Marvell off, LBO buzz emerges; NextWave at $6; Continental up 4%; Winn-Dixie slips; Movie off

By Ronda Fears

Memphis, Nov. 21 - With mega-merger news still fresh from the day before, equity traders said there was rampant speculation across the board Tuesday. It was not just in the REIT and mining sectors that were the focus Monday, either, but included the likes of Marvell Technology Group Ltd. in a late-day rumor that it will be the target of a leveraged buyout.

"There was a rumor late in the day that Marvell is going to cash out. Apparently a source told [a brokerage research firm] that Marvell has been in talks with more than three LBOs to take the company private," said a stock trader.

"The deal is said to be in the range of $18 to $25 billion," he added, noting that the market cap on Marvell at Tuesday's close was about $12 billion.

Marvell shares (Nasdaq: MRVL) ended Tuesday off by 51 cents, or 2.44%, at $20.35, which the trader attributed to profit taking after a 9.5% rise Monday. In after-hours action Tuesday, however, he said the stock gained ground.

Marvell, which on Nov. 8 closed a $600 million purchase of Intel Corp.'s cell-phone processor line, said last week that its planned expenses are more than it expected from the deal and that the business won't add to its earnings until late 2007. Santa Clara, Calif.-based Marvell designs chips used in hard disk drives, Wi-Fi functional electronics and internet networking gear.

"They may be having serious second thoughts about this Intel deal," the trader continued.

For the three months ended Oct. 29, Marvell said sales rose 22% to $520.4 million, but the company has delayed filing its quarterly report due to a review of its stock-option accounting.

Continental a reluctant player

In the airline sector, Continental Airlines Inc. got a nice bounce. The move followed a signal that the airline would consider a merger amid angst about being dwarfed amid consolidation overtures between Delta Air Lines Inc. and US Airways Group, Inc. But traders said there was not as much conviction in the Continental trade Tuesday as last week when the US Airways' $8 billion bid for Delta emerged.

"If the landscape of the U.S. airline industry does indeed change, we'll do what we need to do to act in the best interests of you [employees], our customers, our shareholders and the communities we serve," Continental chief executive Larry Kellner said in a recorded message to employees on Friday.

Continental shares (NYSE: CAL) traded up Tuesday by $1.85, or 4.35%, to settle at $44.38, but traders noted a sharp fall-off in volume from previous sessions, with 4.96 million shares traded versus the norm of 4.65 million shares.

Kellner's statement positions Houston-based Continental, the No. 4 domestic carrier, as another potential player in industry deal-making, alongside Elk Grove Township, Ill.-based United Airlines, which another stock trader said seems to "be the favorite trade in this group."

United parent UAL Corp. (NYSE: UAUA) gained $2.09, or 5.2%, to settle Tuesday at $42.28 on volume of 4,723,178 shares versus the norm of 2,837,710 shares.

Winn-Dixie emerges bankruptcy

Winn-Dixie Stores Inc. coasted out of bankruptcy Tuesday, and the Florida-based grocery chain's when-issued stock moved lower, which one broker attributed to some skepticism about its survivability in light of news from Wal-Mart Stores Inc. also Tuesday that it is lowering prices on hundreds of fresh and dry grocery items as much as 20%.

"Winn-Dixie is not just emerging bankruptcy in the same environment that culminated in its bankruptcy, times are getting tougher now," the broker said.

The Jacksonville, Fla.-based grocery chain, which filed for bankruptcy in February 2005 in part blaming tough competition from the likes of Wal-Mart, said it expects to emerge with only a minimal amount of long-term debt on its balance sheet. In connection with its emergence from Chapter 11, Winn-Dixie closed on a new $725 million exit financing facility and expects to issue roughly 54.5 million shares per the reorganization plan distribution.

Winn-Dixie plans to issue new shares within the next 45 days to pay bankruptcy claims, and the stock will trade on the Nasdaq under the symbol "WINN."

