Herbalife bid boosts NutriSystem; Lear lifts auto parts group; Mills rises; Longview up; Triad gains

By Ronda Fears

Memphis, Feb. 5 - A new batch of takeovers boosted activity Monday, but traders said investors were largely disappointed in most of the price tags. That didn't deter anyone; rather, in many cases it pushed the targets higher on speculation of competing bids, with The Mills Corp. serving as the latest bidding war to ensue, and piqued interest in their respective sectors.

"All of the deals on the tape today were somewhat disappointing really but what we really think is happening is that because there are more and more bidding wars going on - private equity is alive and strong - they are starting off lower, at more of a low-ball bid," said a trader at a huge hedge fund in New York.

"So, no, it doesn't bother us at all for the most part."

Simon Property Group Inc. and Farallon Capital Management LLC said Monday they are offering $24 per share in cash, or $1.6 billion, for mega-mall developer Mills, besting a previous $21 per share, or $1.35 billion, deal from Brookfield Asset Management. Mills shares went past the latest offer, which suggests the market is expecting Brookfield to come back with a better offer, but one onlooker said that may not happen.

Brookfield had two other deals on the tape Monday - one to acquire Washington state timberlands concern Longview Fibre Co. for $24.75 per share, or $2.15 billion, including assumed debt, and another to join the founders of Australia-based construction giant Multiplex Ltd. to make a leveraged buyout bid for the company, for an undisclosed amount.

Multiplex shares (Australia: MXG) shot up as much as 8% in trade Monday but closed the session unchanged at A$4.80. The stock shot up more than 17% on Jan. 25 after the company confirmed it has been approached by an unnamed predator that has had preliminary buyout discussions with its founding Roberts family, which holds a 25% stake in the company.

Back in the United States, State Street Corp. was hit Monday after announcing it would acquire Investors Financial Services Corp. for $4.5 billion in stock, the latest takeover in the mutual and hedge fund servicing industry. The purchase values Investors Financial at $65.01 a share - a 38% premium to the closing price on Friday. State Street shares (NYSE: STT) lost $4.67, or 6.51%, to $67.08 while Investors Financial (Nasdaq: IFIN) gained $12.85, or 27.37%, to $59.80.

A bid for Triad Hospitals Inc. also was a disappointment, traders said, but that stock also stayed safely under the $50.25 per share offer amid skepticism of another bid emerging.

But traders said the market was anticipating competing bids for auto components maker Lear Corp. - which boosted peers in the sector such as Superior Industries International Inc. and American Axle & Manufacturing Holdings Inc. - and Herbalife Ltd., which also lifted its rival NutriSystem Inc. The Lear bid itself, however, was considered low and drew objection from majority stockholder Pzena Investment Management LLC.

Back to the financial sector, the initial public offering of New York-based hedge fund Fortress Investment Group LLC on the calendar to price Thursday was getting huge inquiries. The $600 million IPO, 34.3 million shares pitched at $16.50 to $18.50 a share - will make history as the first hedge fund to go public in the United States.

"They are bringing it at just the right time," said Sal Morreale, IPO trader at Cantor Fitzgerald. He said the deal could be a portal transaction for other hedge funds going private. "The window opens and you could see a lot more similar deals."

Mills passes latest bid level

Mills said its board will consider the competing offer from Simon Property and Farallon and, meanwhile traders said the market was divided about whether Canada-based Brookfield will counter with a higher bid.

Mills shares (NYSE: MLS) gained $3.72 on the day, or 16.79%, to $25.87.

"Simon is a good fit with Mills, and Brookfield has other deals in play; so, they might just drop the Mills situation. There are analysts saying they think the bidding is over for this one anyway," said one equity trader.

"But the stock traded past the last offer, and the March call options at $25 were up big with a lot of contracts, so the market thinks there is a little more room."

Indianapolis-based shopping mall real estate investment trust Simon Property and hedge fund Farallon - a Mills stockholder that has presented a recapitalization plan to troubled Mills previously - said their proposed tender offer at $24 per share would pay Mills shareholders at least six months faster than the Brookfield deal.

Earlier this month, Mills, which is struggling under heavy debt and widespread accounting problems, agreed to a deal with Brookfield Management at $21 per share, an 18% premium over its stock price at the time, but the stock continued to climb.

