Thursday, May 17, 2007

Paperstand (CCU, AAI, MEH, STI, COMS, JPM)

The WSJ reprots that strong momentum was building last night for a final plan to clinch the $19.4bn sale of Clear Channel (CCU) to a duo of private-equity firms. Major shareholders Highfields Capital Mgmt and Fidelity Investments were expected to be on board with a new buyout proposal brought forward last week. This proposal would sweeten the offer for the San Antonio media-and-entertainment co by 20c a share, to $39.20. The deal also offers current shareholders a chance to own as much as 30% of the newly constituted Clear Channel, which would be majority-owned by Bain Capital and Thomas H. Lee Partners. The shareholders' support for the plan clears the way for a deal that has endured months of contention among shareholders, the co's mgmt and the private-equity firms.

According to the WSJ, AirTran (AAI) is expected to announce that holders of almost 57% of the shares of Midwest Air (MEH) have agreed to sell their stock under AirTran's $389m offer to acquire the airline. B/c the support represents a shift in favor of its longstanding effort to purchase Midwest despite opposition from the rival carrier's board and mgmt, AirTran is also expected to extend the deadline for Midwest shareholders to tender their stock. Although AirTran's latest bid for Midwest expired at midnight yesterday, a new deadline is expected to be set for Jun. 8.

“Ahead of the Tape” column out saying that a wave of cash is looking for a home in the stock mkt. With Bausch & Lomb’s announcement yesterday that it had agreed to be taken private, there are now 12 co’s in the S&P500 index set to go private this year. The total price tag for these co’s stands at $179bn, according to S&P analyst Howard Silverblatt. That's a lot of cash investors will have to redeploy. "This is a lot of money that will have to find a home," Mr. Silverblatt says. S&P500 index funds will pump the money right back into stocks in the index, as will many of the actively managed mutual funds that use the index as a benchmark. First and foremost, they'll need to buy the shares of the co’s replacing the outgoing members of the index. Of course all the cash "coming" into the stock mkt was really the stock mkt's to begin with. The reality is that, with so many co’s going private, there are fewer stocks to buy, and that's sending the ones that remain higher.

“Heard on the Street” column reports that SunTrust Bank (STI) has sold 9% of its $2.3bn stake in Coca-Cola, and has said it will decide what to do with the rest by year's end. The move is meant to appease exasperated investors who see the Coke shares as an asset that SunTrust has been squandering for decades. Still, it could be too little too late to save SunTrust from a takeover long thought to be impossible. The bank's sale of the beverage maker's shares could make SunTrust more vulnerable, b/c any buyer of SunTrust currently would have to include the mkt value of the Coke holding in the purchase price. Shedding the stock would make a takeover of SunTrust less expensive, and some analysts have long argued that the Coke stake amounted to a "poison pill" that kept SunTrust in control of its destiny. "The clients who are holding the stock are the ones that believe there's going to be a deal," says Nancy Bush, of NAB Research, who has followed SunTrust closely for two decades. "It's very sad to me. This was once upon a time a great franchise."

Barron’s Online highlights 3Com (COMS), saying that the challenges to 3Com may be more than Citadel knows how to fix. Citadel upped its stake in 3Com from 1% to 8% in April, and has sent a note to the 3Com board offering to provide "input" to turn the stock around. The co's share of networking products has shriveled over the years dramatically. For 3Com to achieve sustained sales growth and profitability will be tough in a mkt where even Cisco is finding growth elusive. Worse, after taking sole control of the China venture, 3Com will end up with far less cash, a fact that gives value investors pause. Without that pristine balance sheet, 3Com looks more like an expensive networking stock trading at 25x next year's earnings. "It's difficult to see what Citadel could possibly do better than 3Com mgmt, at a time when the co is in transition, and given that networking is always competitive even for Cisco," says Mark Mowrey, of Al Frank Asset Mgmt. Mowrey is holding on to the stock for some upside potential, but "if I weren't already in the stock, I wouldn't put new money into it at this point," says Mowrey.

“Inside Scoop” section reprots that JP Morgan (JPM) is trading around all-time-high territory, and co insiders are celebrating the co's success by selling stock at a greatly increased pace. Over the past 30 days, execs have sold $14.4m in stock, comprising the majority of the $22.4m in stock sold over the last 2 years. The biggest sellers were CIO Ina Drew, and Steven Black, the co-CEO of JPM's investment-banking unit.

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