Algoma, Ryerson up; Alcoa cools; Anheuser-Busch pops; Agilent up

By Ronda Fears

Memphis, Feb. 15 - Speculation Thursday of a combo of the world's top two beer brewers - InBev and Anheuser-Busch Cos. Inc. - sent those stocks to new 52-week highs but traders noted both came sharply off intraday highs because of leeriness that a merger would meet antitrust resistance. Still, one trader said Anheuser-Busch shares were undervalued and he would be a buyer even with the 3% spike.

A more dramatic retreat from intraday highs was seen in Ontario-based Algoma Steel Inc. after the company confirmed that it is in discussions with Salzgitter AG regarding the possible acquisition of Algoma but "likely ... below the level of the current trading price." A trader said the retreat was smart as the soft steel market "would not command a huge premium."

Nonetheless, the Algoma news sent other steel stocks higher, which had already been gaining from speculation earlier in the week that aluminum giant Alcoa Inc. was in play. Ryerson Inc., which has been under pressure to look for a deal from activist shareholder Harbinger Capital Partners and has relented to the extent of hiring an advisor, was among the biggest gainers in the sector.

Elsewhere, players were watching for earnings from Agilent Technologies Inc. for a signal as to what the company might have planned for its "piles of cash," as one trader put it. While there was no immediate indication from the earnings report, he said something might come to light in the conference call. He said a stock buyback plan is likely as that has become in vogue for companies flush with cash. The stock (NYSE: A) advanced 89 cents, or 2.7%, to $33.83.

Of note as well, another trader remarked that there was strong buying in Movie Gallery Inc. but he reckoned a good portion was short covering. The movie rental company has been struggling with weak trends, as well as absorbing its acquisition of Hollywood Entertainment Corp., but last week signaled some improvement with the refinancing of its bank debt to forestall a covenant violation that could trigger debt defaults. The stock (Nasdaq: MOVI) added 28 cents on the day, or 7.18%, to close at $4.18 with some 2.13 million shares traded versus the norm of 1.42 million.

In another distressed stock, bankrupt Northwest Airlines Corp. shares gained after filing the disclosure statement on Thursday to its reorganization plan from last month. Again, a trader suggested there was some short covering, as the equity holders will not get a distribution in the plan. The plan set out a 66% to 83% recovery rate for unsecured creditors, plus another 6% to 8% for those with guaranties, and outlined a $750 million equity rights offering. Northwest shares (Pink Sheets: NWACQ) advanced 21 cents, or 7.95%, to $2.85; the stock has come sharply off highs in the area of $6.50 over the past two months.

Bud pops the top

A merger of InBev and Anheuser-Busch was thought to be difficult because of antitrust hurdles and the entrenchment of respective leadership at the two breweries, but one trader said Anheuser-Busch shares are a bargain as he sees it, even at the new high set Thursday on the chatter.

Anheuser-Busch (NYSE: BUD) climbed to $52.25 before easing back to end the day at $51.75, better on the session by $1.52, or 3.03%. The stock inched past the previous 52-week high of $51.74 hit on Feb. 2 following its fourth-quarter and 2006 earnings.

"Our analyst sees BUD about 30% undervalued," the trader said.

"I saw a lot of buyers with the same thinking early, then considerable profit taking on skepticism that a deal really is in the works or could even get done. But I would still be a buyer here."

According to a report in Brazilian newspaper Valor Economico, which cited an unnamed source, InBev, a Belgian-Brazilian brewer, has been seeking merger talks since its market capitalization surpassed Anheuser-Busch's earlier this year. Anheuser-Busch's market cap is about $38.6 billion, while InBev, which brews Stella Artois, Brahma and Beck's among beer labels, was $41.9 billion.

InBev shares (Belgium: INB) also hit a new high, gaining €2.05 on the day, or 4.04%, to €52.80, eclipsing a previous one-year high of €52.25. The stock traded as high Thursday, however, at €55.70 before easing back.

The trader said there has been a rumor circulating in the markets about an Anheuser-Busch merger for about two years and, while it is not such an unreasonable notion, he would be a buyer on the stock valuation at these levels. He also noted that the top holders in the stock are Barclays and Berkshire Hathaway Inc., "not the usual suspects you see in a hostile situation if it comes to that."