Meanwhile, the when-issued shares, which had been trading on Pink Sheets, are trading on the Nasdaq under the ticker "WINNV." Those moved off from $11.10 where they were quoted Monday to $11 on Tuesday before bouncing up to $11.15 at the close. But the stock was seen lower at $11.12 in after-hours activity.

Mirant warrants rise over 3%

Holders of Atlanta-based electric generator Mirant Corp. shares would do better to swap into either the series A or series B warrants, directly or in a hedged position, according to one analyst. On Tuesday, the warrants indeed gained ground with a 3% gain to a 1% rise in the stock.

Mirant shares (NYSE: MIR) gained 30 cents on the day, or 1.04%, to $29.09.

Mirant's series A warrants moved up 37 cents, or 3.59%, to $10.69, while the series B warrants (NYSE: MIR-WTB) added 36 cents, or 3.16%, to $11.74.

"This trade preserves virtually all of the upside of the common," said JGiordano analyst Paul Berkman in a report Tuesday. "It also extracts cash from the position, thereby reducing the amount at risk. The cash can be reinvested to earn a risk-free rate of return, or it can be used for any other purpose."

For example, he said, if you sell one share of common at $29.11 and buy one series A warrant at $10.65, instead of $29.11 at risk the holder has only $10.65 at risk and the trade frees up $18.46 per share, or 63%.

Of particular note, the analyst pointed out that both warrants carry very strong takeover protection for holders of those securities and provides even more cushion.

In a hedge trade, to sell short one share of common at $29.11 and buy the series A warrant at $10.65, he said the implied volatility on the warrants of essentially zero against the realized 12-month volatility on the common of roughly 26% - as well as a 30% volatility calculation in a takeover situation - makes the warrant look particularly cheap.

The situation is basically the same for both the series A and series B warrants, Berkman said, but he noted that the series A issue is twice the size of the series B issue, so it has more liquidity.

"I want to make it clear that, in offering a swap recommendation, I am offering no opinion on the prospects of Mirant common stock," Berkman said in the report. "I am only saying that if an investor has decided - based upon his or her own reasons - to be a long-term owner of the common, the warrant is a better choice."

NextWave awaiting conversion

NextWave Wireless Inc. shares, trading on a when-issued basis at $6, are awaiting a conversion from the old NextWave Wireless LLC corporate structure, and traders said the stock appears to be smack on where it should open.

The stock is trading on the Pink Sheets under the ticker "NXWVV," but the company said in a registration statement at the Securities and Exchange Commission that it expects a when-issued market for the new stock to trade over the counter and then on the Nasdaq with the symbol "WAVE."

NextWave Telecom, predecessor to NextWave Wireless, was formed in 1995 by a group led by Allen Salmasi, former president of Qualcomm's wireless telecom division. The upstart firm attracted a number of prominent backers, including Qualcomm and investment group Cerberus Partners. It also got financing commitments from Lucent, Hughes and Nortel to build its service.

But burdened by billions of dollars of debt borrowed to buy wireless spectrum, the company filed for Chapter 11 bankruptcy in 2004, blaming a flooded market of spectrum following the Federal Communications Commission auction.

San Diego-based NextWave exited bankruptcy in April 2005 with no public stock but units of NextWave Wireless LLC that were issued in the reorganization plan. Now the company sees publicly traded stock as a means to gaining access to the capital markets, so it is proposing a conversion in its capital structure by registering the stock, it said in SEC filings.

Onlookers expect the process to take 30 to 45 days.

The cornerstone of the company's reorganization plan was the sale of NextWave Telecom and its subsidiaries, excluding NextWave Wireless, to Verizon Wireless for about $3 billion, which after paying claims left it with roughly $550 million in cash on its balance sheet.

As of July 1, 2006, the company said it had $340.4 million of cash and equivalents.

Immediately following the corporate conversion, the company said it will have 82.2 million shares of common stock outstanding held by roughly 1,400 holders of record. There will be 17.3 million shares reserved for future issuance, of which 14.87 million are linked to options and warrants.

Salmasi, executive officers and others members of the board of directors will beneficially own or control around 49.3% of the company.

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