, was a notable gainer, one trader said. The Atlantic City gaming concern said last week that it has interested parties to making a bid, although nothing further has yet transpired. But a trader said the rumor mill put Las Vegas developer Steve Wynn of Wynn Resorts Ltd. as one of the potential buyers for Trump with bids in the area of $23 to $24. Trump (Nasdaq: TRMP) gained 40 cents, or 2.6%, to $15.79 while Wynn (Nasdaq: WYNN) advanced $6.96, or 7.39%, to $101.15.

Elsewhere, Fremont General Corp. shares jumped more than 40% Tuesday after iStar Financial Inc. said it would buy its commercial real estate lending business for $1.9 billion. In addition, an investor group led by banking industry veteran Gerald J. Ford agreed to take a minority stake in the company, installed new management and unveiled plans to develop its retail banking business.

Other subprime lenders were lifted on the Fremont news except bankrupt New Century Financial Corp. (Pink Sheets: NEWCQ), which ended off a penny at 43 cents. Of the gainers, many of which are on the auction block, Accredited Home Lenders Holding Co. (Nasdaq: LEND) added 63 cents, or 4.94%, to $13.38. Novastar Financial Inc. (NYSE: NFI) gained 42 cents, or 7.05%, to $6.38. American Home Mortgage Investment Corp. (NYSE: AHM) advanced $1.15, or 5.54%, or $21.89.

Even shares of several larger lenders rose on the news. IndyMac Bancorp Inc. (NYSE: IMB) shot up $2.32, or 7.08%, to $35.09. Washington Mutual (NYSE: WM) rose $1.12, or 2.61%, to $44.08. Countrywide Financial Corp. (NYSE: CFC) edged up 29 cents, or 0.72%, to $40.78.

The market is keenly watching not only the subprime mortgage group but banks for a private equity takeover event to take place, a trader said. Many have been establishing positions for the past week or two, empowered in their view by some bank mergers, one trader said.

OSI Restaurant Partners Inc., still having trouble getting enough votes to support the management-led leverage buyout plan, gained some ground on a boosted bid of $41.15 per share from the Bain Capital and Catterton Partners group, or Kangaroo Holdings.

International Game Technology got another bounce Tuesday, extending gains from last week on rumors of a private equity bid for the electronic and computerized gaming equipment maker after slipping back a little on Monday. The stock (NYSE: IGT) gained 90 cents, or 2.25%, to $40.95.

"A lot of people think there is a deal about to hit the wires for IGT," one trader said.

Alcan bid seen getting bumped

The market widely expects Alcoa to up its bid for Alcan, traders said, noting a surge in Alcan shares after the close on news the company has rejected the previous bid of an equivalent $73.25 per share, in cash and stock. One trader pegged the bid going at least to $82, yet he said some think it could go as high as $85.

Alcan (NYSE: AL) closed off 7 cents at $81.03l. In after-hours trade, however, the stock was up $2.17, or 2.68%, at $83.20.

"There was a huge open interest in the June $75 and $85 calls so there are some people riding the fence," the trader said.

"We are thinking it will have to go at least to $82 now that the stock has run up so much."

On May 7, when Alcoa aired its offer of an equivalent $73.25 per share, in cash and stock, it was a 32% premium to Alcan's 30-day average closing price and a 20% premium to the then-current market.

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

Fremont calls a round trip

Fremont General Corp. skyrocketed Tuesday on heavy short covering after striking two deals seen as giving it a better chance of survival as a smaller retail bank under new management.

Traders said there was panicked short covering in Fremont common stock, and one trader said there was heavy buying in June calls with a strike at $10.

"The short position was huge, over 53%, something like 28 million shares, so the news sent everyone into a panic," one trader remarked.

"Smart money was buying the June $10 calls; then, they will be buying even more shares to try to drive the price of Fremont past that. They will sell their calls for huge profit, and then sell shares for shorts to cover. It's a great round trip."

Fremont will also sell a minority 16% stake in itself to an investor group led by former S&L executive Gerald Ford for about $80 million in preferred stock and warrants. In April, it agreed to sell the subprime business and $2.9 billion of loans at a $100 million loss to hedge fund Ellington Capital Management; that deal is still pending.

Santa Monica, Calif.-based Fremont will receive a 30% cash payment upfront, or $1.9 billion. Going forward it will also receive interest payments from the remaining 70% to be controlled by iStar.

The Ford group, which formerly ran California thrift Golden State Bancorp Inc., could boost its equity stake to 20%, which would be worth roughly $112 million based on Fremont's current market value.

MGM could fetch $80-$85

MGM's board said it would review Kerkorian's statement after the annual meeting on Tuesday, but traders said the market was confident that with a 56% stake he could finesse the company onto the auction block. One trader said his analyst was estimating MGM could rack up a bid in excess of $85.

The stock (NYSE: MGM) shot up a whopping $17.03, or 27.05%, to settle Tuesday at $79.98.

Call options players seemed to be saying that a MGM sale would be closer to $80, the trader said, and he noted the stock was weaker in after-hours activity.

The company announced after the close that it had elected former Nevada governor Kenny C. Guinn to the board of directors but made no remarks about Kerkorian's move.

After Monday's close, Kerkorian's Tracinda said it was initiating talks with MGM to buy its Bellagio and CityCenter properties, and Kerkorian said he would pursue options for his stake in the remaining company, which controls roughly one-third of the famed Strip, with properties such as Luxor, Mandalay Bay and Circus Circus.

"Speculation that the whole company is for sale sent the stock up," the trader said.

"That is the sentiment."

OSI up but short of new bid

OSI Restaurant Partners, parent to the Outback Steakhouse chain, got a bounce on the new bid but was well shy of the new price as considerable risk to a deal is still anticipated.

"There still isn't lot of faith," one trader said.

The shareholder vote has been rescheduled for June 5 from May 8 as there has been resistance to the original takeover price of $40, which was presented to the company in November.

The stock (NYSE: OSI) ended well under the new bid at $40.94 for a gain on the day of just 53 cents, or 1.31%.

The company said vice chairman Robert Basham and director emeritus J. Timothy Gannon have agreed to receive only $40 for each of their shares and OSI has agreed not to pay its regular quarterly cash dividend while the merger is pending.

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