WCI Communities still for sale; credit crunch still scares private equity investors; Oglebay Norton weighs offer

By Evan Weinberger

New York, July 26 - One of the two weights dragging down stock indexes around the world Thursday was credit, or more specifically fears that there may soon be a credit crunch with banks and investors putting the kibosh on new corporate deals.

The other weight stuck in the markets' pockets as they rapidly sunk was problems in the housing market. With concerns about prime loans lumping on top of earlier concerns about subprime loans and new house sales dropping an unexpectedly large amount, homebuilders were hit especially hard and investors got edgy.

The two weights came together in the problems experienced by WCI Communities, Inc. The homebuilder from Bonita Springs, Fla. announced that there were no definitive offers for the company after it turned down a $22-per share offer from Carl Icahn in March.

The news sent WCI Communities stocks and bonds into freefall Thursday.

At the same time, shares issued by companies linked to deals with large private equity firms - including Alltel Corp. and CDW Corp. - were also hurt Thursday. After Wednesday's announcement that investment banks couldn't immediately get financing for Cerberus Capital Management's LBO of DaimlerChrysler AG's Chrysler wing, the feared credit crunch seemed a little more real.

"People are going to have put up the money themselves, and nobody wants to do that," one market source.

The numbers for the Dow Jones Industrial Average were just plain ugly Thursday. The index lost 311.50 points, or 2.26%, to close at 13,473.57. The Nasdaq wasn't much better, losing 48.83 points, or 1.84%, to close at 2,559.34.

"People are selling first and asking questions later," a market source said.

WCI can't find takers

When Carl Icahn rolled in with his $22-per share bid for WCI Communities in March, the company scoffed, saying the bid was far too low.

So the company, which builds homes in six states along the eastern seaboard and has a mortgage arm, set out to find its own strategic alternatives.

The company and its directors are still looking.

In a press release Thursday, WCI announced that it had received no definitive offers. Although there were some initial inquiries, "deteriorating conditions and uncertainty in the homebuilding and debt markets have made the sale process more challenging," the release said.

The news that WCI couldn't find a taker was just part of the bad news in the real estate and mortgage sector. In concert with the National Association of Realtors report that showed a steep decline in new home sales for the fourth consecutive month in June, two prominent home building companies also announced drastic losses. But none of the homebuilders' one-day losses Thursday rivaled those of WCI Communities. The confluence of bad news caused investors to flee in droves. The stock (NYSE: WCI) lost12.81%, or $1.45, to close at $9.87.And the stock wasn't the only WCI financial instrument to get whacked Thursday. One trader reported that the company's bonds were in a "death spiral."

Among other companies in the sector, Beazer Homes USA Inc. announced that a drop in prices caused it to lose $3.20 per share versus $2.37 of income for the third quarter of 2006 - all this on top of a Securities and Exchange Commission investigation. Beazer Homes stock (NYSE: BZH) lost $1.48, or 8.69%, to close at $15.56.

And D.R. Horton Inc., a Fort Worth, Texas-based home builder announced that it had lost $2.62 per share in the third quarter of 2007, compared to a 93 cent per share gain in the third quarter of 2006. The company's stock (NYSE: DHI) lost 32 cents, or 1.83%, to close at $17.16.

Big deals may be in peril

Right now, several struggling companies looking to be rescued by private equity firms are tied to railroad tracks, and the giant locomotive of a credit crunch may well be bearing down. Will they be saved in time? It's too early to tell.

The announcement Wednesday that the bank arrangers would have to scrounge up $10 billion of a $12 billion loan package that was part of the Cerberus-Chrysler takeover - DaimlerChrysler will search for the remaining $2 billion - is stoking fears that soon investors will say no more to financing big private equity takeovers.

"Anyone who needs financing for a deal is going to get hit," a market source said.

Shares in Alltel, DaimlerChrysler and CDW Corp. were all down with the market Thursday, with the lone bright spot coming from Tribune Co.

That deal, for real estate mogul Sam Zell to buy the Chicago-based media conglomerate best known for its newspapers, appears to be the farthest ahead of the bunch. "The only one that hung in there is Tribune," the source said. "I think people think that this deal is going to get done."

Tribune stock (NYSE: TRB) actually picked up 4 cents, or 0.14%, to close at $28.24.

The other stocks, however, didn't do quite as well.

Little Rock, Ark.-based wireless communications firm Alltel saw its stock dip 43 cents, or 0.65%, to $65.70. Shareholders will have the chance to vote on TPG Capital and GS Capital Partners' $71.50 per-share offer on Aug. 29.

CDW, the Vernon Hills, Ill.-based information technology retailer, saw its stock (Nasdaq: CDWC) decline $1.09, or 1.28%, to $83.74 Thursday despite Tuesday's announcement that its third-quarter profit had risen 9.5% over 2006. CDW agreed to a $7.3 billion takeover by private equity firm Madison Dearborn Partners LLC in May.

And shares in Stuttgart, Germany -based carmaker DaimlerChrysler AG fell to $88.91 per share on the New York Stock Exchange. The company's stock (NYSE: DCX) lost $4.11, or 4.42%.

Oglebay Norton shares up on takeover

On a bleak market day, it's good to sign off with positive news. Cleveland-based miner Oglebay Norton Co. received a $31 per share offer from private equity firm Harbinger Capital Partners, the private equity firm announced Thursday morning.

The announcement came two days after Oglebay Norton announced that it would be looking into its strategic options and three weeks after Harbinger, which has a major stake in the mining concern, attempted to replace the company's board of directors.

Oglebay Norton said that it would consider the offer, which comes just a few years after it emerged from Chapter 11 protection. Harbinger intends to buy the shares through a tender offer.

Oglebay Norton stock (Pink Sheets: OGBY) picked up 18.71%, or $4.65, to close at $29.50.

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