Xerox bid considered fair; CF stock buy no threat for Terra; Covidien deal expected to close

By Cristal Cody

Tupelo, Miss., Sept. 28 - In what marked the lead deal of the day, Xerox Corp. said Monday it will buy out Affiliated Computer Services, Inc. for $63.11 a share in cash and stock - a fair bid but one that may not please all investors, an analyst told Prospect News.

Meanwhile, CF Industries Holdings, Inc. took a new strategy in its hostile takeover attempt of Terra Industries Inc., but the direction is not expected to change much on the deal's progression, an analyst said in an interview Monday.

Also on Monday, GenTek Inc. said it will be taken private for $411 million in cash, or $38.00 a share, in cash.

In other new deals, Covidien plc said Monday that it will acquire Aspect Medical Systems, Inc. for $12.00 a share in cash, just three months after the Dublin, Ireland health-care products company acquired VNUS Medical Technologies, Inc.

The rise in transactions helped push stocks up on Monday.

The Dow Jones Industrial Average climbed 124.17 points, or 1.28%, to close at 9,789.36.

The Standard & Poor's 500 index rose 18.60 points, or 1.78%, to 1,062.98, and the Nasdaq Composite index closed up 39.82 points, or 1.90%, at 2,130.74.

Xerox offers 33% premium

Xerox plans to acquire business process outsourcing firm Affiliated Computer Services in a deal, which includes the assumption of $2 billion in debt, valued at $6.4 billion.

Under the terms of the agreement, Affiliated Computer Services shareholders will receive $18.60 per share in cash plus 4.935 Xerox shares for each Affiliated Computer Services share. Xerox also will issue $300 million of convertible preferred stock to the company's class B shareholder, Affiliated Computer Services founder and chairman Darwin Deason.

"At closing, I will become one of the combined company's largest individual shareholders, and I intend to remain a long-term investor because I could not be more optimistic about the future of the combined company," Deason said in a statement.

Xerox's offer amounted to a 33% premium over Affiliated Computer Services' closing stock price on Friday.

Bhavan Suri, an analyst with William Blair & Co., LLC, told Prospect News that the deal is fair but may be less than pleasing to some.

"Investors might get a little upset because the premium being paid for ACS is slightly less than the premium Dell paid for Perot last week," he said. "That said, the price is roughly in line with what people are paying for services businesses. It's a reasonably fair price given ACS' mid-digit growth rate."

Last week, Dell Inc. said it will buy Perot Systems Corp. for $3.9 billion.

Because Affiliated Computer Services' founder will support the deal, it's likely to go through, Suri said.

"It would be hard for it not to go through," he said.

In addition to approval from both companies' shareholders, the deal requires regulatory clearances in the United States and abroad.

Xerox spokesman Carl Langsenkamp told Prospect News on Monday that the company will file for Hart-Scott-Rodino antitrust clearance from the Federal Trade Commission.

"And we currently expect there will be an E.U. filing and maybe a couple of other countries," he said.

The transaction is expected to close in the first quarter of 2010.

The combination will turn Xerox into a $22 billion global company, Ursula Burns, chief executive officer of Xerox, said on a conference call with analysts and media on Monday.

The deal is a "game-changing initiative for sure," she said. "With ACS, Xerox is creating a new class-leading provider."

Dallas-based Affiliated Computer Services is the largest provider of managed services to government entities in the United States.

Shares of Affiliated Computer Services touched off a new high of $55.84 before the stock closed up $6.61, or 13.99%, at $53.86. The stock has traded from $34.84 to $55.84 over the past year.

Shares of Norwalk, Conn.-based Xerox lost $1.29, or 14.38%, to close at $7.68.

CF tries new strategy

On Monday, CF said it purchased 7% of Terra's outstanding stock for $247 million through open-market purchases over the past two weeks.

CF also said under a new merger proposal, a takeover would require approval from both Terra and CF shareholders.

Sioux City, Iowa-based fertilizer company Terra said in a statement sent to Prospect News that it will review CF's latest announcement. It has previously rejected CF's stock exchange offer of 0.465 of a share of CF for each share of Terra, a transaction valued at more than $3.5 billion.

