EGL, Triad up on higher offers; Take-Two better; Acadia zooms; Todco drives drillers; lenders off

By Ronda Fears

Memphis, March 19 - Subprime mortgage lenders were a mixed bag Monday amid financing hopes provided by news from Newcastle Investment Corp. versus a delisting threat to Accredited Home Lenders Holding Co., more cease-and-desist orders against New Century Financial Corp. and a big downward revision to the acquisition price for Fieldstone Investment Corp.

Newcastle announced late Friday that it has agreed to buy a $1.7 billion portfolio of subprime residential mortgages scheduled to close over the next 30 days; the company did not identify the originator of those loans, but traders said it endowed players in the space hope of buyers for some of the defaulted portfolios that have been put back to some of the more troubled lenders.

"I was delighted to see Newcastle diving into the subprime market with their portfolio purchase. When there's blood in the water, there's major opportunity for the well-prepared. I added to my Newcastle position early this morning and will invest more if they come up with some more subprime buys. The way I look at it, the demand for subprime mortgages will only get bigger," said one trader.

"When the dust settles, big banks like Bank of America and a few tigers like Newcastle will make money like crazy from the subprime crisis at the expense of the likes of New Century who are getting wiped out."

The news lifted Newcastle (NYSE: NCT) to $28.18 before easing back to settle at $27.46, a gain of 46 cents on the session, or 1.7%. The trader also noted advances in its peers such as Capstead Mortgage Corp. and Thornburg Mortgage Inc. There also were early gains for subprime lenders Novastar Financial Inc. and Fremont General Corp., although the latter pair closed solidly in negative territory under pressure from the day's other events in the sector.

Elsewhere, new deals on the tape propelled ServiceMaster Co. and Todco. The Todco news also pushed oil and gas drillers such as Nabors Industries Ltd., Parker Drilling Co. and Pride International Inc. higher on continued speculation of further consolidation in the drilling industry.

TXU Corp. was higher on a report in The Financial Times that The Blackstone Group, The Carlyle Group and Riverstone Holdings are closer to mounting a rival offer to best the record $45 billion buyout bid for the Texas electric utility by Kohlberg, Kravis Roberts & Co. and Texas Pacific Group. TXU (NYSE: TXU) advanced $1.81 on the day, or 2.88%, to $64.56, but one trader said there was considerable skepticism, noting the stock had pulled back in after-hours action.

Also, EGL Inc. was higher on a boosted management-led leveraged buyout offer, but another private equity offer from Apollo Management was seen looming, and Triad Hospitals Inc. gained on accepting a rival bid from Community Health Systems Inc. to top a previously accepted offer from private equity investors CCMP Capital Advisors and GS Capital Partners.

Additionally, IntercontinentalExchange Inc. made its rival bid official for CBOT Holdings Inc. against an accepted offer from Chicago Mercantile Exchange Holdings Inc., and CBOT shares (NYSE: BOT) added $6.71, or 3.53%, to $196.71.

Take-Two Interactive Software Inc. hit another new high as indications continue to suggest the company will go into play on heavy pressure from majority stockholders OppenheimerFunds, D.E. Shaw, SAC Capital and Tudor Investments, which have staged a proxy battle to gain control of the board. On Monday, the video-game maker rescheduled its annual meeting to March 29 from March 23.

Biotech concern Acadia Pharmaceuticals Inc., which a biotech stock trader said has been speculated to be a takeover target of Allergan Inc., saw its shares more than double after reporting positive phase 2 results for its schizophrenia co-therapy drug ACP-103. The stock (Nasdaq: ACAD) shot up by $6.92 on the day, or 103.44%, to close at $13.61.

But another biotech concern, AtheroGenics Inc., plunged on news that its leading drug candidate, AGI-1067, had failed in a key phase 3 clinical trial for acute coronary syndrome. The biotech stock trader said there has been long-standing speculation that AtheroGenics would be acquired by drug development partner AstraZeneca plc; so, the news of the drug failure was "devastating" to the story. The stock (Nasdaq: AGIX) fell by 60.74%, or $4.74, to a new 52-week low of $3.09; the stock had taken a big hit March 9 on concerns about the AGI-1067 trial. The stock had struck a 52-week high of $20.03 on Feb. 15.

Also of note, Alliance Imaging Inc. saw lots of buyers on news that Oaktree Capital Management and MTS Health Investors are buying 24.5 million shares from a fund managed by Kohlberg Kravis Roberts for $153.1 million, or $6.25 per share. On completion of the transaction, Oaktree and MTS will hold 49.7% and KKR less than 3% of Alliance Imaging. Alliance Imaging (NYSE: AIQ) gained 74 cents, or 10.25%, to $7.96 on heavy volume.

Take-Two could get $20 to $25

Take-Two's rescheduling of its annual meeting was interpreted as a win for the stockholders looking to gain control of the board and put the company into play, a trader said, noting the company also said it was considering such options as a sale of the company. He said trading activity in the stock suggested a speculated price tag of $20 to $25 per share and speculated THQ Inc. was the most likely potential buyer for Take-Two.

