Huntsman adds; LaBranche up; Lear, Sequa higher; Novastar rises; MBIA lower; FedEx gains

By Ronda Fears

Memphis, July 9 - Chemical concern Huntsman Corp. edged up on Monday as Apollo Management LP's Hexion Specialty Chemicals offered up what was considered a pre-emptive higher bid of $28 per share, topping its own bid of $27.25 last week to best a $25.25 per share bid by Dutch conglomerate Basell Holdings.

Traders said there was not a lot of conviction that Basell, which is controlled by U.S. industrial group Access Industries - which is controlled by Russian-born billionaire Len Blavatnik - wound engage further in a bidding war. That line of thought was forwarded last week by several traders, who said that many were betting Access would walk away and focus on Lyondell Chemical Co. (NYSE: LYO), which slipped 56 cents, or 1.41%, to $39.21.

A boosted bid also cinched a deal with management of Lear Corp. for billionaire investor Carl Icahn's group, which bumped its offer to $2.9 billion, and the automotive supplier said Monday it will delay the shareholder vote on the bid. Pzena Investment Management LLC is still opposed to the deal, but traders said they are expecting this bid will get shareholder approval. The market still was loath to bid up the shares much higher than Icahn's previous offer, however.

Another aircraft and auto parts maker, Sequa Corp., also took off Monday on a $2.7 billion takeover bid, including debt, from private equity firm Carlyle Group. The whopping 54% premium somewhat encouraged players that Lear could get a better bid, one trader said, but he said the sector is "a little dicey still, so Lear didn't get a lot out of this." Mostly, he said the market saw the high Sequa bid as a means of discouraging a rival bid.

Elsewhere, Mace Security International Inc. shot up Monday on heavy buying, which one trader attributed to the maker of personal defense product Mace as a potential developing special situation that might lead to a buyout or special dividend to ward off advances.

Package delivery company FedEx Corp. took a leap on a Barron's article that it could become a target for private equity buyers because of its modest valuation and turnaround potential; traders were telling Prospect News of buying in FedEx on that speculation more than a week ago. The stock (NYSE: FDX) shot up $5.33, or 4.81%, to $116.17.

In the financial sector, Novastar Financial Inc. was higher on heavy short covering amid renewed speculation that a buyout offer is imminent, according to a trader. The stock (NYSE: NFI) settled higher by 65 cents, or 8.1%, at $8.67 with 7.93 million shares changing hands versus the norm of 3.53 million shares.

"It would seem that some guys think a [Novastar] buyout is imminent. There were all sorts of rumors flying. We heard $10 [per share] to $12, all unsubstantiated, but if I were betting it would be on the low end of that," the trader said. "The shorts are covering with both hands and running down the streets screaming."

The entire market is pulling ahead even as earnings season hits full stride and the Federal Reserve will have more to say on interest rates this week. But on increased worries of subprime mortgage fallout, mortgage insurers Ambac Financial Inc. and MBIA Inc. were lower, the trader added. Ambac (NYSE: ABK) dropped 69 cents, or 0.8%, to $86.09. MBIA (NYSE: MBI) lost $1.12, or 1.79%, to $61.54.

IntercontinentalExchange Inc. was mum on whether it would offer a higher bid for the Chicago Board of Trade parent CBOT Holdings Inc. to best Chicago Mercantile Exchange Holdings Inc., but traders said the market was betting the battle had finally come to an end as Chicago Merc and CBOT shareholders approved that deal Monday. Yet, traders said ICE was higher on speculation that it will become a takeover target once the brouhaha is settled, as has been the nature of speculation for some time.

The Chicago Merc on Friday upped its takeover offer for CBOT to $11.9 billion, besting ICE's current offer of $11.8 billion. CBOT originally accepted an $8 billion bid from the Chicago Merc in mid-October. CBOT shares (NYSE: BOT) fell $1.18, or 0.53%, to $222.82 and Chicago Merc (NYSE: CME) lost $4.22, or 0.73%, to $570.58 while ICE (NYSE: ICE) settled with a gain of 69 cents, or 0.44%, at $156.78 after trading as high as $160.19.

