EOP holders snub new Vornado bid; Centex, Balfour higher; Wolverine Tube explodes up

By Ronda Fears

Memphis, Feb. 1 - There were some who cheered the increased bid for Equity Office Properties Trust by Vornado Realty Trust, topping The Blackstone Group's latest increased bid, but traders said activity in the stock suggested that players were siding with Blackstone, as EOP did in the face of the new Vornado bid.

Traders noted that MGM Mirage shot up on renewed interest in the Las Vegas gaming giant as a real estate play. One trader said there has been market chatter that in fact MGM may be exploring the spinoff of some of its assets to create the first major gaming real estate investment trust as a means to unlock value in its real estate holdings. The stock has more than doubled in the last six months, in part due to a big investment in the stock by noted investor and MGM founder Kirk Kerkorian. MGM shares (NYSE: MGM) on Thursday advanced $2.51, or 3.59%, to close at $72.48.

American Standard Cos. Inc. got a huge boost from its plans to spin out its Wabco vehicle controls division and sell its bath and kitchen fixtures unit. The breakup, which also will result in the company taking on the name of its flagship air conditioning division, Trane, was applauded with a spike in American Standard shares to a new 52-week high.

Directly in the construction industry, Centex Corp. was initially higher after announcing the sale of its commercial construction division to Balfour Beatty plc for $362 million in order to focus on homebuilding, but one trader said it was short covering that played out before the day's end when the stock settled lower.

In distressed stocks, a trader noted that Wolverine Tube Inc. shares more than doubled with a $75 million capital infusion from The Alpine Group.

Elsewhere in distressed names, a trader attributed the spike in Delta Air Lines Inc. shares to a Forbes online article predicting that the Atlanta-based airline will be in play once it exits bankruptcy. US Airways Group Inc. has pulled its hostile bid for the carrier, after failing to get creditor support, and Delta has presented a reorganization plan that would bring it out of Chapter 11 in the spring. The Delta plan comes up for a creditor vote Feb. 7. Delta shares (Pink Sheets: DALRQ) gained 7 cents, or 6.48%, to $1.15.

Cash is king in EOP battle

As many expected, Vornado announced a new $56 per share offer for EOP, which consists of $31 per share in cash and $25 of Vornado shares plus dividends through closing of a merger, but traders said EOP holders were preferring the all-cash bid of $54 from Blackstone.

EOP also said in response to Vornado's new bid that it still felt the Blackstone offer was the better of the two.

EOP shares (NYSE: EOP) fell 40 cents, or 0.72%, to end the day Thursday at $55.15.

Vornado shares (NYSE: VNO) gained $3.39, or 2.77%, to close at $125.74.

There were some players in EOP eager to get Vornado shares, one trader said, but at the end of the day the market showed that there was more support for the cash bid from Blackstone; he said there also were some investors involved in EOP that did not like Vornado's plans to break up the huge Chicago-based office REIT. Another trader agreed.

"Vornado's bid of $56 - plus dividends - in cash and stock is not enough to counter the $54 all-cash offer from Blackstone. Plus, the vote for Blackstone is Feb. 5 and can close Feb. 8," said the second trader. "$54 cash in a week is better that cash plus stock down the road."

The Vornado offer allows EOP to continue to pay its regular quarterly dividends at the rate of $0.33 per share and includes in the merger consideration pro rata dividends to the closing.

Under the offer, each EOP share would convert into $31 in cash and Vornado common shares having a value equal to $25, except that the fraction of a Vornado common share that will be issued per EOP share will not be less than 0.1852 or more than 0.2174.

Vornado said it is in discussions to sell up to $10 billion of EOP assets at closing to Starwood Capital and Walton Street Capital - partners in its bid for EOP - and to sell an additional $10 billion of EOP assets within the first year after closing. Furthermore, Vornado also expects to sell or co-venture other selected assets of the combined portfolio.

American Standard breakup

The market liked American Standard's plans to break up, however, which one trader said has been anticipated for a month or two. The company said it would separate its three businesses with a spinout distribution of its Wabco auto component unit and the sale of its bath and kitchen unit, with the surviving entity taking on its Trane air conditioning unit moniker.

American Standard shares (NYSE: ASD) climbed $3.86 on the day, or 7.82%, to $53.25 - eclipsing a string of recent new highs, the latest of which was $49.47 set on Wednesday.

A stock trader said that it has been widely viewed for some time as a positive step to separate the air conditioning unit from the vehicle component unit, which has propelled the stock for the past couple of months and with "gusto" in the last two weeks.

"Although both [Trane and Wabco] are risky right now because one is tied to construction trends and the other to vehicle manufacturing trends, this will provide more clarity into management of these businesses," the trader said. He had a similar view in the divestiture of the bath and kitchen unit, which he sees as having the most risk as it supplies more products to the homebuilding industry.

