Ryerson rallies; New Century rebounds; Calpine climbs; Northwest dives; SafeNet stalls

By Ronda Fears

Memphis, March 6 - Ryerson Inc. rallied Tuesday on speculation that a sale transaction might be imminent as the company postponed its annual meeting, traders said, or that the delay meant dissident majority stockholder Harbinger Capital Partners would be winning control of the board and speed up the process.

Meanwhile, the rebound in battered New Century Financial Corp. and Fremont Capital Corp. was couched as sensible bargain-hunting by some analysts in light of the bludgeoning the group has taken in the past six weeks, but many traders were still extremely skeptical.

New Century (NYSE: NEW) added back 46 cents, or 10%, to $5.02 after falling nearly 70% on Monday, while Fremont (NYES: FMT) regained 89 cents, or 15%, to $6.78 after losing almost 40% the day before. Virtually the entire pack of subprime mortgage lenders were on higher ground Tuesday as the broad market gained.

"It's just one opinion, but I think anyone buying the subprimes today is a patsy," said a trader at a mid-market boutique.

"The vultures are circling. There could be a buyout or a bailout but it is going to smack. I mean if they got a 15% premium to today's market, so what? A lot of these stocks are teetering on distressed territory because the risk of bankruptcy is so high, not to mention the headline risk."

Among bankrupt stocks there were a couple of big moves upward Tuesday in Naturade Inc. and Calpine Corp. although Northwest Airlines Corp. took another nosedive.

Elsewhere, traders continued to point to deal risk holding some players back.

Jupitermedia Corp. gained sharply Tuesday but is still well below where the online media company's acquisition price tag has been talked. On Feb. 23, the company said it was in talks with Getty Images Inc. to be acquired at $9.60 per share, but no further news has been forthcoming, and the stock is trading well under that threshold on doubt that a deal will transpire, according to one trader. Jupitermedia shares (Nasdaq: JUPM) on Tuesday gained 31 cents, or 3.73%, to $8.63.

TXU Corp. got nothing from remarks by the chairman of the Federal Energy Regulatory Commission on Tuesday to the effect that there was no great concern about private equity owning power assets. Daniele Seitz at Dahlman Rose & Co. said the market has priced in the risk of the deal getting snagged and really is not backing off that. A group led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group plans to take over TXU for a record $45 billion including debt, or $69.25 per share. The stock (NYSE: TXU) is lingering well below that level and on Tuesday slipped 38 cents to close at $65.02.

There are still several situations where better deals are getting the bets, though, such as The Topps Co., maker of baseball cards and Bazooka bubble gum, which said Tuesday it has accepted a $385.4 million takeover offer from a group that includes former Disney chief Michael Eisner. The deal drew immediate opposition from one of its own board members, and a trader said the stock went past the offer on speculation that it will have to be sweetened or a rival bid will emerge.

Naturade, Calpine climb

Traders in distressed stocks say there continues to be interest in issues linked to bankruptcy cases, like Naturade and particularly Calpine, despite some blowups such as was the case in Northwest Airlines.

Activist stockholder participation in the bankruptcy cases is primarily the case for interest in these stocks, one distressed trader said.

Big equity holders getting approval to form official equity committees, gather backing for equity rights offerings and ultimately the possible muscle to provide for some distribution to current equity holders has kindled interest, he said.

Such is the case with Calpine, in which Harbinger has a big interest, another distressed trader said. The market has lifted Calpine shares fairly steadily in the past couple of months in anticipation of a private equity buyout firm making a bid to be the cornerstone of the San Jose, Calif.-based power producer's reorganization plan.

Nothing has transpired along those lines yet, but Calpine is scheduled to file its reorganization plan in June. On Tuesday the company got court approval for a new $5 billion debtor-in-possession facility to replace the current one about half that size, and it will use the new capital infusion to reduce debt. That moved securities across the capital structure higher, including Calpine stock (Pink Sheets: CPNLQ) with a gain of 8 cents, or 5.76%, to $1.47.