Chevy Chase, Md.-based Mills, which owns 38 malls across the country, has been in trouble since November when it began warning that it could face bankruptcy if it didn't find a buyer or refinance a $1 billion loan from Goldman Sachs Mortgage Co. The REIT also has revealed numerous accounting mistakes that will force it to restate earnings as far back as 2001.

Farallon and another big Mills stockholder, Israeli-based real estate investor Gazit-Globe Ltd., previously offered recapitalization plans to Mills, with Farallon offering $499 million at $20 per share, and Gazit proposing a $1.8 billion offer including a $500 million stock sale at an average $21 per share, which it later upped to $22 per share.

Longview players hesitate

As for Brookfield's bid for Longview Fibre at $24.75 per share, one trader remarked it was "surely to be challenged if not bested" by previous bidders Obsidian Finance Group LLC and The Campbell Group LLC for the Washington state-based paper and packaging concern. Thus, he noted that the market "hesitated to take a stand" on the story because of a possible legal entanglement.

Longview shares (NYSE: LFB) traded up to $24.57 and settled higher by $3.44, or 16.37%, at $24.45 but closed well under the offer on the table.

"There was an offer by Obsidian/Campbell at $26 a share 10 months ago, in April, which was like a 36% premium at the time, and now they accept $24.75 a share," the trader said.

"There was a big fight with that; they cancelled a shareholder meeting on the Obsidian vote. I suspect that will come back to haunt them and there will be another fight on. That is probably what made people hesitate to jump in."

In March 2006, Longview rejected the offer from Obsidian and Campbell, which in turn called for a special shareholder meeting the following month to urge Longview and its board to consider their acquisition proposal.

Herbalife boost not enough

Vitamin and weight loss aide distributor Herbalife's buyout offer from Whitney V LP for $38 per share, roughly $2 billion, sent the shares zooming past that mark as at least one equity analyst thinks the offer is too low to merit approval.

Herbalife shares (NYSE: HLF) gained $7.02, or 21.21%, to $40.12.

Whitney and related parties currently own about 27% of Herbalife and are offering $38 per share in cash for the rest company; the deal was announced late Friday. In 2002, Whitney and Golden Gate Capital bought Herbalife and took it public in 2004. In December 2005, Whitney sold 6 million more shares for around $30 per share.

On Jan. 5, Herbalife shares sank 20% after the company lowered its 2007 sales guidance to between 6% and 10%, down from a previous range of 10% to 15%, due to slower sales growth in Mexico.

Wedbush Morgan Securities analyst Rommel Dionisio said the current $38 offer is too low, citing significant upside in the story due to prospects for growth in China. Given that potential growth, he thinks the Whitney offer is "not attractive," also noting that "a simple peer group multiple gets the stock to the mid $40s."

NutriSystem regains losses

On such above-noted peers, diet food maker NutriSystem was recouping recent losses on the Herbalife deal, which one trader suggested was optimism that it could get a buyout bid because of its recent decline, or was considered oversold in recent sessions.

NutriSystem shares (Nasdaq: NTRI) gained $1.04 on the day, or 2.41%, to $44.24.

"There has been growing concern that NutriSystem's hyper-growth days are ending. They warned recently and the stock has been in a freefall for probably three weeks or longer," the trader said.

"But now, with the Herbalife deal, we think the stock was way oversold. Of course, there was some chatter circulating that NutriSystem could get a bid, too, but even without that we think the stock is worth $75."

On Jan. 30, NutriSystem warned its 2007 first-quarter results will not match analyst projections, although it said fourth-quarter earnings would top Wall Street estimates. But the stock slide began in November with some big profit taking, the trader said.

In January, the company forecast revenue in the first quarter of 2007 to increase 36% over the year-ago period to between $200 million and $210 million with diluted EPS in a range of 82 cents to 86 cents. Analysts had been predicting earnings of 94 cents per share on revenue of $214 million for the first quarter.

For fourth quarter, NutriSystem projected revenues between $131 million and $133 million, up 90% from the year-ago period, with EPS of 50 cents to 53 cents. For the year, the company said its earnings will fall between $2.26 and $2.29 per share with revenue ranging between $566 million and $568 million.

