Bausch & Lomb rises; Quanex surges; Riviera up; WCI lifted; InterContinental Hotel higher

By Ronda Fears

Memphis, May 16 - Bausch & Lomb Inc. on Wednesday agreed to a buyout by private equity firm Warburg Pincus at roughly $4.5 billion, including debt. And given a so-called "go shop" period of 50 days to get a better bid, along with a small break-up fee, the stock rolled well past the deal price.

Aluminum products maker for the automotive and construction industries Quanex Corp. also surged after launching a review of strategic alternatives for its building products group. Traders said the news sparked considerable short covering but also new speculators on the potential spinoff or sale.

Riviera Holdings Corp. got another lift Wednesday as the dissident investor group Riv Acquisition upped its bid for the Las Vegas casino to $34 per share, besting the Dune Capital Management bid of $30 that emerged last week to challenge Riv's previous $27 offer. Last year, Riv made an unsuccessful play for Riviera at $17 per share.

Florida luxury condominium and home builder WCI Communities Inc. was lifted as well after the company said it had entered into confidentiality agreements with a number entities expressing interest in making a bid for the company to rival billionaire investor Carl Icahn's $22-per-share offer. One trader said rumors put four offers on the table. The stock (NYSE: WCI) gained 74 cents, or 3.69%, to $20.79.

OfficeMax Inc. advanced again Wednesday on an upgrade from Bear Stearns noting balanced risk/reward at the current stock price, as the office supplies retailer presents an interesting takeover opportunity for a strategic or financial buyer. The stock (NYSE: OMX) has been on the rise for about a month on such speculation, and rose Wednesday by 84 cents, or 1.9%, to close at $45.05.

Another recurring takeover candidate in recent months, InterContinental Hotels Group plc, saw a big spike on news that Ellerman Corp., a company controlled by the billionaire Barclay brothers, disclosed a 9% stake in the owner of the Holiday Inn chain. The stock (NYSE: IHG) climbed $2.09, or 9.32%, to settle Wednesday at $27.20.

Telik Inc. marked a significant increase Wednesday on news that Icahn has doubled his stake in the Palo Alto, Calif.-based biotech drug maker, furthering speculation that it could be a takeover candidate.

Quanex break-up cheered

A move by Quanex to separate its vehicle and building groups was cheered, as the building group has been a particular drag on results, but traders also said the move triggered heavy short covering for the same reason.

Quanex (NYSE: NX) soared higher by $4.51, or 10.09%, to $49.21 on volume of 1.83 million shares versus the norm of 379,119 shares.

"There was a pretty big short position in this because of the building group," one trader remarked.

But the trader said there were new players taking a position in the stock with a positive view on both the vehicle and construction industries.

"A lot of folks are bullish on the stock," the trader said. "We see a slow period of a year minimum, up to three. I feel this is as a core holding; it's also a dividend play."

The building group, though, has been the biggest drag on Quanex's performance, he said. Shedding that would create more buyers for the company as one that services only the automotive industry. While both industries have been in a slump, the trader said there are many players who think a turnaround is approaching.

For first quarter, Quanex posted a 6% decline in revenue to $417.6 million, noting sales of engineered building products, which services window and door customers, fell to $98.9 million from $126.3 million as a result of the cooling housing market.

The Houston-based company also makes aluminum components for vehicles.

Quanex said the building products group generated net sales of roughly $1.1 billion and operating income of about $135 million for fiscal 2006 ended Oct. 31. The company anticipates a tax-free spinoff to shareholders, a sale or a joint venture.

The company has retained Lazard Freres as financial adviser for the strategic review.

Bausch & Lomb passes bid

Bausch & Lomb, still dealing with widespread product recalls that have delayed financial reports, agreed to the Warburg Pincus buyout at $65 per share - a 5.7% premium to Tuesday's market - but it also has 50 days to solicit a higher bid with only a $40 million breakup fee. Market sources said speculation puts the potential offers for the eye products firm as high as $70.

Thus, the market pushed the stock (NYSE: BOL) considerably past the buyout price, advancing it by $6, or 9.76%, to settle at $67.50 with 18 million shares traded.

Speculation of a possible better bid put Bausch & Lomb bringing as much as $67 to $70, one trader said.

"It was a lousy premium. Everyone is figuring they can do better than that," he said.

The maker of contact lenses and ReNu contact lenses solution, among other eye-care products, however, has seen its stock get pushed up about 25% in the past on takeover rumors, another trader said.

"A lot of the juice has been squeezed out," he said.

Although Warburg Pincus is estimated to be paying 28 times earnings and about 9.5 times EBITDA, another trader said $70 makes sense. Certainly, he said, the market is betting on that but keeping the shares well below that level to account for some sort of time value discount for holding the stock until a deal closes.

Telik tale unfolds

Icahn Management LP reported late Tuesday that during first quarter it doubled its position in the cancer biotech concern Telik, perpetuating takeover speculation that has pushed the name for months.

Telik (Nasdaq: TELK) gained 29 cents on the day, or 5.03%, to $6.06.

"We have heard that Icahn mentioned that in a sale or merger scenario Telik should bring $12," one trader said.

In December, there was heavy options activity in the name suggesting the stock could go as high as $30; it was trading at about $16.75 at the time, another trader said. Then in late December Telik's lead drug candidate, the cancer drug Telcyta, failed phase 3 trials in advanced lung cancer and ovarian cancer, sending the stock plunging 74% to the $3 area.

Since then, it has been on an upward track with many players still expecting a buyout, merger or major drug development partnership to emerge.

In addition to Telcyta, the Palo Alto, Calif., biotech has Telintra, a small molecule bone marrow stimulant to treat blood disorders, in phase 2 trials and TLK58747 in preclinical testing to arrest cancer cell growth.

"We've certainly had some smart people involved," another trader said.

"The stock seems to have found its support level. They are not seeing a lot of downside risk here."

Riviera rolls with bidding war

Riviera surged past the latest takeover bid, and given the price tag for the New Frontier property in Las Vegas announced Wednesday, many players expect the bidding war to elevate significantly from the most recent $34-per-share offer.

The stock (Amex: RIV) surged $3.42, or 10.35%, to $36.47.

Elad Group, which owns The Plaza hotel in New York, announced plans Wednesday to buy the New Frontier hotel-casino and develop a $5 billion multi-use complex on what it called "the last available prime parcel on the Las Vegas Strip." Billionaire Phil Ruffin, the current owner of the New Frontier, said the group would pay a little more than $1.2 billion for the 34.5-acre property.

"Elad buys the New Frontier for $1.2 billion - that's $1.2 billion for 34.5 acres, or about $35 million per acre. The crap on the dirt is no better than what is on Riviera's 26 acres. Moreover, Riv, with its Paradise back door has better access to the airport. Maybe New Frontier is a better site being between Echelon Place and Fashion Show and across the street from Wynn. But Riv is the same neighborhood," said a buyside market source.

"So, you see why a $30 bid, which values the property at $16.6 million per acre, should be rejected, and why all the previous ones were laughable. If New Frontier went for $35 million an acre then Riviera should go for no less than $30 million an acre. That's $59 per share (with 12.46 million shares outstanding)."

On Tuesday, a trader had estimated that at $20 million an acre for the Strip property, Riviera should be worth $37.40 and he thought a bidding war could push it to $40-plus.

The Riv Acquisition group, whose previous bids have been spurned by Riviera, has requested the company's board allow it equal participation in the bidding process. The investor group requested a response by Thursday.

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