E*Trade gets $2.5 billion cash infusion; VeraSun, U.S. BioEnergy shares climb; MGI seeks alternatives

By Sheri Kasprzak

New York, Nov. 29 - E*Trade Financial Corp. watched its shares slip more than 8.7% Thursday when the company received a $2.5 billion cash infusion from a group of investors led by Citadel Investment Group, after trading higher earlier in the session.

"Investors are antsy," said one sellside trader Thursday morning. "It makes sense that their stock is going up when they get a capital infusion. They [investors] want to know, even superficially, that things are going to be OK."

After gaining as much as 5% during early trading, the stock fell by 8.71%, or 46 cents, to settle at $4.82 (Nasdaq: EFTC). After the market closed, the stock gained 2 cents.

The transaction includes an immediate infusion of $2.4 billion with the rest to be funded by January.

Earlier this month, E*Trade's stock dove by more than half its value after the company announced it will sustain major write-downs and that prospects remain uncertain given ratings agency downgrades. Bankruptcy rumors have dogged the financial services company, but given that bankruptcy rumors have swirled around several financial services firms, this has little relevance, one market analyst said.

"I don't think it's likely that they'll file for bankruptcy," he said. "There are a lot of rumors that this company or that company is sure to file for bankruptcy this year or next year, or this company is in the process of filing. Most of the time, it's a lot of hooey. I don't put much faith in rumors."

In other news Thursday, VeraSun Energy Corp. announced plans to acquire U.S. BioEnergy Corp. to form what could be the world's largest biodiesel production company.

Shares of both VeraSun and U.S. BioEnergy climbed on the news, which was released Thursday morning.

E*Trade stock rises

In the infusion, E*Trade Financial will receive $1.6 billion in cash in exchange for 12.5% senior unsecured notes and common shares, including a contribution of capital by funds managed by BlackRock, Inc.

Also, Citadel acquired E*Trade's entire asset-backed securities portfolio, including its CDOs, for $800 million in cash.

Once the deal is settled, Citadel will buy another $150 million in 12.5% notes.

"This transaction with Citadel is not only a major vote of confidence from one of the world's leading financial institutions but also allows us to directly address customer concerns and get back to our real business, which is providing industry-leading products and services to our customers," said R. Jarrett Lilien, E*Trade's acting chief executive officer, in a statement.

Mitchell Caplan stepped down as CEO, the company announced Thursday. Donald Layton, who served as a special adviser to E*Trade Financial, will become chairman of the board. The former chairman, George Hayter, will remain a director of E*Trade.

"E*Trade Financial's board of directors, in cooperation with our financial advisors, conducted a thorough and robust review of strategic alternatives," said Layton in a news release.

"As part of this process, the company held discussions with potential strategic and financial partners. In the end, the board unanimously concluded that the transaction with Citadel clearly provides the greatest benefits to our shareholders and other constituencies. The company now has the financial strength to aggressively compete in the marketplace."

VeraSun, U.S. BioEnergy to merge

Elsewhere, VeraSun Energy will merge with U.S. BioEnergy.

The news sent shares of VeraSun up 33 cents to settle at $10.97 (NYSE: VSE), and shares of U.S. BioEnergy climbed by 39 cents to close at $8.42 and gained another 7 cents after hours Thursday (Nasdaq: USBE).

Under the terms of the deal, shareholders of U.S. BioEnergy will receive 0.81 share of VeraSun for every U.S. BioEnergy share held.

The transaction is set to close in the first quarter of 2008.

When the deal is done, VeraSun CEO Donald Endres will remain CEO of the combined company and U.S. BioEnergy CEO Gordon Ommen will serve as chairman of the combined company. VeraSun chief financial officer Danny Herron will serve as president of the company, which will retain the VeraSun name and continue trading under VeraSun's existing ticker symbol on the New York Stock Exchange.

"This merger is an opportunity for two leading companies in the renewable fuels industry to capitalize on synergies and provide value for shareholders," said Endres in a statement.

"It also underscores the commitment of each company to execute on its growth strategy to become a large-scale, low-cost ethanol producer. We are pleased with the opportunity to build a very unique industry platform."

The combined company will have nine ethanol production facilities.

VeraSun has headquarters in Brookings, S.D., and U.S. BioEnergy is based in St. Paul, Minn.

MGI eyes strategic alternatives

In other news, MGI Pharma, Inc. said Thursday it is evaluating possible strategic alternatives.

Shares of MGI jumped by 18.78%, or $5.55, on Thursday to end the day at $35.10, but lost 56 cents after the market closed (Nasdaq: MOGN).

MGI retained Lehman Brothers as its financial adviser to look into possible strategic transactions. The company, however, did not comment Thursday on what those possible alternatives might be.

"Contrary to statements recently reported, it is the company's policy not to comment on rumors and speculation regarding its review of possible strategic alternatives," said a statement from the company.

"In keeping with that policy, the company will not publicly disclose further information regarding the status of its evaluation until the process has been completed."

Minneapolis-based MGI is a biopharmaceutical company focused on cancer treatments.

Alliance denies Blackstone renegotiation

Finally, Alliance Data Systems Corp. shot down rumors on Thursday that Blackstone Capital Partners V LP has approached the marketing company with a renegotiation of its planned $7.8 billion merger.

"While it has been and remains Alliance Data's policy not to address market rumors, in the interest of its stockholders, management is today confirming that Alliance Data has not been approached by Blackstone or its affiliates regarding any renegotiation of the $81.75 per share cash purchase price to be paid to holders of Alliance Data common stock under the terms of the agreement and plan of merger entered into on May 17, 2007 among Alliance Data, Aladdin Holdco, Inc. and Aladdin Merger Sub, Inc.," said a statement released Thursday afternoon by Alliance.

"Further, Alliance Data is today confirming that neither its board of directors nor the special committee of the board of directors formed in connection with the transactions contemplated by the merger agreement has met, is meeting or has scheduled any meeting regarding any renegotiation of the terms of the merger agreement. The parties continue to work together to consummate the transaction."

Blackstone plans to buy Alliance Data Systems shares for $81.75 per share in cash.

On Thursday, shares of Alliance fell by 55 cents to end at $77.50 (NYSE: ADS). After the closing bell, the stock lost another $1.00.

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