Medivation spikes; H&R Block props up Jackson Hewitt, Intuit; Ford up; Affiliated Computer up

By Ronda Fears

Memphis, June 11 - Ford Motor Co. is rumored to have a bidder for its luxury vehicle unit - or at least Jaguar and Land Rover but not Volvo - which traders said the market cheered, coming on the heels of the much-applauded Cerberus Capital Management purchase of an 80% stake in Chrysler for $7.3 billion.

Medivation Inc. was the day's big gainer, taking off after reporting its Alzheimer's drug Dimebon showed favorable results in a phase 2 trial, and chief executive David Hung said the San Francisco-based biotech would be open to a partnership or merger but also prepared and able to develop it in-house.

H&R Block Inc. spiked as much as 5.4% after a UBS Investment analyst upgraded the stock and said the largest domestic tax preparer could be a nice acquisition target after it sells its money-losing subprime mortgage unit. Counterparts Jackson Hewitt Tax Services Inc. and Intuit Inc., which owns the do-it-yourself tax software Turbo Tax, piggybacked gains from the renewed chatter as well.

A backdrop to deals and speculation causing a mild degree of jitters, traders said, is interest rates and more specifically the yield on the 10-year Treasury note, which rose as high as 5.15% on Monday before settling at 5.137%, up from 5.11% late Friday. Last week a sell-off in the 10-year T-notes pushed yields above 5%, sparking the case of nerves because of the implication to the cost of capital.

"As rates pick up, concerns over these deals that are taking longer to close become more of an issue, i.e., rate of return," observed one equity trader.

"There was not a lot of wiggle room to begin with, and when they take longer and longer then people have to price in more time risk."

With more certainty looming that the Federal Reserve will raise rates instead of lower rates, deals that are taking longer to get done are seeing more time risk getting priced in, the trader continued, "but there hasn't been serious unraveling."

And, the rate issue will affect deals in the works.

Affiliated Computer Services Inc., the Dallas-based outsourcing business, said it would seek rival takeover proposals to compete with the management-led $62-per-share offer that has met strong resistance, and the stock gained sharply but lagged well below the offer level as players price in considerable risk.

There were a couple of decliners with deals as well as a big sell-off in Tweeter Home Entertainment Corp. (Nasdaq: TWTR), which fell 14 cents, or 35%, to $0.26 after the electronics retailer filed a widely anticipated bankruptcy.

James River Group Inc. got a hit from a discounted $575 million deal and that also caused many players to leave ample room for the deal to fail because of opposition, another trader said. The Chapel Hill, N.C.-based property and casualty group agreed to be bought out by D. E. Shaw Group for $34.50 per share - a 1.9% discount to Friday's close of $35.18. The deal is expected to close during the second half of 2007. The stock (Nasdaq: JRVR) lost $1.09, or 3.1%, to close at $34.09.

Brookfield Asset Management Inc. also was hit by its $7.3 billion cash purchase of Multiplex Group Ltd. - at A$5.05 per share - flat to Friday's market but a $39.2% premium to the six-month average prior to the announcement of talks between Brookfield and Roberts Family on Jan. 25, Brookfield said. Rumors of the deal had pushed the stock from the A$4 area over the past six months. Multiplex shares (Australia: MXG) traded in a band of A$4.88 to A$5.06 on Monday before settling at A$5.00. Toronto-based Brookfield (NYSE: BAM) lost 28 cents, or 0.72%, to $38.69.

Ameritrade, E*Trade mixed

Online brokers TD Ameritrade Holding Corp. and E*Trade Financial Corp. were mixed Monday with Ameritrade holding onto gains from last week on speculation about consolidation in the industry. Ameritrade (Nasdaq: AMTD) added 22 cents, or 1.05%, to $21.15.

"Something's going on there" with Ameritrade, a trader said, adding "there's a ton of volatility. I think they are in play."

