Marriott up on private equity rumblings; SLM still does business; Scripps splits

By Evan Weinberger

New York, Oct. 16 - Marriott International Inc. soared on renewed speculation that a private equity takeover of the hotelier was on tap.

SLM Corp. was up as well, partly on word that it was able to finance more than $1 billion in student-loan backed securities over the course of the third quarter and partly because there was no public fighting with J.C. Flowers & Co.

Separately, E.W. Scripps Co. announced a dramatic restructuring Tuesday that will see the company split into two publicly traded entities.

And one new deal was announced, as Quest Resource Corp. and Pinnacle Gas Resources, Inc., two firms specializing in natural gas mining in the continental United States, will merge in an all-stock transaction. The combined companies will have a market capitalization of around $450 million.

Stock markets had another bad day as oil prices were up (again) and Federal Reserve chairman Ben Bernanke and Treasury secretary Henry Paulson's spirits were down. Paulson was particularly downbeat, saying that the subprime mortgage crisis was a threat to economic growth and that the bottom had not yet been reached.

The Dow Jones Industrial Average was down 71.86 points, or 0.51%, for a 13,912.94 close. The close marked a rally from earlier depths of around 100 points.

The Nasdaq was down 16.14 points, or 0.58%, to close at 2,763.91. Yahoo! Inc. and Intel Corp. announced earnings that beat Wall Street expectations after the close.

The Standard & Poor's 500 lost 10.18 points, or 0.66%, to close at 1,538.53.

Marriott up on speculation

On an otherwise down trading day, shares of Marriott International soared on takeover speculation. Financial blogs were abuzz with buzz that some white knight would ride in and buy the Washington-based hotel operator. Several reported that trading in Marriott options was up big time over the course of the day. Those options, the blogs report, came in at prices that implied an increased likelihood of a takeover.

But where does the speculation come from? There are no private equity firms currently linked to Marriott. One market watcher speculated that with the Blackstone Group's purchase of Hilton Hotels Corp. set to close - the only remaining "t" to cross is European Commission approval, which is expected to come Friday - the chatter began to swirl around Marriott. "I think you're getting closer and closer to Hilton closing," he said.

A similar phenomenon occurred when the Blackstone Group made its play for Hilton in July, the market watcher noted.

Marriott stock (NYSE: MAR) gained $1.46, or 3.59%, to close at $42.14 Tuesday.

Sallie Mae still doing business

A report from the Dow Jones newswires Tuesday said that Sallie Mae sold $1.6 billion in student-loan backed securities over the third quarter. None of the banks underwriting those securities are part of the consortium led by J.C. Flowers & Co. that is trying to get out of the deal to buy the Reston, Va.-based student loan giant.

One market watcher said that there shouldn't be too much read into the banks that were the underwriters on that paper. But there is a larger message in the deals. "It's just a good sign that they were able to do business," he said.

There was no further news on the court case and breakup of the deal to take Sallie Mae private Tuesday.

With the swirl of information surrounding Sallie Mae (NYSE: SLM), the stock rebounded Tuesday. The stock added $1.18, or 2.57%, to close at $47.09 on the day.

E.W. Scripps divides in two

Venerable Cincinnati-based media conglomerate E.W. Scripps announced Tuesday that it would split its cable television and internet business from its print media and broadcast operations. Both new companies will be publicly traded.

Scripps Network Interactive will include HGTV, the Food Network, DIY Network, the Fine Living Television Network and Great American Country, along with the associated web sites. Online shopping comparison web sites Shopzilla and uSwitch will also come under Scripps Network Interactive's umbrella. The new company has $1.4 billion in revenues and 2,100 employees, according to a statement released by the company.

The other half of the split operation, the E.W. Scripps Co., will include daily and community newspapers in 17 U.S. markets; 10 broadcast television stations clustered among the nation's largest 50 markets, including six ABC affiliates, three NBC affiliates and one independent station; the character licensing and feature syndication businesses operated by United Media; and Scripps Media Center in Washington, D.C., which includes the Scripps Howard News Service. The businesses combine for $1.1 billion in revenues and about 7,100 employees.

"This is an important and logical next step for our shareholders, employees and all other stakeholders who have a direct interest in the success of our media businesses," Kenneth W. Lowe, president and chief executive officer for Scripps, said in the statement. "It's our intention to create two publicly traded companies, each with a sharpened strategic focus that would foster continued growth, solid operating performance and a clear vision on how best to build on the specific strengths of our national and local media franchises."

Scripps shareholders approved the split Tuesday, and it is expected to go into effect in the second quarter of 2008.

Investors were clearly pleased by the plan to save Scripps, which was founded in 1878. The stock (NYSE: SPP) shot up $3.65, or 8.63%, to $45.93 on Tuesday.

Quest, Pinnacle mine deal

Although it wasn't one of those billion-dollar all-cash deals market watchers like to see, Quest Resource Corp. and Pinnacle Gas Resources, Inc. announced that they had agreed to a stock-for-stock merger Tuesday morning. Pinnacle shareholders will receive 0.6584 shares of Quest stock as part of the deal. In total, Pinnacle shareholders will receive around $207 million worth of Quest common stock.

The combined company, according to a joint statement released by the companies, will have a market capitalization of around $450 million. Quest stockholders will own 55% of the combined company, and Pinnacle stockholders will own 45%. Quest chairman, president and chief executive officer Jerry Cash will maintain his position in the combined firm. Quest will appoint four members to the board of directors and Pinnacle three.

The deal is expected to close in the second quarter of 2008.

Oklahoma City-based Quest is the largest natural gas miner in the Cherokee Basin area of southeast Kansas and northeast Oklahoma. Pinnacle develops coal bed methane deposits in the Rocky Mountains. Pinnacle is based in Sheridan, Wyo.

"The merger combines dominant acreage and operating positions in two prolific low risk resource plays with over 1 million acres under lease that will allow considerable growth in production, reserves and pipeline development," said Peter G. Schoonmaker, Pinnacle's president and CEO, said in a statement.

"This transaction creates a geographically diversified, CBM-focused company with significant reserve potential," Cash added.

Quest stock (Nasdaq: QRCP) tumbled $1.54, or 14.23%, to close at $9.28.

Pinnacle stock (Nasdaq: PINN) went the other way, gaining $1.09, or 22.43%, to close at $5.95.

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