Exelon, chipmakers go hostile; USBancorp eyes menu; M&A outlook 'bleak'

By Aaron Hochman-Zimmerman

New York, Nov. 12 - Equities took another wallop on Wednesday as Treasury secretary Henry Paulson tooled with the Troubled Asset Relief Program.

Either change or the need for change made investors jumpy and stocks heavy.

Two deals went hostile as Exelon Corp. as well as Microchip Technology Inc. and ON Semiconductor Corp. ratcheted up pressure on their targets NRG Energy, Inc. and Atmel Corp., respectively.

Still, "I can't image a hostile deal working right now," said a merger arbitrage analyst.

"A hostile situation would work for Yahoo! [Inc.] right now, because everyone is fed up with management, but Atmel just reported decent earnings," he said.

In general, "it's not a good time to be doing deals right now," he said. "It's so bleak, the outlook."

After attending a mergers-and-acquisitions conference on Wednesday, the analyst was no less pessimistic.

"Deals probably won't pick up until the second half next year," he said, adding that those will probably be "middle market" type deals.

"Sizable deals" could be up to one year away, he said.

The roster of speakers at the conference was the best evidence of the poor deal environment, he said. "It wasn't the heavy hitters like last year."

"We knew this time was going to come," he said. "The party lasted too long."

Nevertheless, forced deals, especially in the finance sector, will likely be pushed through.

The rumors on Wednesday surrounded USBancorp, which may be in the market for regional player KeyCorp, analysts said.

Meanwhile in the broader market, the Dow Jones Industrial Average was slammed for 411.30, or 4.73%, to end at 8,282.66, while the Nasdaq Composite Index gave back 81.69, or 5.17%, to finish at 1,499.21.

The S&P 500 was the underperformer as it lost 46.65, or 5.19%, to close at 852.30.

Opportunistic USBancorp

USBancorp chief financial officer Andrew Cecere told the Wall Street Journal that he would look at possible acquisitions "opportunistically" as the industry continues to consolidate.

The story sparked imagination and speculation over where the USBancorp lasso would land.

"I can see them buying Keycorp," a trader said.

There is "quite a bit of overlap" between USBancorp and the Cleveland-based Key.

"Key is probably going to consolidate with somebody," an analyst added.

Shares of Keycorp plummeted by $1.39, or 12.64%, to $9.61.

Shares of USBancorp lost $1.43, or 5.38%, to finish at $25.17.

ON, Microchip get hostile with Atmel

As ON Semiconductor and Microchip Technology announced that they have received Hart-Scott-Rodino clearance to pursue their target Atmel, the pair also announced that they will nominate a new slate of directors to Atmel's board.

"Considering the significant value our proposal would create for Atmel's shareholders, we were surprised that Atmel's board rejected our offer without engaging in any discussions with us," Steve Sanghi, president, chief executive officer and chairman of Microchip, and Keith Jackson, president and CEO of ON Semiconductor, said in a statement.

The $2.3 billion, or $5.00-per-share, offer for Atmel represents a 52.4% premium to Atmel's trading price the day before the initial Oct. 1 proposal.

Atmel fired back by saying, "Microchip and ON's announcement does not change the fact that their Oct. 1 proposal is inadequate in multiple respects."

"[The offer] significantly undervalues Atmel, is unacceptably conditional, is subject to significant execution risk, and is not in the best interests of Atmel's stockholders," the company said in a statement.

"Atmel had some interesting points about how the companies are all competitors," an analyst said, adding that now may not be the right time for the three to combine.

Shares of Atmel slid by $0.14, or 3.28%, to $4.13.

Shares of Microchip Technologies gave up $0.98, or 4.70%, to close at $19.91.

Shares of ON Semiconductor sank by $0.30, or 6.76%, to finish at $4.14.

Exelon presses NRG

Exelon took its $6 billion stock exchange offer directly to NRG Energy's shareholders on Wednesday.

The deal offers 0.485 shares of Exelon for one share of NRG Energy.

After the NRG board rejected the initial offer, "Exelon said its exchange offer ensures that NRG investors have the opportunity to consider for themselves the merits of Exelon's proposal," a company press release said.

"Exelon remains hopeful that NRG will ultimately recognize the value of working with Exelon in a direct and constructive fashion to complete this strategic transaction in a way that is tax-efficient, minimizes regulatory hurdles, and produces the greatest value for shareholders of both companies," the release continued.

Exelon is also involved in an attempt to pack NRG's board during the May 14, 2009 shareholder meeting.

Exelon said it expects to hear any objections from NRG to its board nominations by Tuesday.

Meanwhile, Exelon took the opportunity to file a lawsuit in Delaware accusing NRG's board of a breach of fiduciary duty in the wake of the rejection of the initial offer.

Shares of NRG Energy sank by $1.45, or 6.29%, to close at $21.60.

Shares of Exelon were lower by $1.39, or 2.68%, to finish at $50.57.

Huntsman, Hexion heats up

Huntsman Corp. turned up the heat on deal financiers Deutsche Bank and Credit Suisse.

It began the discovery process to mine up data, documents and witnesses to bring against the banks, which Huntsman accuses of improperly dropping out of a deal to finance its merger with Hexion Specialty Chemicals, Inc.

The trial date is set for Feb. 9 in Montgomery County, Texas, and the claims are separate from those filed by Hexion and Apollo Management LP in New York courts.

"We are eager to try our Texas claims, which have already withstood appellate review in the Texas Court of Appeals," CEO Peter Huntsman said in a press release.

"We are confident that a Texas jury will see - and be willing to redress - the serious injuries Huntsman has suffered at the hands of these banks.

Shares of Huntsman slipped by $0.41, or 4.37%, to close the day at $8.97.

Mentioned in this article:

Atmel Corp. Nasdaq: ATML

Exelon Corp. NYSE: EXC

Huntsman Corp. NYSE: HUN

KeyCorp NYSE: KEY

Microchip Technology Inc. Nasdaq: MCHP

NRG Energy, Inc. NYSE: NRG

ON Semiconductor Corp. Nasdaq: ONNN

USBancorp NYSE: USB

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