But E*Trade slumped on reports from London that it or money manager Invesco plc are preparing bids for the fund firm Rydex Investments in the neighborhood of $800 million to $1 billion.

E*Trade (Nasdaq: ETFC) lost 52 cents, or 2.06%, to $24.69. Invesco (NYSE: IVZ) advanced 11 cents, or 0.47%, to $23.42.

Back Yard Burgers sizzle

Fast-food restaurant chain operator Back Yard Burgers Inc. said Monday it agreed to be taken private by private equity group BBAC LLC for roughly $38 million in cash. The $6.50-per-share purchase price represents a 29% premium to Back Yard Burgers' closing price of $5.05 on Friday.

The news followed rumors in early May that the group would renew a buyout bid attempt, which failed last year at $6.10 per share.

Back Yard Burgers (Nasdaq: BYBI) advanced $1.21, or 23.96%, to $6.26.

ACS development bittersweet

Affiliated Computer's news was bittersweet by one trader's account as it suggests a higher bid is needed to accomplish a deal, but if a deal is scuttled altogether, the gains in the stock so far might not hold.

The stock (NYSE: ACS) gained $1.53, or 2.63%, to $59.79.

In a statement, ACS said it reached an accord under which chairman Darwin Deason and Cerberus suspended their exclusive rights to negotiate a deal with the company. In March, Deason and Cerberus offered the company $59.25 per share cash, then later raised the bid to $62 and entered the exclusivity accord.

Now, a panel of ACS directors and financial adviser Lazard Freres will solicit other potential buyers to conduct due diligence financial reviews, in addition to other strategic alternatives.

"On one hand, this is great news - it clearly indicates that the days of rubber-stamping everything are over," the trader said.

"I think this is going to go higher because I think someone comes in with at least a $65 bid. That said, if they don't get a deal done, the stock will not hold at where it's trading."

Last week, shareholders of Affiliated Computer, which is entangled in a stock options backdating investigation, elected eight directors, including seven opposed by proxy advisers. Before the meeting, proxy advisers Glass Lewis & Co. recommended that shareholders withhold votes for six directors, including Deason and chief financial officer John H. Rexford, saying the company had too many insiders on the board. Institutional Shareholder Services also suggested investors withhold votes for some of the same directors, including Deason.

Ford driven up on sale buzz

Ford reportedly has hired Goldman Sachs, Morgan Stanley and HSBC to advise it on the sale of its luxury vehicle unit, which is said to be in early stages and does not include Volvo, which would follow its sale of Aston Martin in March to a Kuwaiti-led consortium for $925 million.

The stock (NYSE: F) added 16 cents, or 1.94%, to close at $8.40.

One trader said he figured all the bad news has been priced into the name.

Volume was light, but another trader agreed that the sentiment in Ford is shifting to a more positive stance. He said the spike Monday probably was a fair amount of short covering, noting short positions account for roughly 11% of the Ford float.

"It's just a rumor, but Ford is not denying that Jag and Land Rover are up for sale. Ford is probably carefully wording a formal announcement. Could be Ford still has some loose ends to work out with Goldman, who will help find a buyer. Ford is definitely on the upswing. Just look at all those in the money calls, the 7 and 8 strike price, that some naked call sellers will have to cover by this Friday. They must know they are screwed with the news that Ford is selling Jag and Land Rover, a very inopportune time for the naked call sellers," the trader said.

"As more and more good news comes out about Ford on a daily basis, is seems the 'shorts' have crawled back into their holes."

Medivation moves up sharply

Medivation moved up on its news alone as well as intense excitement that it could be a buyout target or begin actively seeking a merger on its latest Dimebon trial, sources said.

"This is huge news," said a biotech fund manager in Boston. "It's wonderful for humanity as well as for us. I don't care if there is a buyout or merger."

The stock (Nasdaq: MDVN) soared upward by $3.62, or 22.37%, to a new 52-week high of $19.80. Volume was astronomical at 12.9 million shares versus the norm of 198,851 shares.

