CBOT gains on rival ICE bid; CVS shorts unwinding; New Century up on short covering

By Ronda Fears

Memphis, March 15 - The hostile $9.9 billion bid for Chicago Board of Trade parent CBOT Holdings Inc. from electronic futures market IntercontinentalExchange Inc. bested an $8 billion offer agreed to in October with the Chicago Mercantile Exchange Holdings Inc., which was a shocker, but traders said it sent CBOT shares rising in anticipation of an all-out bidding war.

Speaking of bidding wars, Express Scripts Inc. said Thursday it is committed to raising the cash part of its $27.8 billion offer for Caremark Rx Inc. if it can find more synergies through a possible deal with the rival pharmacy benefit manager. Meanwhile, CVS Corp. shareholders on Thursday approved that drugstore chain's $23.9 billion bid to buy Caremark, and Caremark holders are scheduled to vote on the CVS offer Friday.

Additionally, the market's obsession with subprime lenders was eased somewhat Thursday by a handful of sizable deals hitting the tape - Cisco Systems Inc.'s purchase of WebEx Communications Inc. for $3.2 billion in cash, General Electric Co. and private equity firm Blackstone Group buying mortgage and fleet management firm PHH Corp. for $1.8 billion, and Pitney Bowes Inc. buying MapInfo Corp. for $408 million.

Meanwhile, one trader said the subprime finance group was still generating plenty of attention Thursday, but the deals provided some diversion and the PHH deal specifically provided a subdued level of enthusiasm that there might be some buyout interest in subprime lenders although PHH is a prime lender.

"Everybody is still very nervous about this subprime thing. It's pervasive. The level of anxiety is astronomical, so you see that if there is anything else to look at, you jump at it," the trader said.

In the subprime mortgage sector, shares of New Century Financial Corp. more than doubled Thursday, which still put the stock (Pink Sheets: NEWC) just at $1.35, and traders speculated the 28.5 million shares that traded was largely related to short covering.

Another trader said rumors persisted Thursday that Goldman Sachs Group Inc. is in talks to buy New Century, but he echoed remarks Wednesday by another trader that a transaction may not take place until New Century files bankruptcy. "Goldman can simply wait for New Century to liquidate and then pick over the carcass."

CVS shorts seen unwinding

As for the ongoing Caremark story, traders said it seemed the market was betting the CVS merger gets a stamp of approval on Friday as they observed short covering in CVS.

"It's like a bird in the hand is worth two in the bush," one trader said. "I think the Caremark vote will be yes, maybe out of some concern that a no vote would risk losing both deals."

Proxy advisory firms have issued recommendations for both deals, the trader noted, so really "it could go either way." He speculated that many Caremark holders were buying CVS' argument that a linkup between Express Scripts and Caremark would not pass antitrust muster as they are both pharmacy benefits managers.

But he said short covering in CVS would suggest that the market believes its offer will be accepted by Caremark shareholders and there would be "substantial upside to the story."

CVS shares (NYSE: CVS) advanced $1.03 on the day, or 3.19%, to close at $33.34.

Caremark (NYSE: CMS) added $1.67, or 2.73%, to $62.75.

Express Scripts was a big gainer as well with that stock (Nasdaq: ESRX) up $1.31 on the day, or 1.62%, at $82.41.

CBOT sweetener priced in

Traders said CBOT players were pricing in an expected sweetened offer from the Chicago Merc in answer to the ICE bid, and one trader predicted that based on the market's move Thursday the offer would go up by around 15%.

CBOT shares (NYSE: BOT) went as high as $195 before easing back to close at $194.95, a gain of $28.86 on the day, or 17.38%.

"The market is pricing in the [Chicago Merc] offer getting raised 15% above current valuation, I think," the trader said. "I think [CBOT] will come in a bit from where it closed" because both Chicago Merc and ICE shares came in.

ICE is offering 1.42 shares of ICE per CBOT share, or the equivalent of $187.30 per share on Wednesday's market - a 12.8% premium to the $166.09 close for CBOT on Wednesday.

However, on Thursday, ICE shares (NYSE: ICE) dropped $3.83, or 2.9%, to $128.10.

In a deal struck Oct. 17, the Chicago Merc is offering to CBOT shareholders the choice of receiving 0.3006 share of CME per CBOT share or cash at an exchange ratio based on a 10-day average of closing prices of CME common stock at the time of the merger, capped at $3 billion.

