Biosite boosted by rival bid; DaimlerChrysler driven up; Conseco climbs; Calpine rises

By Ronda Fears

Memphis, April 5 - Diagnostic testing firm Biosite Inc. got a big boost Thursday on receiving a rival hostile bid of $90 per share from Inverness Medical Innovations Inc., besting Beckman Coulter Inc.'s offer of $85 that was accepted last week, which traders said "shocked and amazed" players.

Separately, the market began to gear up in earnest Thursday for a bidding war for DaimlerChrysler AG's Chrysler Group, as well.

Kirk Kerkorian's Tracinda Corp., once a major stockholder in General Motors Corp., on Thursday announced it has sent a letter to DaimlerChrysler offering to acquire Chrysler for $4.5 billion in cash. One trader said many onlookers see it as a "low-ball bid to kick off the auction process." DaimlerChrysler shares (NYSE: DCX) zoomed $4.24, or 5.26%, to $84.80.

Tracinda said it intends to build and strengthen Chrysler as an independent entity by partnering with the United Auto Workers and senior management of Chrysler, and will offer the UAW and Chrysler management the opportunity to participate as equity partners in the transaction.

DaimlerChrysler acknowledged for the first time on Wednesday market chatter that has persisted for weeks that it was talking with prospective buyers about selling the Chrysler unit, but would not commit itself to a transaction.

Other speculated bidders include private equity groups Cerberus Capital Management and Blackstone Group plus Canadian auto parts supplier Magna International Inc. Magna (NYSE: MGA) gained $2.20, or 2.91%, to $77.71.

Conseco Inc. also got a nice bounce from rumors circulating that Cerberus was making a play for the Carmel, Ind.-based accident and health insurance firm. Calls to Cerberus and Conseco were not returned.

Mortgage lenders were mostly higher going into the long weekend, even bankrupt New Century Financial Corp., as well as battered Fremont General Corp. A trader said there were small buyers getting in on what they saw as a low spot in the subprime mortgage names. Accredited Home Lenders Holding Co. was lower for a good portion of the session but ended slightly higher.

American Home Mortgage Investment Corp., however, took a big hit on a downgrade to the stock by Bear Stearns analyst Scott Coren. The analyst said key earnings drivers for American Home Mortgage are likely to be weaker than the market currently expects. The stock (NYSE: AHM) lost 41 cents on the day, or 1.56%, to $25.84.

Coren said in a report that he thinks deterioration in margin growth, rising non-performing assets and write-downs to capitalized residuals may lead to an earnings disappointment at American Home Mortgage. Originations are also likely to be at the lower end of the company's guidance, given tighter underwriting standards, he added.

A "tax savings strategy" at American Home Mortgage, involving a new securitization structure, could provide a needed offset to weaker fundamentals, the Bear Stearns analyst said, but it's unclear to what extent the company would be able to exploit the benefits. He is forecasting EPS of $3.15 for 2007, versus company guidance of $5.40 to $5.70. If that bears out, he sees risk that the stock falls to $19 or $20.

Inverness pushes for Biosite

Suggesting it had been rebuffed by Biosite, Inverness Medical on Friday went public with a rival bid for the diagnostics firm at $90 in cash. Inverness said it already owns 4.7% of Biosite shares and said it has financing sources available.

"Everyone was shocked and amazed," one trader said. "The Beckman bid was astounding, really, so this is just wild."

Biosite shares (Nasdaq: BSTE) traded up to $93.75 but eased from there to settle at $93.11 for a gain of $8.81 on the day, or 10.45%. Some 1.65 million shares traded versus the norm of 626,940 shares.

Inverness shares, however, fell on the development. After trading in a band of $38 to $44, the stock (Amex: IMA) closed with a loss of $2.99, or 6.67%, at $41.82.

Waltham, Mass.-based Inverness Medical develops rapid diagnostic products for the consumer and professional markets. San Diego-based Biosite is a medical diagnostic company that provides immunoassay diagnostic products for cardiovascular disease, drug screening and infectious diseases.

"After 10 months of careful review and unsuccessful outreach efforts to Biosite's management team and board, we came to the conclusion that we had no choice but to make our intentions absolutely clear. While we have serious concerns regarding the integrity of a supposedly competitive bidding process that would lead Biosite's management to enter into a pre-emptive merger agreement with another party rather than fully explore a combination with us, we are hopeful that Biosite's board will respond favorably to our superior proposal and recognize the fiduciary duty they owe to their stockholders to do so. We have all the necessary financing commitments and are prepared to complete confirmatory due diligence in two full business days, and we look forward to completing a transaction as expeditiously as Biosite and its board will allow," said Inverness chief executive Ron Zwanziger in a prepared statement.

"We expect that a combination with Biosite would be immediately accretive to Inverness' cash-based EPS, and would make for a powerful long-term strategic fit by enabling us to leverage Biosite's strength in proprietary protein markers and robust cardiovascular platform together with our ongoing research and development efforts in the cardiac arena."

Covington Associates and UBS Investment Bank are acting as financial advisers to Inverness. Goodwin Procter LLP is serving as legal counsel to Inverness.

When Beckman Coulter and Biosite announced their deal March 25, the whopped 53.5% buyout premium was criticized and the controversy kept Biosite shares from hitting the takeover price. Before the Inverness bid emerged, Biosite shares had only reached $84.45, still shy of the Beckman Coulter price.