The Trane unit is the biggest division, he said, but its fourth-quarter sales increase of 4.5% compared to an 18.4% gain in the Wabco unit and a 1.6% increase in the bath and kitchen division. Wabco makes braking, stability, suspension and automated transmission control systems for commercial trucks, trailers, buses, commercial fleet owners and other after-market customers.

Under the spinout, American Standard stockholders will get one share of Wabco common stock for every three shares of American Standard common stock currently owned. Wabco shares will be publicly listed. In addition, American Standard plans to sell its bath and kitchen business, which the company said had 2006 sales of $2.4 billion. The transactions are expected to be complete by early fall of this year.

American Standard said the bath and kitchen sale process is expected to begin this month and proceeds from that transaction are earmarked to reduce the liabilities of Trane and repurchase Trane stock.

Also fanning buyer interest, American Standard posted earnings of $114.3 million, or 56 cents a share, up from a year-ago profit of $64.4 million, or 30 cents a share. Sales rose to $2.7 billion in the three months ended Dec. 31 from $2.55 billion in the same period a year earlier.

Without the effects of the spinoff and sale, American Standard said it was projecting for 2007 adjusted earnings of $3.15 to $3.25 a share on sales growth of about 8%. For the first quarter, American Standard said it sees adjusted earnings of 48 to 52 cents a share with sales rising about 6%.

"These estimates are driven by continued strength in commercial air conditioning systems and services and an improvement in the residential air conditioning market despite lower housing starts, coupled with continued strength in vehicle control systems and some improvement in the bath and kitchen business," said Fred Poses, chief executive of American Standard, in a news release.

The company has its annual analyst and investor meeting scheduled on Feb. 15 in New York.

Centex rocky on sale news

Amid the weakness in homebuilding, traders said the Centex split-up had a more negative bearing on the stock story. The shares initially rose on the news, which one trader attributed to short covering, and dipped into negative territory but managed to close the session with a slight gain. Still, in after-hours activity the stock took another turn southward.

Dallas-based Centex announced the sale of its commercial construction division to United Kingdom-based Balfour for $362 million, saying it would focus on homebuilding.

"The commercial construction unit is making money and while that business has a lot tighter margins, it is more stable than homebuilding," the trader said. He estimated the profit margin in the commercial construction unit at between 3% to around 12% versus 20% or more in the housing sector, but argued that commercial and industrial construction trends are more stable than homebuilding.

Centex shares (NYSE: CTX) traded in a band of $53.45 to $54.68 before settling with a gain of 7 cents at $53.76 with 2.45 million shares moved versus the norm of 1.8 million shares. In after-hours activity, however, the stock was seen giving most of the day's gain back with the last trade at $53.70.

Balfour Beatty got a big boost on the news. That stock (London: BBY) added 37.5p on the day, or 9%, to close at 454.25p.

Rumors that Centex had a takeover bid on the table had boosted Centex shares a week ago.

Like virtually the entire landscape of homebuilders, Centex has warned of weaker profits due to the downturn in residential construction. Also last week, Centex posted a fiscal third-quarter loss of $228.1 million, or $1.90 a share, versus year-ago profits of $329.3 million, or $2.49 a share, with a 7% decline in revenues to $3.28 billion. The company said home closings decreased 12% and unit backlogs were down by 32% on a 24% decline in orders. In addition, the company lowered its fiscal 2007 earnings guidance to 25 cents per share from continuing operations and said it expects breakeven results for fiscal fourth quarter.

Wolverine gets new capital

Wolverine Tube shares more than doubled Thursday on the company's announcement of a recapitalization plan that will provide $75 million and up to $135 million of new capital and a top management change at the copper tubing company.

Plainfield Special Situations Master Fund Ltd. and The Alpine Group, Inc. are providing a minimum of $75 million by purchasing $50 million of an 8% convertible preferred and backstopping up to $25 million of a planned rights offering expected to raise up to $55.1 million.

Wolverine shares (Pink Sheets: WLVT) shot up 99 cents, or 119.28%, to $1.82 with a whopping 4 million shares traded versus the norm of 454,702 shares.

On the transactions, Huntsville, Ala.-based Wolverine said it plans to begin an exchange offer for its 7 3/8% senior notes due 2008. The company said the exchange would offer senior notes similar to its existing 10½% senior notes due 2009, but with less restrictive covenants. Plainfield and Alpine have agreed to tender at least $25 million of 7 3/8% notes, the company said.

Wolverine also said it will seek consents to amend the 7 3/8% notes indenture to remove substantially all of the restrictive covenants.

The company also announced that after the closing of the transactions, anticipated by the end of February, its board will expand to include four new directors from Plainfield and Alpline along with the three current directors.

In addition, Wolverine chief executive officer Chip Manning will resign that position and Harold Karp, senior vice president of Alpine, will become the president and chief operating officer. Steven Elbaum, chief executive of Alpine, will become chairman of Wolverne.

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