Chicago Merc shares (NYSE: CME) fell $31.09, or 5.51%, to close Thursday at $532.88.

CBOT had no immediate response to ICE's offer, which would create a derivatives powerhouse with about a third of the domestic market for commodities trading.

The Chicago Merc issued a brief statement espousing confidence in its merger offer but avoided comment on whether it will raise its bid, saying "We are working toward the successful completion of our transaction."

CBOT shareholders are scheduled to vote on the Chicago Merc deal on April 4.

WebEx players cheer Cisco

WebEx players were cheering the news of an acquisition by Cisco, which makes routers and switches that direct data over computer networks. Cisco is paying $57 per share for the online meeting company WebEx - a 23% premium over Wednesday's close.

"It's a great day for the WebEx story. The Cisco buyout is a surprise as I thought Yahoo made more sense," said one tech stock trader on the West Coast. "But this is finally a victory for a good company with a good product and a well-managed growth plan."

WebEx shares (Nasdaq: WEBX) gained $10.18 on the news, or 22.03%, to close just below the buyout price at $56.38.

San Jose, Calif.-based Cisco said the acquisition has been approved by both boards and is expected to close in the fourth quarter of fiscal 2007. Cisco said it expects the transaction to have a neutral effect on its fiscal year 2008 earnings after one-time charges are subtracted.

Cisco shares (Nasdaq: CSCO) slipped by 4 cents to $25.81.

With a fat cash coffer, Cisco has been on an aggressive acquisition spree in the past decade, recently branching out from its core business of supplying networking gear and into communications, social networking and other areas that help drive traffic over the network and increase demand for its core equipment.

Santa Clara, Calif.-based WebEx makes applications that enable online conferences and secure instant messaging. The company says it controls 64% of the online meeting market, with more than 3.5 million people using WebEx services every month for online communications.

Cisco said the acquisition will allow it to tap into the increasingly lucrative market for business communications over the internet. By tapping into Cisco's global reach, the deal gives WebEx an opportunity to expand its product portfolio and services, WebEx said in a statement.

MapInfo price tag a big break

Business machines maker Pitney Bowes' acquisition of mapping software company MapInfo at $20.25 per share in cash - a whopping 53.5% premium to Wednesday's market - was a "big break," as one trader put it.

"The price is beyond anyone's wildest dreams," the trader continued, noting that last year MapInfo shareholder Cannell Capital LLC was urging some sort of action by the company to bolster stock value.

The trader added that MapInfo stock has recently been trading not so far off the 52-week high of $14.81, but "no one thought a deal this good would come along. It's a big break."

MapInfo (Nasdaq: MAPS) shot up by $6.79, or 51.4%, to close Thursday at $20.

The Troy, N.Y.-based company makes what it calls location intelligence products that companies use to choose where to locate or assess risks. It also has data sets, including streets and boundaries data, demographic data and industry-specific data, as well as an enterprise location intelligence platform.

Pitney Bowes (NYSE: PBI) closed off by 12 cents at $45.32.

The transaction is expected to close in the second calendar quarter of 2007.

PHH deal provides some hope

GE plans to acquire PHH for $31.50 per share - a 13% premium to Wednesday's market - and will sell the prime mortgage business to Blackstone, which one trader said gives "some" hope of deals in the subprime group.

PHH (NYSE: PHH) gained $3.29 on the day, or 11.83%, to close at $31.10.

"It's apples and oranges really, but it helped lift a lot of subprime names," the trader remarked.

The transaction will split PHH's mortgage to Blackstone and the vehicle fleet services businesses will be incorporated under the GE Capital Solutions unit, which already has a vehicle fleet management operation. PHH was spun off in 2005 from what was then known as Cendant Corp., which underwent a series of break-ups and spin-offs in 2005 and 2006.

GE shares (NYSE: GE) rose 12 cents to $34.52.

The trader said GE is paying 16 times expected 2007 earnings of $1.95 per share, according to some estimates. PHH said in January it expects to post a net loss of $22 million to $29 million for 2006 and return to profitability in 2007; the company said at that time it anticipates origination of $41 billion in loans for 2007.

"You can't really extrapolate anything from the PHH price," the trader said. "It's just a little light at the end of the tunnel for anyone thinking that there could be a deal for some of the subprime mortgage companies. Of course, the light could be an oncoming train."

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