Transocean, GlobalSantaFe make big deal; United Rentals finds a strategy; HP takes two; financing concerns rise

By Evan Weinberger

New York, July 23 - A bevy of takeover and merger news greeted Wall Street Monday morning, and the deals put a hop in investors' step to begin the week.

But even as the markets moved up, concerns over financing drove down stocks in some previously announced deals. A market source pinpointed Lyondell Chemical Co., Alltel Corp. and Tribune Co. as three announced transactions where the market turmoil created by subprime mortgage concerns continued to hang in the back of investors' minds.

"A lot of these arb guys are getting out because they're afraid of the finances," the source said.

Stocks in the three companies didn't fall precipitously, but they didn't gain, which was notable on a day when the Dow Jones Industrial Average picked up 92.34 points, or 0.67%, to close at 13,943.42 and the Nasdaq finished the day at 2,690.58, a 2.98-point, or 0.11%, pick-up

By far the largest new deal announced Monday saw oil-drilling giants Transocean Inc. and GlobalSantaFe Corp. agree to form one super-sized oil drilling entity. The two companies agreed to a merger of equals that will bring the company to an estimated enterprise value of around $53 billion.

Of course, even in a merger of equals, a name must be chosen. In this case, Transocean was a little more equal and the combined firm will be known as Transocean Inc. and will trade under the symbol RIG, also currently attached to Transocean.

On the leveraged buyout side, Cerberus Capital Management LP reached an agreement to take over United Rentals, Inc. in a deal announced Monday.

The deal culminates United Rentals' search for options, which began April 10 when the Greenwich, Conn.-based equipment renter announced it was searching for strategic options. The acquisition is valued at $6.6 billion, including Cerberus taking on $2.6 billion in debt.

Cumulus Media Inc. announced Monday's second LBO.

The Atlanta-based radio conglomerate agreed to a $1.3 billion takeover by a group of investors led by Lew Dickey, the company's current chairman, president and chief executive officer, and Merrill Lynch's private equity arm. Cumulus stockholders will receive $11.75 per share once the deal is completed, expected in early 2008, representing a 40.4% premium over Cumulus stock's (Nasdaq: CMLS) closing price of $8.37 Friday.

Cumulus stock soared $2.75, or 32.86%, to $11.12 on the takeover news.

Hewlett Packard Co. completed two smaller deals Monday, reaching deals to acquire Neoware Inc. for around $214 million and Opsware Inc. for around $1.6 billion. The two acquisitions, according to HP statements, will complement the company's strategy of investing in growth markets and strategic software.

But Wall Street didn't react strongly to HP's move. Shares in the Palo Alto, Calif.-based computer maker (NYSE: HPQ) closed 11 cents, or 0.23% lower, closing at $48.43.

King of Prussia, Pa.-based Neoware (Nasdaq: NWRE), a thin client computing solutions company, gained 57 cents, or 3.74%, to close at $15.81.

And Opsware, the data center automation products maker from Sunnyvale, Calif., closed $3.72, or $36.19, higher at $14.

And two endovascular device makers, ev3 Inc. and FoxHollow Technologies, Inc. agreed to merge in a $780 million transaction that will produce a single firm with a $1.7 billion market capitalization.

The $25.92 per share offer from ev3 represents an over 20% premium to FoxHollow's closing stock price Friday of $24.72. As part of the deal, ev3 stockholders will hold 59% of the company while FoxHollow shareholders will control 41%. The new entity will continue FoxHollow's current partnership with Merck & Co. Inc.

Minneapolis-based ev3 and Redwood City, Calif.-based FoxHollow manufacture stents, embolic protection devices, infusion catheters/wires and other products to treat vascular disease.

FoxHollow (Nasdaq: FOXH) stock closed strong on the news, finishing up $2.73, or 11.04%, at a close of $27.45. Shares in ev3 (Nasdaq: EVVV) also closed up Monday, finishing at $17.62, a gain of $1.64, or 10.26%.

One other health care industry merger was announced Monday. Teleflex Inc. agreed to take over Arrow International Inc. in a $2 billion agreement. The deal, which will see Arrow shareholders receive $45.40 per share in cash, is expected to be completed in the fourth quarter.

To finance the deal, Teleflex will set up a new credit facility, and issue new convertible debt and private placement notes. Bank of America and JPMorgan have already provided financing commitments.

Teleflex, of Limerick, Pa., manufactures and distributes quality-engineered products and services for the commercial, medical and aerospace markets. Arrow is a Reading, Pa., provider of catheter-based access and therapeutic products for critical and cardiac care. Teleflex stock (NYSE: TFX) finished 10 cents, or 0.12%, higher, closing at $85.40. Arrow stock (Nasdaq: ARRO) closed up $6.32, or 16.72%, at $44.11.

