Financials up ahead of vote; NatCity leads regionals; Eli Lilly revealed as ImClone's secret bidder

By Aaron Hochman-Zimmerman

New York, Oct. 1 - Stocks found their way back to generally flat on Wednesday, but the financials were the day's heroes rather than the goats.

From big fish like Bank of America Corp. and Citigroup Inc. to small fry like National City Corp. and Fifth Third Bancorp, the country's banks were broadly stronger as the world waited for a vote in Congress.

"We're waiting for the Senate," a market source said, "that's the big ball right there."

Whether or not headway is made "is pretty much going to decide the tone" for Thursday, he said.

Still, regardless of which day the bailout plan passes, "they're going to do something," he said.

Elsewhere in the market, Eli Lilly & Co. was revealed as the "large pharma company" competing with Bristol-Myers Squibb Co. for ImClone Systems Inc.

Also in technology, Epicor Software Corp. received a $9.50-per-share offer from Elliott Associates LP.

Meanwhile in the broader market, the Dow Jones Industrial Average ended lower by 19.59, or 0.18%, at 10,831.07, while the Nasdaq Composite Index gave back 22.48, or 1.07%, to finish at 2,069.40.

The S&P 500 slid by 5.30, or 0.45%, to close at 1,161.06.

Financials float

Financial stocks looked sturdy and largely outperformed the mixed market as politicians once again expressed optimism over the passage of the Troubled Asset Relief Program.

Some investors saw an opportunity in Bank of America by playing the only half of the arbitrage game that is left.

One trader recommended buying shares of Merrill Lynch & Co., Inc. as a cheap ticket to ride the Bank of America express.

Some believe that Merrill Lynch will make an attempt to wriggle away from Bank of America if it is able under a bailout scenario. The trader simply said, "Merrill Lynch can't get out."

The deal is expected to close in the first quarter of 2009.

Shares of Merrill Lynch (NYSE: MER) improved by $1.40, or 5.53%, to end the day at $26.70.

Shares of Bank of America (NYSE: BAC) added $3.13, or 8.94%, to close at $38.13.

Still, if financials were in the lead, it was the regional banks that led the financials.

Banks that would stand to benefit a great deal from a "yea" vote in the Senate rallied on Wednesday.

Shares of Fifth Third (Nasdaq: FITB) tacked on $1.92, or 16.13%, to $13.82.

Shares of SunTrust Banks (NYSE: STI) were better by $4.06, or 9.02%, to end at $49.05.

National City's success is in the mix

Meanwhile, National City shares soared on Wednesday as "probably a mixture of both" the TARP vote in the Senate and swirling rumors of a sale lifted the Cleveland-based bank, said BMO Capital Markets analyst Lana Chan.

If a merger is in the cards for National City, "you can't even guess" at a proper sale price, she said.

The instability of loan markets and the ongoing process of the bailout make the immediate future impossible to predict.

Meanwhile, all day Wednesday the Senate considered an amended version of the bailout plan that includes provisions for higher deposit insurance coverage as well as middle-class and business tax cuts.

"We're all hoping that this bailout passes in whatever form it may take," Chan said.

"It would be a major step towards improving confidence in the financial system," she said. But she added that it may not be enough to completely stave off a recession.

Shares of National City (NYSE: NCC) rifled up by $1.14, or 65.14%, to end at $2.89.

And out of the shadows steps ...

Eli Lilly is the "large pharma company" ImClone chairman Carl Icahn claimed is the suitor that offered $70.00 per share, besting Bristol-Myers Squibb's offer of $62.00 per share, the Wall Street Journal reported, citing an unnamed source.

The $70.00-per-share offer amounts to $6.1 billion for ImClone.

Bristol-Myers Squibb's two-month bid for ImClone was fraught with squabbles.

ImClone rejected Bristol-Myers Squibb's $60.00-per-share offer on Aug. 4 and shortly after announced the $70.00-per-share offer from then-unnamed Eli Lilly.

Bristol-Myers Squibb, which already owns 16% of ImClone, mustered another $2.00 per share on Sept. 22.

The higher $62.00-per-share bid was also rejected by Icahn, who insisted the mystery bidder was serious.

Shares of Eli Lilly (NYSE: LLY) slipped by $0.34, or 0.77%, to $43.69.

Shares of ImClone (Nasdaq: IMCL) added $2.95, or 4.73%, to end at $65.35.

Shares of Bristol-Myers Squibb (NYSE: BMY) inched up $0.25, or 1.22%, to $20.79.

Even odds for Epicor

Epicor Software received a letter from its 10.2% shareholder, Elliott Associates, containing a $9.50-per-share offer.

Elliott portfolio manager Jesse Cohn began the letter by reviewing his firm's previous attempts to convince the Irvine, Calif.-based software designers to explore strategic alternatives.

The failed attempts to encourage a sale led to the offer, which represents a 20% premium to Tuesday's closing price and a 25% premium to the trailing 60-day volume-weighted average price.

With credit markets in their current condition, financing takes on a special importance, but Elliott assured Epicor that the cash is available.

"As Elliott has more than $14 billion of capital under management, our acquisition of the company can be completed using only our own funds and will not be subject to any financing condition," the letter said.

Epicor acknowledged the offer and said it is reviewing its options.

Elliott added that access to diligence may even allow for an improved offer.

Whether or not $9.50 per share is enough is "the question of the day," said Cowen & Co. analyst Peter Goldmacher.

The price is "on par with some of the recent deals in the space," he said, but "it's not clear that management is going to accept that."

At this point, the market is giving equal odds to the deal turning out like Oracle Corp. and BEA Systems Inc. or more like Yahoo! Inc. and Microsoft Corp.

Cowen & Co. recently downgraded Epicor to underperform from neutral, a research note stated.

Goldmacher cites Epicor's "exposure to the automotive, retail, manufacturing, and hospitality

industries."

Shares of Epicor Software (Nasdaq: EPIC) jumped by $1.04, or 13.18%, to $8.93.

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