MGM news hits Trump; Coley crashes; Nuveen up; subprimes fall; Calpine dives; Wild Oats off

By Ronda Fears

Memphis, June 20 - Virtually every corner of the financial sector was reeling Wednesday amid the ongoing unraveling of two Bear Stearns Cos. Inc. hedge funds, and the broader markets plunged in reaction to the huge sell-off in Treasuries.

But amid the turmoil, Nuveen Investments Inc. announced its buyout by a private equity group led by Madison Dearborn Partners for $6.3 billion - at a 20% premium in what is considered the largest buyout of an asset manager - and traders said there may be more prime targets in that niche.

The Bear Stearns debacle served to remind many players holding subprimes stocks that the risk is real, as one trader put it.

"The subprimes were freefalling," he remarked.

"Even the ones with takeunders, not takeovers, on the table were dropping like bombs because some people think even with the ink dry they could argue for a lower [acquisition] price."

Many subprime lenders, like Accredited Home Lenders Holding Co., Fremont General Corp. and Novastar Inc., are on the auction block or have signed takeover deals, but the trader noted that Credit-Based Asset Servicing and Securitization LLC, or C-BASS, amended its Feb. 16 takeover price for Fieldstone Investment Corp. to $4 per share from $5.53 a month later as the subprime fallout worsened.

Bankrupt subprime lender New Century Financial Corp. also was sharply lower with all of the subprime lenders mentioned above.

Furthermore, all the big brokerages were bleeding along with Bear Stearns, but this trader said there are some middle market firms that are performing well and, thus, could quickly become takeover targets of the bulge bracket firms. He specifically mentioned Cowen Group Inc., or Cowen & Co. formerly known as SG Cowen, and noted that it advanced Wednesday while the brokerage index took a big hit on the session.

Cowen (Nasdaq: COWN) traded in a band of $17.99 to $18.42 before settling at $18.17 for a gain of 17 cents, or 0.94%. As a group, the national investment brokerage index fell 1.36% on Wednesday.

"Cowen is trading just above book value and could become a takeover candidate based on what I've observed over the past couple of years in this niche," remarked a trader at one of the bulge bracket firms.

In another bankrupt story name, independent power producer Calpine Corp. took a dive just ahead of its plan of reorganization being filed after the market closed. The stock has been losing ground this month amid signs that the company would proceeds with a stand-alone plan, rather than get backers such as private equity. But, the payout for the equity is well below where the stock has been trading.

News that Kirk Kerkorian's Tracinda Corp. has backed out of a plan to take over the Bellagio hotel and casino and the CityCenter project from MGM Mirage Inc. sent MGM into a tailspin despite news from MGM of plans to build a new multi-billion dollar Las Vegas resort with Kerzner International. MGM (NYSE: MGM) traded as low as $77.10 but closed the day with a loss of $5.90, or 6.82%, to $80.60. The Las Vegas strip acreage contributed by MGM to the Kerzner project was valued at $20 million per acre.

Trump Entertainment Resorts Inc. also fell farther on MGM's failed transaction with Tracinda amid growing doubt that Trump will catch a deal. "We didn't see anything and the deadline passed, so it's not looking good," one trader said. Atlantic City gaming executive Dennis Gomes in partnership with JEMB Realty supposedly had an exclusive right to negotiate a purchase of Trump that expired Tuesday. Trump (Nasdaq: TRMP) lost 29 cents, or 1.93%, to $14.71.

In a huge plunge, Coley Pharmaceutical Group Inc. suffered a massive sell-off after Pfizer Inc. pulled its financial support for clinical trials of its lung cancer drug PF-3512676 after it failed an independent analysis of phase 3 trial results. Coley shares (Nasdaq: COLY) lost $5.03, or 59.25%, to $3.46.

On a positive note elsewhere, a trader said that plans revealed by Apollo Management Holding LP to acquire certain Wild Oats Markets Inc. stores if its $565 million purchase by Whole Foods Market Inc. could win the transaction antitrust approval.