The company is slated to report fourth-quarter and 2006 results on Feb. 14 and said it would review its guidance at that time.

On the warning, Boenning & Scattergood Inc. analyst William Sutherland lowered his 2007 revenue and EPS estimates but said he raised his price target to $80 from $75.

"I haven't addressed [a takeover] specifically, but it certainly could happen" with the stock having fallen so sharply in recent months, Sutherland said.

The trader, at a different shop, said he believes that while NutriSystem's go-go days may be gone, it should "sustain 25% to 30% EPS growth for the next several years."

Triad panned on LBO level

Hospital operator Triad got a nice bounce on the $4.7 billion leveraged buyout proposed with CCMP Capital Advisors and GS Capital Partners, but traders said that while an offer was cheered it was viewed as "a starting point," noting that New York-based hedge fund TPG-Axon Capital Management LP has been pressuring the company to look at selling out for months now.

"I believe Triad will receive another offer and I think it could go over $55," said one trader.

"This situation looks very much like HCA. The premium is a mere 16% and there is a 'go shop' provision wherein the termination fee falls to just $20 million if a better offer comes in during that time. The street is already rumbling that the price is light."

Investors in Triad, the third-biggest U.S. hospital chain, will get $50.25 a share in cash - 16% more than the Feb. 2 closing price. TPG-Axon, Triad's largest owner, with an 8.9% stake, said last week it would nominate its own slate for the board and was evaluating a range of potential actions for Plano, Texas-based Triad.

Triad was a spinoff from HCA in 1999. HCA, the largest U.S. hospital group, went private in November in a $33 billion buyout by Bain Capital LLC, Kohlberg Kravis Roberts & Co., Merrill Lynch & Co. and HCA co-founder Thomas Frist Jr. - the largest LBO to date at that time, although others are pending in the market currently that would surpass that mark.

TPG-Axon made a filing last week at the Securities and Exchange Commission declaring the higher equity stake in Triad. The 8.87% position is up from 7.4% in December and 6.2% in November. The $5.8 billion hedge fund, managed by former Goldman Sachs star trader Dinakar Singh, told the company that it expects to nominate a slate of five board members for election at its 2007 annual shareholders' meeting.

Triad had been spiraling lower in recent times, in part due to more stringent Medicare reimbursement rules, and that had caused many to sell out, now to their chagrin.

"The amount of money available to invest, through private equity, in troubled companies is just amazing. I made my mistake by focusing on the business fundamental, when the focus should have been on the bailout by private equity," said one such seller of Triad, a buysider who sold last week.

"I agree there may be some more room for this to run, but I am just going to suck it up, take my hit and move on."

Lear lifted on objection

Lear shares zoomed well past the $36 per share offer from noted investor Carl Icahn and affiliates, gaining further in after-hours activity as Pzena Investment Management LLC went public with a complaint that the offer was well below what the auto components maker is worth.

Lear shares (NYSE: LEA) leaped $3.97, or 11.45%, to $38.64 in the regular session and after the close added another $1.30, or 3.36%, to $39.94.

Pzena said after the closing bell that it has informed Lear in a letter of its strong opposition to the sale of the company to Icahn's American Real Estate Partners LP, asserting the offer is "far below the fair value of the company." Pzena holds a 10.1% stake in Lear.

Southfield, Mich.-based Lear has suffered alongside virtually the entire group of auto parts and components makers since trouble surfaced at major automakers Ford Motor Co and General Motors Corp. two years ago; many drifted into bankruptcy like Delphi Corp., Dana Automotive Systems Inc. and Dura Automotive Systems Inc. Lear also has exposure to the troubled airline industry.

But the Lear offer bolstered interest in several other automotive names, one trader said, particularly pointing to ArvinMeritor, Superior Industries and American Axle. He noted that Troy, Mich.-based ArvinMeritor has an asset sale pending that will help its operations, and on Friday, Detroit-based American Axle forecast 2007 sales to rise.

ArvinMeritor shares (NYSE: ARM) gained 82 cents, or 4.26%, to $20.05.

Superior shares (NYSE: SUP) added $1.19, or 5.72%, to $22.01.

American Axle shares (NYSE: AXL) advanced $1.22, or 5.46%, to $23.57.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.