Market cools to Watson Wyatt deal; Broadcom makes last Emulex bid; NOVA buy likely on track

By Cristal Cody

Tupelo, Miss., June 30 - Shares of Watson Wyatt Worldwide, Inc. fell a second day on Tuesday after the firm said it will merge in a $3.5 billion all-stock deal with fellow consulting firm Towers Perrin Forster & Crosby, Inc.

In other situations, Broadcom Corp. said a sweetened bid of $11.00 a share for Emulex Corp. is its final offer, but ultimatums don't mean much, an analyst told Prospect News on Tuesday.

Meanwhile, NOVA Chemicals Corp. said the review by the Investment Review Division of Industry Canada of its merger with International Petroleum Investment Co. of Abu Dhabi was extended to July 6, but the delay is not expected to impact the deal's closing, an analyst said in an interview Tuesday.

On Wall Street, markets dropped Tuesday on renewed consumer worries.

"Early equity gains evaporated as disappointing consumer confidence data raised concerns about the economy," Bill O'Grady, chief market strategist with Confluence Investment Management LLC, said Tuesday. "All 10 sectors closed lower with consumer discretionary and technology the strongest performers - telecom and materials were the weakest."

The Dow Jones Industrial Average lost 82.38 points, or 0.97%, to close at 8,447.00.

The Standard & Poor's 500 index slid 7.91 points, or 0.85%, to 919.32, and the Nasdaq Composite index fell 9.02 points, or 0.49%, to end at 1,835.04.

Market puzzles over merger

Watson Wyatt shares followed an 8.00% drop on Monday with a loss of 47 cents, or 1.24%, on Tuesday to close at $37.53. Shares have traded from $32.56 to $62.00 over the past year.

The deal to merge with Tower Perrin, announced late Sunday, will create the world's largest human resources consulting firm.

Watson Wyatt shareholders will receive 50.00% of the shares in the combined company, while Towers Perrin shareholders and employees will retain the other half.

Analysts with Stifel Nicolaus & Co., Inc., said in a research note on Tuesday that Watson Wyatt "typically uses a fair amount of equity in its acquisitions, and as we understand it, believes that the acquisitions in people businesses are more successful when the acquired entity has a large equity stake."

Towers Perrin, a privately held services firm based in Stamford, Conn., and Arlington, Va.-based Watson Wyatt already are well-known names among the consulting industry, Stifel Nicolaus said.

"We don't see how positioning that business as part of the combined Towers Watson would necessarily open more doors than TP could open on its own," the analysts said.

"The deal is dilutive for two-three years, and we are on the fence with regard to revenue. We view this deal as an effort by two leading companies in a mature market to try to improve growth where the long-term trends for the core pension consulting business are negative."

Broadcom makes final bid

Broadcom increased its cash bid for Emulex late Monday to $912 million, or $11.00 a share, from $764 million, or $9.25 a share. The offer represents a premium of 66.00% to Emulex's closing stock price on April 20, the day before Broadcom announced its initial offer.

"This is the best offer Broadcom intends to make, reflecting Broadcom's assessment of the publicly available information on Emulex and the value Broadcom anticipates for itself from an expedited transaction," Scott A. McGregor, president and chief executive officer of Broadcom, said in a letter to Emulex executive chairman Paul Folino.

Broadcom also extended its tender offer to July 14.

"We intend to allow our offer to expire at the end of that period if the Emulex board has not at that time indicated its support for the transaction that we have proposed," McGregor said.

Ashok Kumar, an analyst with Collins Stewart LLC, told Prospect News on Tuesday that Broadcom's bid is the "best offer based on publicly available information, which means probably they're willing to go higher, contingent upon due diligence."

As for Broadcom's assertion that it will let its tender offer expire, "ultimatums don't really mean much," Kumar said. "Broadcom needs Emulex, not the other way around."

Broadcom, an Irvine, Calif.-based semiconductor company, first launched a tender offer for Emulex on May 5.

"Broadcom's clearly intent on purchasing Emulex," Kumar said. "The bottom line is unclear whether the meeting of the minds is going to be on price."

Emulex, a Costa Mesa, Calif.-based data network storage manufacturer, said in a statement that it will review the revised bid and make a recommendation to shareholders.

McGregor also tried to negotiate a friendlier transaction in the letter and said Broadcom will end plans to seek a special meeting of Emulex investors and will dismiss a lawsuit that challenged Emulex's bylaws and takeover provisions.

Shares of Emulex closed down $1.10, or 10.11%, at $9.78 on Tuesday.

Broadcom shares fell 12 cents, or 0.48%, to close at $24.79.

Canada give NOVA second look

NOVA Chemicals said Tuesday that it expects to close its $6.00-a-share buyout shortly after receipt of the regulatory approval by the Investment Review Division of Industry Canada.

Frank Mitsch, an analyst with BB&T Capital Markets, told Prospect News on Tuesday "we expect that IPIC should close on its acquisition in the back half of Q2."

Shareholders approved the Calgary, Alta.-based plastics and chemical maker's acquisition by International Petroleum, an investment firm owned by the Abu Dhabi government, in April.

NOVA shares closed unchanged at $5.93 on Tuesday.

Mentioned in this article:

Broadcom Corp. Nasdaq: BRCM

Emulex Corp. NYSE: ELX

NOVA Chemicals Corp. NYSE: NCX

Watson Wyatt Worldwide, Inc. NYSE: WW

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.