Caremark, CVS, Express Scripts rising; New Century, Freemont fall; Agilent up; Catalina climbs

By Ronda Fears

Memphis, March 8 - In another episode of the long-running saga to gain control of pharmacy benefits manager Caremark Rx Inc., drugstore chain CVS Corp. on Thursday sweetened its takeover bid of $23.9 billion in answer to the boosted hostile bid from rival pharmacy benefits manager Express Scripts Inc. of $26.9 billion that was announced late the day before.

Catalina Marketing Corp. climbed on a boosted buyout bid from ValueAct Capital, a buyout firm co-founded by Catalina director Jeffrey Ubben, for $1.7 billion in cash, but traders said the offer, at a 7.5% premium, still seemed a little slim. The stock gained Thursday but ended well below the offer price.

Renewed takeover banter pushed Agilent Technologies Inc. sharply higher as traders were glad to be buyers in the tech sector, one observer remarked. The electronic testing equipment company has been the subject of repeated takeover rumors but the stock has been a laggard since the first of the year, the desk analyst said. Thus, the stock (NYSE: A) gained 96 cents, or 3.12%, to end at $31.74.

A fresh round of jitters about looming bankruptcy for New Century Financial Corp., as well as criminal investigations there and at Fremont General Corp. related to stock trading, sent most of that sector lower Thursday. Adding to the anxiety, there is a criminal probe involving trading in New Century shares and Fremont has agreed to a cease-and-desist order from the Federal Deposit Insurance Corp.

Extending losses as well was Fieldstone Investment Corp., which on Feb. 16 agreed to a takeover offer of $5.53 per share from Credit-Based Asset Servicing and Securitization LLC, or C-Bass, an affiliate of MGIC and Radian Group Inc. The price is subject to a $0.20 reduction in the event Fieldstone does not settle pending litigation prior to the merger, expected to occur in second quarter. The purchase price was a 112% premium over Fieldstone's closing stock price on Feb. 15, but the stock (Nasdaq: FICC) on Thursday fell 22 cents, or 5.15%, to $4.05 and in after-hours trade was seen as low as $3.86.

On a positive note, traders said there was a lot of excitement about the initial public offering for WiMax wireless high-speed internet provider Clearwire Corp. The IPO was upped to 24 million shares from 20 million shares and priced at $25 per share - the high end of a range from $23 to $25. One IPO trader said there were a lot of "flippers" who sold out quickly, as the stock opened at $27.25, but also a horde of new buyers.

The big draws to the Clearwire IPO, traders have said, are the fact that the company was founded in 2003 by Craig McCaw of McCaw Cellular that was sold to AT&T Corp. for over $13 billion. Also, last year the company got upwards of $900 million in venture capital from Intel Corp. and Motorola Inc. The stock (Nasdaq: CLWR) traded as high as $27.95 with a whopping 34.3 million shares changing hands but it ended in negative territory from where it priced, ending at $24.62.

Catalina offer still disappoints

Catalina Marketing said it has agreed to be acquired by ValueAct Capital for $32.10 per share, which is a boosted bid from the firm's previous offer of $32 per share, but traders said they were still disappointed with the offer, noting the company has been shopped since December.

The stock (NYSE: POS) gained $1.65 on the day, or 5.53%, to close at $31.50.

One trader said the stock is not very liquid and many players have "already put their positions to bed."

ValueAct Capital held a 15.53% stake in the company at Dec. 31. The firm noted that while the offer was just 7.5% over Wednesday's market, it was a roughly 32% premium to where Catalina Marketing shares were trading Dec. 7, just ahead of the initial takeover offer from a third-party private equity firm.

Catalina also can solicit or entertain other proposals for 45 days. The company had hired Goldman Sachs in December as private equity firms prepared bids for the company; a Catalina special committee also retained Lazard to assist in negotiations.

St. Petersburg, Fla.-based Catalina provides behavior-based communications for consumer packaged goods manufacturers, pharmaceutical manufacturers and marketers, and retailers worldwide, chiefly in France, Italy, the United Kingdom, Belgium, the Netherlands, Germany and Japan.

Caremark longs sing ca-ching

Players with long positions in Caremark were ecstatic with the new round of bids from CVS and Express Scripts. Traders said many were hesitant to push their luck much further, but there also were some willing to call CVS' bluff on its latest "best and final" offer by pushing the stock further beyond the offer.

