Time Warner may spin off AOL; NRG shareholder bucks for higher bid; PharmaNet deal gets all smiles

By Cristal Cody

Tupelo, Miss., Feb. 4 - Time Warner Inc. said Wednesday that it may spin off AOL into a publicly traded company, but a market observer said the move probably will not be the company's first choice.

In other deal action, a large shareholder of NRG Energy, Inc. spoke out against the hostile takeover offer from Exelon Corp., a move that could signal a forthcoming higher offer, an analyst told Prospect News.

Also on the forefront, the offer to take PharmaNet Development Group Inc. private is expected to sail through to closing, a market observer said Wednesday.

Moving on, White Electronic Designs Corp. on Wednesday reached an agreement with a shareholder group to add new directors to the board, including one who will be placed on the strategic alternatives committee to enhance shareholder value.

Meanwhile, the markets took a dip on Wednesday.

The Dow Jones Industrial Average fell 121.70 points, or 1.51%, to close at 7,956.66. The Standard & Poor's 500 index lost 6.28 points, or 0.75%, to finish at 832.23, and the Nasdaq Composite index shed 1.25 points, or 0.08%, to end the day at 1,515.05.

AOL up for grabs

Time Warner chief executive Jeffrey Bewkes said Wednesday in a conference call with analysts that the company may spin off AOL after Google Inc. sent a request to Time Warner to exercise the demand registration rights for its 5% stake in AOL.

Time Warner said it could take AOL public, sell off parts of the internet company or buy back Google's cut.

Google bought the AOL stake in 2005 in a deal that valued AOL at $20 billion, but in January the company wrote down AOL's value to $5.5 billion.

"I don't know if spinning it off is necessarily the way they will go because there are other options," James Goss, an analyst with Barrington Research, said in an interview. "There have been recurring rumors about partnerships with Microsoft or Yahoo. They have talked a lot about the importance of scale."

Google shares rose $2.55, or 0.75%, to close at $343.00. Time Warner's stock fell 36 cents, or 3.68%, to $9.42 on Wednesday.

NRG board gets shareholder support

Solus Alternative Asset Management LP, which holds 6% of NRG shares, said in a filing with the Securities and Exchange Commission that Exelon's offer undervalues NRG.

The firm filed the schedule 13D form "to express support for the determination by the board of directors of the company that the tender offer made by Exelon Corp. and Exelon Xchange Corp. is inadequate."

Exelon has offered 0.485 of a share of Exelon stock for each share of NRG in a deal originally valued at $6.2 billion. Exelon said in January that 45.6% of shares had been tendered, with the offer extended to Feb. 25.

"I don't think it's about stopping the deal. It's about a bigger offer," said an analyst who follows the company. "I don't think it throws a monkey wrench in the transaction, with almost 46% of the people saying yes. If Exelon raises the offer to 0.50, which sounds like a very small difference, the shareholders will buy it."

Exelon shares rose Wednesday by 91 cents, or 1.60%, to close at $57.68, while shares of NRG gained 37 cents, or 1.52%, to $24.69.

PharmaNet buyout expected to clear

The $5.00-a-share cash bid from JLL Partners Inc. and affiliates to take PharmaNet private on Tuesday represents a significant premium to the stock's closing price of $1.34 on Monday.

A market observer said the premium should tempt most shareholders.

"The company made it fairly clear they were seeking out an alternative like this," the analyst said. "It is what they wanted and what they needed to alleviate their debt situation. I think going private by way of an acquisition by a private equity sponsor is a deal that keeps the management team intact, which is what they largely wanted."

The deal is valued at about $100 million and will be financed by a $250 million equity commitment from JLL Partners.

The offer is expected to close in March and is subject to shareholder and regulatory approvals.

Shares of PharmaNet gained 12 cents, or 2.59%, on Wednesday to close at $4.76.

White Electronic adds dissident shareholders

Under the terms White Electronic Designs reached with the shareholder group that includes Wynnefield Capital Inc. and Caiman Partners LP, the company will expand its board from five directors to seven and will include two of the group's nominees.

The shareholder group owns about 9.8% of outstanding shares of White Electronic Designs.

The two new directors are Melvin Keating, former president and chief executive officer of Alliance Semiconductor Corp., and Brian Kahn, founder and investment manager of Caiman Partners.

Kahn will be appointed to the board's strategic alternatives committee, which is reviewing ways to enhance shareholder value.

One of the alternatives could be a sale.

"In the agreement, they seem to be forming a cooperative relationship by placing one of the most high-profile dissidents on that committee," said Mark Jordan, an analyst with Noble Financial Group.

"The company could conceivably go down a number of paths," he said. "When you have a lot of cash, you could buy somebody or somebody could buy you."

White Electronic's stock closed up 8 cents, or 2.02%, to $4.05 in trading on Wednesday.

Mentioned in this article:

Exelon Corp. NYSE: EXC

Google Inc. Nasdaq: GOOG

NRG Energy, Inc. NYSE: NRG

PharmaNet Development Group Inc. Nasdaq: PDGI

Time Warner Inc. NYSE: TWX

White Electronic Designs Corp. Nasdaq: WEDC

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