Freeport-McMoRan surges; Alcan soars; Stride Rite, Payless climb; Crescent rises; Dow Jones spikes

By Ronda Fears

Memphis, May 23 - A rumor Wednesday afternoon that Freeport-McMoRan Copper & Gold Inc. was the target of a private equity takeout at $100 per share - which would be a 35.5% premium to the current market - sent the metal and miner groups surging, traders said.

Freeport-McMoRan (NYSE: FCX) advanced $2.40 on the day, or 3.36%, to settle at $73.75 with nearly 17 million shares traded Wednesday against the norm of 11.8 million shares, and traders said most of the action happened in the last half of the session. At one point, the stock traded up to $75.23.

"The rumor is that FCX is going to be taken out by private equity with a $100 target price," the trader remarked, "so all the miners and metals were trading up, even after the market took a dump."

Also helping the metal sector was a rumor that Canadian aluminum maker Alcan Inc. is in talks with Australian metals concern BHP Billiton Ltd. about a linkup to fend off a hostile $27 billion takeover bid by domestic rival Alcoa Inc.

Meanwhile, chatter also snapped back and put Alcoa as a takeover target, which has been circulating for months and speculated to be why the company made a play for Alcan.

Elsewhere, the Bancroft family, which controls Dow Jones & Co. Inc., was reportedly in a private meeting Wednesday to discuss a $5 billion bid by Rupert Murdoch's News Corp. and the stock surged. Traders said there still is a huge amount of risk being priced into the story, with the stock trading between $52.11 and $54.10 against the $60-per-share bid, but there has been speculation in recent sessions that the Bancroft family is divided about the offer. The stock (NYSE: DJ) settled at $52.74 for a gain of $1.28 on the day, or 2.49%.

MGM Mirage Inc., however, was seeing considerable profit taking on the heels of billionaire investor Kirk Kerkorian's plans through Tracinda Corp to buy the Bellagio Hotel & Casino and City Center and then pursue other alternatives for his 56% stake in MGM, in which it is widely perceived that he will put the Las Vegas casino on the auction block.

Trump Entertainment Resorts Inc. extended gains from the day before, again fueled by rumors that there is a solid bid on the table for the Atlantic City gaming concern in the neighborhood of $23 to $24 per share, according to a trader. He said Las Vegas developer Steve Wynn of Wynn Resorts Ltd. is still rumored to be among the potential buyers for Trump. Another trader also noted heavy short covering in the stock. Trump (Nasdaq: TRMP) gained $1.10 on the session, or 6.97%, to $16.89, following a 3% advance the day before.

Shoe retailer Stride Rite Corp. marched higher Wednesday on news from late the night before that discount shoe retailer Payless ShoeSource Inc. is buying the company for roughly $800 million in cash. Payless is paying $20.50 - a 32.7% premium to Tuesday's market. After the deal, Payless plans to change its name to Collective Brands Inc., and one trader said some onlookers are expecting more acquisitions from that company; thus, several other shoe retailers were moving on the news.

Real estate investment trust Crescent Real Estate Equities Co. said it will be bought by another real estate investment firm, Morgan Stanley Real Estate, for about $2.34 billion. While traders said the market was disappointed with the slight 5.5% premium for Crescent, the deal sparked renewed buying interest in the REIT sector.

The biggest push for the REIT group, however, was Fremont General Corp.'s news the day before about selling its commercial real estate lending business to iStar Financial Inc. for $1.9 billion, the trader said. Short covering sent Fremont shares skyrocketing on the news, along with several other subprime lenders, many of which are categorized in the REIT sector. Fremont (NYSE: FMT) continued the move on short covering with the addition of another $2.67, or 26.7%, to close at $12.67.

Novastar Financial Inc. is one of those REITs and was extending gains Wednesday, which the trader attributed to "frantic" short covering. The stock (NYSE: NFI) added $1.05, or 16.46%, to $7.43, following a 7% advance the day before. Novastar was one of the most heavily shorted stocks in the group, he said, with a 55% short position.

