Morgan Stanley, Wachovia inch closer; Constellation may see new bid; proxy advisers knock Harbinger

By Aaron Hochman-Zimmerman

New York, Sept. 19 - Investors trotted though positive territory at a brisk recovery pace on Friday as Treasury secretary Hank Paulson announced big bailout packages and regulation changes in Washington, D.C.

Meanwhile around Wall Street, banks were still playing musical chairs to see if any more deals would get done before the music stopped for the week.

Morgan Stanley and Wachovia Corp. became the favorites of those betting on deal announcements, but Washington Mutual, Inc. and its list of suitors was not far behind.

The eyes of the world remained on finance, but interest in the fate of the major banks did not so completely divert investors' attention on Friday as it did earlier in the week.

Cleveland-Cliffs Inc.'s proxy advisers recommended against allowing Harbinger Capital Partners to increase its stake. The recommendation is a de facto endorsement of Cleveland-Cliffs' deal with Alpha Natural Resources Inc.

Elsewhere, Constellation Energy Group, Inc. may see another bid to compete with the bargain basement offer from MidAmerican Energy Holdings Co.

Also, shares of eTelecare Global Solutions, Inc. were on the move as the outsourcer announced plans to essentially be taken private by Ayala Corp. and Providence Equity Partners.

In the broader market, the Dow Jones Industrial Average rallied again to end up by 368.75, or 3.35%, at 11,388.44, while the Nasdaq Composite Index added 74.80, or 3.40%, to finish at 2,273.90.

The S&P 500 improved by 48.57, or 4.03%, to close at 1,255.08.

Deal with the Devils?

The week-long banking industry round-up ended with talk of a deal between Morgan Stanley and Wachovia.

Many have speculated that a collegiate connection between Morgan Stanley's chief executive officer, John Mack, and Wachovia's CEO, Bob Steel, adds to the level of trust between the Blue Devil alumni.

Still, "I don't think the North Carolina connection means anything," an analyst said.

Shares of Morgan Stanley (NYSE: MS) took on $4.66, or 20.67%, to finish at $27.21.

Shares of Wachovia (NYSE: WB) were up by $4.25, or 29.31%, to close at $18.75.

Hats in the ring for WaMu

Earlier in the week, JPMorgan Chase & Co. seemed to hold the lead in the speculative horse race for lumbering WaMu.

However, by the end of the week and one more giant federal bailout program later, Wells Fargo & Co., Banco Santander SA and even Citigroup Inc. were named as being on the hunt for WaMu.

"Citi's not going to make that big of an acquisition," an analyst guessed, admitting that the current environment has been crazy enough for anything to happen.

Still, Citi is more likely to begin big divestitures before it starts buying, he said, unless it comes at a "rock-bottom" price.

Shares of WaMu (NYSE: WM) soaked up $1.26, or 42.14%, to close at $4.25.

EDF after Buffett's prize

Electricite de France intends to bring its own offer for Constellation Energy after Berkshire Hathaway Inc. subsidiary MidAmerican Energy Holdings leveled a bid of $4.7 billion, or $26.50 per share, at the company.

EDF's recently announced bid will need an American partner in order to comply with U.S. commerce laws, the Financial Times reported.

Even though the $26.50 offer came in far below Constellation's share price of one week ago, "the shareholders will likely approve it," an analyst said.

On Sept. 12, the shares closed at $58.37, but "the stock was going down in a hurry," the analyst said.

"You know what they say about Buffett; he only takes quarters off of dead bodies," the analyst said.

Shares of Constellation Energy (NYSE: CEG) tacked on $1.56, or 6.45%, to end at $25.76.

Shares of Berkshire Hathaway (NYSE: BRK.A) added $18,990.00, or 14.83%, to close at $147,000.00.

Proxy advisers say 'no' to Harbinger

Proxy Governance and RiskMetrics advised the shareholders of Cleveland-Cliffs to vote against allowing Harbinger Capital Partners to increase its 16% stake to 33%, an analyst said.

A vote against Harbinger would be a strong indication that shareholders approve of the proposed $10 billion merger with Alpha Natural Resources.

Harbinger opposes the deal with Alpha, and if it is allowed to increase its stake to 33% it would have the votes to shoot down the merger.

"On Oct. 3 you could know if the deal gets done," the analyst said.

Shares of Cleveland-Cliffs (NYSE: CLF) jumped $7.18, or 10.37%, to $76.40.

Shares of Alpha Natural Resources (NYSE: ANR) were better by $7.62, or 13.06%, to close at $65.97.

eTelecare to tender

eTelecare Global Solutions announced that Ayala and Providence Equity Partners will make a tender offer for all of its outstanding shares at $9.00 per share.

The price tag, which amounts to $290 million, for the complex business process outsourcing firm comes at a 76% premium to its closing price on Thursday.

"It's a pretty fair price," said Janney Montgomery Scott LLC analyst Joseph Foresi.

For the tender to be completed, in addition to regulatory reviews, two-thirds of the shares must be tendered.

However, the deal is "essentially" a privatization, said Foresi, because "the buyer here is a board member."

"This transaction allows eTelecare's shareholders to realize significant value from their investment in eTelecare in a timely manner," said Gary Fernandes, eTelecare's chairman, in a statement.

"With access to their substantial intellectual and capital resources, the company will be well positioned to expand its role as a leader in the BPO marketplace," he said.

The announcement was a "moderate" surprise, but as valuations in the sector are coming in people are ready to take advantage, Foresi said.

"I can't say it was totally unexpected."

Shares of eTelecare (Nasdaq: ETEL) launched up by $3.35, or 65.69%, to close the day at $8.45.

VeraSun shines

After "multiple parties" expressed strategic interest in VeraSun Energy Corp., the biofuel producer decided to bring in Morgan Stanley to evaluate its strategic alternatives, the company said in a press release.

The interest came during a VeraSun equity offering, but due to the possibility of a deal for the company, the equity offering was suspended.

Shares of VeraSun (NYSE: VSE) improved by $0.26, or 17.81%, to $1.72.

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