Sun Microsystems stock surges; NRG takes legal action; J&J might challenge Schering-Plough merger

By Cristal Cody

Tupelo, Miss., March 18 - As reported last week by Prospect News, a buyout bid may be in the works for Sun Microsystems, Inc.

The computer system developer's stock soared nearly 80% on Wednesday on speculation of a deal valued at more than $6.5 billion with International Business Machines Corp.

Meanwhile, a drawn-out fight appears on the horizon in Exelon Corp.'s hostile takeover attempt of NRG Energy, Inc., with NRG taking the legal route in a lawsuit against Exelon.

Exelon dismissed the lawsuit in a statement prepared for Prospect News as a ploy to stop the takeover.

Separately, Johnson & Johnson is unlikely to make a full counter bid for Schering-Plough Corp., though it also is unlikely to do nothing while Schering-Plough is acquired by Merck and & Co., Inc., an analyst said Wednesday.

Moving to Wall Street, investors continued a midweek rally.

The Dow Jones Industrial Average closed up 90.88 points, or 1.23%, at 7,486.58 on Wednesday.

The Standard & Poor's 500 index added 16.23 points, or 2.09%, to 794.35, and the Nasdaq Composite index rose 29.11 points, or 1.99%, to close at 1,491.22.

Computer consolidation

Shares of Sun Microsystems gained $3.92, or 78.87%, to close Wednesday at $8.89. The once high-flying stock has traded from $2.60 to $16.72 over the past year.

The Santa Clara, Calif.-based company told Prospect News on Wednesday that the company does not comment on market rumors.

However, in an interview with Prospect News last week, Sun Microsystems spokesman Dana Lengkeek said, "We're continuing to align resources to be positioned for performance."

Armonk, N.Y.-based IBM also told Prospect News the company had no comment on the speculation.

Last week, International Securities Exchange traders bought to open 2,304 calls on Sun Microsystems, compared to 19 puts, which helped fuel talk of a transaction.

IBM shares lost 96 cents, or 1.03%, to close at $91.95.

Exelon, NRG tussle

NRG Energy filed a lawsuit in U.S. District Court for the Southern District of New York against Exelon over allegations that Exelon has made false and misleading statements about the takeover attempt.

Exelon said in a statement prepared for Prospect News that the "scattershot allegations" lawsuit "is just another attempt by NRG to thwart our effort to acquire NRG."

Exelon, a Chicago-based power company, said it is focused on NRG's annual meeting because of NRG's resistance to allow due diligence in order to elect Exelon's nominees to the board.

Princeton, N.J.-based NRG has urged shareholders to not tender shares in Exelon's offer.

Exelon has offered 0.485 of an Exelon share for each share of NRG in a deal valued at about $5.58 billion.

Since February, NRG shareholders already have tendered 51% of shares in the offer, which has been extended through June 26.

Angie Storozynski, an analyst with Macquarie Research Equities, said in an interview that the transaction is probably going to be a lengthy process.

NRG shares rose 6 cents, or 0.34%, to close at $17.91 on Wednesday, while Exelon's stock gained 47 cents, or 1.07%, to $44.57.

Johnson & Johnson options

While some analysts believe Schering-Plough would make a better fit with Johnson & Johnson than Merck, Johnson & Johnson's bidding history suggest the company "prefers negotiating and agreeing to a firm offer rather than ending up in a hostile situation," an analyst said Wednesday.

"In our view, Merck is likely to be more desperate to acquire Schering than J&J, given the substantial negative effect of its expected near-term patent expirations."

However, some action will be expected from Johnson & Johnson through a challenge to the change-of-control clause with Schering-Plough over the marketing agreement for the drug Remicade.

Kenilworth, N.J.-based Schering-Plough controls the international marketing rights to the inflammatory treatment drug, and Johnson & Johnson holds the U.S. marketing rights.

Market observers expect Johnson & Johnson to challenge Merck's acquisition of Schering-Plough in an attempt to allow all rights to the drug to revert back to Johnson & Johnson, a New Brunswick, N.J.-based health care products company.

Merck and Schering executives say that the deal is structured as a reverse merger to avoid triggering change-of-control clauses. Schering-Plough will be the surviving company but will be renamed Merck.

Whitehouse Station, N.J.-based Merck has offered $10.50 a share in cash and 0.5767 of a Merck share for each share of Schering-Plough.

Johnson & Johnson's options include arbitration proceedings; a negotiation with Merck for parts of Schering; a counter offer for all of the company; or to do nothing.

Johnson & Johnson "is unlikely to opt for the status quo," the analyst said.

Shares of Johnson & Johnson dropped 6 cents, or 0.12%, to close at $50.66 on Wednesday.

Schering-Plough's stock lost 2 cents, or 0.09%, to close at $23.20, while shares of Merck & Co. gained 35 cents, or 1.32%, to $26.96 in trading.

Mentioned in this article:

Exelon Corp. NYSE: EXC

International Business Machines Corp. NYSE: IBM

Johnson & Johnson NYSE: JNJ

Merck & Co., Inc. NYSE: MRK

NRG Energy, Inc. NYSE: NRG

Schering-Plough Corp. NYSE: SGP

Sun Microsystems, Inc. Nasdaq: JAVA

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