Movie Gallery run seen limited; Winn-Dixie spikes; Lear lifted; Calpine quietly better; NutriSystem up

By Ronda Fears

Memphis, Feb. 6 - Lear Corp. was the only deal name on Tuesday extending big gains from the previous session as one of its big stockholders aired a complaint about the buyout offer being too low - a view that traders said restrained gains and even set back some of other names with deal news on the tape Monday.

The Lear bid drew criticism from stockholder Pzena Investment Management LLC, and on Tuesday hopes of a better bid pushed Lear shares (NYSE: LEA) up by $1.98, or 5.12%, to $40.62 - remaining well ahead of the $36-per-share offer from Carl Icahn and affiliates. The surge followed an 11.45% advance in Monday's regular session on the Icahn bid and a 3.36% further gain in after-hours activity on the Pzena objection.

Meanwhile, amid disappointing deal terms from Monday, however, Triad Hospitals Inc., Longview Fibre Co., Herbalife Ltd., The Mills Corp. and Investors Financial Services Corp. were mixed Tuesday but overall little changed. Also, of note, Equity Office Properties Trust was better with a boosted bid from The Blackstone Group on the table, but rival bidder Vornado Realty Trust was higher as well.

One trader remarked that with those situations pretty much set up at the close of Monday, several distressed stock names were finding interest.

Movie Gallery Inc. shares were extending recent gains on news Tuesday that the anticipated refinancing of its bank debt had been arranged; but a distressed stock trader said that while the measure buys Movie Gallery some time, he expects the gains to be short-lived, citing news that Wal-Mart Stores Inc. on Tuesday launched the latest in a growing stream of online movie access ventures.

Among bankrupt stocks, Calpine Corp. shares came well off the day's high to close unchanged amid very light volume as players await a court hearing Wednesday to consider the company seeking rights offering sponsors for its reorganization plan. The stock has been on a steady incline for the past month or so in anticipation that a plan backer would emerge.

In another distressed name, Winn-Dixie Stores Inc. shares surged 8% with a trader citing big buyers as well as big sellers, the latter of which he described as former bondholders of the Florida-based grocery chain who were exiting the story once the stock passed a $16 threshold. While buying has pushed the stock considerably since Winn-Dixie emerged bankruptcy in December, an analyst said the story remains the same and he is skeptical of the stock price.

Elsewhere, Las Vegas Sands Corp. shares slumped more than 3% on disappointing, albeit higher, fourth-quarter results; but traders said the big action was in unwinding in $100, $105 and $110 February calls. One trader said he reckons, however, that once the earnings-related move is absorbed, the Sands story could get a bounce as it is one of a handful of casino operators in the running for the new so-called supercasino soon to be let for bids in the United Kingdom.

NutriSystem Inc. also was extending gains from the previous day, when it got a nice bounce on the Herbalife buyout news. On Tuesday, though, a trader said the stock was gaining on encouragement from new comScore Network Inc. numbers showing a 107% gain in its web traffic, but he acknowledged ongoing concern about the company's future growth potential.

NutriSystem shares (Nasdaq: NTRI) added $1.03 on the day, or 2.33%, to $45.27, nearly matching a 2.41% advance the prior session. The trader said the stock has been hit hard since November when news emerged on the prescription anti-obesity drug Acomplia, which has been approved in Europe, advancing to the United States under the brand Zimulti.

Sands call options unwind

Las Vegas Sands stock was retreating Tuesday in a big way on the heels of its fourth-quarter report after the close Monday, but traders said the February options traffic, showing rapid unwinding in calls, was more interesting although one trader thought the reversal was ahead of itself.

"Sands options came in big - the earnings were a little disappointing - but I'm not getting too excited," said one options trader.

Sands shares (NYES: LVS) fell $3.41 on the session, or 3.28%, to $100.68. The trader noted heavy February options contract activity with the $100 calls falling $3.30 to $3.30, the $105 calls plunging $2.50 to $1.21 and the $110 calls plummeting $1.54 to 36 cents.

