Host's stock sale to fund deals; Forsys buy held for review; Nutraceutical stock up on bid

By Cristal Cody

Tupelo, Miss., Aug. 20 - Host Hotels & Resorts Inc. could be in the driver's seat for opportunistic deals after the real estate investment trust said it will sell up to $400 million in new shares, an analyst said Thursday.

Meanwhile, shares of Canadian uranium miner Forsys Metals Corp. continued to fall a day after a letter from deal regulator Industry Canada put a hold on the company's C$579 million takeover.

Also on Thursday, Southwest Airlines Co. chief executive officer Gary Kelly said in media reports that the low-cost carrier may look for other acquisitions after it lost the auction for Frontier Airlines Holdings, Inc. last week.

The airline, an analyst said, would either have to seek out an acquisition or raise fares to grow earnings.

In other situations, shares of nutritional supplement maker Nutraceutical International Corp. climbed 5.79% on Thursday after the company rejected a buyout offer for $10.75 a share in cash.

Moving to Wall Street, stocks closed up on Thursday.

The Dow Jones Industrial Average gained 70.89 points, or 0.76%, to close at 0,350.05.

The broader markets also advanced.

The Standard & Poor's 500 index rose 10.91 points, or 1.09%, to 1,007.37, and the Nasdaq Composite index closed up 19.98 points, or 1.01%, at 1,989.22.

REIT dilutes shares

Host Hotels & Resorts plans to sell more than 41 million shares to use for future hotel acquisitions, to repay debt and for general corporate purposes, according to a company regulatory filing on Thursday.

"If Host sells the maximum amount of shares at current levels, the deal would be 6.80% dilutive, or roughly a penny for 2009 and $0.03 for 2010, although this assumes no accretive use of proceeds," Smedes Rose and Daniel Cooney, analysts at Keefe, Bruyette & Woods, Inc., said Thursday in a research note released to Prospect News.

Host said in a prospectus filed Thursday with the Securities and Exchange Commission that it entered into a sales and financing agreement with BNY Mellon Capital Markets, LLC to sell the shares. Under the proposal, BNY can sell up to $150 million in each allocation through November 2011.

"We intend to use the net proceeds from the sale of our common stock from time to time to supplement our available cash, which we expect we will use to fund future potential acquisitions, to repay or repurchase outstanding debt and for general corporate purposes," the company said in the filing.

The Bethesda, Md.-based REIT, formerly known as Host Marriott Corp., owns 113 luxury and upscale properties.

"In our opinion, management is positioning itself to opportunistically take advantage of asset acquisitions and/or debt repurchases," the analysts said.

Host has "stated its intention to de-lever as it makes acquisitions, implying any purchase would be at least 50.00% equity financed," the analysts said in the note. "HST currently trades at 16.50 [times] our 2010 estimate, suggesting the company could potentially make an accretive acquisition with 100% equity financing."

Similar stock programs have been recently offered by other REITs, including DiamondRock Hospitality Co., which said in July it would sell up to $75 million in shares, and Avalonbay Communities Inc., which announced a $400 million stock program last week.

Shares of Host closed up 56 cents, or 5.79%, at $10.23 on Thursday.

Bethesda, Md.-based DiamondRock shares rose 15 cents, or 2.26%, to $6.80.

Alexandria, Va.-based Avalonbay's stock added $2.35, or 3.79%, to close at $64.43.

Industry Canada wants closer look

Forsys said Wednesday that it had received a letter from acquirer George Forrest International Afrique SPRL that stated the deal could go no further until it heard back from Industry Canada.

Forsys, an Oakville, Ont.-based uranium developer with operations in Namibia, said Industry Canada sent a stop notification to George Forrest.

Industry Canada spokesman Michael Hammond told Prospect News on Thursday that the deal regulator had "no comment at this point."

The takeover has been delayed several times since its original closing scheduled in February to allow Belgium-based George Forrest to secure funds for the acquisition.

Shares of Forsys fell 2.96% on Thursday to close at C$5.24. The stock has traded from C$2.00 to C$6.70 over the past year.

Make a deal or raise prices

Southwest Airlines said it likely would limit any transactions to another bankruptcy restructuring.

Indianapolis-based Republic Airways Holdings, Inc. won the bidding for Denver-based Frontier for $108.75 million in a bankruptcy court auction last week.

Southwest Airlines had made a higher offer at $170 million, but the proposal hinged on a labor agreement between the airlines' unions, Southwest Airlines Pilots Association and Frontier Airlines Pilots Association.

Vaughn Cordle, chief analyst of AirlineForecasts, LLC, said in a research note released to Prospect News that Dallas-based Southwest eventually must raise fares or make an acquisition to boost the sagging stock price. The company's growth is predicted to fall 6.00% or more this year.

"Based on our recent analysis, an approximate 5.00% average fare hike would result in a $1.00 per share earnings in 2010," Cordle said. "The current consensus is $0.35. However, we would not expect this to happen before a new pilots' agreement has been concluded. After all, why produce higher earnings when negotiating with labor."

Dallas-based Southwest Airlines serves 66 cities in 33 states. Shares of the carrier rose 3 cents, or 0.35%, to $8.49 on Thursday.

Republic's stock jumped 75 cents, or 11.05%, to close at $7.54.

Bid fails to satisfy vitamin maker

Nutraceutical's board said in a statement on Thursday that a buyout bid valued at $117.72 million was "identical in all material respects" to the July 15 proposal from shareholder Ryan Drexler.

That offer had been evaluated and rejected by the company's board and advisers.

On the latest offer, "Nutraceutical's board of directors has confirmed its view that Mr. Drexler's proposal to acquire the company is not in the best interests of Nutraceutical's stockholders," the company said in the statement.

Drexler announced the offer to acquire the vitamin supplements company on Wednesday and said he may offer more depending on the results of due diligence.

Drexler holds 3.10% of outstanding shares of the Park City, Utah-based manufacturer, which produces supplements under brands such as Solaray.

Nutraceutical's stock closed at $11.32, up 62 cents, on Thursday.

Mentioned in this article:

Avalonbay Communities Inc. NYSE: AVB

DiamaondRock Hospitality Co. NYSE: DRH

Forsys Metals Corp. Toronto: FSY

Host Hotels & Resorts Inc. NYSE: HST

Nutraceutical International Corp. Nasdaq: NUTR

Republic Airways Holdings, Inc. Nasdaq: RJET

Southwest Airlines Co. NYSE: LUV

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