eFunds surges on rumor of four bidders; Ameritrade, E*Trade up; Cleveland-Cliffs rebounds

By Ronda Fears

Memphis, June 8 - Electronic payments processor eFunds Inc., which has been on the auction block for a month, surged on rumors that there are at least four bidders in the wings, a trader said. Two of those are rivals Fidelity National Information Services Inc. and Fiserv Inc., which are rumored to have each bid more than $1.5 billion.

Online brokers TD Ameritrade Holding Corp. and E*Trade Financial Corp. also spiked going into the weekend, traders said, as many expect a merger announcement could come soon.

Moreover, traders said after three days of downward pressure players were ready to go long over the weekend, largely because of anticipated takeover and merger news they thought was delayed by the week's slump.

"A lot of deals that might have got announced were delayed by the big down swing," one trader said. "Today's [Friday's] rebound helped people feel better about being long over the weekend."

Takeover speculation focused on United States Steel Corp. sent metals and miner stocks higher Friday but many traders were skeptical about the U.S. Steel chatter, as it just in March made the $2.1 billion buyout of oilfield drill pipe maker Lone Star Technologies Inc. Brazilian steel concern Companhia Vale do Rio Doce, commonly referred to as Rio, was speculated as a looker at U.S. Steel.

Other metals and miners, however, were sharply higher, including Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) with a gain of $1.64, or 2.2%, to $76.18

Canadian aluminum maker Alcan Inc. and domestic rival Alcoa Inc. surged as they remain embroiled in a hostile takeover in which Alcoa has made a play for Alcan that many are speculating has sparked rival bids. One of the most mentioned along that vein is Australian metals concern BHP Billiton Ltd. Alcoa is offering $58.60 in cash and 0.4108 of a share of Alcoa common stock for each outstanding common share of Alcan, which comes to an equivalent of $xx on Friday's market. Alcan (NYSE: AL) gained 82 cents, or 0.99%, to $83.29. Alcoa (NYSE: AA) added 73 cents, or 1.88%, to $39.66. BHP (NYSE: BHP) advanced $1.02, or 1.86%, to $55.78.

Iron ore pellets concern Cleveland-Cliffs Inc. was higher Friday with the sector, as well, also on persistent takeover chatter, despite reporting a hefty decline in first-quarter earnings.

eFunds bids seen going up

eFunds has surged 24% since May 9, when the company hired Goldman Sachs Group Inc. and BlackRock Inc. to explore strategic alternatives after saying unidentified parties had expressed interest in a deal. One trader said the auction has moved to a second round of bidding, and the market expects $1.5 billion is only a starting point.

"On today's market everyone thinks it's going quite a bit higher. If they are bidding $1.5 billion that would be around $31.65 a share, based on 47.4 million shares outstanding," the trader observed.

eFunds (NYSE: EFD) closed at $35.97 for a session gain of $1.57, or 4.56%. The stock traded as high as $36.05 with some 1.7 million shares changing hands versus the norm of 541,854 shares.

"If they get the same premium as First Data, on today's market then you would say eFunds will get $45 and some change," the trader said.

"I think that's reasonable."

In early April, First Data, the biggest credit card data processor, agreed to a $29 billion buyout - a 26% premium to the market at the time - by an affiliate of private equity firm Kohlberg Kravis Roberts & Co. Also in April, Marshall & Ilsley Corp. announced plans to spin off its Metavante arm.

Earlier in the week, the New York-based hedge fund Scoggin Capital Management disclosed it has taken a 6.8% stake in eFunds in a Securities and Exchange Commission filing.

Ameritrade, E*Trade better

Ameritrade and E*Trade, swept up earlier in the week after Ameritrade said it would be interested in exploring a merger as suggested by two big holders - JANA Partners and SAC Capital Advisors - continued to see heavy buying into the weekend, traders said.

"A lot of people think there has already been some negotiation [between Ameritrade and E*Trade] going on, so they are comfortable buying," said one trader.

Ameritrade (Nasdaq: AMTD) gained 93 cents, or 4.65%, to $20.93. E*Trade (Nasdaq: ETFC) advanced $1.03, or 4.26%, to $25.21.

While Ameritrade and E*Trade, as well as peer Charles Schwab Corp., have been gaining ground in recent months on speculation of consolidation in the online brokerage sector, another trader said E*Trade is the best buy as he sees it trading at the biggest bargain.

"E*Trade, at least, in my thinking had been undervalued and was waiting to explode," the trader remarked.

"It was just a matter of time."

Charles Schwab, which on the Ameritrade news said it was not interested in a merger with Ameritrade or E*Trade, was higher Friday as well. The above trader said Chuck is still finding buyers on anticipation of some deal or that it will pay a special dividend from the $3.3 billion sale of U.S. Trust bank, which is scheduled to close in July.

Schwab shares (Nasdaq: SCHW) added 51 cents on Friday, or 2.4%, to close at %21.73.

U.S. Steel selling into rally

While U.S. Steel shares marked a sharp gain Friday on takeover speculation, one trader noted there was heavy selling on the rally as many skeptics loomed about a Rio or other takeover.

"They [U.S. Steel] just bought Lone Star so it's sort of difficult to believe they are talking to someone else. Of course, this could be a hostile takeover, but it seems like that would be more likely to come from PE [private equity]," the trader commented.

In late March, U.S. Steel said it was expanding into oil and gas services with its $2.1 billion buyout of oilfield drill pipe maker Lone Star Technologies.

U.S. Steel (NYSE: X) traded in a band of $113.24 to $127.26 before settling at $125.05 for a gain of $9.25 on the day, or 7.99%.

"We saw U.S. Steel open very weak and then the chatter was spreading around and it started to trade up but the selling never stopped; in fact, I'd say that it got heavier all through the day," the trader said, noting that a whopping 14.2 million shares traded versus the norm of 3.45 million.

Rio shares (NYSE: RIO) advanced $1.27, or 2.94%, to $44.42.

Cleveland-Cliffs climbs back

Cleveland-Cliffs reported Friday that first-quarter earnings fell 14% but the stock rose with the metals sector on takeover speculation, which has surrounded the company for several weeks.

Earlier in the week when the market was tanking, Cleveland-Cliffs took a dive as the market perceived that an asset sale would eliminate it as a takeover candidate. But one trader said it turned into a buying opportunity as more players continue to believe the company will go into play soon.

Cleveland-Cliffs (NYSE: CLF) shot up Friday by $2.03, or 2.46%, to $84.63.

On Friday, the Cleveland, Ohio-based company reported first-quarter earnings fell by $5.4 million to $32.5 million, or 62 cents a share, compared with $37.9 million, or 69 cents a share, a year before, while revenues rose 6% to $325.5 million. That was well below analysts' expectations, the trader said.

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