Constellation mulls new bid; Cowen rejects $7 a share offer; Foundry to pay dividend if merger passes

By Cristal Cody

New York, Dec. 8 - Constellation Energy Group Inc. sent hearts fluttering Monday when it said it will begin immediate discussions with Electricite de France SA, which made a rival offer that could best MidAmerican Energy Holdings Co.'s takeover plans.

In other deals, Cowen Group Inc. rejected a $7 per share unsolicited acquisition proposal from Rodman & Renshaw Capital Group Inc., but the market thinks a combined company has value.

Also on Monday, Foundry Networks Inc. said it will pay a special dividend if it can sell its $50 million auction-rate portfolio and if shareholders approve the merger with Brocade Communications Systems Inc. on Dec.17.

Meanwhile, Wall Street made gains a second straight day Monday.

The Dow Jones Industrial Average rose 3.46% to close at 8,934.18.

Broader indexes also rose, with the Standard & Poor's 500 index up 3.84% to 909.70 and the Nasdaq Composite Index up 4.14% to 1,571.74 on Monday.

Constellation contemplation

Shares of Constellation advanced 3.87% to close at $28.15 Monday on the news it will consider the French utility's offer of $4.5 billion for 50% of Constellation's nuclear assets.

The offer made last week also gives Constellation the option to sell Electricite de France up to $2 billion more of its non-nuclear assets.

MidAmerican, a unit of Warren Buffet's Berkshire Hathaway Inc., agreed in September to pay $4.7 billion, or $26.50 a share, for the whole company.

Shareholders will vote on MidAmerican's offer on Dec. 23.

Constellation said in a statement Monday that the decision to review the new offer was made following legal and financial scrutiny of its definitive merger agreement with MidAmerican.

If Constellation backs out of the MidAmerican deal, it would have to pay MidAmerican about $593 million in cash, provide about 9.9% of its outstanding stock and sell $1 billion in 14% senior notes due in December 2009.

MidAmerican said in a statement to Prospect News that its offer stands and the company is "not commenting on EDF's proposal or the discussions taking place between Constellation Energy and EDF."

Angie Storozynski, an analyst with Macquarie Research Equities, said there is no incentive for MidAmerican to walk away from the deal now.

"They're only set to benefit, even if they're not the ones buying the company" since MidAmerican would double its investment within months if the deal falls through, she said. "And that's the worst-case scenario."

Cowen a target

While Cowen Group outright rejected Rodman & Renshaw's offer, an analyst said Monday that the investment bank is doing worse on its own.

"The new company would be a much stronger franchise," said Ada Lee, an analyst with Sterne, Agee & Leach. "If I was an investor in Cowen, I would definitely want this deal to go through. If Rodman & Renshaw were to take over Cowen, they would have access to cash on their balance sheet, and they'll be able to cut a lot of the expenses at Cowen that are unnecessary and frankly, quite bloated right now."

Rodman & Renshaw's offer is for about $99.7 million, half in cash and half in the company's stock.

The price is a 20% premium over Cowen's stock closing price of $5.60 on Dec. 1, the day before the firm made the offer directly to Cowen Group's executives.

Cowen said in a statement Monday that the two firms have "no complimentary products or business strategies and little additional sector coverage between the two firms due to Rodman & Renshaw's reliance on the life sciences sector and the fact that Cowen offers all of the primary products and services offered by Rodman & Renshaw."

While Cowen said it already offers the products and services available from Rodman & Renshaw, "Cowen isn't generating any revenue," Lee said. "Despite the fact that they might offer it, nobody's taking it."

Cowen shares jumped 12.83% to close Monday at $6.77 a share.

Shares of Rodman & Renshaw also rose 12.38% to $1.18 Monday.

Foundry dangles carrot

If Foundry Networks shareholders do not approve the $16.50 a share acquisition by Brocade Communications, the company said it will not pay the special dividend.

The dividend is a small incentive to approve the merger, said Manuel Recarey, an analyst with Kaufman Brothers LP.

"It's a way Foundry is trying to help cushion the reduction from the original offer from Brocade," he said.

Brocade had offered $3 billion for the company in July but lowered the offer in November to $2.6 billion.

"If I was a Foundry shareholder in the current environment, I would be happy to get $16.50 a share," Recarey said. "More than likely, shareholders will vote for it."

Foundry Networks shares closed up 0.85% to $15.51 Monday.

Brocade shares rose 2.27% to close at $3.15 Monday.

Mentioned in this article:

Brocade Communications Systems Inc. Nasdaq: BRCD

Constellation Energy Group Inc. NYSE: CEG

Cowen Group Inc. Nasdaq: COWN

Foundry Networks Inc. Nasdaq: FDRY

Rodman & Renshaw Capital Group Inc. Nasdaq: RODM

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