Cablevision, Bisys gain on buyout offers; Universal eases on uncertainty; Beckman drops on costlier bid

By Kenneth Lim

Boston, May 2 - Cablevision Systems Corp. stock shot higher on Wednesday after it confirmed overnight rumors that the Dolan family has offered to take the company private for about $10.6 billion, but the company's bonds slid on news that the deal will be financed mostly through debt.

Meanwhile, Universal Power Group Inc. continued to retreat from a recent surge as profit taking and uncertainty about a new major shareholder weighed on the stock. 3V Capital Management LLC, which emerged as the company's second largest shareholder in April, is seeking board representation and said it is unhappy with the company's chief financial officer.

Bisys Group Inc. gained after the company agreed to a $1.45 billion buyout by Citigroup Inc. with the deal seen as having a good chance of success.

Beckman Coulter Inc. fell after it raised its offer for Biosite Inc. to match a rival offer as observers voiced concerns that the company could be caught in a bidding war and end up paying more than it should.

Cablevision takes off

Cablevision stock (NYSE: CVC) jumped 9.89% or $3.23 to close at $35.90 on Wednesday after the Dolan family, which controls about 20% of the common stock, offered to pay $36.26 per share to take the company private.

"This might be the one that actually makes it," a sellside trader said.

Cablevision, a Bethpage, N.Y.-based cable operator, said it agreed to the Dolans' $10.6 billion cash offer. The offer price represented an 11% premium to Cablevision's closing stock price on Tuesday. The offer was the third since Oct. 8, 2006 by the Dolans, who also control about 70% of the company's voting rights. The deal must be approved by holders of a majority of the company's common stock not held by the Dolans or Cablevision's directors and executive officers. The deal will be funded by $2.1 billion in equity and $15.5 billion in debt. Cablevision's existing notes and debentures will remain outstanding.

"This is a slightly lower premium than their first offer," the trader said. "But that's because they've been supporting higher and higher prices every time they make an offer. It worked for the shareholders twice, but now's the time you think maybe they'll be pushing it if they said no again. It's a pretty decent price."

The trader said a competing bid could not be ruled out, but any fight for Cablevision will only benefit stockholders.

Bondholders, however, were not as thrilled.

Cablevision's 8% senior unsecured notes due 2012 fell about 2 points to 100.5 on Wednesday after the deal was announced. The yield on the bond increased 50 basis points to about 7.875%.

Fitch Ratings on Wednesday placed Cablevision and its subsidiary CVC Holdings Inc. on rating watch negative with expectations of a possible "multi-notch" downgrade when the dust has settled.

"From Fitch's perspective the proposed transaction materially increases CSC's financial risk and significantly erodes the company's credit profile," Fitch said in a statement. "As of year end 2006 CVC's leverage metric (including the collateralized indebtedness) was 6.9 times (x). Depending on CVC's ultimate capital structure, Fitch believes that leverage could exceed 10x when the transaction is finalized constraining the company's ability to generate free cash flow."

Universal Power slips

Universal Power eased on Wednesday despite a strong set of results at major customer Brinks Co. as profit taking and uncertainty over activist shareholder 3V's plans for the company.

Universal Power stock (Amex: UPG) closed at $4.69, down by 3.3% or 16 cents.

"They kind of peaked last week after the 3V letter came out, but guys have been taking profit since then," a trader said. "You don't really know what 3V has planned for the company, and with such a weak stock if you can make any kind of profit you might just take the money."

3V, a Greenwich, Conn.-based hedge fund, declared in April that it has a 12.6% stake in Universal Power, a Carrolton, Texas-based logistics company. 3V sent a letter to Universal Power seeking board representation, citing the company's poor stock performance and a desire to help create shareholder value.

David Bullock, managing director of 3V, said he has been invited to a meeting with Universal Power's directors. Universal Power could not be reached for comment.

"I think the most important point is the business is a fantastic business and it's been growing," Bullock said. "It's had very strong growth very consistently for years. We think that that growth is going to continue both from the perspective of organic growth from existing customers as well as new customers and new products. I think from a fundamental perspective we like the management and we like the business."