Nuveen pushes Eaton Vance

There was considerable excitement about the Nuveen buyout, traders said, and it boosted peers like Eaton Vance Corp.

It was no surprise that Nuveen shares lagged the price tag, however, as the buyout closing is not expected until close to year-end. The company has a 30-day go-shop period, but traders said the market did not expect another bid.

Nuveen (NYSE: JNC) shot up $8.98, or 16.58%, to $63.14 versus the takeover price of $65 per share - a 20% premium to Tuesday's market.

The total transaction is valued at $6.3 billion, including the assumption of $550 million of debt.

The transaction also includes an anticipated equity participation by Nuveen management.

"The price was very attractive and it could mean that PE is looking at others like Eaton Vance," said one trader.

Eaton Vance (NYSE: EV) traded in a band of $44.92 to $46.08 before easing back to close at $45.01 for a gain of 12 cents on the session.

Calpine shares set to plunge

Calpine shares took a big hit Wednesday, but traders said there were some buyers on the low end of the day's range, holding out hope that there will be a payout for equity holders in the company's reorganization plan. The San Jose, Calif.-based company filed the plan just before 5 p.m. ET in New York, and it did have a figure for the stock but considerably below where it has been trading.

The stock (Pink Sheets: CPNLQ) traded in a range of $2.91 to $3.05 before settling with a loss of 14 cents on the day, or 4.56%, at $2.93. Volume was light at 7.5 million shares versus the norm of 8.8 million shares.

"We have heard it values the stock at $1.80 per share, so a lot of folks are in severe pain right now," said a distressed stock trader well after the market closed.

Unsecured creditors are to recover 91% to 100% of claims, he said, so "the stock did not come out as well as a lot of people were betting."

That indeed was the breakdown of the core points of Calpine's plan. The company said it expects the plan to be confirmed in fourth quarter.

Many players in the name were buying the stock earlier this year, which ran it up as high as $4.15, on rumors that private equity or another power producer like AES Corp. were making a bid for the company within the bankruptcy reorganization process. That angle began to lose traction a couple of weeks ago when chief executive Robert May at an energy conference said Calpine had been approached by possible buyers but had rejected them as "bottom feeders."

Calpine has $8 billion exit financing from Goldman Sachs. Calpine expects $20.3 billion enterprise value on exit from bankruptcy.

While the trader saw buyers for Calpine under $3 on Wednesday, he said overall there was a lack of buyers during the session. He said it was new and interesting, as well, to see a big investment bank as a seller in the stock Wednesday.

Wild Oats, Whole Foods mixed

A divestiture of some properties in the merger of Whole Foods and Wild Oats might secure antitrust approval, a market source said, and he was a buyer on the dip in Wild Oats shares Wednesday. Whole Foods was slightly higher.

Much of the risk in the deal was shifted to Whole Foods when the antitrust objection from the Federal Trade Commission emerged earlier this month. Austin, Texas-based Whole Foods offered in February to acquire Boulder, Colo.-based Wild Oats for $18.50 per share in cash, or $565 million, and said it would assume about $106 million in debt as part of the deal.

In a filing in the case earlier this week, the buysider said, Apollo said it has contracted to buy certain Wild Oats stores if the deal is completed.

"If that happens, it could be enough to remove the FTC objection," he said.

"I'm willing to add a little Wild Oats on that. I think a lot of people are feeling better about Whole Foods, too; Wild Oats is my favorite of the two to be holding if the deal falls through, that's all. And there still is a huge amount of risk here."

Wild Oats (Nasdaq: OATS) dropped 28 cents, or 1.64%, to $16.75.

Whole Foods (Nasdaq: WFMI) added 9 cents to $39.l04.

Ongoing risk outside of a potential divestiture, the buysider said, could be the tone of the merger negotiations. He said Whole Foods chief executive John Mackey has been harshly criticized as jeopardizing FTC approval of the deal by an e-mail now in the hands of FTC investigators. The e-mail, he said, inferred they were "trying to squeeze Kroger, SuperValu or Safeway out of any competition in the health food store business."

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