Dell deal expected; coal industry predicted to unite; Capitol to liquidate without buyout

By Cristal Cody

Tupelo, Miss., June 11 - Dell Inc. must make an acquisition if it wants to stay competitive, an analyst told Prospect News on Thursday.

In other potential situations, the James River Coal Co. is attracting attention as a possible takeover target since the mining industry is expected to consolidate further, an analyst said in an interview Thursday.

Also on Thursday, Capitol Acquisition Corp. said if shareholders reject its acquisition by Two Harbors Investment Corp. to create a new real estate investment trust, the company will liquidate in November.

Meanwhile, stocks closed up on Thursday. The Dow Jones Industrial Average gained 31.90 points, or 0.37%, to close at 8,770.92.

The Standard & Poor's 500 index rose by 5.74 points, or 0.61%, to 944.89, and the Nasdaq Composite index added 9.29 points, or 0.50%, to close at 1,862.37.

Dell looks for action

Dell has about $9 billion in cash and has made several key hires for deal activity.

In May, Dell hired David Johnson to head up its mergers and acquisitions activity, but Johnson's former employer, International Business Machines Corp., has filed suit to end his new role over a no-compete clause.

"They're clearly angling to make an acquisition," Andy Hargreaves, an analyst with Pacific Crest Securities, Inc. told Prospect News on Thursday. "They've got the cash and they're hiring M&A people."

Does the Round Rock, Texas-based computer manufacturer need to do a deal this year?

"That depends on what their goals are," Hargreaves said. "If their goal is to grow, they need to do it."

Dell shares added 33 cents, or 2.55%, to close Thursday at $13.27.

IBM shares gained $1.05, or 0.97%, to close at $109.40.

Coal industry consolidation

Dahlman Rose & Co. initiated coverage of Richmond, Va.-based mining company James River Coal with a "buy" rating on Thursday.

"We believe JRCC is a logical target for potential consolidators in Central Appalachia," Dahlman Rose analyst Daniel Scott said in a research note released to Prospect News.

Scott set a $28.00 price target on the stock.

"We believe that the company's attractive contract position and takeout potential more than offset concerns about lower liquidity levels," he said.

A market source also told Prospect News on Thursday that it's "no secret the group is likely going to consolidate more."

Alpha Natural Resources, Inc. said in May it would acquire Foundation Coal Holdings, Inc. in a $2 billion stock deal, and that transaction was "probably the first of a few" to come, the source said.

Potential acquirers for James River Coal include Abingdon, Va.-based Alpha Natural Resources; Richmond, Va.-based Massey Energy Co.; Scott Depot, W.Va.-based International Coal Group, Inc. and Tampa. Fla.-based TECO Energy Inc.

"JRCC is one that's probably attractive to Massey or International Coal," the source said. "It would make sense for the right price and the right deal for some of these guys."

Shares of James River Coal gained 52 cents, or 2.32%, to close at $22.92 on Thursday. The stock has traded from $5.05 to $62.83 over the past year.

Linthicum Heights, Md.-based Foundation Coal's stock increased by $1.21, or 4.10%, to $30.73, while shares of Alpha Natural Resources added $1.01, or 3.64%, to close at $28.74.

Massey's stock rose 78 cents, or 3.12%, to $25.81.

Shares of International Coal added 17 cents, or 5.03%, to $3.55.

TECO shares closed up 45 cents, or 3.89%, at $12.01.

Capitol to form REIT

Capitol Acquisition said Thursday it will be acquired by Two Harbors and managed by Pine River Capital Management LP to focus its business on residential mortgage-backed securities.

The transaction is expected to be completed by the end of the third quarter, pending approval by Capitol Acquisition stockholders and warrant holders.

Under the terms of the merger agreement, Capitol Acquisition investors will have the option to receive a share of Two Harbors or a cut of the cash-in-trust, which is currently valued at $9.87 a share.

Capitol Acquisition, a Washington, D.C.-based blank check company, said if the takeover is rejected or the acquisition cannot be completed by Nov. 8, the company will liquidate in November.

"We believe a properly structured vehicle would provide excellent capital base to access the merger market," Tom Siering, who will be the chief executive of the Two Harbors REIT, said on a conference call on Thursday. "This vehicle could be created more cheaply than a regular REIT IPO and deliver critical speed to market."

Capitol Acquisition held its initial public offering in November 2007.

Shares closed up 12 cents, or 1.25%, at $9.73 on Thursday.

Mentioned in this article:

Alpha Natural Resources, Inc. NYSE: ANR

Capitol Acquisition Corp. NYSE Amex: CLA

Dell Inc. Nasdaq: DELL

Foundation Coal Holdings, Inc. NYSE: FCL

International Business Machines Corp. NYSE: IBM

International Coal Group, Inc. NYSE: ICO

James River Coal Co. Nasdaq: JRCC

Massey Energy Co. NYSE: MEE

TECO Energy Inc. NYSE: TE

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