Regulatory OKs may delay Sun buyout; Validus ups IPC bid; investors seek slice of Gilat

By Cristal Cody

Tupelo, Miss., June 8 - Sun Microsystems, Inc. said Monday in a regulatory filing that extensive government approvals could hold up its acquisition by Oracle Corp., but the companies still plan to close the deal this summer.

In other situations, Validus Holdings, Ltd. on Monday improved its offer for IPC Holdings, Ltd. ahead of Friday's vote by IPC investors on a deal with Max Capital Group Ltd., but the small increase doesn't really change anything, an analyst told Prospect News.

Also on Monday, Qwest Communications International Inc. said it ended a potential sale of its long-distance phone network, which could have forced a sale of the entire company, an analyst said in an interview.

Meanwhile, a move to control more than 25.00% of shares of Gilat Satellite Networks Ltd. surprised analysts, who had no immediate comment when reached Monday.

On Wall Street, stocks stayed mostly flat on Monday. The Dow Jones Industrial Average added 1.36 points, or 0.02%, to close at 8,764.49.

The Standard & Poor's 500 index fell 0.95 of a point, or 0.10%, to 939.14, and the Nasdaq Composite index dropped 7.02 points, or 0.38%, to close at 1,842.40.

Sun awaits OKs

Sun Microsystems on Monday set the special shareholders meeting for investors to vote on Oracle's $9.50-a-share cash buyout offer for July 16.

In the proxy statement filed with the Securities and Exchange Commission on Monday, Sun said the deal is subject to antitrust laws in the United States, Canada, European Union, China, Israel, Switzerland, Russia, Australia, Turkey, Korea, Japan, Mexico and South Africa.

U.S. clearance is needed from the Justice Department and the Federal Trade Commission.

Oracle and Sun filed their notifications with the Justice Department and the FTC on May 5 and Oracle re-filed the forms on May 27.

"Oracle and Sun are preparing antitrust and competition filings for foreign jurisdictions, including the European Union," Sun said in the filing.

The deal includes a $260 million termination fee.

Redwood Shores, Calif.-based Oracle secured its transaction with Sun after reported talks with Armonk, N.Y.-based International Business Machines Corp. fell through because of the bid price. Oracle's offer is valued at about $7.4 billion, including Sun's debt.

Sun said it attempted to get a higher bid from Oracle.

In commentary in the proxy on how the deal came about with Oracle, Sun said that its board contacted Oracle president Safra Catz on April 18 to propose a price higher than $9.50 a share but was rejected.

"Sun performed a substantial investigation of the interest of other potential acquirers who might offer better terms than Oracle for an acquisition of Sun," the company said in the filing.

Santa Clara, Calif.-based Sun agreed on April 20 to accept Oracle's offer.

Sun shares added 4 cents, or 0.44%, to close at $9.21 on Monday.

Oracle's stock rose 16 cents, or 0.77%, to $20.87.

IBM shares gained 25 cents, or 0.23%, to $107.49.

Validus ups IPC bid

Validus increased its bid for IPC by 75 cents to $3.75 in cash for each IPC share and 1.1234 Validus shares.

The increased offer values IPC at $30.67 a share and represents a 24.90% premium based on the closing prices of Validus and IPC on March 30, the last trading day before Validus made its original offer.

"This is a very small increase, an increase of 2.00% relative to their last offer," Mark Dwelle, an analyst with RBC Capital Markets Corp., said in an interview Monday. "It's really not that much of a change at all."

Validus urged IPC shareholders to vote on Friday against the amalgamation transaction with Max Capital.

Under the $912 million stock deal announced in March, Max shareholders will receive 0.6429 of an IPC share for each Max share as well as cash dividends after the merger closes.

"The vote is likely to be close," Dwelle said. "A vote against the Max offer does not imply the Validus offer would ever be accepted. It just means there's no deal and they have to start the process over from the beginning and go from there."

IPC shares lost 96 cents, or 3.44%, to close at $26.97 on Monday.

Shares of Validus gained 27 cents, or 1.13%, to $24.23.

Max Capital's stock fell 49 cents, or 2.89%, to close at $16.46.

Qwest to stay intact

Denver-based Qwest said in a statement on Monday that it received unsolicited attention from potential bidders for its long-distance network asset, so the board undertook a review and launched a bid process.

The company said it received significant interest but the "long-distance network asset holds far more value to Qwest shareholders and is more strategically important to Qwest and its customers than is the alternative of pursuing a transaction."

Shares of Qwest dropped 24 cents, or 5.76%, to close Monday at $3.93.

"They had an unsolicited offer, and the threat forced the board to conduct a complete review," Peter Rhamey, an analyst with BMO Capital Markets Corp., told Prospect News on Monday.

"This is not a great environment to auction off any assets in terms of getting peak value, so the conclusion of the board does not surprise me," he said. "They were forced to do this at an inopportune time."

Looking ahead, small communications companies are expected to continue a trend of consolidation to gain scale and realize synergies, he said.

"We're not sure what the format of the sale was, but long-distance business supports their growth in the future," Rhamey said of Qwest. "So the real strategic issues here are if they were to get top dollar for that asset, what are the implications for the remainder of Qwest, which would then be a local service provider only. My belief would be they would have to consider selling the [entire] company."

Gilat attracts new investor

KCPS Satellite Communications, LP offered to buy 2,026,000, or 5.00%, of outstanding shares of Gilat for $3.65 a share in cash, according to a schedule TO-T filed on Monday with the SEC.

The bid is a penny lower than the $3.66 that Gilat Satellite shares closed at on Friday.

Representatives of Gilat, a Petah Tikva, Israel-based satellite communication and networking products and services provider, were not immediately available for comment.

Gilat shares trade on the Nasdaq and the Tel Aviv Stock Exchange Ltd. As of May 31, there were 40,161,017 Gilat shares outstanding.

The offer from KCPS, a Tel Aviv, Israel-based firm formed solely to buy shares in Gilat, expires on July 9.

KCPS said it does not currently own any Gilat shares but that it does jointly hold 20.20% of the company's stock through a voting agreement with JGD Management Corp./York Capital Management. York Capital beneficially owns more than 8.12 million shares of Gilat.

"We are making the offer because we believe in the long-term potential of Gilat," the firm said in the filing. "When taken together with the Gilat shares beneficially owned by York, we and York will hold together 10,147,651 Gilat shares, representing approximately 25.30% of the issued and outstanding Gilat shares."

Gilat shares fell 13 cents, or 3.55%, to close Monday at $3.53. Shares have traded from $2.17 to $11.20 over the past year.

Mentioned in this article:

Gilat Satellite Networks Ltd. Nasdaq: GILT

International Business Machines Corp. NYSE: IBM

IPC Holdings, Ltd. Nasdaq: IPCR

Max Capital Group Ltd. Nasdaq: MXGL

Oracle Corp. Nasdaq: ORCL

Qwest Communications International Inc. NYSE: Q

Sun Microsystems, Inc. Nasdaq: JAVA

Validus Holdings, Ltd. NYSE: VR

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