bloggingbuyouts

Alliance Data Systems (NYSE: ADS), a provider of loyalty and marketing solutions derived from transaction-rich data, announced on 5/17 it would be acquired for $81.75 in cash ($7.8 billion) by Blackstone Capital Partners (NYSE: BX). ADS is recently down $2.80 to $75.48. ADS December option implied volatility of 48 is above its 26-week average of 18 according to Track Data, suggesting larger risk.

Sprint Nextel (NYSE: S) is recently up .39 to $15.23. The Wall Street Journal reported S rejected a $5 billion investment offer from a group led by ex-Sprint Chairman Donahue according to sources. S option volume of 10,285 contracts compares to put volume of 3,125 contracts. S December option implied volatility of 37 is above its 34 according to Track Data, suggesting larger risk.

Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Sprint Nextel Corp. (NYSE: S), which operates a wireless and wireline network servicing 54 million customers, closed at $18.76. The Wall Street Journal says, "Activist investor Ralph Whitworth is turning up the heat on Gary Forsee, chief executive of Sprint, and other directors of the wireless carrier. 'We have lost confidence in Gary Forsee,' Mr. Whitworth said."

EchoStar Communications (NASDAQ: DISH) closed at $48.94. DISH announced on September 26 the proposal to spin off its technology and infrastructure assets. AT&T (NYSE: T) & DISH have been frequently mentioned over the last seven years as possible transaction partners. DISH October option implied volatility of 51 is above its 26-week average of 31 according to Track Data, suggesting larger price risk.

Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

As I wrote yesterday on BloggingBuyouts, there are indications that activist investors are in trouble. Pirate Capital's Jolly Roger funds, among the most prominent activist funds out there, have barred withdrawals in the wake of an 80% decline in the funds' assets under management.

Wednesday's Wall Street Journal also took a look at the problems the activist investors are facing. A Harvard Business School study found that activist investors tend to experience success when they are able to push management to put the company up for sale. The company is frequently sold at a premium, and shareholders go home happy.

But when the activists are not able to get the company sold, they don't outperform the indices. According to the author of the study, "The money is in getting the target acquired. The ones that don't end up getting acquired don't end up with much of anything."

The Journal compares activist investors to a "boxer with one punch." But with the current credit crunch and the drying up of private equity activity, activists could suffer. They are in for a test, and it may demonstrate just how important of a role they can play in corporate governance: Can activist investors create alpha outside of a simple takeover?

Investors like Carl Icahn have reinvented themselves before, and they will have to do the same now that the days of "File a 13-D, make noise, get company sold, get rich" are over.

As for Icahn, he recently said that his next ventures will focus on "distressed" activist investing.

E*Trade Financial Corp. (NASDAQ: ETFC) -- volatility Up; The Wall Street Journal says TD Ameritrade (NASDAQ: AMTD) in merger talks with ETFC. ETFC closed at $15.57. Jana Partners and SAC Capital Advisors LLC in late May encouraged ETFC and AMTD or Charles Schwab Corp. (NASDAQ: SCHW) to consider a combination. ETFC has a market cap of $6.6 billion with 2006 annual revenues of $3.8 billion. AMTD has a market cap of $9.7 billion with 2006 annual revenue of $2.1 billion. ETFC September and October option implied volatility of 80 is above its 26-week average of 39, according to Track Data, suggesting larger price fluctuations.

MGM Mirage (NYSE: MGM) -- volatility Elevated; Dubai World acquires stake in MGM assets. MGM closed at $74.32. Dubai World, a holding company for the Persian Gulf state, will pay $2.7 billion to acquire a stake in MGM City Center, a 76-acre Las Vegas development, according to The Wall Street Journal. Dubai World will also buy 14 million shares from MGM for $84 a share and 14 million from investors. MGM September option implied volatility of 45 is above its 26-week average of 37 according to Track Data, suggesting larger risk.

The CBOE Volatility Index for S&P 500 Options (VIX) at 26.32; the 10-day moving average is 25.25

Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

What do I do to make you want me
What have I got to do to be heard
What do I say when it's all over
And sorry seems to be the hardest word

-- Elton John and Bernie Taupin

Hedge fund investors are getting a taste of just how hard it is to say sorry this week. According to The Wall Street Journal, hedge funds are sending letters to their shareholders with explanations for the huge draw-downs: other hedge funds (crowded trades), computer models, once-in-a-blue-moon aberrations, etc.

