Ipsco firms; Med-Immune better; Dow Chemical gains; NovaStar common rises, preferred zooms

By Ronda Fears

Memphis, April 12 - Steel plate and oilfield tubular pipe concern Ipsco Inc. announced Thursday it is in discussions that could lead to a potential acquisition of the company, and biotech concern MedImmune Inc. officially went on the auction block. While both were higher in trade, traders said the market was pricing in considerable deal risk.

"When you see a lot of doubt creep in about the big, high-profile deals - TXU and Clear Channel - then these in areas where there has been a great deal of speculation already, with the accompanying stock price gains - and steel and biotech both fit into that category - then the market is going to price in some risk," remarked a senior equity trader at one of the bulge bracket firms.

In another situation of looking for a deal, NovaStar Financial Inc. said it would explore strategic alternatives, including a potential sale, with Deutsche Bank Securities Inc. as its financial adviser. It joins Accredited Home Lenders Holding Co., and other subprime mortgage firms, on the auction block; and, NovaStar also said after Wednesday's close that it has received a commitment for an additional financing facility for up to $100 million arranged by Wachovia Capital Markets.

NovaStar's common stock (NYSE: NFI) edged up 9 cents, or 1.79%, to $5.12 on the news, but its preferred shares was where the rally took place. The series C preferred (NYSE: NFI-PC) rocketed up by $1.54 on the day, or 13.69%, to $12.79.

"There is not a lot of excitement about the common stock getting much of a premium," another trader said. "The preferred, however, which has been around 50% of par [$25], would likely have to be taken out at par because of a change-of-control feature; that caught everyone's attention. But, there is still a certain amount of doubt that they can get any interest in the company at all, so I don't think it's going to trade up to $25."

In done deals, or at least deals inked, Mobius Management Systems Inc. has agreed to be acquired by Allen Systems Group Inc. at $10.05 per share in cash - a roughly 35% premium to Wednesday's market. One market source said it seemed to be a "pretty cut-and-dried deal," with insiders holding some 47.8% of the outstanding shares pledging to vote in favor of the transaction. As the company also lowered its fiscal third-quarter guidance on Thursday, he did not think there would be much opposition. The stock (Nasdaq: MOBI) gained $2.35, or 31.59%, to $9.79.

On market rumors of deals, Dow Chemical Co. fired two executives - Pedro Reinhard, a senior adviser and member of the board of directors who retired as the conglomerate's chief financial officer in October 2005, and Romeo Kreinberg, a divisional executive vice president - for "highly inappropriate" unauthorized discussions with third parties about the potential acquisition of the company. Rumors have circulated about a deal for several weeks, which the company has denied. Dow shares (NYSE: DOW) gained 91 cents, or 2.02%, to $46.

Ipsco players steeled, a bit

Given brisk merger activity in the steel sector and market buzz, Ipsco's development came as no big surprise, but traders said it gave impetus for a stronger buying push, couched with considerable concern about deal risk given recent failures.

"The announcement gave a lot of people encouragement but we are a little cagey about ratcheting this thing [Ipsco stock] up to the moon," commented a trader in New York.

Ipsco shares (NYSE: IPS) added $15.06 on the day, or 11.5%, to close at $145.96.

On March 29, Ipsco shares were propelled by news of United States Steel Corp.'s $2.1 billion - or $67.50 per share for a 39.3% premium - buyout of oilfield drill pipe maker Lone Star Technologies Inc., which was the latest in a string of deals in the sector over the past couple of years. On news of the Lone Star deal, Ipsco shares gained more than 36%.

Ipsco said it made the announcement in response to market rumors and noting recent appreciation in its stock price, but also added the disclaimer that there can be no assurance any transaction will occur.

Value in the eye of beholder

As for what kind of price or premium Ipsco might fetch, onlookers and traders were hesitant because of fluctuations in the steel industry.

Last September, Ipsco bought NS Group Inc., a maker of oilfield tubular pipes, for roughly $1.46 billion in cash, or $66 per share, for a 43% premium. That kind of buyout premium is not thought to be coming down the pike for Ipsco, sources said.

"Beauty is in the eye of the beholder," said Randy Cousins, steel analyst at BMO Capital Markets.

"In other words, value is a function of perception."

