Ameritrade, E*Trade surge as Chuck slips; Nvidia gains; WCI up; Bally better; Cleveland off

By Ronda Fears

Memphis, June 6 - TD Ameritrade Holding Corp. was better Wednesday after saying it was open to suggestions from JANA Partners and S.A.C. Capital Advisors to look for a linkup with one of its online brokerage competitors, namely E*Trade Financial Corp. or Charles Schwab Corp. E*Trade expressed an openness to such a deal and gained, while Charles Schwab was against it and slid.

Iron ore pellets concern Cleveland-Cliffs Inc. took a dive as the market perceived, a stock trader said, that an asset sale takes it out of running as a takeover candidate. But as the sale of a partial interest in the Wabush Mines joint venture was only $24.1 million in cash and warrants to Cleveland-Cliffs, another trader said he saw big selling volume in $90 calls and big buying volume in $85 puts as players hedged on two lines of thought - that the company was out as a takeover target, or that the asset sale will make a deal easier.

Bally Total Fitness Holding Corp. got another lift Wednesday after announcing Michael Feder, a restructuring expert at AlixPartners who also is an adviser to bankrupt power producer Calpine Corp., has joined the company as chief operating officer. The company also said that it is continuing its search for a permanent CEO, following last week's news that the gym operator plans to file a prepackaged bankruptcy in July. Noise in the market, however, puts a private equity firm or hedge fund interested in buying the company to forestall a Chapter 11. The stock (Pink Sheets: BFTH) added 13 cents, or 18.35%, to 81 cents.

WCI Communities Inc. also got a bounce after billionaire activist stockholder Carl Icahn said he would enter the company's sale process, just ahead of the company's annual meeting slated for June 15. Icahn last month lost a tender offer for the company at $22 per share; on repeated criticism from Icahn, the company in February hired Goldman Sachs to explore ways to boost stockholder value and now is fully seeking bids to buy the company in whole. The stock (NYSE: WCI) gained 21 cents, or 1%, to $21.11.

Nvidia Corp. was a gainer in the down session, too, seeing heavy buying on persistent chatter that Intel Corp. will make a play for it, another trader said, noting the company is projecting 15% to 20% growth for the next year. Nvidia (Nasdaq: NVDA) gained 27 cents, or 0.75%, to $36.38 on heavy volume, while Intel (NYSE: INTC) followed the broader market with a loss of 47 cents, or 2.18%, to $21.49.

It was not obvious by looking at Dow Jones & Co. Inc. stock, but there are stronger undertones that a bidding war seems likely to challenge Rupert Murdoch's News Corp.'s $60-per-share bid, traders said. With Ron Burkle of Yucaipa Cos. and well-known investment guru Warren Buffett in the fray with the Independent Association of Publishers' Employees, which strongly opposes Murdoch's bid, many expect that there will be some sort of deal take place.

"The lid is off this can of worms" regarding a sale of Dow Jones, one trader said. "There's no getting them back in now."

But weakness in Dow Jones stock and light volume was largely a reflection of the nerves that sent the broader markets lower, another trader said. The Dow Jones Industrial Average fell 129.79 points, or 0.95%, to 13,465 and similarly the Nasdaq lost 24.05 points, or 0.92%, to 2,587.

"Everyone's got a lot of nerve when the market is up," the trader said.

"Once the market starts to turn people are not so speculative. Investors are more skittish today. Guys get out quicker in situations" where a snag in a deal or previous speculations seem less likely.

In another sort of special situation, GlaxoSmithKline plc shares were off as increased labeling requirements are being required for its diabetes drug Avandia, but an options trader said he sees a double bet available in the $52.50 and $55 call options, what with Glaxo's new weight loss drug due to be launched June 15, which is also the options expiry date.

Ameritrade, E*Trade higher

Despite speculation that a TD Ameritrade merger would face opposition from its largest shareholder and partial namesake Toronto-Dominion Bank, the stock was pushed sharply higher on remarks from its chief executive that it would be open to such a move. E*Trade was high on the same sort of comments, but Charles Schwab took a hit after remarks that it was not interested.