LaBranche ticks higher

In another market name, LaBranche & Co. gained after the broker-dealer said it is pursuing strategic alternatives - the Wall Street catchphrase for going on the auction block - as the human element is evermore removed from trading operations.

LaBranche is one of the largest equity specialist traders on the New York Stock Exchange floor and has reduced its headcount on the floor by more than half in the past year. The stock is down 23.6% for the year, largely blamed on weaker results as high-tech trades creep into the business. LaBranche also has sold its American Stock Exchange equity specialist business to Cohen Specialists LLC.

"We think that there will be a lot of interest in the operation but the price is not going to be anything spectacular," said a trader.

"Recall that LaBranche was at $12 when NYX [NYSE Euronext Inc.] peaked around December - they own 3 million shares - and it looks to me like NYX is heading back up. But LaBranche is trading at exclusively NYX value and cash. They'll likely wait for NYX to appreciate a little more, or sell for an expected NYX appreciation, meaning LaBranche goes for $12 minimum."

LaBranche shares (NYSE: LAB) gained 36 cents, or 4.79%, to settle at $7.87.

NYSE Euronext Inc. (NYSE: NYX) closed better by 75 cents, or 0.99%, at $76.47.

Another trader was a bit less optimistic, pointing out there is a 20% short position in the stock. He offered, "It's too little, too late. This should have been done five years ago. I'm a seller on the bounce."

Huntsman hovers just past bid

Huntsman shares traded slightly past the new and improved offer of $28 per share but not by much - and even slipped below it intraday - as speculation of a bidding war was somewhat cooler; in addition, traders said the longer time frame to close a deal with the Apollo unit held back the stock.

The stock (NYSE: HUN) traded in a band of $27.82 to $28.40 before settling the session at $28.07 for a gain of 7 cents, or 0.25%.

"We saw more selling into the advance, like we did last week," a risk arbitrageur trader remarked.

A big drag on the stock, the buysider said, was the lengthy closing time frame. The new Hexion proposal terms include that Hexion will have up to 12 months, subject to a 90-day extension, to close the transaction and that the cash price per share to be paid would increase at the rate of 8% per annum - inclusive of any dividends paid - beginning nine months after a definitive merger agreement is executed.

"Sheezh, life as we know it, could be extinct by the time Hexion wants to close a deal. The only reason I can see for seeking the nine- to 15-month closing period is there must be something hidden in this, perhaps needing to divest assets prior to antitrust clearances," the trader said.

"Whatever it is, it makes you nervous, you know," he continued, noting that Hexion claims its proposed deal finance is committed.

Basell and Access have not commented about an increase to their bid. Huntsman said it had notified Basell that it could change its earlier recommendation that shareholders approve the Basell bid but said it would take into account any changes in Basell's offer.

Lear boosted bid might fly

Icahn's increased bid for Lear of $37.25 per share, bumped up from $36 per share, won a vote of approval from management, but at least one other major stockholder, Pzena, is still opposed to the price tag, saying it's too low. Traders, and even Pzena, think stockholders might go for it, but the risk held back the stock.

Lear shares (NYSE: LEA) traded as high as $37.06 before easing back to close at $36.85 for a gain of 99 cents, or 2.76%.

Icahn, already Lear's largest shareholder with a 16% stake, has been trying to snag the company since February.

Pzena, which owns about 10% of Lear shares, has been vocal about opposing the Icahn bid, saying the company is worth $55 to $60 per share. Joining the opposition last month were the California State Teachers' Retirement System, which owns about 2% of Lear. In addition, three stockholder advisory firms have recommended against Icahn's previous bid of $36 per share.

"The price is too low," Richard Pzena told Prospect News on Monday.