"A lot of times when these activist shareholders run a slate for the board they already have a buyer on the hook," the trader said. "By all appearances, the company sees the writing on the wall and is taking steps to be proactive in this."

Take-Two shares (Nasdaq: TTWO) traded up to $22.67 and settled near there at $22.61 for a gain of $1.76 on the session, or 8.44%.

Agoura Hill, Calif.-based THQ seems the most likely buyer of New York-based Take-Two, according to the trader, although he acknowledged that other speculated bidders for the company included Redwood City, Calif.-based Electronic Arts Inc. and Paris-based Ubisoft Entertainment SA. Shares of all those companies were higher Monday.

Take-Two's big spike began about a month ago when OppenheimerFunds, D.E. Shaw, SAC Capital and Tudor, along with ZelnickMedia Corp. - which together own nearly 50% of the stock - said they planned to launch a proxy fight to take control of the troubled video-game maker and possibly oust the chief executive - a move perceived to signal the company going onto the auction block.

Take-Two, the third-largest U.S. video game publisher with a market value of about $1.5 billion, has one of the industry's most popular franchises such as "Grand Theft Auto" but has been battered by several years of accounting woes, operational problems, a scandal over hidden sexual content in its games and a string of quarterly losses.

In January, the company said it would have to restate financial results for the past 10 years due to backdating stock options that it blamed on founder and former chief executive Ryan Brant. Brant last month settled securities fraud charges stemming from the backdating and agreed to repay $4.1 million in ill-gotten gains plus a $1 million civil penalty. He also pleaded guilty in New York to a felony criminal charge of falsifying business records.

While the company reset the date of the annual meeting, the record date of Feb 26 for stockholders eligible to vote remains unchanged, but the company said that, in light of the expressed intention of a shareholder group to act by written consent, the board has set a record date of the close of business on March 29 for shareholders entitled to act by written consent.

Community trumps Triad offer

Triad Hospitals gained nicely on a surprise trump bid of $5.1 billion from Community Health Systems, which bested an offer of $4.5 billion accepted last month from a group of private equity investors led by CCMP Capital Advisors and GS Capital Partners. Community's offer at $54 per share was a 7.5% premium to the CCMP bid of $50.25 and a 9.4% premium to Friday's market.

A trader at a hedge fund in New York said Triad shares were well below the new offer price because of concern about antitrust issues and that the deal might be challenged by the previous bidders. Triad said it paid a breakup fee to cancel the earlier deal.

Triad (NYSE: TRI) gained $2.59 on the session, or 5.25%, to $51.95.

Community Health (NYSE: CYH) lost $2.02, or 5.49%, to $34.78.

The hedge fund trader said Community Health was lower largely because of pressure on the credit because of the transaction. Community Health would assume $1.7 billion in Triad debt as part of the deal.

Franklin, Tenn.-based Community Health said the acquisition of Plano, Texas-based Triad would create the nation's largest publicly traded hospital with about 130 hospitals in 28 states.

Triad's board, which began shopping the company last fall, recommended shareholders take the Community Health Systems offer. There is no financing condition to the sale; Community Health said it has lined up financing commitments from Credit Suisse and Wachovia Capital Markets.

EGL bid from Apollo looms

Houston-based shipping company EGL said it has agreed to a boosted management-led LBO offer - which has been in the works for three months or longer - of $1.7 billion, or $38 per share, but one trader said there were still skeptics of the deal as reports surfaced that Apollo submitted a $40-per-share bid for EGL over the weekend.

"It is possible the buyout deal fails again," the trader said. "If they have a better bid on the table, it could get interesting. There were reports after the close that Apollo put in its bid over the weekend, but it's unclear what happened with that."

EGL shares (Nasdaq: EAGL) gained $2.20, or 6.29%, to close at $37.16 in the regular session and were seen in after-hours activity higher by another 19 cents at $37.35.

The company said it signed a definitive merger agreement from chief executive and chairman James Crane, who owns 18% of EGL shares, and investment funds affiliated with Centerbridge Partners and The Woodbridge Co.

EGL, a global transportation, supply chain management and information services company, announced March 1 that had submitted a bid of $36 per share in cash, which had been boosted from an offer of $35 per share presented by the Crane group in January. The Crane group said it had arranged $1.175 billion of debt financing from Merrill Lynch and Woodbridge.

In early February, General Atlantic LLC withdrew as an equity sponsor for Crane's $36-per-share offer due to an expected shortfall in EGL's fourth-quarter 2006 results.

"They really need to do something, that's pretty obvious," the trader said. "They are supposedly furloughing employees and the chief finance officer has left. They are in trouble if they don't get some sort of deal."

ServiceMaster holders 'lucky'

Lawn care service and pest control provider ServiceMaster bowed to shareholder pressure Monday and agreed to be bought by an investment group lead by private equity firm Clayton, Dubilier & Rice Inc. in a cash deal valued at $4.5 billion in cash, or $15.625 per share - a 16% premium over Friday's market.

ServiceMaster (NYSE: SVM) gained $1.68, or 12.47%, to settle at $15.15.

