Ballmer's comments add billions in value; Modelo jockeys for better deal; GM, Chrysler merger rumors

By Cristal Cody

New York, Oct. 17 - Yahoo! also should forget about any plans for additional sweetheart talks with Microsoft Corp. after hopes were raised with comments from Microsoft chief executive officer Steve Ballmer - or at least that's the official line, but some investors were thinking differently, pushing the shares of both companies higher.

Meanwhile interest grew Friday on press reports that General Motors Corp. is in discussion to take over Chrysler LLC - although Chrysler denies any discussions are taking place - even as the broader stock market ended relatively quietly, without any of the double-digit percentage losses seen in the roller coaster ride of the past two weeks.

The Dow Industrials Average fell 127.04, or 1.41% to 8,852.22 Friday.

The Standard & Poor's 500 Index fell 5.88, or 0.62%, to 940.55 and the Nasdaq Composite Index fell 6.42, or 0.37% to 1,711.29.

In the meantime, Grupo Modelo may be seeking better treatment in its arbitration against Anheuser-Busch over the takeover by InBev NV.

Ballmer's comments spur share value

Investors didn't hesitate to react to Ballmer's statements about Yahoo! on Thursday, pushing Microsoft shares up $3 a share.

Microsoft issued a statement that it is not interested in acquiring Yahoo!

But others think more is afoot.

"You're looking at $25 to $30 billion of value creation, so Microsoft shareholders are seeing the potential," Sachin Shah, ICAP Corporates arbitrage analyst, said Friday.

Microsoft has $15 billion to $18 billion in free cash flow and they've acquired about $115 billion of their stock in the past three years.

And during all that time, Microsoft's stock has stayed mostly flat.

"The market has concern about their growth. Yahoo facilitates that," Shah said. "It seems they are hoarding their cash to make an acquisition of some size, rather than make multiple acquisitions."

The deal makes strategic sense, he added.

"Yahoo needs Microsoft. Yahoo shareholders need Microsoft and Microsoft needs Yahoo to set the stage for its online platform for distributing their next generation of products," he said.

The rumors and speculation are influencing hedge funds.

"We've seen the spreads widen," Shah said. "The intrinsic value of Yahoo is significantly higher than where it's currently trading, but a lot of unwinding is going on with hedge funds."

Yahoo shares closed Friday down 0.69% to $12.90 a share.

Microsoft shares fell 1.07% to close at $23.93 a share in trading.

Not down with InBev

Grupo Modelo's move to request arbitration against Anheuser-Busch over the takeover by InBev NV is simply a negotiating ploy, market observers believe.

Anheuser agreed in July to a $52 billion takeover by Belgium's InBev NV to create what will be the world's largest brewer.

Modelo denied reports on Friday that it's seeking Anheuser-Busch's 50% stake in the Mexican company. The two first joined together in the early 1990s.

"The relationship they've had with Busch over the last 15 years or so has been bumpy. They don't want to be a situation where InBev dictates how they may be distributed in the U.S. and elsewhere," said ICAP's Shah.

The arbitration is not expected to impact InBev's buyout of the Budweiser brewer, even if the arbitration has not concluded in time, Shah said.

Still, it puts a cloud on the deal.

"As a person putting on a spread, this adds a little element to the risks because of the uncertainty of what the arbitration is going to say," Shah said.

The arbitration proceedings are expected to start in late November.

"We still believe the merger can commence before the end of the year for Bud and InBev and the arbitration may still be pending until that time and shortly thereafter," Shah said.

Grupo Modelo shares rose 9.12% to $33.50 a share in over the counter trading.

Anheuser-Busch shares rose 4.5% to close at $62.65 a share Friday.

Murdoch and his $5 billion war chest

Meanwhile, News Corp. CEO Rupert Murdoch thumped his chest for shareholders Friday as he discussed the company's $5 billion "war chest" that will add future growth.

The flexibility comes from a three-prong strategy that features diversified assets at various stages of development, investment in businesses that represent the next generation of growth and flexibility through a strong balance sheet.

News Corp. has grown more than 15% a year, Murdoch said in statements to shareholders.

The capital reserve "gives us the flexibility to take advantage of opportunities all around the globe that our competitors might not be in a position to act on right now," he said. "We intend to continue to reevaluate our mix of businesses and seek new growth drivers."

News Corp. shares fell 0.96% to close at $9.27 a share Friday.

GM takes on Chrysler?

Speculation grew Friday on press that General Motors is in discussion to take over Chrysler LLC.

United Auto Workers President Ron Gettelfinger went on the defensive in television interviews over concerns about job layoffs with the acquisition and said the union could take steps to halt a merger.

GM stock (NYSE: GM), however, was little changed, adding $0.03, or 0.47%, to $6.43 on Friday.

In sweeter news, J.M. Smucker Co.'s shareholders approved the company's plan to acquire Folgers Coffee.

Smucker's announced in July plans to buy Folgers from Proctor & Gamble Co. for $2.95 billion in stock.

The deal is expected to close in early November.

Smucker shares closed up 1.02% to $46.64 Friday.

Meanwhile, UST shares jumped 3.3%, helped by news that Altria Group received early termination of the federal antitrust waiting period to acquire UST for $69.50 a share.

UST will hold its third quarter earnings conference call next week on Oct. 24.

Shareholders will vote Dec. 4 and the deal is expected to close by Jan. 7.

UST shares closed up 2.21% to $66.80 a share.

Altria shares closed up 1.68% to $19.32 a share.

Bluegreen finds financing flaw with Diamond

Bluegreen Corp. learned that Diamond Resorts International has not secured the financing for its plans to acquire Bluegreen, Boca Raton, Fla.-based Bluegreen said in a release Friday.

Bluegreen gave Diamond Resorts an extension in September until Nov. 15 to acquire all of Bluegreen's common stock.

Privately held Diamond Resorts has requested that the exclusivity agreement remain in place and has indicated it may propose an alternative transaction.

In July, Bluegreen reached a tentative agreement to be purchased by Diamond Resorts for about $500 million, excluding debt, or $15 per share.

Bluegreen shares jumped 16.01% to close at $4.13 a share, still well off a 52-week high of $12.54 a share, in Friday trading.

In other news, CVS Caremark Corp. extended its tender offer to buy the outstanding stock from Longs Drug Stores through Friday. By early Friday, nearly 78% of shares had been tendered, CVS said in a statement.

CVS offered to buy the shares for $71.50 a share in cash.

"We are extending our tender offer merely to ensure completion of the share delivery process, and we look forward to closing the transaction," Tom Ryan, chairman, president and CEO of CVS Caremark, said in a statement.

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