Ameristar falls on deal; Borders rebounds; BioVeris skyrockets; Nanogen zooms; lenders lower

By Ronda Fears

Memphis, April 4 - Ameristar Casinos Inc. said on Wednesday it would pay $675 million for a casino complex near Chicago, which it intends to double in size, as it seeks to tap into the third-largest gaming market in the United States. But investors did not like the price tag and Ameristar shares tumbled more than 5%.

BioVeris Corp. zoomed, however, on the diagnostic testing firm's acquisition by biotech giant Roche Holdings AG at $600 million, or a whopping 58% premium to Tuesday's market. Given Roche's buyout of CuraGen Corp.'s 454 Life Sciences unit and Beckman Coulter Inc.'s purchase of diagnostic testing firm Biosite Inc., a trader said there was renewed buying in the subsector.

Nanogen Inc., for example, was sharply higher amid heavy volume. In addition to ongoing speculation that it could be a takeover target, the trader noted that the company said Wednesday it had been awarded a federal contract enabling it to sell its NanoChip products directly to government agencies.

Selling continued, though, in mortgage lenders as the Mortgage Bankers Association reported Wednesday that mortgage applications fell for the third straight week - down 3.2% in the week ended March 30 - as interest rates rose, underscoring anxiety that the housing industry will slide further as fewer lenders are willing to write subprime mortgages. Compounding the angst, on Tuesday the research firm First American Loan Performance reported delinquencies and late payments continue to mount.

Activity trailed off in New Century Financial Corp., the second-largest subprime mortgage lender that filed bankruptcy earlier in the week, but the stock was lower, along with Fremont General Corp. (NYSE: FMT), which fell 62 cents, or 9.69%, to $5.78 amid renewed concern about accounting problems, and Accredited Home Lenders Holding Co. (Nasdaq: LEND), which lost 43 cents, or 4.28%, to $9.61.

Several traders remarked that there were buyers looking at larger lenders like Countrywide Financial Corp., IndyMac Bancorp Inc., Wells Fargo & Co., Washington Mutual Inc. and Capital One Financial Corp. thinking they will weather the storm and gain market share. In addition, one trader said he was hearing interest in Fannie Mae and Freddie Mac, thinking that the quasi-government lending arms might pick up the slack. All of those names were lower in trade Wednesday, with low volume.

On pressure from stockholders, Borders Group Inc. rebounded Wednesday after reneging on plans to offer $250 million of convertible senior notes, which would ultimately cause some dilution in the stock. The book retailer said it decided, based on shareholder feedback, to not proceed with the issue but re-evaluate other financing alternatives. Borders (NYSE: BGP) advanced 40 cents, or 1.95%, to $20.94.

Flow International Corp. also was higher as majority stockholder Third Point LLC reiterated a demand that the company go on the auction block. The New York hedge fund first publicly asked the water pump maker's board to consider a sale on Feb. 2, following news of chief executive Stephen Light's upcoming retirement. Flow (Nasdaq: FLOW) gained 29 cents, or 2.66%, to $11.19.

Ameristar falls on acquisition

Las Vegas-based Ameristar was punished "rather harshly," as one trader put it, on its plans to pay $675 million to buy Resorts East Chicago, located about 25 miles from Chicago in East Chicago, Ind., from an affiliate of real estate investment firm Colony Capital LLC.

Ameristar shares (Nasdaq: ASCA) fell $1.87 on the news, or 5.76%, to $30.60 with volume of 1.74 million shares versus the norm of 295,795 shares.

"Everyone thinks they paid too much," said one trader, saying his analyst estimated the price tag was about 10.5 times EBITDA for Resorts East Chicago.

"There's also a lot of concern about competition in that market. It's a growing area but they will be up against some bigger gaming establishments, like Harrah's. So you could say the market is pricing in considerable risk."

Ameristar said the purchase was part of its plans to double earnings in three to five years. In February, Ameristar said it had at least $1 billion available for acquisitions to support this goal.

"The Chicagoland market has tremendous growth potential, and we are confident in our ability to compete successfully there," said Ameristar chief executive John Boushy in a news release.

Ameristar said the Chicago area generates more than $2.5 billion in annual gaming revenues, making it the third-largest domestic market, behind Las Vegas and Atlantic City.

The deal, which is expected to close in the fourth quarter, is subject to Ameristar completing due diligence and approval from gaming authorities.

BioVeris booms on Roche deal

BioVeris rocketed higher, though, on the whopping premium it is getting in the buyout by Roche, at $21.50 per share - a 58% premium to Tuesday's market. One trader said the price was "remarkable" and rekindled interest in the diagnostic testing group.

BioVeris shares (Nasdaq: BIOV) shot up $7.06, or 51.91%, to $20.66.

By acquiring BioVeris, Roche said it will own the complete patent estate of the electrochemiluminescence technology deployed in its Elecsys product line, giving it the opportunity to fully exploit the entire immunochemistry market. It follows Roche's move last week to buyout CuraGen's 454 Life Sciences, which focuses on high-throughput DNA sequencing, for up to $140 million in cash.

Also last week, Biosite agreed to be acquired by Beckman Coulter at $85 per share for a 53.5% premium to the previous day's close.

"They are paying big premiums for these testing companies," the trader said. "There is a lot of speculation in the group right now, and rightly so I suppose, when they are getting these kinds of prices."

Nanogen spikes on contract

San Diego-based Nanogen, Inc. saw heavy buying last week on the Biosite news, the trader said, and that increased Wednesday with the BioVeris news as well as Nanogen getting a government contract.

Nanogen (Nasdaq: NGEN) zoomed 30.95%, or 39 cents, to close Wednesday at $1.65.

"Volume was huge in Nanogen," the trader said.

"We may see some profit taking tomorrow [Thursday] but we think the long-term trend will be higher. There is big takeover potential here."

The company provides human molecular diagnostic products focused on the identification of the nucleic acid sequences, gene variations and gene expressions and diagnostics in four categories: instrumentation, reagents, test kits and custom assays.

On Wednesday, the company said it has been awarded a Government Service Administration schedule contract for its NanoChip 400 microarray instrument and reagents. The contract enables Nanogen to be listed on an approved GSA schedule and sell its NanoChip products directly to government agencies, such as the National Institutes of Health, military hospitals and Veteran's Administration.

"Securing a GSA schedule contract for the NanoChip platform is a terrific opportunity for Nanogen, because both current and new customers will be able to expedite future purchases through the GSA ordering process," said Nanogen chief operating officer David Ludvigson in a statement.

The Biosite news, however, inspired buyers for other diagnostic testing companies like Nanogen.

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