A trader said there were hordes of speculators on CEO Hung's remarks that were broadcast by CNBC that the company would be open to a partner or merger offer.

"This would be a big feather for any of the major drug companies. They are all starved for a blockbuster drug and Alzheimer's would fill that bill," a biotech stock trader said.

"It might be a little pricey on historic trading levels for this stock, but not to a Pfizer or AstraZeneca, Merck, the big guys."

He noted that Wyeth, Elan Corp. plc, Targacept Inc., Neurochem Inc., Cortex Pharmaceuticals Inc. and Memory Pharmaceuticals Corp. are all developing new Alzheimer's drugs, mostly in phase 2 or later-stage trials.

The buysider noted that Pfizer Inc. has FDA approval for Donepezil, which improves cognition, global function, and activities of daily living for Alzheimer's patients and was developed with Eisai Inc. AstraZeneca plc is working with Targacept.

H&R Block shorts cover

H&R Block spiked on the UBS upgraded as shorts were frantic to cover. "The shorts still around on this stock are about to get nailed," one trader quipped.

The stock (NYSE: HRB) gained $1.06, or 4.71%, to $23.58.

UBS analyst Kelly Flynn on Monday raised the stock's rating to buy from neutral, reversing an August 2006 downgrade, and boosted the price target to $28 per share from $24. But the analyst surmised the Kansas City tax preparer could fetch $30 per share if it were acquired by a private equity firm. Flynn estimated a 40% chance of a leveraged buyout at $27 to $33 per share.

The company in April agreed to sell its Option One Mortgage Corp. subprime unit, which makes home loans to people with poor credit, to private equity firm Cerberus Capital Management LP by the end of October. H&R Block had hoped to fetch $1.3 billion for the unit, but onlookers think it will be less than $1 billion.

Intuit, Jackson Hewitt gain

H&R Block counterparts Jackson Hewitt - a very close peer sans a subprime lending unit - and Intuit rode the wave higher as well on similar views, which is not a new attitude insofar as Intuit goes, traders said.

"Jackson Hewitt has issues, too, but I think either of these could be targets," one trader said.

Intuit (Nasdaq: INTU) gained 34 cents, or 1.15%, to $29.84.

Jackson Hewitt (NYSE: JTX) advanced 46 cents, or 1.61%, to $29.03.

The Internal Revenue Service is investigating tax preparation services of Jackson Hewitt, namely allegations that some offices helped tax filers cheat the government out of more than $70 million. Last week, the company said the IRS probe has widened to the corporation itself in addition to an unspecified number of its franchises and company-owned stores.

"Profits will most certainly fall here as damage control goes into effect. Corporate is going to have to beef up existing oversight with its franchises (increased spending) while having to capture market share back (lost revenue)," said another trader.

In late March, Intuit terminated a planned merger with Electronic Clearing House, and that sparked chatter that Intuit - which also has the accounting software Quicken - may have another deal in the works or has been approached as a takeover target itself.

"There have been rumors for months that Google is looking at Intuit, but there could be others," the first trader said.

In November, Intuit inked a $1.35 billion acquisition of Digital Insight Corp., an online banking service to mid-market banks and credit unions. That, the trader said, could make it a target by online banking concerns like E*Trade Financial Corp.

Wyndham winds upward

Time-share firm Wyndham Worldwide Corp. was moving up as a two-prong play, one trader remarked. He said that some think the company could be a magnet for a buyout bid, and if not then it is now a good dividend play since the company decided to begin paying a cash dividend in May.

The stock (NYSE: WYN) gained 81 cents, or 2.27%, to close at $36.47.

"There was a report out that the business is legit now, but while Wyndham's peers like Marriott and Disney have seeing big gains, the Wyndham shares are up only like 3%," said one trader.

"The upshot is that Wyndham is the bargain in the group. The stock is cheap and on that alone might draw a buyout bid."

© 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.