Atmel buyers back out; phone deals start approval path; Tang not alone in loss of Lehman-held shares

By Cristal Cody

New York, Nov. 18 - Wall Street rallied by the end of the day to push the markets up slightly, but at least one deal fell apart Tuesday over the continued soured economy.

ON Semiconductor Corp. and Microchip Technology Inc. withdrew an unsolicited $2.3 billion joint buyout offer for Atmel Corp., citing the weakened financial markets and deterioration in the semiconductor market.

The regulatory approval process is underway for upcoming deals in the telecom sector between CenturyTel Inc. and Embarq Corp. and AT&T's acquisition of Centennial Communications Corp., the companies told Prospect News.

Also, Tang Capital Partners LP won't be alone in its loss of shares that have been rehypothecated because of the bankruptcy of Lehman Brothers Holdings Inc.

Meanwhile on Tuesday, the Dow Jones Industrial Average rose 151.17, or 1.83%, to close at 8,424.75 and the Standard & Poor's 500 rose 8.37, or 0.98%, to close at 859.12.

The Nasdaq Composite Index rose 1.22, or 0.08%, to 1,483.27.

Atmel finds thrills alone

Atmel shares fell as much as 15.7% Tuesday after ON Semiconductor and Microchip Technology withdrew their $5 a share cash offer.

Shares regained some ground before closing down 4.01% to $3.83.

The companies made the offer on Oct. 1.

Microchip was involved in rescinding the joint transaction but said it plans to evaluate alternatives to pursue the merger without ON Semiconductor.

"I wouldn't put a lot of expectations behind Microchip trying to do it alone," said Doug Freedman, an analyst with American Technology Research.

Atmel said in a statement that the "decision by Microchip and ON to withdraw their unsolicited, unfinanced proposal underscores our board's determination that the proposal was highly conditional and subject to significant execution risk."

Freedman said shareholders were not vocal enough in supporting the merger negotiation.

"I don't think the negotiation ever got off the ground," he said.

ON shares closed at $3.34, up 2.14%. Microchip's stock fell 2.26% to close at $19.04 Tuesday.

Telecom regulatory process underway

CenturyTel and Embarq expect the regulatory approval process for the merger to start this year across the board, with the review from the U.S. Department of Justice set to expire Dec. 12, the companies told Prospect News on Tuesday.

The combination must be reviewed by the Department of Justice, the Federal Communications Commission and state public utility commissions.

"We expect most, if not all, of the required filings to be filed this year," said Embarq spokesman Francisco Ybarra.

The Justice Department review already is underway, Ybarra and CenturyTel spokesman Annmarie Sartor said.

Overland Park, Kansas-based Embarq and CenturyTel made the required Justice Department filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 on Nov. 12.

"Unless early termination is granted or a request for additional information or materials is issued, we expect the waiting period to expire at 11:59 pm on Dec. 12," Ybarra said.

CenturyTel of Monroe, La., offered to buy Embarq on Oct. 27 for stock initially valued at $5.8 billion.

Shareholders of Embarq, which was spun off from Sprint Nextel Corp. in 2006, will get 1.37 shares of CenturyTel for each share of Embarq.

Embarq and CenturyTel expect to receive all the necessary approvals to complete the deal within six to eight months and close in the second quarter of 2009.

"With respect to state approvals that may be required, each company will file with the appropriate state public service or utilities commission. Combined, the companies will file for approval in 15-20 states," Ybarra said.

Embarq shares rose 0.32% to close at $31.18.

CenturyTel shares rose 0.54% to close Tuesday at $25.89.

AT&T also has started to make progress on the regulatory process to approve its deal to buy rural phone company Centennial Communications for $944 million in cash, or $8.50 a share.

AT&T expects to gain approval from Centennial shareholders, the FCC and the Justice Department by the second quarter of 2009 for the acquisition announced Nov. 7.

"We're looking into whether or not any state approvals are required, but at this point, it's just the FCC and DOJ [needed]," AT&T spokesman McCall Butler said Tuesday.

Centennial Communications spokesman Steve Kunszabo said the two key regulatory approvals are from stockholders and the Justice Department.

"From here we expect to file our proxy soon and concurrent with that you will see regulatory filings," he said. "We haven't put forth a specific schedule, but those will come through with the respective agencies."

Centennial shares closed Tuesday up 2.79% to $7.73, up from the $3.47 closing stock price the day before the offer was made.

AT&T stock rose 0.42% to close at $23.97 in trading Tuesday.

Rehypothecated Lehman shares

Tang Capital Partners LP is just one of many investors to come to lose shares in the bankruptcy of Lehman Brothers Holdings Inc.

Tang Capital said in a regulatory filing that it previously held 5.31 million shares of Aradigm Corp. stock in an account at Lehman Brothers International (Europe), which was placed into administration on Sept. 15 in tandem with the bankruptcy of Lehman Brothers Holdings.

Tang Capital said that most of the shares were rehypothecated and that Lehman Brothers International's customers will not be able to recover rehypothecated shares but will be entitled to a general unsecured claim for the shares.

Tang Capital also previously held 2.66 million shares of Vanda Pharmaceuticals Inc. stock in an account at Lehman Brothers International and most of those shares were rehypothecated.

The same is true of the investor's previously held 4.76 million shares of Northstar Neuroscience Inc. common stock held at Lehman Brothers International.

Kevin Tang, manager of Tang Capital Management, did not return a phone call for comment on whether the company will try to recoup the shares.

Tang Capital won't be alone in the share loss.

"A lot of firms are going to be impaired because of this. If you used Lehman as your prime broker, you're going to have a lot of stress," Mark Lane, an analyst with William Blair & Co., said Tuesday.

There's not much investors can do to recoup shares that have been rehypothecated.

"They're going to wait in line like everybody else, the bond holders and other creditors," Lane said.

"The liquidation process has to run its course. As hedge funds get redemption requests through this period, you realize they don't have any funds to give back," he said. "That'll be one of the catalysts that will bring this issue out more."

Mentioned in this article:

Atmel Corp. Nasdaq: ATML

AT&T NYSE: ATT

CenturyTel Inc. NYSE: CTL

Centennial Communications Corp. Nasdaq: CYCL

Embarq Corp. NYSE: EQ

Microchip Technology Inc. Nasdaq: MCHP

ON Semiconductor Corp. Nasdaq: ONNN

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