He said that while Sands' earnings were a disappointment to many onlookers, the numbers "were fine," and the company's prospects with the U.K. supercasino as well as expansion in China suggest there is more upside than downside potential in the stock.

Sands reported Monday that fourth-quarter profit rose 3.3% from a year ago, citing big revenue gains in Macau and the house winning an even greater share than normal at high-stakes tables at its Venetian casino in Las Vegas. The company earned $113.6 million, or 32 cents per share, for the quarter, up from $110.1 million, or 31 cents a share, a year ago, while revenue rose 27.1% to $636.3 million.

On Tuesday, Sands said it plans to bid to run Britain's first Las Vegas-style supercasino in Manchester. The U.K. Casino Advisory Panel also said 16 other cities were named for smaller casinos.

In addition to the Sands, the trader said other bidders are expected to be Kerzner International, Harrah's Entertainment Inc. and U.K.-based Ladbrokes. Europe's biggest gaming concern, Gala Coral, said Tuesday that it will not enter the bidding war for the Manchester supercasino. Companies will learn in the next two months how they should submit their bids.

Sands is expanding on several fronts in Asia, one of the hottest geographic regions for gaming growth, and runs a casino in Macau, China. Total gambling revenue in the former Portuguese enclave has since surpassed that of the Las Vegas Strip, reaching $7 billion last year, according to the trader, who said he was citing his firm's analyst on that data.

S&P analyst Thomas Graves reiterated a hold on Las Vegas Sands shares on Tuesday but bumped up his 12-month target price to $105 from $73, citing the value of the company's China real estate.

"We look for various Sands-related projects to open in the Cotai area of Macau over the next few years," Graves said in a report. "In our view, the fourth quarter growth of the overall Macau gaming market, with gaming revenue up 45%, and Sands' licensing success for a Pennsylvania casino project bodes well for longer-term prospects."

Movie buys time with refi

Movie Gallery bought some breathing room, as one stock trader put it, with the refinancing of its senior secured credit facility news Tuesday, which had been widely expected, but the fundamentals for its movie rental business are still in jeopardy. In particular, he saw the Wal-Mart news of launching another movie download venue as "another nail in its coffin."

Nonetheless, Movie Gallery shares (Nasdaq: MOVI) traded in a band of $3.96 to $4.21 before settling with a gain of 30 cents on the day, or 7.96%, at $4.07 with some 3 million shares traded versus the norm of 1.4 million shares.

The Dothan, Ala.-based company entered a financing commitment with Goldman Sachs Credit Partners LP, which will act as sole lead arranger, for the bank refinancing. In addition to refinancing the senior secured credit facility, Movie Gallery said it will use proceeds to replace existing letters of credit and as working capital.

Taking on Apple's iTunes Store and Amazon's Unbox, Wal-Mart on Tuesday announced the opening of its video download site on Tuesday, the first to include movies from all six major studios. Those follow the onset of online movie rentals grandfather Netflix Inc., and all are expected to take a big bite out of traditional movie rental sites such as Movie Gallery and Blockbuster Inc., which has introduced its own version of online rentals to answer such competition.

"Everyone expected this news," of the bank refinancing, one trader said.

"I think the stock was a good buy on the $2 handle but now it doesn't look so good. The story is still the same, and the Wal-Mart news was just another hard blow. They did buy some time, though."

He said market chatter that has circulated for months about Movie Gallery being a buyout or takeover target seems to have run its course, having been largely dismissed as unlikely.

Winn-Dixie up on hype

Similar remarks were heard from another trader regarding the spike in Winn-Dixie shares, which also surged 8% on Tuesday, but sans any news.

One trader said it was good two-way action with buyers for unknown reasons while sellers were former bondholders taking profits. An analyst reckoned that the buying was on hype from company executives of its recovery since exiting bankruptcy, which he couched as "hype."