But Bullock was less enamored of the company's chief financial officer, saying that replacing CFO Julie Sansom-Reese "would probably be a good idea."

"We would want to urge the company to think very hard whether to do that or supplement the position in some way," Bullock said.

Bullock said Universal Power's biggest issue is poor communications with investors, citing the company's recent guidance for "10% growth for the full-year 2007 in net sales and operating income," excluding stock-based compensation charges.

"I would say that the guidance that they gave was not in fact guidance at all," Bullock said. "I don't know what you would call that number."

Bullock said the number was "totally inconsistent" with historical performance and his expectations that the historical trend can be maintained.

"I think the problem is that the company when they came up with the guidance, the company I believe wanted to put a number out there that was relatively easy to beat," Bullock said. "Also, my understanding is the number was based on existing organic growth. It gave no benefit to either the expansion of their business that will come from the investment of the IPO proceeds or contracts that are currently out for bid. It assumes no win rate on their existing proposals for new business. So the market thought that this was just a huge disconnect. The derivation of the guidance wasn't articulated, it was simply put out there with no explanation."

The CFO has to do more, Bullock said.

"They really need someone who can get out there and communicate effectively with the investing public and tell the story," Bullock said. "We think that having a large investor who is familiar with public markets from a UPG shareholder perspective could be helpful in guiding the company on its communications with the public. And possibly on strategic decisions that would affect the fundamental side of the business and the market's perception of the business."

3V does not have any specific plans to realize shareholder value yet, but it wants to shape them with the directors, Bullock said.

"I would rule nothing out at this point," Bullock said. "I don't want to say that we've formulated any specific strategy. We want to be part of that formulation. We have been invited to meet with the board, so that's the first step. I think the company will do better than the guidance that they suggest."

Bullock said Wednesday's earnings announcement by Brinks, which accounted for almost half of Universal Power's 2006 sales, suggested that Universal Power is in good stead. Brinks, a Richmond, Va.-based security company, beat estimates with a $28.7 million net profit on $751.5 million of sales.

"[Brinks's] Subscribers and revenues in the home security segment were up and management's guidance is for full year growth in the subscriber base of 10% in 2007," Bullock said. "That's actually good for UPG. Brinks's profit is less relevant to UPG's business. Growth in subscribers and installations is the key."

Bisys gains on buyout

Bisys improved on Wednesday after the company agreed to a $1.45 billion offer by Citigroup. Under the deal, Citigroup will pay $11.85 per Bisys share, or $1.45 billion in cash, while Bisys will pay shareholders a special 15-cent dividend upon completion.

Bisys stock (NYSE: BSG) closed at $11.71, up by 2.09% or 24 cents.

Citigroup's offer was a 3.3% premium over Bisys's closing stock price on Tuesday. Including the dividend, the premium is 4.6%.

"It's not a great deal, but it's the only one they have after looking around for a year," a trader said.

Bisys, a Roseland, N.J.-based financial outsourcing firm, put itself on the blocks nine months ago.

"I'd say it's not clear whether investors will accept the offer," the trader said. "It's kind of a tough one to predict. The premium isn't very high, but you're talking about a company that isn't looking at the best of times that's been trying to sell itself for almost a year, and this was the best deal they could find."

Beckman Coulter falls on new bid

Beckman Coulter fell 1.83% or $1.16 to close at $62.16 after the company said it was raising its bid for Biosite to $1.67 billion to match a rival offer by Inverness Medical Innovations Inc.

Beckman Coulter, a Fullerton, Calif.-based maker of biomedical test instruments, said it is now offering Biosite shareholders $90 per share, from its original bid of $85 per share. Its offer expires at midnight on May 15.

"People were already thinking that they may have been paying too much at $85 per share," a convertible trader said. "Now they're paying even more and the concern is that if Inverness comes back with another offer they may be stuck in a bidding war."

Beckman Coulter's 2.5% convertible due 2036 fell by a point outright after the new bid was announced. The convertible was marked at 102.5 bid, 103 offered against a stock price of $62.15.

"Beckman's a touch weaker on the fact that they raised their bid for Biosite, so they're going to lose more cash because of that acquisition," a sellside convertible analyst said.

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