Analyst says Huntsman settled too low; Tower revs up deal plans; Monogram stock soars on bid

By Cristal Cody

Tupelo, Miss., June 23 - Huntsman Corp. scored a victory against Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. over its failed $6.5 billion buyout by Hexion Specialty Chemicals Inc., but at least one market analyst considers the settlement a small fraction of what could have been gained.

Looking ahead, Tower Group, Inc. said Tuesday it has more deal action in store before the end of the year as it undertakes a stock acquisition of Specialty Underwriters' Alliance, Inc.

In other situations, Laboratory Corp. of America Holdings on Tuesday offered $4.55 a share in cash to acquire Monogram Biosciences, Inc. The price is somewhat on the low end but probably the company's best offer, an analyst told Prospect News.

Meanwhile, equity markets closed mixed on Tuesday, with the Dow Jones Industrial Average down 16.10 points, or 0.19%, at 8,322.91.

The Standard & Poor's 500 closed up 2.06 points, or 0.23%, at 895.10, while the Nasdaq Composite index fell 1.27 points, or 0.07%, to 1,764.92.

Huntsman prevails

Credit Suisse and Deutsche Bank said they would pay $316 million each in cash and provide $1.1 billion of senior debt financing to "resolve the litigation" in the second week of Huntsman's trial in a Texas state court.

Credit Suisse and Deutsche Bank had agreed to finance the buyout of Huntsman, which sued for more than $4.6 billion in damages after the deal fell apart.

Hexion Specialty Chemicals, owned by Apollo Management LP, agreed in 2007 to acquire Huntsman, but then the markets began to deteriorate.

Hexion makes thermoset resins and is based in Columbus, Ohio. Huntsman is a Salt Lake City manufacturer of differentiated chemicals and pigments.

Huntsman reached a $1 billion settlement with Hexion and Apollo in December.

Huntsman plays to repay debt with the settlement fund.

The settlement is a "victory, we guess," Frank Mitsch, managing director of BB&T Capital Markets, said in a research note on Tuesday released to Prospect News.

"In a rather disappointing turn of events, HUN settled its lawsuit against Credit Suisse and Deutsche Bank ... meaningfully below the $3 billion-plus recovery previously discussed," he said.

Mitsch maintains the "hold" rating on Huntsman shares.

"However, investors might have a modicum more comfort with the current dividend yield of 7.50%," he said. "Listen, at the end of the day, HUN is getting $480 million in cash after taxes, with another $1.10 billion of seven-year debt at better rates than HUN would get on the open market."

Huntsman share fell 9 cents, or 1.50%, to close Tuesday at $5.92.

Deutsche Bank's U.S.-traded shares gained 97 cents, or 1.74%, to close at $56.70, while Credit Suisse's stock added $1.06, or 2.53%, to $43.00.

Tower's deal plans

Tower Group chief executive officer Michael Lee said Tuesday on a conference call with analysts to discus its acquisition of insurer Specialty Underwriters that the company is not "going to stop here."

"We're definitely seeing some positive trends on the acquisition front and we intend to take advantage of this," he said. "I believe that even before the end of the year, you should see us executing additional acquisitions."

On Monday, the New York-based property and casualty insurance firm said it would buy Chicago-based Specialty Underwriters for about $107 million in stock. Specialty Underwriters' shareholders will receive 0.28 shares of Tower stock for each share to equal $6.72 a share, subject to an exchange ratio based on Tower's stock price.

"Because this is a stock-for-stock transaction, we still preserve capital - $150 million that we have," Lee said. "We can utilize that cash to acquire those companies."

Lee said Tower would consider transactions in the Southwest and on the West Coast.

The acquisition of Specialty Underwriters is expected to close by the end of the year.

Thomas Song, managing vice president of Tower, told Prospect News on Tuesday that the deal will require "a number" of regulatory clearances, including from the Insurance Department of Illinois and under the federal Hart-Scott-Rodino Act.

The transaction also must be approved by the shareholders of Specialty Underwriters.

Courtney Smith, president and CEO of Specialty Underwriters, said on the conference call that the company hired a strategic review committee to examine its options at the start of 2009.

"We had outside financial advisers, and we did a market search to find the situation where we could work with someone that would give [immediate] upside to our shareholders and longer-term," he said. "We looked around and felt this was the best fit."

Tower Group shares closed up 86 cents, or 3.73%, at $23.92.

Shares of Specialty Underwriters rose 3 cents, or 0.49%, to close at $6.20.

Monogram shares soar

Burlington, N.C.-based Laboratory Corp. of America's $106.7 million offer sent shares of Monogram Biosciences up 169.05% to close at $4.52 on Tuesday.

The stock has traded from $1.44 to $7.44 over the past year.

Matthew Scalo, an analyst with Canaccord Adams Inc., told Prospect News on Tuesday that the bid is a "little bit on the low end" considering his $6.00 price target on the stock.

"Monogram as a company has an exciting platform, but it's going to take quite a bit of time before they recognize material revenue from it, so I think the stock was going to be range bound in that $1.00 to $2.00 range," he said.

LabCorp plans to start a tender offer to purchase shares of Monogram, with the transaction expected to close in the third quarter.

The board of Monogram has unanimously determined that the offer is fair.

No other bidders are expected for the South San Francisco, Calif.-based molecular diagnostics company.

"You never say never, but I don't get the impression another party would come in and offer a significantly higher premium," Scalo said.

LabCorp offers a variety of clinical testing technology and employs more than 28,000 employees worldwide.

"It does look like a good strategic fit between LabCorp and Monogram," Scalo said. "Monogram has both the HIV and oncology platforms, and that fits nicely with LabCorp."

Shares of LabCorp fell 26 cents, or 0.40%, to close at $65.45.

Mentioned in this article:

Credit Suisse Group NYSE: CS

Deutsche Bank AG NYSE: DB

Huntsman Corp. NYSE: HUN

Laboratory Corp. of America Holdings NYSE: LH

Monogram Biosciences, Inc. Nasdaq: MGRM

Specialty Underwriters' Alliance, Inc. Nasdaq: SUAI

Tower Group, Inc. Nasdaq: TWGP

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