The price is a premium of roughly 31% to the stock price of $11.90 on Nov. 27, the last trading day before the company announced it would explore strategic alternatives. The owner of TruGreen Lawn Care, Terminix pest control and Merry Maids cleaning service began exploring strategic alternatives under pressure from shareholders Ariel Capital Management LLC and Newcastle Capital Management LP.

"ServiceMaster shareholders got lucky on this one," remarked one trader.

"By every possible metric, Clayton paid way too much. But, I guess they figured that they could leverage the hell out of the books due to ServiceMaster's relatively low debt and relatively strong cash flows. But, I predict that Clayton will never make much of a profit on this deal."

The buyout group will also assume about $1.02 billion in debt.

Once the deal is complete, expected in November, Clayton operating partner George W. Tamke will become chairman, and the company is relocating its operations to Memphis.

Todco purchase price 'a steal'

While Todco remained well under the takeout price due to a decline in Hercules, traders noted speculation of deals in the sector has been circulating for months, so the transaction lifted several others in that group. Nabors and Pride were the top movers among drillers, one trader said, noting speculation of a buyout for those two has been rampant in recent months.

"I think Hercules got Todco for a steal at this price," the trader said. "Nabors is probably the most talked about as a takeout target, but Pride is right behind it."

Hercules Offshore is acquiring Todco for $2.3 billion - $930.7 million in cash at $16 per share plus 0.979 share of Hercules, for an equivalent price of $42.01 per share. The exact amount of the cash and stock consideration to be received by each Todco shareholder will be determined by elections and an equalization formula. At $42.01, the price would be a 28% premium to Friday's market.

Pride shares (NYSE: PDE) advanced $1.38 on the session, or 4.88%, to $29.65.

Nabors shares (NYSE: NBR) gained 93 cents on the day, or 3.18%, to $30.21.

Fieldstone might see rival bid

As many expected, the price tag in the merger agreement between Fieldstone and Credit-Based Asset Servicing and Securitization LLC, or C-Bass, has been cut to $4 per share from the previous $5.53 level. Fieldstone shares plunged well below that but rebounded sharply in after-hours trade, which one trader attributed to speculation that a rival bid would emerge.

Fieldstone (Nasdaq: FICC) traded as low as $3.51 in the regular session before settling at $3.60, a loss of 50 cents on the day, or 12.2%. After the close, however, it was seen trading up to $4.10, the trader said.

"C-Bass is taking advantage of the fact that Fieldstone needs to find cash to pay the margin calls. It is absolutely absurd to think that its paper assets decreased $70 million in a month; no way," the trader said.

"Given the fact that Fieldstone's book value is probably 25% above the original merger price of $5.53, placing it around $6.90, the current offer of $4 will net C-Bass with a 70% return on investment. This will not go unnoticed on the Street. There will be a counter offer. Someone will bid higher for these assets. Many are shopping and crunching numbers as we speak."

C-Bass said late Friday the reduction in purchase price reflects the cost to provide Fieldstone with needed additional liquidity, pending the closing of the merger. C-Bass, an affiliate of MGIC Investment Corp. and Radian Group Inc., agreed to acquire Fieldstone last month.

Completion of the deal still depends on regulatory approvals, certain consents of third parties and the approval of a majority of Fieldstone shareholders.

Accredited Home falls 18%

Accredited Home said Monday it is in talks with an undisclosed third party to provide financing and boost liquidity; meanwhile, the company was notified by the Nasdaq Stock Market that its shares are subject to delisting because it has not filed its annual report.

The stock (Nasdaq: LEND) fell by $1.95, or 17.89%, to $8.95 and was seen after hours lower by another 3% at $8.67.

"People are still falling away from this one like flies," said one trader.

The San Diego-based company didn't identify the other party but said it's hired an adviser to assist in the talks. On Friday, the company was boosted by news that it was selling substantially all of the loans in its inventory, albeit at a deep discount.

Earlier last week, Accredited Home said it had received and paid $190 million in margin calls from its financial backers this year and is looking to raise fresh capital and negotiate waivers on some of its lending covenants.

New Century loses over 7%

New Century received two termination and acceleration notices in connection with alleged default on 2005 and 2006 vintage DB Structured Products, Inc. master repurchase agreements, and more cease-and-desist notices from bank regulators, but traders said the stock was still finding buyers amid the turmoil.

"It went pretty high today because there are some optimists that there could be a bailout firm watching this one," said another trader. "Mostly, though, I think there is a lot of money being made on this one as a volatility trade."

New Century (Pink Sheets: NEWC) traded in a band of $1.68 to $2.78 on Monday before settling at $2.17, a loss of 17 cents on the session, or 7.26%.

The company said the estimated total repurchase obligation under the DBSP agreements was $900 million as of March 12.

New Century said the repurchase obligations refer to the amount of outstanding mortgage loans financed under these repurchase credit facilities, as opposed to the company's obligation to repurchase whole loans that have been sold to third parties if a payment default by the underlying borrower occurs.

In total, New Century said it is subject to $8.2 billion of debt under its credit facilities, the vast majority of which is structured as repurchase credit facilities.

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