Disney steals show; Echostar cast as takeover target, too; Safeguard advanced

By Ronda Fears

Nashville, Feb. 11 - Walt Disney Co. rose sharply Wednesday as Comcast Corp. aired a hostile takeover bid valued upward of $50 billion. The event also put the spotlight on a lineup of entertainment, cable and satellite broadcasting names as potential takeover targets, with Echostar Communications Corp. central to the buzz.

New deal flow didn't skip a beat, either, as Alliant Techsystems Inc., Safeguard Scientifics Inc. and Incyte Corp. pitched another $500 million of new paper to the market.

Initially, those three deals were set to price after the market close Thursday.

Safeguard, however, was seen getting advanced by bookrunner Wachovia Securities to price after Wednesday's close. It was launched before the open Wednesday with guidance of 2.375% to 2.875%, up 34% to 42%. In the gray market, buyside traders said there were no bids, but the offer was at 1 point over issue price.

On tap after Wednesday's close as well were Dick's Sporting Goods Inc. and Citadel Broadcasting Corp.

Alliant Tech and Incyte both launched after Wednesday's close, and at least Incyte was already showing activity in when-issued market with a bid at issue price in the Street.

Those came on the heels of InterMune Inc., CuraGen Corp. and Fluor Corp., all of which were straddling par right out of the gate.

Disney players in risk arb, vol

Disney was on the lips of nearly all the traders Wednesday after Comcast went public with a hostile takeover bid for the entertainment giant, after a private offer was rebuffed.

"Lots of arbs were getting involved," said one dealer.

"The [Disney] converts shot up early to about 115 and then leveled off there and stayed there for the rest of the day."

In addition to convertible arbitrage players getting involved with volatility bets (see a full story on that subject elsewhere in this edition), there were risk arb, or event-driven, hedge funds involved in Disney shares.

There were plenty of outright players getting in on the action, too, dealers said.

"Disney had already hit some radar screens [as a buy] in the last couple of weeks as it dipped in line with the market," another dealer said.

Disney's 2.125% convertible due 2023, a $1.325 billion issue, spiked upward by 8 points on an outright basis, and 0.5 point on swap, traders said. The issue settled at the end of the day at 115.25 bid, 115.5 offered.

Disney shares soared $3.52, or 14.62%, to 27.60.

The company released earnings Wednesday, too, earlier than planned as a result of the headlines. Beating analysts' estimates handily, Disney reported first-quarter earnings of $688 million, or 33 cents a share, up from $36 million, or 2 cents a share, in first quarter 2002. The First Call average estimate for Disney's first-quarter earnings was 23 cents a share.

Credit rating agencies responded to the news by putting Comcast on watch for upgrade and Disney in a position to possibly be downgraded.

Comcast aired a hostile takeover bid for Disney, beginning the process with an offer to issue 0.78 shares of its class A voting common stock for each Disney share - a 10% premium from where Disney shares closed Tuesday.

Most onlookers, though, expect Comcast will have to sweeten its offer, and a rival could throw a wrench into the works.

While the event may have caught some off guard, a week ago, CreditSights staff pointed out in a report that merger and acquisition volume already in 2004 leaves no doubt that it will dominate the corporate landscape this year, and made a "pure speculation" that Disney may be a target for Comcast.

Media M&A scope widens

As merger and acquisitions are already on the rise, buzz along those lines has become rampant. The prospects of a Comcast union with Disney brought out several speculators on the broader media crowd.

In the wake of News Corp.'s deal for Hughes Electronics Corp.'s DirecTV, speculation turned to another big convertible issuer, Echostar.

Echostar's stock rallied and the convertible bonds went along for the ride, also finding lots of buyers, traders said.

The Echostar 5.5% convertible due 2008, a $1 billion issue, gained 1.25 points to 105.625 bid, 106.125 offered. The underlying stock rose $1.58, or 4.19%, to $39.28, on heavy volume. Roughly 12.5 million shares of Echostar stock changed hands versus the three-month running average of 3.5 million.

"It's a natural progression to look at how the landscape of entertainment might change if Comcast is successful in merging with Disney," a convertible trader at a hedge fund in New Jersey said.

"The chatter about DISH is nothing new, really, at least insofar as a takeover target. Some of the speculation about who the suitor would be is new and interesting. That, I think, is what made it a fresh play today."

She said one of the more interesting speculations was a that General Electric Co., parent of NBC that recently bought Universal Studios, would be the "best, mutually beneficial" fit with Echostar. Another bandied about in the wake of the Comcast/Disney news as potential Echostar suitors, she said, was SBC Communications.

Silicon Graphics soaring still

In recent sessions, market sources have pointed out that the new Silicon Graphics Inc. convertibles, created by virtue of an exchange last year, have just continued skyrocketing.

A month ago the 6.5% issue was at 242, after zooming from par in the last week of December when it was free to trade following the exchange.

On Wednesday, a trader said the Silicon Graphics 6.5% convertible ended at 311 bid, 312 offered.

Silicon Graphics stock on Wednesday closed up 40 cents, or 11.76%, to $3.80.

A source of the latest surge, according to market sources, was news on the tape that Silicon Graphics, which builds computers for special effects and graphics, said Wednesday it is in talks to sell its Alias software business to a private-equity investment firm. Alias makes software for personal computers.

The buyer is still a mystery, however.

Alias had about $65.1 million in revenue for the year ended June 27, according to Silicon Graphics. A convertible analyst said a software firm should sell for around a minimum of 1 times sales, or at least the $65 million in revenues Alias generated.

That would be good for Silicon Graphics bondholders, the analyst said, in that there would be credit improvement and more cash on the balance sheet.

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