Transocean, GlobalSantaFe rig deal

Two of the biggest names in offshore oil and gas drilling announced that they would become one big name in offshore oil and gas drilling. Transocean and GlobalSantaFe announced that the two companies had agreed to a merger of equals. GlobalSantaFe will receive $15 billion as part of the deal. The agreement will form an approximately $53 billion entity when the deal closes, which is expected by the end of the year.

The merger had investors buzzing.

"This deal is a positive for [Transocean] and GSF was also up today," one market source said. "It's just a positive for both sectors."

Transocean stock (NYSE: RIG) was up $5.99, or 5.45%, to close at $115.96. GlobalSantaFe stock (NYSE: GSF) gained $3.59, or 4.8%, to end the day at $78.33.

The new company will be called Transocean and will trade under the symbol RIG. Transocean shareholders are set to get $33.03 in cash and 0.6996 shares of the combined company for each share of Transocean they own. GlobalSantaFe shareholders will get $22.46 in cash and 0.4757 shares of the combined company for each share of GlobalSantaFe they own. The companies expect there to be approximately 318 million shares of the new entity once the transaction is complete.

The combined Transocean will have 146 rigs around the world and over 20,000 employees. Transocean chief executive officer Robert L. Long will retain the title for the new company, while GlobalSantaFe CEO John A. Marshall will be the combined company's president and chief operating officer.

Not everyone was quite as enthused about the deal. Moody's Investors Services announced that it might downgrade both companies from their Baa1 senior unsecured ratings. The ratings service said that the merger was essentially a stock-for-stock merger with a $15 billion debt-funded stock buyback/recapitalization. The deal means increased leverage and weakened financial positions for both companies.

But, Moody's added, the scale and diversification of the two companies and the quality of their fleets will most likely allow the companies to retain their investment-grade rating should the deal go through as scheduled.

United Rentals opts for Cerberus

When United Rentals Inc. announced that it was searching for strategic options April 10, the real question that remained was who would buy the struggling equipment rental company. Monday, it was announced that Cerberus Capital Management LP would take over.

While the deal is not nearly as large, complex or splashy as Cerberus's move to take over Chrysler, one of Detroit's big three, the $6.6 billion deal, including taking on $2.6 billion in debt, for United Rentals did get a good reception on Wall Street. United Rentals stock (NYSE: URI) moved up 61 cents, or 1.88%, to $32.98 Monday.

Cerberus is offering $34.50 in cash for each share, a 25% premium over United Rentals stock's April 10 close of $27.55. Apollo Management LP, which owns 18% of United Rentals' outstanding stock, is backing the deal, according to a statement from the company.

"Cerberus is a firm that shares our deep respect for operational excellence," United Rentals chief executive officer Michael J. Kneeland said in a statement released by the company. "They have an impressive track record of investing in industry leaders and working constructively with management teams to accelerate profitability and growth."

United Rentals is headquartered in Greenwich, Conn.

The company's outstanding bonds moved up 3 points in trading Monday, with the 6½% coupon bonds due 2012 rising to around 101.5 over the course of the day. At the same time, Moody's warned that it may downgrade the company's bonds upon further review of the terms of the Cerberus takeover deal.

Not all is sunny on the Street

Amidst all of the mergers and acquisitions news emerging on Wall Street Monday, a few stocks with previously announced deals moved lower on the day. And while the three companies come from a wide range of fields, they do have one thing in common: concerns over financing because of the troubles originating in the subprime mortgage sector.

"I think people are just getting out because of the financing issues," a market source said. "The subprime problem hasn't spread, yet."

Where this is seen most clearly is Tribune Co. (NYSE: TRB). Not only is the Chicago media conglomerate most linked to the sagging newspaper industry, it is being taken over by a real estate tycoon, Sam Zell. The company's stock fell 74 cents, or 2.56%, to close at $28.17 Monday.

Where the link is slightly tangential is the sale of Lyondell Corp. to Access Industries Holdings, which is owned by Russian-born billionaire Lev Blavatnik. While the $48 billion deal doesn't appear to be in jeopardy, investors are still wary that the subprime woes will eventually spill over and create a credit and financing crunch.

Shares in the Houston-based chemical producer slipped a bit Monday, losing 48 cents, or 1.03%, at $46.25.

A third stock with a deal pending belongs to Alltel Corp. The Little Rock, Ark.-based wireless communications provider announced Monday that shareholders set an Aug. 29 meeting to vote on TPG Capital and GS Capital Partners $17.50-per-share offer to take the company private.

The deal was agreed to May 20.

Again, while the concerns over the financing for the deal are merely concerns, Alltel stock (NYSE:AT) didn't join in Wall Street's bull run Monday. The stock lost 29 cents, or 0.43%, to close at $67.15.

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