While distributions to equity holders are rare, it is not unheard of.

Health drink maker and distributor Naturade (Pink Sheets: NRDCQ) moved up 2 cents, or 25%, to 10 cents with heavy volume on news that its reorganization plan was approved, providing a rare distribution to current equity holders, and it will be emerging bankruptcy by the end of March. Its controlling shareholder, Redux Holdings, Inc. will be providing a substantial cash infusion to meet future working capital needs.

But it is a risky bet and most equity players in these bankrupt companies have a stake in the debt as well, the second trader said, in order to hedge their bets and improve recovery rates.

Northwest Airlines was the most recent example of a backfire, after the official equity committee was disbanded Feb. 20 by the court on the filing of its reorganization plan disclosure statement. There was no distribution to current equity holders. Northwest shares (Pink Sheets: NWACQ), which had traded up to $6.50 in the weeks ahead of the plan, dropped 9 cents, or 6.52%, to $1.29 on Tuesday.

SafeNet deal in jeopardy

On the disappointing buyout terms of security software maker SafeNet Inc. by San Francisco private equity boutique Vector Capital, there was speculation looming Tuesday that the deal would be scuttled by stockholders if it is not sweetened.

The stock, meanwhile, was halted briefly Tuesday and did not move a great deal although volume was heavy on what one trader said was more short covering. He said the short positions should be covered by the end of Tuesday and then the stock will probably stabilize just under the offer price.

SafeNet shares (Nasdaq: SFNT) added 11 cents to close at $28.46 with 3.73 million shares traded versus the norm of 229,485 shares.

The Vector group would pay roughly $634 million, or $28.75 a share, for the Baltimore-based security software firm. The price is a 12% premium over the 30-day average stock price ended Friday but a discount to the $28.30 close on Friday. The company's board has accepted the offer, but it will require a majority vote of approval from shareholders.

In a research note, Lazard Capital Markets said shareholders are likely to reject the transaction at the current offer price as it does not believe the offer reflects adequate value; the firm's sum-of-the-parts analysis reflects a fair value of $34 - a 19% premium to the offer. In the event Vector does not substantially raise its offer, Lazard expects new suitors to emerge.

A trader said that there could be some interest in SafeNet from the likes of General Dynamics Corp. or L-3 Communications Holdings Inc., as they provide communications to the defense industry, but he reckoned Vector planned to dismantle SafeNet to sell to those parties anyway.

Given the stock's rise from around $23 in mid-January, the trader said the price was probably fair in terms of what it could bring in a break-up scenario.

"That would seem a likely move to me [a break-up] and one reason why the price was so low," the trader said. "I suspect there may be some product lines that won't fetch much."

Ryerson rallies on sale buzz

In another boardroom battle, metals processor Ryerson took off after announcing Tuesday it will postpone its annual meeting as it considers a possible sale, which prompted is biggest dissident shareholder, Harbinger, to call it a "delaying tactic" to avoid the board swinging to its control.

The stock was rallying on speculation that a sale transaction might be imminent, one trader said. Ryerson (NYSE: RYI) rocketed up by $2.53, or 7.35%, to $36.96.

The Chicago-based company last month hired UBS Investment Bank to help it assess strategic alternatives and vowed to battle Harbinger. On Tuesday, Ryerson outlined possible options including a sale, business combination, recapitalization or share buyback.

"We are greatly disappointed with this latest delaying tactic," said Larry Clark, managing director of Harbinger, which owns a 9.7% stake in Ryerson, in a statement.

"This postponement follows Ryerson's disclosure of dismal fourth-quarter results and the public endorsement by another large Ryerson shareholder of Harbinger's slate of experienced director nominees - it is apparent that the board is postponing the vote because they realize they are in danger of losing."

The shareholder meeting had been scheduled for May 11. Ryerson said it would announce a new meeting date but did not provide a timetable. The company also said it elected a new, independent board member.

Harbinger has launched a proxy campaign to elect seven nominees to the Ryerson board to gain a majority.