Beckman backs its Biosite bid

Fullerton, Calif.-based Beckman Coulter was quick Thursday to stand behind its bid but did not rush in to say it would raise it. The company, which has developed a test known as B-type natriuretic peptide with Biosite, said when announcing its offer last week they would create a company with a leading position in cardiac diagnostic tests known as immunoassays.

"They will probably have to raise their bid to get it," the trader said. "They don't like this new twist, but I don't see they have much choice."

Beckman Coulter was punished on the original offer, losing 7% when it was announced. The stock (NYSE: BEC) lost $1.80 on Thursday, or 2.76%, to end at $63.51.

"Beckman Coulter is proceeding, as planned, with a fully financed, cash offer for Biosite that is clearly superior to the unsolicited, highly speculative and conditional letter that Biosite has received from Inverness Medical Innovations," said Beckman Coulter chief executive Scott Garrett in a news release.

Beckman Coulter launched its tender offer for Biosite shares on April 2 and that is scheduled to expire April 27.

"The certainty and near-term completion date that characterize Beckman Coulter's offer stand in stark contrast to the highly conditional Inverness letter that has proposed additional due diligence, negotiation of a merger agreement, a shareholder vote and contingent financing," Garrett said.

"These steps would take months to complete, if, in fact, Inverness is able to finance an acquisition - which the highly conditional nature of its claimed 'commitments' leaves very much in question. We are confident that Biosite stockholders will be easily able to distinguish Beckman Coulter's very compelling tender offer with all required regulatory filings complete, from a letter that is noteworthy for the many questions that it raises about the financing and timing of a yet-to-be-defined offer."

On announcing the deal the previous week, Beckman Coulter defended the $1.55 billion outlay, saying it was expected to immediately accelerate the company's revenue growth, improve operating margins and be accretive to GAAP earnings in 2008 and beyond.

Biosite said its board of directors is evaluating the Inverness letter, with the assistance of financial adviser Goldman Sachs & Co. and legal advisers Cooley Godward Kronish LLP and Potter Anderson & Corroon LLP.

Conseco pursued by Cerberus?

There was an unconfirmed rumor circulating Thursday that Cerberus was making a run for insurance firm Conseco, and traders said the stock saw huge buying.

The shares (NYSE: CNO) advanced 25 cents on the day, or 1.38%, to settle at $18.35 with some 4.4 million shares changing hands versus the norm of 1.9 million shares.

For about the past month, there has been speculation that big stockholders would pressure the company to put it on the auction block, but that had died down, along with interest in the stock, until Thursday.

"In this situation, it makes sense" that Cerberus would make a play for Conseco, said one trader. He noted that Cerberus was a big investor in Conseco when it exited bankruptcy in late 2003.

He also noted that Credit Suisse upgraded the stock on Thursday.

In early March, Conseco swung to a fourth-quarter loss amid higher expenses, and the company said it wouldn't offer financial forecasts until it irons out problems in its business. Another trader at that time speculated that would lead its majority stockholders, such as Hotchkis & Wiley Capital Management or Franklin Resources Inc., to call for exploring a sale, but he expected only a slight premium possible.

Conseco, which offers Medicare supplement, long-term care and cancer insurance, recorded a fourth-quarter net loss of $3.7 million, or 2 cents a share, compared with a profit of $67.6 million, or 42 cents a share, a year earlier, while revenue rose to $1.14 billion from $1.08 billion in the period.

It was what analysts called a "worst-case scenario," largely the result of Conseco putting more than $54 million into reserves to pay future claims. The company had forecast a break-even quarter.

Conseco chief executive Jim Prieur said after fourth-quarter results were announced in late March that the company was disappointed with the figures and was taking "necessary steps that will fundamentally change Conseco for the better."

Conseco said it has begun raising premiums at a faster pace and is trying to improve its care-management and claim-adjudication practices. It is also trying to bring in better managers and increase accountability, while using better technology.

Calpine shares seen expensive

Bankrupt independent power producer Calpine Corp., speculated for months to have an equity backer on the hook to finalize its reorganization, has been on the rise with light volume all week, but one player is a seller on the upswing as he sees the stock too rich at current prices.

Calpine shares (Pink Sheets: CPNLQ) shot up 5.12%, or 11 cents, to $2.26 - the session high. Some 6.35 million shares traded versus the norm of 7.12 million shares.

Speculations about private equity bids for the company, including the likes of GE Energy Financial Services and AES Corp. with backing from the Carlyle Group, have propelled the stock for weeks. Last month, the company got court approval to hire Miller Buckfire and begin the process of trying to find a buyer for the company or sponsor for an equity rights offering.

"The shareholders' committee seems like a good group," said a buyside market source.

"However, I think the current stock price is rich compared to what I expect the shareholders to wind up with. That is why I have unloaded 75% of my stock and all of my bonds during this rally. Keep in mind I freely admit there are probably things out there that I am not grasping. The market has bid both the stock and bonds up. I sold my unsecured bonds at par thinking I had made out like a bandit. They are trading now north of 110.

"To buy the stock now, I think you have to be looking for the price to double. It will take a significant amount of time for this whole thing to play out so, you will have a long waiting period. Then again, I still would not rule out the current shareholders getting nothing. You need to see a high return to accept this much risk."

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