In addition to the price of the commodity itself, he said valuations in steel deals are heavily dependent on the China market, or perceptions thereof, as China is not only the biggest exporter of steel worldwide but the biggest importer.

Steel prices in general have been on a downslide since spiking last fall, and industry experts are at an impasse as to where the market is going. Similarly, there are varying views on the future of the Chinese economy and whether it can sustain the high levels of growth seen in recent years.

"If there is any slowdown in the Chinese economy, that will have a huge impact," agreed a trader at another shop in Canada.

He noted a report this week from China that its iron and steel industry is expected to grow at a relatively slower pace this year as it will take some time to absorb price pressures from that government's recent move to cut tax rebates on exports of some steel products.

Evraz speculated Ipsco buyer

Earlier Thursday, a Russian news outfit reported that Evraz Group SA, Russia's biggest steelmaker, was the party in talks to acquire Ipsco. Evraz's management held acquisition talks several weeks ago with Ipsco, the Vedomosti paper said, citing two unnamed sources.

In January, Evraz completed the takeover of Oregon Steel for $2.3 billion, making it one of the largest investments in the United States by a Russian company. Evraz already owns steelworks in the Czech Republic and Italy.

That shouldn't raise much concern about antitrust, Cousins said, as Oregon Steel is a diversified steel producer and not a big player in areas of Ipsco's specialties.

Ipsco makes energy tubular products and steel plate in North America with an annual steelmaking capacity of 4 million tons. With the acquisition of NS Group, Ipsco now operates four steel mills, 11 pipe mills, and scrap processing centers and product finishing facilities in 25 locations across the United States and Canada. Ipsco also makes connections for oil and gas drilling and production.

Algoma event left a bad taste

Similar developments, sans a transaction, with Ontario-based Algoma Steel Inc. served as a reminder to factor in a large element of risk to the Ipsco story, the trader in Canada said.

After the market close Feb. 14, Algoma Steel announced that it was in discussions with a third party regarding a possible acquisition of the company. The following day the stock traded as high as C$57.99 - a nearly 30% spike from C$44.68 the day before - and has remained on a higher plane but come off that mark significantly.

Following the surge in the Algoma shares, the company then confirmed it was in discussions with German steel concern Salzgitter AG regarding the possible acquisition of Algoma but "likely ... below the level of the current trading price." A month later Salzgitter had pulled out of the talks and Algoma said it was in discussions with other parties, but nothing has materialized to date.

"This really left a bad taste in our mouth," the trader said. "Once something like that happens, you're not so keen to run with a bit of news like this."

On Thursday, Algoma (Toronto: AGA) advanced C$0.86, or 1.62%, at C$53.86.

The trader said at the time of the Algoma news that the increase in the shares was "senseless" even in the face of a possible acquisition because he did not think the steel industry trends would suggest that Algoma would bring a big premium.

MedImmune lifted by 15%

There were widely distributed estimates that MedImmune could sell for $45 to $50 per share, but traders said the market was holding back until there is a little more visibility.

The stock (Nasdaq: MEDI) gained $5.79, or 15.3%, to settle Thursday at $43.63 with a whopping 60.3 million shares traded versus the norm of 5.37 million shares.

Big stockholders in the Gaithersburg, Md.-based biotech, best known for its influenza drug FluMist, have rallied behind high-profile remarks from billionaire investor Carl Icahn in February that the company should consider a sale or other measures to boost stockholder value.

But, a biotech equity trader noted that MedImmune shares were up 20% since February and then there was the 15% advance on the news.

"There may not be a lot more to squeeze out of this," the trader said. "The biotech sector has been on a tear, but we've seen signs recently that it could be topped out."

MedImmune has hired Goldman Sachs to explore a sale of the company, which industry analysts said could fetch $11 billion to $12 billion. MedImmune has been the subject of takeover speculation for some time, with talk of a bid intensifying since Icahn disclosed in February he owned 2.8 million shares of the company.

In addition to FluMist, MedImmune has two other drugs on the market - Synagis for infectious respiratory disease and Ethyol to treat chemotherapy side effects.

The company announced on Monday it expected first-quarter earnings to have tripled, driven by higher-than-expected sales of Synagis, which has had reimbursement problems in the past.

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