Midwest Air deal raises monopoly issues in Milwaukee; Quebecor, with rescue package, returns to lenders

By Paul A. Harris

St. Louis, Jan. 17 - Further weakness in the financial sector and on the home construction front trashed the major U.S. stock markets on Thursday.

The S&P 500 coughed up 2.91% of its value, ending 39.95 lower on the day, to close at 1,333.

The Dow Jones Industrial Average gave up 2.46%, down 306.95, closing at 12,159.

The Nasdaq saw a slighter amount of hemorrhaging, giving up 1.99%, down 47.68 to close the Thursday session at 2,347.

Among the financial headlines which undermined the equities markets, Merrill Lynch & Co. recorded a net loss of $9.91 billion, or $12.01 per share, for the fourth quarter of 2007.

And the Commerce Department reported that December home construction was down 24.8% year over year.

Eying the Midwest Air deal

Market sources said that Midwest Air Group, Inc. will give the Dept. of Justice at least until the end of the month to consider a deal in which TPG Inc. and Northwest Airlines Corp. intend to acquire the company.

Sources say the deal is complicated by the fact that Northwest has entered into merger discussions with Delta Air Lines, Inc.

A combined Delta-Northwest-Midwest Air entity would control over 73% of the market at Milwaukee's international airport, one source told Prospect News on Thursday.

"They promised the Department of Justice that they wouldn't close the deal before Jan. 31, so the department can complete its review," an analyst said shortly after the Thursday close.

"They want to close this deal as soon as possible, and the Northwest-Delta deal could really mess it up."

The analyst added that if the DOJ decides the combined entity does comprise a monopoly at the Milwaukee airport it could give rise to the need for some type of divestiture.

"There is an outside chance that the government could say it needs more time," the analyst said.

"In this market there is no reason to discount that possibility."

Prospect News asked if this possibility is reflected in the current Midwest Air share price.

The analyst reckoned that should the arbitrage spread cross the 20% threshold the answer might be "Yes."

However the spread - the difference between the price at which the company is offering the shares, and the present share price - is around 18% now, the analyst said.

"It's been jumping up since mid-to-late December, which was well before the speculation on Midwest and Delta."

Midwest Air (AMEX: MEH) shares closed Thursday at $14.36, down $0.35 or 2.38%.

Delta Air Lines (NYSE: DAL) lost $0.81 5.06% on the day to close at $15.19.

Northwest Airlines (NYSE: NWA) gave up $0.47 or 2.7%, to close at 16.95.

Rescuing Quebecor

Meanwhile Quebecor World Inc. shares, which fell 62.75% on Wednesday as investors feared that the company's failure to line up new financing would prompt its banks to force the Canadian printer into bankruptcy, rebounded on Thursday on news that Quebecor was making progress on a C$400 million rescue package from Tricap Partners, a subsidiary of Brookfield Asset Management.

On Thursday shares of Quebecor (NYSE: IQW) gained 47.89% to close at $0.28, up $0.09.

A market source said that Quebecor is understood to be working to persuade lenders to accept the rescue package.

"It's a strange situation because the banks are in a position where they're holding all the cards," the source said.

"The question becomes, 'Do you really want to put this company into bankruptcy?'

"Hopefully at the end of the day there is a solution."

Calpine when-issued trading

Meanwhile Calpine Corp.'s when-issued shares fell for a second time in their second day of trading Thursday.

Shares of the bankrupt San Jose, Calif., power company, which is on track to exit Chapter 11 on Feb. 7, saw their first day of trading on Wednesday, closing that session at $17.50.

On Thursday Calpine's when-issued shares (NYSE: CPN-WI) closed down $0.95 (5.43%) at $16.55.

QLT plans asset sale

Also on Thursday QLT, Inc., a Vancouver, Canada-based biopharmaceutical company, announced that its board has decided to sell QLT USA, Inc. whose primary assets include a product line for prostate cancer, a dermatology product for the treatment of acne, and a drug delivery system.

The board sees the sale taking place either in a single transaction or series of transactions.

The QLT board also has decided to sell land and a building, reduce the company's workforce by 115 employees, with planned future reductions as assets are divested.

The company intends to use proceeds from these asset sales to repay its outstanding convertibles, which are putable in September 2008. Investors are expected to exercise that option.

On Thursday QLT shares (Nasdaq: QLTI) closed at $4.26, down $0.09 or 2.07% on the day.

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