Alcan bid war steels market

Alcan surpassed previous estimates that the buyout price could go as high as $85, what with the market anticipating an all-out bidding war now that the Canadian aluminum company is rumored to be in talks with BHP Billiton after recommending stockholders reject the Alcoa bid.

The development also rekindled speculation that Alcoa is a takeover target itself.

Alcan (NYSE: AL) shot up $4.86, or 6%, to $85.89.

Alcoa (NYSE: AA) advanced $1.42, or 3.65%, to $40.37.

BHP Billiton (NYSE: BHP) gained $1.01, or 1.99%, to $51.76.

Alcoa is offering $58.60 in cash and 0.4108 of a share of Alcoa common stock for each outstanding common share of Alcan, which comes to an equivalent of $75.18 on Wednesday's market.

"The bets that it would go to $85 are all off now, well not really because the $85 June calls saw all the action today," one trader said. "But I think everyone has moved up their expectations several notches by looking at the stock movement today."

On May 7, when Alcoa aired its offer of an equivalent $73.25 per share it was a 32% premium to Alcan's 30-day average closing price and a 20% premium to the then-current market.

As for Alcoa, the trader said he expects the stock to retreat a bit on some profit taking unless a firm bid for the company surfaces. He said many analysts think the company could not fetch much more than $40 per share, which he noted is right at the 52-week high for Alcoa shares.

Crescent rises to near terms

Crescent's sale to Morgan Stanley Real Estate in a $6.5 billion deal in cash, including $3.1 billion of debt, at $22.80 per share - a 5.5% premium - was not overwhelmingly cheered, and even with company founder, Texas billionaire Richard Rainwater, pledging to vote his shares in favor of the deal, one trader said it may face some stiff resistance.

The stock (NYSE: CEI) moved close to the buyout level, settling Wednesday at $22.31 for a gain of 69 cents on the day, or 3.19%.

"This is a low ball offer," the trader said.

"I think it may get challenged. Whether another bidder shows up is questionable, but I could foresee some pressure to boost this buyout price."

Before it agreed to sell itself, Crescent had been working to sell off its resort and hotel assets. In March, it said it would focus solely on office real estate. The company reported a net loss $15 million, or 15 cents a share, for fiscal first quarter.

Shoe names mixed on Stride Rite

With the combo of Stride Rite and Payless - Collective Brands - seen looking for more acquisitions, one trader said there was some strategic buying in the group on the downswing caused by the Stride Rite deal.

As for Stride Rite, the stock (NYSE: SRR) moved up $4.76, or 30.81%, to $20.21 while Payless (NYSE: PSS) also gained to $35.14 for a move of $3.24, or 10.16%.

Foot Locker Inc., which has made an unsuccessful hostile bid for Genesco Inc., and several other speculated takeover targets in the retail footwear space - Skechers USA Inc., Brown Shoe Co. Inc. and Nike Inc. - were sold off on the Stride Rite news, the trader said, although he expects many to resume upward trading amid ongoing consolidation trends expected in the industry.

"When then deal came out a lot of people were then selling some of these they thought were going to be announcing a deal," the trader commented.

"But the buzz just keeps coming in the footwear group," the trader added, noting that on Tuesday a trade magazine, Women's Wear Daily, was reporting that a buyout firm is in talks to acquire Skechers and Genesco with a plan to combine the two afterward.

The trader said he favors Skechers as a target in the group, then Foot Locker, although he thinks Genesco will eventually be force to succumb to a takeover.

Skechers (NYSE: SKX) lost by 51 cents, or 1.53%, to $32.86.

Foot Locker (NYSE: FL) gained 24 cents, or 1.09%, to $22.24.

Genesco (NYSE: GCO) advanced 42 cents, or 0.82%, to $51.90.

Brown Shoe (NYSE: BWS) added 15 cents, or 0.55%, to $27.40.

Nike (NYSE: NKE) slipped by 31 cents, or 0.56%, to $54.82.

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