New turbulence for Delta-Northwest; Bear rumored for buyout; in-fighting at Yahoo! over Microsoft offer

By Aaron Hochman-Zimmerman

New York, Feb. 15 - The Friday before a holiday weekend produced little progress for the deals left in the air.

When markets reopen Tuesday investors will continue to watch Delta Air Lines and Northwest Airlines Corp. fly in formation on their way to a possible merger if they are not disrupted by hearings in the Minnesota State Senate.

New rumors bubbled up about a foreign buyer with its hunting knives out for Bear Stearns Cos. Inc.

Meanwhile, Yahoo! Inc.'s board members sparked debate over the motives behind the snubbing of Microsoft Inc.'s $44.6 billion offer.

Investors looked favorably on FGIC's rumored split as a possible model for Ambac Financial Group, Inc. and MBIA, Inc.

Stocks ended slightly lower to end a volatile week, but everything was subject to a data heavy week capped off by Federal Reserve chairman Ben Bernanke's testimony to the Senate Banking Committee.

The Dow Jones Industrial Average closed lower by 28.77 or 0.23% at 12,378.21, while the Nasdaq Composite Index fell 10.74 or 0.46% to 2,321.8.

The S&P 500 managed to end higher if only by 1.13 or 0.08 at 1,349.99.

Air-to-air engagement

"The writing's on the wall ... They're going to have to consolidate, they're getting killed," a market watcher said about the future of the deal between Delta (NYSE: DAL) and Northwest (NYSE: NWA).

Delta stock reacted well to further talk of a combining the two. The shares added $0.27, or 1.58%, to close at $17.32.

Northwest was only better by $0.01 or 0.06% to close at $17.20.

The newest hurdle the deal must clear is the chance of subpoenas issued by Minnesota state senate president James Metzen, reported the Minneapolis Star-Tribune.

Metzen has been unsatisfied with answers to his questions about the job security of 2,300 Northwest employees in his district as well as Minneapolis' status as a Northwest hub.

Any deal between the two airlines will have to line up support from the Minnesota state senate as well as the airline pilot's unions which have concerns about a fair system of promotions, a market source said.

A merged airline would have to find a way to intermingle two totem poles of pilot seniority, the source said.

The final destination for a merger will be Washington, D.C., where Congress will have the option of blessing the deal.

"The deal is going to get announced pretty soon," a market source said, if the sides plan to have it before Congress adjourns sometime in the fall.

The Bear market

Whispers about Bear Stearns (NYSE: BSC) whipped through the market on Friday.

Investors watched the stock trade up $4.32 or 5.51% to $82.79 over rumors about "a foreign player coming in a taking them out," a source said.

Bear is thought to already be in negotiations with a foreign entity.

A Yahoo! of principle

The rumors on Friday held that Jerry Yang and some members of Yahoo!'s (Nasdaq: YHOO) board of directors, including chairman Roy Bostock, were at odds over the official cold shoulder given to the $44.6 billion offer from Microsoft (Nasdaq: MSFT).

The rogue directors accused Yang of taking leave of his business sense and allowing his refusal to be guided by emotion, a market source said.

Many investors still believe the deal is inevitable, but "the chatter is that Microsoft is going to raise their bid," a source said. "They can afford it."

Still, Microsoft may "play the Oracle card, watch it drop and then come back in again," the source said.

Another investor sees a vulnerable Yahoo!

"They probably should give that some more consideration," he said about Microsoft's offer.

"There's only one buyer in town," he added.

Microsoft stock slipped just $0.08 or 0.28% to $28.42 while Yahoo! was off by $0.32 or 1.07% to close at $26.99.

Two FGICs are better

Independent bond insurer FGIC may split into two divisions, one of which will cover traditional and secure credit, while the other will handle riskier paper.

"I hear what FGIC is saying is the model for Ambac and MBIA," a market source said.

"This way they can raise capital for the good division and let bottom-fishing types value the other part," he said.

"That seems like it makes sense to me," another investor said about the partition.

"It's just talk, but I think there some legs to that story," he said.

Monoline insurer Ambac saw its shares (NYSE: ABK) post a loss of $0.31, or 2.94%, to close at $10.22.

MBIA (NYSE: MBI) stock fell $0.38, or 3.01%, to $12.24.

Static for Clear Channel?

Clear Channel Communications Inc. (NYSE: CCU) stock traded up by $2.22 or 7.37% to $32.35 the day after it released its encouraging fourth quarter earnings on Thursday.

Bain Capital and Thomas H. Lee are working towards a leveraged buyout of the radio conglomerate for $39.20 per share sometime this quarter.

The deal was given approval by the Department of Justice, but its blessing was contingent upon Clear Channel divesting itself from stations in Houston, Las Vegas, Cincinnati and San Francisco.

The strict conditions put shreds of doubt in the heads of investors who now must wonder if Bain Capital and Thomas H. Lee will continue with the buyout.

The good news for Clear Channel were the fourth quarter earnings, a market source said, which serve to boost the company's value. In its release, Clear Channel also said it "anticipates" closing the transaction by March 31.

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