"This increase in the price is just not sufficient."

Pzena also said he thinks most shareholders who would vote in favor of this new offer would do so because they think the stock would trade down if the deal breaks, but he does not see that as a risk.

Indeed, a trader remarked, "I think [the] vote passes by a slim margin."

Gaining Lear management and board approval might sway some "fence sitters," the trader said.

Larry McCurdy, Lear's lead independent director, said in a statement, "We believe the revised price represents a meaningful increase in value for Lear stockholders, and we strongly encourage a vote in favor of the revised merger proposal."

Lear, which already had moved its annual shareholder meeting from June 27 to Thursday amid shareholder criticism of the deal, said it will adjourn Thursday's meeting in light of the new offer. If Lear shareholders don't approve the deal by July 16, Icahn's group would get a breakup fee of $12.5 million in cash and 335,570 shares of Lear common stock.

The company also has agreed to increase the Icahn group's share ownership limitation to 27% from 24% of Lear's outstanding common stock.

Sequa spikes on surprise bid

Sequa's sellout, and that's what it amounted to, according to traders, was a surprise even at the $175-per-share offer - a 54% premium to Friday's close - but no one was really pressing the point. Most were happy to pocket the profits and move on, which kept the stock well below the price Carlyle is paying, one trader commented.

The stock (NYSE: SQA-A) advanced $59.72, or 52.61%, to $173.24.

Sequa said the estate of founder Norman Alexander and related entities, which hold about a 54% stake in the company, have pledged to vote in favor of the transaction. Alexander died in December 2006.

"You might think that they overpaid way too much; a lot of people thought that. But I figure they will be doing some major consolidating into repair shops at the major airports and military bases," the trader said. "They [Carlyle] will turn a profit."

Sequa makes aerospace, automotive, metal coating, specialty chemical, industrial machinery and other products for the airline carriers and U.S. military.

The Sequa deal, expected to close in the fourth quarter, will be financed through a combination of equity contributed by investment funds affiliated with Carlyle, and external debt financing provided by Lehman Brothers, Citigroup and JP Morgan.

Evercore Group advised Sequa, while Lehman Brothers, Citigroup and JPMorgan were financial advisers to Carlyle.

Mace pushed on activism

Mace gained amid speculation that the maker of personal defense product Mace might declare a special dividend to ward off advances or fend off a brewing proxy battle, or become a takeover target, market sources said.

The stock (Nasdaq: MACE) on Monday added 20 cents, or 8.1%, to close at $2.67.

A buyside market source said Mace has been divesting its car wash assets to focus on the security business. A big complaint among shareholders, which are growing in criticism, is that management is "egregiously overpaid and represents the biggest hurdle to value realization." Fortuitously, he noted that management does not have voting control and he think activist investors could help produce a catalyst in six to 12 months.

Kelly Capital made a hostile bid to buy Mace for $3 per share in January, but that never went through. Lately, the buysider noted, activist investor Lawndale Capital Management upped its stake to 9% and nominated board candidates in mid-June. Another fund, Ancora Capital, increased its stake to 9% on June 26.

To avert the proxy battle, he thinks Mace's incumbent board "may declare a significant special dividend to placate shareholders and buy time to try to show that incumbent management can grow the value of the security businesses."

Even though "quite a bit of hair grows on Mace," he feels the stock is cheap. In addition to the management pay issue, the company is delinquent in filing quarterly reports, which has put it in jeopardy of being delisted, and recently announced the embezzlement of $340,000 by a former employee.

But, he likes that Mace has a branded enterprise security business selling surveillance cameras and related products in addition to the well-known personal security spray Mace, and that it is selling the car washes, which never seemed to make sense.

Once the car washes are sold, the trader said Mace might even be a target for the likes of another personal security device maker, Taser International Inc. He noted Taser shares (Nasdaq: TASR) gained $2.56, or 18.21%, to $16.62.

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