A trader said the delay could be positive if it turns out to mean that the company is close to a sale transaction, but, moreover, he agreed with Harbinger that it suggests the company is concerned that Harbinger would gain control of the board if the meeting was held.

Ryerson chairman and chief executive Neil Novich noted the company has added five new directors in three years "as part of an ongoing process to bring a fresh perspective and relevant experience."

Last month, the company reported a fourth-quarter net loss, citing rising prices for stainless steel and aluminum, which account for about half of its revenue.

Topps holders want sweetener

On thinking that the bid for confectioner Topps could be sweetened or a rival bid might appear, the stock traded past the takeout offer, a trader in the stock said.

Against the $9.75 offer - a 9.4% premium to Monday's market - he said the stock traded as high as $10 before the open, which matches the 52-week high. He said short interest in the stock was just 1.75 million shares, or about 5% of the float, so considering volume of 3.4 million shares by midday that was probably covered by noon.

Topps shares (Nasdaq: TOPP) gained 90 cents on the day, or 10.10%, to close at $9.81 after trading in a band of $9.74 to $9.99 in the regular session. It was seen higher after the bell, as well.

The buyout group, which includes The Tornante Co. LLC, founded by Eisner, and the Chicago-based private equity firm Madison Dearborn Partners LLC, has agreed to pay $9.75 per share - a premium of 9.4% to Monday's market.

But Topps director Arnaud Ajdler, along with the investment firm Crescendo Partners II, launched a campaign to kill the deal, asserting the offer undervalues the company. Ajdler is a managing partner of Crescendo, which owns a 6.6% equity stake in the company.

"I believe that the process that led to the signing of the merger agreement was flawed in that the board of directors did not shop the company and thus failed to maximize the competitive dynamics of a sale transaction that would have garnered the highest price available," Ajdler said in a letter to board members Tuesday.

The deal was approved in a 7-3 vote by the board with Ajdler and two others voting against the deal. Ajdler was joined by Timothy Brog, president of Pembridge Capital Management LLP, and another board member John Jones. Pembridge had earlier pressed the company to solicit acquisition proposals.

The company said in its announcement that it will solicit better offers over the next 40 days.

As part of the merger agreement, chief executive Arthur T. Shorin agreed to retire within 60 days of the close of the deal. Eisner was CEO of The Walt Disney Co. for two decades until he stepped down in 2005.

Brinks buyers buoyed by Pirate

Another trader said security firm The Brinks Co. found buyers on optimism stemming from Pirate Capital LLC directing more attention to the security firm's future, namely a possible sale of the company.

Brinks (NYSE: BCO) advanced $1.73 on the session, or 2.99%, to $59.54.

On Monday, Pirate said its founder and manager Thomas Hudson Jr. resigned from the board of prison operator Cornell Cos. Inc. effective immediately to pursue board efforts at Brinks, including his previously stated plan to seek strategic alternatives more ardently. Brinks has avoided a proxy contest by granting Pirate a board seat and a position on the board's strategy and pension and finance committees.

"This situation has been brewing for a while but is starting to really gain some traction," a trader said, saying market scuttlebutt is that Pirate thinks there is private equity interest in Brinks.

He added that Brinks chief financial officer Robert Ritter will make a presentation at the 2007 Friedman Billings Ramsey & Co. Inc. Washington Conference on Thursday and there may more insight on the company's future afterward.

In mid-February, Pirate said that because Brinks continues to trade at a significant and unjustified discount to the industry, it has urged management to retain an investment bank to explore broader strategic alternatives including a large Dutch tender and/or the sale of the company. Having a seat on the board could provide a near-term catalyst in which Pirate could steer the company to retain an investment bank from the inside.

Pirate has asserted that a sum-of-the-parts valuation suggests that Brink's is worth $80 per share.

Brink's management has stated publicly that they are looking into acquisitions to expand into the corporate security business, ensuring investors that they will take their time and will not overpay for the business.

Pirate owns 8.5% of Brink's stock.

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