Be sure to read the piece in The Journal for some wonderful examples of slippery wordsmithing. Yes, their job was to make money for investors, and they expect to be rewarded handsomely if they succeed. But if they lose money? Why, don't blame them! This appears to be a case of "Heads I win, tails is bad luck" in action.

Suppose the not-my-fault hedge fund managers are right. Maybe it isn't their fault. But if they aren't responsible for bad times, do they really deserve the huge performance fees they earn when it goes well?

In case you've been sleeping under a rock, private equity funds have been taking companies private at a record pace for the past few years. But what gets swallowed must get come out the other end, and sooner or later the markets will be flooded with a diarrhea of IPOs from the buyout shops. According to The Wall Street Journal's Ahead of the Tape column [subscription], private equity may be getting ready to begin shopping its wares to the public: "At Goldman Sachs Group the last few years, bankers focused only on arranging buyout financing. Now they are helping plot exit strategies. The average holding period for companies private-equity firms buy has gone from over three years to 18 months in this frenzied cycle."

But the scariest thing for investors is the next line: "The upshot is that private equity could become a weight on the market by dumping new supply on investors. The president of one of the largest private-equity firms estimates that without private equity's demand, stock prices would be 20% lower today."

This is a potential risk factor that hasn't been talked about much, at least not that I've seen. If the private equity funds decide to rush to market with all these companies they've been taking private the past few years, could markets plunge under the weight of oversupply?

According to a recent story in The Wall Street Journal, it appears that Dow Jones (NASDAQ: DJ) and News Corp (NYSE: NWS) have an agreement in principal on editorial control and protection. While deals can always fall apart, this is definitely a good sign. Rupert Murdoch is willing to write a check for $5 billion and he has desperately pursued the company. In a way, it could be his crowning achievement.

I'm a big fan of the Wall Street Journal and really can't live without it. And the focus on editorial issues probably helps Murdoch. But I still think the valuation is crazy. Even if there are lots of synergies, I can't find a payback. Even potential suitors like GE (NYSE: GE) think the price is just too high.

Basically, it seems that Dow Jones is a trophy asset. At the same time, Murdoch is a genius when it comes to strategic plays. His MySpace deal has turned out to be a brilliant move. And it's no accident. His career has been testament to skilled deal-making.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

First, it was Rupert Murdoch who offered $60 a share for Dow Jones & Co. (NYSE: DJ), a premium of almost 80%. He has been rebuffed by the company's founding family, but they have finally agreed to a series of meetings with him to determine if The Wall Street Journal can keep its editorial independence.

Next came L.A. billionaire Ron Burkle. He made an unsuccessful attempt to buy The Los Angeles Times. Press reports are now circulating that he will join with labor unions at the publisher to make a bid.

And yesterday, Brian Tierney, who lead the successful effort to take Philadelphia's two dailies private, said he was interested in a possible offer.

What may be telling is that no other media company has made a bid for Dow Jones, although there is certainly a case to be made that it would fit well at McGraw-Hill (NYSE: MHP), which owns BusinessWeek, or Pearson (NYSE: PSO), which owns The Financial Times and part of The Economist.

It may be that media firms are worried that a company that only has about $125 million in operating income can't justify a price of $5 billion.

On paper, the media companies are right. The deal does not pay for itself.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Dow Jones & Company (NYSE: DJ)'s Wall Street Journal (a.k.a., The Towel) occupies a unique spot in the media firmament. As I pointed out earlier in the year, it changed its format and now looks to me like a Holiday Inn bath towel. Towel Talk offers a perspective on its news and views.

The Bancroft family, which represents 52% of The Towel's [subscription] controlling shareholders, has changed its mind and decided to meet with News Corp (NYSE: NWS) CEO Rupert Murdoch to discuss his $5 billion bid.

Why did the Bancrofts change their minds? Murdoch's offer has compelled the Bancrofts to meet more frequently to discuss The Towel's future. These discussions have led the Bancrofts to see that competition from internet-based media companies would reduce The Towel's future competitiveness.