NRG still tracking Calpine; Chinese telecoms continue consolidation; BCE gets another day in court

By Aaron Hochman-Zimmerman

New York, June 2 - As often is the case, Friday's rebuff from Calpine Corp. to NRG Energy Inc. proved not to be the end of the story for the two.

Shares generally held still, but negotiations will likely keep moving for the energy firms, sources said.

With a moratorium on trading, shares did not move at all after it was announced that China Unicom Ltd. will buy China Netcom Group Corp. under the Chinese government's program of telecom consolidation.

Also in telecommunications, Canada's BCE Inc. slipped even as it won yet another day in court.

The Supreme Court of Canada will allow it to appeal the decision of a lower court which blocked the private equity takeover of the telecom firm.

Share prices were falling in the markets as the match-up of CME Group Inc. and Nymex Holdings Inc. seemed less likely to some.

Elsewhere, Harris Corp., shares were also damaged as the chief executive officer made clear his intention not to allow the company to sell.

Meanwhile, the larger market was suffering as the Dow Jones Industrial Average ended off by 134.50, or 1.06%, at 12,503.82, while the Nasdaq Composite Index lost 31.13, or 1.23%, to finish at 2,491.53.

The S&P 500 was lower by 14.71, or 1.05%, to close at 1,385.67.

Calpine bidding war possible, analyst says

On Friday, Calpine decided NRG's friendly all-stock merger transaction at a fixed exchange ratio of 0.534, or about $23 per share, undervalued its assets.

Still, "we continue to believe that our proposal offers significant strategic and financial benefits and we remain interested in a combination with Calpine on the terms we have proposed," said David Crane, NRG's chief executive officer in a release, after the initially private offer was taken public by Harbinger Capital Partners, Calpine's largest shareholder

According to analyst Gordon Howald of Calyon Financial, "NRG never intended to make this deal public.

"The initial offer by NRG is probably not sufficient to get this deal done," Howald added.

Still, "it's an attractive set of assets," he said about Calpine, indicating that other players may enter the arena to win over Calpine, but "there aren't that many players out there."

Despite recently suffering the sting of rejection, NRG may still be the most likely suitor, Howald said.

"I wouldn't be too surprised if they were to get into a bidding war," he said, suggesting a possible reoffer of $24.50 per share may be the magic number Calpine was waiting for.

With Calpine (NYSE: CPN) stock trading near $23 per share and allowing 6 to 9 months for the deal to be completed, "I would probably say if it's 6 to 9 months, a 6% discount," Howald said.

Shares of Calpine (NYSE: CPN) lost $0.16, or 0.70%, to close the day at $22.74.

NRG overpaying?

Another market source said NRG's use of its undervalued stock as payment in the deal overvalued Calpine.

The equity analyst said NRG, with its investor-friendly management, would be better off on its own.

Even if the two companies are combined, the analyst said, NRG still shows potential as an investment with its share price discounted to its intrinsic value.

Shares of NRG (NYSE: NRG) were unchanged at $41.59.

China telecoms to bundle

In line with what China Unicom called an "industry trend of convergence between fixed line and wireless businesses," it plans to buy China Netcom for 3.016 American depository China Unicom shares, according to a Unicom press release.

The total merger value is estimated at $15.8 billion or HK$439.16 billion, based on a closing price of HK$18.48 per Unicom share before a suspension of trading on May 23.

"After the transaction is completed, Unicom intends to consolidate the resources and strengths of Unicom and Netcom to achieve economies of scale and better position itself by establishing clearer strategic objectives," the release said as Unicom also plans to sell its code division multiple access (CDMA) business to China Telecom Corp. Ltd. for 43.8 billion yuan.

Equity trading is likely to resume Tuesday, a market source said.

Shares of China Netcom (NYSE: CN) last changed hands at $68.50 on May 23 before trading was suspended.

Shares of China Unicom (NYSE: CHU) last traded at $22.79, also on May 23 before the suspension.

The deal which is expected to close before the end of the year, has already received approval from 75% of Unicom's shares, the market source said.

BCE gets appeal

The Canadian Supreme Court granted BCE's motion for an appeal of the decision by the Quebec Court of Appeals which blocked the $52 billion buyout of the Canadian telecom by the private equity team led by the Ontario Teachers' Pension Plan.

BCE's bondholders had asked the court not to hear an appeal.

The bondholders claim that their interests are not fairly represented under the current framework of the deal.

The hearing in Supreme Court is scheduled for June 17.

Shares of BCE (NYSE: BCE) fell by $0.61, or 1.74%, to close at $34.53.

Market stocks sink

Both Nymex and CME Group shares were down by more than 4% as the Financial Times reported that CME's shareholders may not be in favor of a deal.

Many on the Nymex side feel that the original offer of $11 billion was fair, but now with CME's reduced share price, the current offer is too low.

CME said a $1 billion increase to the offer is not likely, but a smaller increase may be approved.

Shares of CME (NYSE: CME) sank $18.20, or 4.23%, to end at $412.10.

Shares of Nymex (NYSE: NMX) gave up $4.12, or 4.54%, to finish the session at $86.70.

Harris off the table

Harris Corp. shares were lower after chief executive officer Howard Lance said the company was not looking for a sale or merger.

Shares of Harris Corp. (NYSE: HRS) plummeted $10.18, or 15.48%, to end at $55.60 as the communications and information technology company will not entertain offers.

"Harris is uniquely positioned, with access to both government and commercial technologies, to continue to effectively serve the challenging requirements of our growing global assured communications markets," Lance said in a release.

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