TD Ameritrade (Nasdaq: AMTD) added 76 cents, or 3.8%, to $20.71.

E*Trade (Nasdaq: ETFC) shot up $1.73, or 7.25%, to $25.60.

Charles Schwab (Nasdaq: SCHW) lost 25 cents, or 1.13%, to $21.80.

"It was not a big surprise; all of them have seen a lot of buying leading up to this news," one trader said, saying there also was a fair amount of selling on the news as well as fresh buying.

Chuck's reaction, however, was somewhat of a surprise, another trader said. The stock has been on a steady upward track along with TD Ameritrade and E*Trade on widespread expectations that there will be some consolidation in the online banking industry. Charles Schwab, though, has been widely rumored to be considering an acquisition or special dividend with the proceeds from its sale of U.S. Trust to Bank of America Corp. last November. The $3.3 billion deal is expected to close in July.

"It could have been a lot worse for Chuck," the trader said, but the prospects of a special dividend compelled some buyers to step in.

Cleveland-Cliffs falls off

Cleveland-Cliffs has been a speculated takeover target, what with so much merger activity in the steel industry, but the announced sale of part of its Wabush joint venture interest seemed to flatten out many players involved for that reason, traders said.

The stock (NYSE: CLF) fell $2.07, or 2.4%, to $84.33.

Yet the options activity showed a dichotomy in the market's reaction to the news with some thinking a deal was altogether out but hedging their bets with puts in case the company's move was a prelude to a deal. Along the latter line of thought, one options trader noted that pipeline giant Kinder Morgan Inc. was thought to be a buyout candidate last year and the market stuttered on that line of thinking when it sold off some division; later in 2006 a management-led buyout resulted in an ultimate $15 billion price tag.

There was big selling volume in the $90 call options and the $95 calls, which also saw huge open interest, as well as big buying volume in the $85 puts.

"In a lot of these cases were people have been buying calls on takeover speculation they are getting beaten up pretty hard," the options trader said.

"What happens is when something like this happens [the asset sale] they are removed off that list, maybe for right now."

There has been heavy activity in the Cleveland-Cliffs options for months, which traders have said has been almost entirely fueled by speculation of a takeover.

Another options trader was more committed to believing the asset sale was a necessary move before a bigger deal is announced. "This is the beginning of the sale process," he said. "The options tell you everything you need to know. They say a picture is better than a thousand words. Look at the $90 and $85 June premiums action today. Talk about a Kodak moment."

Dow Jones naked puts rise

Dow Jones stock did not move much Wednesday as further events suggested a stronger case for a bidding war, but the former options trader said there is growing optimism for such an event. He said there has been a great deal of naked puts written on Dow Jones, what with such staunch opposition to a deal with Murdoch from the Bancroft family, but those were being written at $40 last week and this week are at $50.

"That's a bet that eventually something will happen," he said. "It doesn't even have to be at $60. But you have to think that there's no way Murdoch is just going to walk away."

The Bancrofts, who hold a controlling stake in Dow Jones, have met with Murdoch, but the outcome is still unknown; and, now Burkle and Buffett have teamed with Dow Jones' union employees to oppose Murdoch, which many onlookers think will result in a competing bid. Another trader noted that Buffett has been on record that he is looking for acquisitions with somewhere in the neighborhood of as much as $40 billion to spend.

Murdoch's $60 offer puts the price tag at just $5 billion.

Dow Jones shares (NYSE: DJ) on Wednesday hovered just above there, at $60.16, for a loss of 34 cents on the day, or 0.56%.

"Our union remains hopeful that the Bancroft family will conclude that a sale of Dow Jones is not necessary," Steven Yount, president of the Independent Association of Publishers' Employees, said in a news release.

"But if the Bancroft family is to be persuaded that a sale must take place, we believe that there are alternatives to Mr. Murdoch."

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