MGM Mirage slips; Phelps Dodge pressure on the rise; Applica soars on boosted price tag

By Ronda Fears

Memphis, Dec. 15 - Players in MGM Mirage shares essentially sat out the session Friday as the company took no position on Tracinda Corp's tender offer for up to 15 million shares at $55, but traders said they expect coming activity to show a sentiment that Kirk Kerkorian's Tracinda will have to pay up for the Las Vegas casino, or that any other potential buyer will have to push the price upward.

"It was a little quiet overall," said one options specialist, but there were "pockets of activity that were very interesting."

In another situation where there is pressure for a higher price, players in mining concern Phelps Dodge Corp. were betting that would-be buyer Freeport-McMoRan Copper & Gold Inc. will have to up its bid, hinging on a big hedge fund's push, but one trader said that adds to the risk that Freeport-McMoRan would just walk away.

The price tag did go higher for small appliance maker Applica Inc. with majority owner Harbinger Capital Partners LP having to pony up $6.50 per share, versus its previous offer of $6 per share, after a rival bid came in from Naaco Industries Inc., so that stock shot up Friday.

Elsewhere, the when-issued shares of Winn-Dixie Stores Inc. were weaker in the regular session but higher in after-hours action, which one trader explained as a buyer wanting to wait until the last minute to make a move before the upcoming pre-holiday week. The stock (Nasdaq: WINNV) closed off by 20 cents, or 1.31%, at $15.10, but after the close the stock added back 23 cents to $15.33.

The Jacksonville, Fla.-based grocery chain, which emerged bankruptcy last month, said Friday that it plans to distribute the 54.5 million common shares, per its reorganization plan, on Thursday. The new stock is slated to trade on the Nasdaq with the ticker "WINN." Winn-Dixie noted, however, that it has until Jan. 5 to distribute the new stock and that delays at the bankruptcy court could push back that date.

Penn Treaty American Corp. shares (NYSE: PTA) were higher Friday by 8 cents, or 1.13%, to $7.14 as the company announced that it would hold a conference call to update investors on Wednesday. A day before, the stock gained 3.5% on market rumors that there was a board meeting and sentiment that big holders would pressure the Allentown, Pa.-based long-term care insurance provider to sell out. The company has been waiting on 2005 financials, which have yet to be filed.

MGM price expected to go up

It being a Friday and so close to the holidays aside, traders were somewhat taken aback at the lack of activity in MGM Mirage, as the company came out Friday with a neutral position regarding Tracinda's unsolicited tender offer to buy up to 15 million shares of its stock at $55 per share in cash.

MGM shares (NYSE: MGM) ended the session off by 89 cents, or 1.58%, at $55.31 with just shy of 1.23 million shares traded versus the norm of 1.6 million shares. Options trading was thin as well, traders noted.

"Nobody has jumped at it," said one trader. "People are anticipating that he [Kerkorian, via Tracinda] will have to come in with a higher bid if he intends to take MGM private."

On the alternative that MGM could be talking with other investors to go private, he said it still seems that the price will have to be higher than $55 a share.

Nonetheless, traders said the overriding view was that the Las Vegas casino operator's lack of support for the Tracinda offer price by default suggests it thinks $55 per share is low. But, MGM was not willing to say it was deficient.

MGM had formed a special committee to consider Tracinda's offer. In a filing at the Securities and Exchange Commission, the committee stated "Each stockholder's decision on whether or not to tender shares in the offer and, if so, how many shares to tender, is a personal investment decision that should be based upon each stockholder's particular circumstances and expectations."

Applica up on contest hopes

Small appliance maker Applica got a boost Friday when it accepted a raised buyout bid from its largest shareholder, Harbinger Capital Partners LP, to match to a surprise rival offer from Nacco Industries Inc., but players were hoping that the contest wasn't over.

"This is going to get interesting now," said one trader. "At least we hope so."

For now, Miramar, Fla.-based Applica said it accepted Harbinger's boosted offer to match Nacco's bid of $6.50 per share from a previous offer of $6 per share. In an SEC filing Friday, Harbinger declared a 32.6% stake in Applica, up from around 10% when it began talking of a buyout in October.

But whether Nacco, a conglomerate that also makes small housewares, would counter Harbinger's matched bid was unknown.

Conviction of a bidding war, however, was slight, the trader said, noting that Applica shares (NYSE: APN) settled at $6.51, gaining 75 cents on the day, or 13.02%, on volume of 1.35 million shares versus the norm of 118,905 shares.

Phelps Dodge bets uncertain

With Freeport-McMoRan's bid for Phelps Dodge already meeting trouble from 5.1% owner SAC Capital Partners, traders said action in the stock options Friday suggest some aggressive positioning for a higher bid but also considerable cushioning in the event the deal falls through.

Phelps Dodge shares (NYSE: PD) slipped 40 cents on the day, or 0.33%, to $122.50 on volume of 6.34 million shares versus the norm of 6.48 million shares, but the action was in the January options. December options expired Friday.

"They have a bid on the table but some pressure to increase that," said an options trader. "The risk is that if there is enough pressure exerted, Freeport-McMoRan might just walk away."

Thus, he said there was a surge in selling January calls, mostly the $105 and $120 calls, but also buying puts, again at $105 and $120 but also at $95.

"We think there's a chance for another bid, or that Freeport-McMoRan will increase its bid," the trader said. "What we were seeing today was pretty aggressive. With the stock at $122.50, I am only comfortable down to $120."

Freeport-McMoRan is offering $88 in cash per Phelps Dodge share plus 0.67 share of Freeport-McMoRan stock, for a deal valued at $25.9 billion when it emerged in late November. Freeport-McMoRan shares (NYSE: FCX) ended Friday higher by 35 cents, or 0.59%, at $60.08.

Despite SAC's opposition to the Freeport-McMoRan bid, Freeport spokesman Bill Collier has said the offer has gotten a positive response from other shareholders. Another big Phelps Dodge shareholder, Atticus Capital LP, which has a 9.97% stake, has not taken a public position on the offer.

Doral dividend a stop gap

Doral Financial Corp. shares were lifted by the company's dividend announcement Friday, but in the last few minutes of trade it took a dive and ended in negative territory as players are still skeptical of the company's worth as an ongoing concern.

"I expect Doral common will trade up a bit today since they stayed the course and paid preferred dividends, but I still expect it's terminal (post recap) value near $1," said one trader.

Doral shares (NYSE: DRL) indeed traded higher, to $3.28, intraday but settled off by a penny at $3.04 and in after-hours action dropped to $3.

Doral announced that it would pay the regular monthly cash dividend on its 7% series A, 8.35% series B and 7.25% series C non-cumulative monthly income preferred stock at $0.2917, $0.173958, $0.151042 per share, respectively. The dividend is payable Dec. 29 to series A holders of record as of Dec. 27 and series B and C holders of record as of Dec. 15.

Doral also announced it would pay the quarterly dividend on its 4.75% perpetual cumulative convertible preferred stock at $2.96875 per share on Dec. 15 to holders of record as of Dec. 1.

Earlier this month, it was learned that the company is in talks with holders of its $625 million of floating-rate notes due 2007 about a refinancing deal expected to net a big equity swap along with some cash from the sale of assets. The Bermuda-based bank announced in mid-November that it was seeking refinancing alternatives.

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