CVS on Thursday improved its equivalent $54.74-per-share bid to include a sweetened, one-time cash dividend of $7.50 per share after the deal closes. The dividend previously was $6 per share. Caremark shareholders also would receive 1.67 shares of CVS.

Late Wednesday, Express Scripts had upped the ante by adding an additional cash consideration of 6% per annum, or $0.481 cents per share per day, beginning April 1 and accruing through the closing date of the acquisition or 45 days after antitrust approval of the deal, whichever comes first, to be paid upon the estimated closing in third quarter. That would be on top of its offer at $29.25 in cash plus 0.426 share of Express Scripts.

CVS' bid is valued at roughly $23.1 billion on Thursday's market, a stock trader said, versus Express Scripts' bid of about $27.1 billion.

The call spreads for Caremark as well as Express Scripts are negative, which risk arbitrage traders said Thursday makes the only positive trade in the situation to buy Caremark and stay long.

At this stage of the game, there is not a great deal of money to be made, however, unless you think the bidding war is going to continue to escalate the price tag. That could very well be the case, one trader said, as the saga has already lingered for nearly six months. Caremark agreed to a $21 billion buyout by CVS in November; Express Scripts launched the bidding war the following month.

"The only way you are making money on this is if you buy and stay long Caremark," said one risk arb trader, noting the negative call spread on Caremark is about 48 cents.

"Now it's a waiting game. The ball's in their court and we'll just see how it plays out."

CVS said its shareholders would vote on the deal on March 15. Caremark's shareholders are scheduled to vote on March 16.

But the votes have been rescheduled before.

"We've heard 'final and best offer' before," the risk arb trader said. "Those are famous last words."

New Century, Fremont founder

Short sellers in New Century as well as Fremont General, along with several other subprime mortgage lenders, have "made a killing" on the bounces this week, one trader said. But, he said, unless there is a bailout for these companies, "the reality of how close they all are to folding [bankruptcy] has capped that off."

One trader said the distressed funds continue to circle the pack of subprime mortgage lenders and New Century "is probably the closest to getting a bite." He said if the slide in New Century reaches $3 or below, he reckons distressed funds will get involved.

Criminal investigations into trading of New Century and Fremont have sullied those situations, as well. Another trader said the probes seem to focus on insiders, and appear to cast an overall "shady" pall on those companies.

Mounting anxiety that New Century Financial is close to filing bankruptcy, a day after activist hedge fund manager David Einhorn resigned from its board, sent the stock reeling again. Einhorn is a principal at Greenlight Capital LLC, which owns a 6.3% stake in New Century.

After Thursday's close, New Century said it had received $265 million in financing that it will use to refinance or satisfy some existing obligations. The lender was not disclosed, but the company said the lender "also provided financing to the company to refinance the remaining balance of approximately $710 million in mortgage loans currently financed through another lending facility."

New Century also said, effective immediately, it was not accepting loan applications from prospective borrowers.

Still, the stock (NYSE: NEW) plunged $1.29, or 25%, to close the session at $3.87 and in after-hours trade lost another 12 cents, or 3.1%, to $3.75.

Fremont on Thursday agreed to a cease-and-desist order from the FDIC, and traders said there was increased skepticism that the company will be able to sell its mortgage business. On Wednesday there was chatter that there could be as many as six bidders for its mortgage unit.

Fremont (NYSE: FMT) was higher early Thursday but fell victim to the persistent negative trend in the sector, closing with a drop of 19 cents, or 2.23%, to $8.34. In after-hours activity, the stock was seen as low as $8.10.

TXU returns a deterrent

Traders said there is still decent activity in TXU Corp. stock but most players involved on the record $45 billion buyout by private equity are maintaining "very conservative" positions because the potential return, which he estimated at 10.6% if the deal gets done by year-end, is so slim.

TXU (NYSE: TXU) traded in a band of $63.79 to $64.81 on Thursday before closing off by 16 cents at $64.19. Some 7.7 million shares traded versus the norm of 5.2 million shares.

Kohlberg Kravis Roberts and Texas Pacific Group are leading the buyout group's offer at $69.25 per share in cash.

"It's the buyers you have to have faith in," said one risk arb trader. "We think it will get done but we are setting it up on a very conservative call spread."

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