"Our proposal provides a very significant premium to Terra stockholders, which is above historical premiums for stock transactions," Stephen R. Wilson, CF's chairman, president and CEO, said in a statement. "Our acquisition of 7% of Terra further demonstrates our commitment to the business combination."

CF said the company has cleared all U.S. and Canadian regulatory approvals for a transaction with Terra.

"The revised proposal notes among other things that the proposed exchange ratio would be adjusted upon declaration by Terra Industries of its previously announced $7.50 per share special dividend, plans for which were announced by Terra Industries last week," Terra said in the statement.

Terra plans to distribute about $750 million in a special dividend to investors.

Edlain Rodriguez, an analyst with Broadpoint AmTech, Inc., told Prospect News on Monday that CF's announcement doesn't really change anything, but Terra's $7.50-a-share dividend plans are a strong deal deterrent.

"Especially given with what Terra did with increasing the dividends and taking more debt," he said. "It's definitely a poison pill trying to handicap what's going on."

CF is "just trying to strengthen their hand" with the stock purchases, Rodriguez said.

Terra will hold its shareholders meeting on Nov. 20, and CF plans to attempt to place directors on the board.

Deerfield, Ill.-based CF faces its own hostile takeover proposal by Calgary, Alta.-based agricultural company Agrium Inc., which extended its tender offer of $40.00 in cash and one Agrium share per CF share to Oct. 22.

Terra shares rose 67 cents, or 1.90%, to close at $35.86 on Monday.

CF shares gained $1.77, or 2.10%, to $86.06.

Agrium's stock closed up $1.47, or 3.05%, at $49.69.

GenTek to go private

ASP GT Acquisition Corp., a subsidiary of investment funds managed by New York private equity firm American Securities LLC, will acquire GenTek in a deal valued at $673 million.

The offer includes the assumption of $262 million in debt and liabilities.

Parsippany, N.J.-based GenTek provides system products and parts for automotive and heavy-duty commercial engines.

"Following consideration of a full range of strategic alternatives, we are pleased to have reached this agreement with American Securities, which creates substantial value for our stockholders," William E. Redmond Jr., GenTek's president and CEO, said in a statement.

The offer represents a 40.7% premium over GenTek's closing share price of $27.00 on Friday.

Investors sent GenTek shares up to a new annual trading higher earlier in the day at $37.82 before the stock closed up $10.77, or 39.87%, at $37.77. Shares have traded as low as $13.00 in the past year.

The tender offer is expected to start by Oct. 9 and end 20 business days later.

GenTek spokesman Thomas Testa told Prospect News that the deal will require federal Hart-Scott-Rodino antitrust approval.

"That's the only one needed other than the standard SEC reviews," he said.

Covidien picks up deal action

Covidien said it will pay $12.00 a share in cash for Aspect, a premium of about 56% over the stock's $7.67 closing price on Friday.

Covidien plans to launch a tender offer in the $210 million deal to buy out the Norwood, Mass.-based brain-scanning technology company.

"The acquisition of Aspect will allow Covidien to broaden its product offerings and add a market leading brain monitoring technology to its portfolio," Pete Wehrly, president of Covidien's respiratory and monitoring solutions division, said in a statement.

In June, Covidien completed its $440 million cash acquisition of San Jose, Calif.-based VNUS Medical Technologies.

Greg Chodaczek, an analyst with Boenning & Scattergood Inc., on Monday downgraded Aspect to neutral based on a limited trading upside.

"Aspect Medical's shares are currently trading at $11.91 /share, just below the $12.00 takeout price," he said in a research note. "The transaction, which we believe is likely to receive shareholder approval, is expected to close by year's end."

Aspect Medical shares jumped $4.29, or 55.93%, to set a new yearly trading high of $11.96 on Monday. The stock has traded as low as $2.50 over the past year.

Covidien shares closed at $42.54, up $1.18, or 2.85%.

Mentioned in this article:

Affiliated Computer Services, Inc. NYSE: ACS

Agrium Inc. NYSE: AGU

Aspect Medical Systems, Inc. Nasdaq: ASPM

CF Industries Holdings, Inc. NYSE: CF

Covidien plc NYSE: COV

GenTek Inc. Nasdaq: GETI

Terra Industries Inc. NYSE: TRA

Xerox Corp. NYSE: XRX

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