Winn-Dixie shares (Nasdaq: WINN) gained $1.27 on the day to $17.44.

"I truly don't know what the thinking is from the buyers' standpoint. There has been talk of it being a real estate play but they lease a lot of their stores. I do know there was no one extremely aggressive buyer," the trader said.

"Sellers were taking profits, and a lot of those were the bondholders who were happy to sell once the stock got over $16."

Holders of the company's 8 5/8% notes were distributed stock when the Florida-based grocery chain emerged bankruptcy in December. Winn-Dixie was authorized a float of up to 150 million shares of new common stock via the bankruptcy reorganization and 54 million shares were issued to creditors under the plan. Previous equity holders and subordinated claimholders received no distribution.

The stock debuted in the when-issued market in November at $12 and has traded in fits and spurts since, but mostly on an upward trend, stumping traders and supermarket industry experts.

Supermarket analyst David Livingston of Milwaukee-based DJL Research said he finds no relationship to the Winn-Dixie stock price and the company's valuation. The trader also said his shop's analyst was not able to get to the current stock valuation.

Livingston said that even with Winn-Dixie emerging bankruptcy he still sees little hope for the company. Moreover, he said the company has the same fundamental problems as before bankruptcy: declining same-store sales figures amid competition from Wal-Mart and Publix.

"We're not seeing any meaningful change" at Winn-Dixie since it emerged bankruptcy, Livingston told Prospect News on Tuesday. The company is spouting that it plans on spending $1.5 million per store on refurbishment, but the analyst said that will not be much in today's remodeling costs, probably no more than "a coat of new paint and some new signs."

Rather, Livingston expects to see further store closings from Winn-Dixie. The Jacksonville, Fla.-based supermarket chain, concentrated in the Southeast, since filing Chapter 11 in February 2005 has closed 326 stores - right at a third of its stores.

"Their CEO has been doing some showmanship to sell the idea of their recovery," Livingston said. "I suspect that is what's driving it, but a stock price and the value of the company sometimes is totally unrelated."

Calpine players waiting

It was described as a waiting game for Calpine as players await news from a court hearing scheduled for Wednesday to discuss a process for the independent power producer to seek sponsors for its rights offering. One distressed stock trader said that there have been rumors that a sponsor is in the wings for several weeks and that has propelled buying in the stock, largely from bondholders.

Calpine shares (Pink Sheets: CPNLQ) came well off the day's high of $1.43 to close unchanged at $1.36 amid very light volume of 2.87 million shares compared with the norm of 8.52 million shares.

The shareholders committee in the Calpine bankruptcy case has complained about the way the company's investment bank, Miller Buckfire & Co., is exploring a possible equity rights offering on the company's behalf. Calpine also has sought court authorization to amend the terms of Miller Buckfire's employment so that the investment bank may explore the possibility of an equity rights offering to help facilitate its bankruptcy exit.

Calpine has asked the court to approve its revised contract with Miller Buckfire so it could be in a position to raise exit capital by offering new equity or equity-linked securities.

The matter is the subject of a hearing scheduled for Feb. 7.

In court documents, the shareholders committee asserts Miller Buckfire, and Calpine itself, has shut the committee out of the capital-raising process.

Calpine and New York-based Miller Buckfire have been talking to unnamed third parties about an equity deal that could limit Calpine from getting maximum value for all parties in its bankruptcy, according to the shareholders committee, which did not name the third parties. When the committee was formed in May 2006, among the members was Seattle hedge fund Steelhead Partners LLC.

San Jose, Calif.-based Calpine filed Chapter 11 in December 2005, listing $22.5 billion in total debt and $26.6 billion in assets. Since then, it has sold or closed roughly one-fifth of its 92 plants and trimmed its work force by one-third. The company recently replaced its $2 billion debtor-in-possession loan with a $5 billion package arranged by Credit Suisse, Goldman Sachs, JPMorgan and Deutsche Bank.

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