Ambac's $1 billion issue stalls gains; Yahoo! postpones board deadline; feds consider XM, Sirius deal

By Aaron Hochman-Zimmerman

New York, March 5 - Stocks began a healthy climb after the open, but were soon attempting to recover from a stall after Ambac Financial Group Inc. announced its plan for $1 billion of new stock issuance.

Yahoo! Inc. pushed back its board selection deadline, but kept Microsoft Corp.'s interest in mind as it made the announcement.

XM Satellite Radio and Sirius Satellite Radio were hanging on the words of Federal Communications Commission chairman Kevin Martin, who only indicated that a decision to allow the deal would come first from the Department of Justice.

Both stocks still finished better.

A California consumer group wrote to the Federal Reserve in an attempt to block the deal between Bank of America Corp. and Countrywide Financial Corp.

Hexion Specialty Chemicals Inc. gave a boost to hopes for its deal to buy Huntsman Corp. by announcing Huntsman's chairman will lead the new entity.

Meanwhile, Elliott Associates LP made a $5.50 per share offer for Packeteer Inc.

Still, "today was kind of a slow day all around," a market source said.

The Dow Jones Industrial Average ended higher by 41.19, or 0.34%, at 12,254.99, while the Nasdaq Composite Index added 12.53, or 0.55%, to finish at 2,272.81.

The S&P 500 tacked on 6.95, or 0.52% to close at 1,333.70.

Ambac to raise $1 billion

Ambac Financial Group (NYSE: ABK) stock was slammed for a $2.02, or 18.84%, loss to end at $8.70 after its announcement of a $1 billion stock and convertible issuance.

"This capital raise, along with our recent strategic actions, our increased emphasis on risk-adjusted returns over the course of an economic cycle and a six-month suspension of the structured finance business, will strengthen our capital base," said Ambac's chairman and chief executive officer, Michael Callen in a press release.

"In this offering, we are targeting our core investor base, the long term holders of our stock, who have been loyal to Ambac," he added.

"They'll survive ... it'll keep their doors open for a while," a market source said about the issuance, which he called "dilutive."

Still, the market would have preferred "some sort of cash infusion from the major banks," he said.

"It's the Ambac news that's really bringing down the market," he said.

Radio chatter

Shares of XM Satellite Radio (Nasdaq: XMSR) added $0.07, or 0.62%, to finish the day at $11.37 as the FCC's Kevin Martin said its merger with Sirius Satellite Radio (Nasdaq: SIRI) faces a "high hurdle," according to a report in MediaWeek.

Martin said that the FCC will likely wait for an anti-trust decision from the Justice Department before making any decisions about whether or not the new entity would constitute a monopoly on the satellite airwaves.

Sirius stock added $0.04, or 1.43%, to end the session at $2.84.

"Both of them were up today, which I wasn't expecting," a market source said.

"I don't think its going to get crushed," he said about the deal.

Yahoo! delays board deadline

Yahoo! (Nasdaq: YHOO) stock added $0.61, or 2.19%, to close at $28.67 as the company announced it will extend its deadline for nominating its board of directors from March 14 to 10 days after the announcement of its 2008 annual stockholders meeting, according to a company press release.

Microsoft (Nasdaq: MSFT) may still nominate members of the board until the new deadline.

"As the company has not yet announced the date of this year's annual meeting, the amendment will give stockholders who want to nominate one or more directors, including Microsoft Corp., more time to do so," the release said.

Shares of Microsoft were better by $0.53, or 1.92%, at $28.12.

Yahoo! hopes that the postponement of the deadline allows it to continue to explore its options without "the distraction of a proxy contest," the press release said.

A market source was surprised to see Yahoo!'s consideration for Microsoft in the press release.

"It tells me they're willing to work together more," he said.

Mixing chemicals

Shares of Huntsman (NYSE: HUN) were better by $0.76, or 3.20%, to $24.50 as it announced its chairman, Peter Huntsman, will lead the new entity after Huntsman is acquired by Hexion Specialty Chemicals.

The deal is expected to close during the second quarter, according to a Hexion press release.

"This combination will form one of the world's largest specialty chemical companies. It will have annual sales of more than $14 billion, and more than 21,000 associates and 180 facilities around the world serving a diverse range of customers and industries with leading technologies and products, said Joshua Harris of Apollo Management LP, in the press release.

"For them to come out and say this, it kind of reaffirms that they're serious about closing," a market source said about a deal which had seemed dormant.

California group tries to halt Countrywide

Shares of Countrywide Financial (NYSE: CFC) fell $0.23, or 3.88%, to $5.70 as the California-based consumer advocate group, the Greenlining Institute, asked the Federal Reserve to meet in order to block the merger with Bank of America (NYSE: BAC) until it detailed a plan for alleviating the mortgage crisis in California, a market source said.

Bank of America stock dropped $0.59, or 1.55%, to $37.55.

Also, the Wall Street Journal reported that Jonathan Wood of SRM Capital Management, a 5% owner of Countrywide, has been campaigning for a better offer from Bank of America.

"I would say both of those claims have very little merit," a market source said about the suit from the consumer group and the push for a better bid.

"The Fed is not required to have the meeting," another market source said.

"I don't think anything is going to become of that," he said about the suit.

Packeteer to be wrapped up?

Shares of Packeteer (Nasdaq: PKTR) jumped $1.08, or 27.98% to end the day at $4.94 as 10% owners Elliott Associates wrote an open letter to the board offering to acquire the Cupertino, Calif.-based information technology company for $5.50 per share, according to an Elliott press release.

The offer comes at a 42% premium to Packeteer's stock price.

"We believe Packeteer's poor performance - as reflected in the 37% decline of its stock price year to date and 67% decline over the past 12 months - is the result of weak execution in terms of selling and developing its industry-leading products," Elliott wrote to Packeteer's board.

"Considering Packeteer's underperformance in terms of stock price and execution in relation to its peers, we believe this is an extremely attractive alternative for shareholders," the letter continued.

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