Anheuser-Busch chief financial officer W. Randolph Baker said in a written statement run by the Associated Press, "It is our policy to not confirm, deny or speculate on reports of potential investments, acquisitions, mergers, new business partnerships or other transactions." said.

InBev declined to comment. InBev was formed in 2004 when Interbrew and Companhia de Bebidas das Américas, or AmBev, combined to create what is now the world's largest brewer by volume.

Analysts cheered the idea of a merger as it would complement Anheuser-Busch's domination in the stagnant U.S. market and Mexico with InBev's focus on Latin America, Canada and Europe, the trader said. He noted that Anheuser-Busch already has the U.S. rights to promote and distribute InBev's Stella Artois, Beck's and Bass Pale Ale labels.

Algoma retreats from highs

It was a big snap back for shares of Algoma Steel following a break in trading while the stock was halted for pending news. The Ontario-based rolled steel company confirmed that it is in discussions with Salzgitter regarding its possible acquisition but said the discussions are at a very preliminary stage and likely would be below the current market for its stock.

"There can be no assurance that an acquisition will take place, and there is no agreement as to the price at which an acquisition would be made if it does take place," the company said in a statement. "If agreement is reached, the price for the shares is likely to be below the level of the current trading price of the shares."

The stock (Toronto: AGA) was halted for about an hour and 20 minutes early in the afternoon, from about 12:41 ET to 2 p.m. ET and following the announcement the stock came sharply off the day's high of C$57.99 - an increase of as much as 30% - to settle with a gain of C$5.76, or 12.89%, at C$50.44.

Salzgitter shares (Xetra: SZG) gained €3.52, or 3.47%, to €105.10 - near the session high of €105.15.

A trader in Canada said the spike in Algoma shares was "senseless" even in the face of a possible acquisition because he did not think the steel industry trends would suggest that Algoma would bring a big premium.

He noted that just last week Algoma, which makes hot and cold rolled steel and plate, posted fourth-quarter net income of $50.4 million, or $1.57 per share, down from net income of $55 million in the fourth quarter of 2005.

Algoma attributed the weaker results mainly to "softer market conditions" that resulted in a 14% decline in volumes as well as lower steel prices, which the company said dropped by $53 per ton.

Ryerson rolls on

Chicago-based metals producer Ryerson Inc. continued to gain ground Thursday, hitting a new 52-week high, as it tries to fend off a proxy takeover attempt by a New York hedge fund Harbinger, which holds a 9.7% stake. But a trader in the United States, citing similar arguments to the Canadian trader for Algoma, said he thinks the stock has gotten ahead of itself.

Harbinger is attempting to revamp the current board of directors in light of Ryerson's disappointing financials; its intentions were first announced in a regulatory filing last month. And since then the stock has risen from the $25 area.

Ryerson shares (NYSE: RYI) on Thursday gained $3.68, or 11.87%, to $34.69, surpassing a previous one-year high of $31.89.

Fueling the surge, the trader said, was news that the company has hired UBS as financial adviser to assist in a review of "strategic alternatives," the Wall Street catchphrase for putting a company on the sale block, under pressure from Harbinger. The disclosure was in the company's fourth-quarter earnings report Wednesday when it posted a $4.4 million loss, also citing weak volume.

"Higher inventories throughout the supply chain will continue to affect the industry for at least the first quarter of 2007," remarked Ryerson chief executive Neil Novich in the earnings report. "But we are optimistic that our initiatives will improve the operating performance of the company."

Novich said UBS will help it compare its current turnaround plan of sorts with other strategic alternatives. Those include reducing inventory by at least $100 million by the end of first quarter, addressing underperforming centers and converting service centers for synergy savings.

But Harbinger is impatient.

"Management's plan to fix the company's serious inventory problem is linked to a technology conversion that is escalating in cost and will not be complete for almost two years," said Harbinger managing director Larry Clark in a prepared statement Wednesday.

"Considering this team's long history of substantial underperformance on the basic service center operating metrics of inventory management and cash generation, we harbor substantial doubts that they will deliver on this or any of their other stated initiatives to turn this business around

Harbinger is seeking the nomination of seven independent directors to replace the majority of Ryerson's board.

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