bloggingbuyouts

Despite all the rumors, the $24.7 billion buyout of Alltel (NYSE: AT) got done. With the credit crunch and botched deals, the stock definitely showed volatility. But, the private equity folks at Texas Pacific Group and Goldman Sachs (NYSE: GS) certainly didn't lose interest in the company. The stock price on the transaction was $71.50.

No doubt, Alltel made some key strategic moves to make itself attractive to private equity sponsors. Perhaps the most important initiative was the spin-off of its wireline business in 2006. Basically, this provided more focus for the company.

To get some more perspective on the deal, I checked out the proxy disclosures. Alltel took the approach of a quicker auction – so as to minimize leaks as well as try to get a better valuation.

Alltel had its financial advisors put together a summary LBO (leverage buyout) analysis. The estimates ranged from $59.75 to $70.50. This assumed that the company could fetch 6.5x to 8x multiples on EBITDA by 2012, which would produce a return ranging from 17.5% to 22.5% per year.

All in all, this looks like a textbook example of a quality deal. Yet, there are certainly risks. After all, Alltel will need to manage a debt load of $23 billion.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

BEA Systems (NASDAQ: BEAS) was able to get Goldman Sachs (NYSE: GS) to suggest that the company is worth $21 a share. The stock has not traded that high in over four years. But, Oracle (NASDAQ: ORCL) has made a bid of $17, and the BEAS board wants to see if it can get more.

The plan does not appear to be working out. Oracle said that it would not pay extra money for the smaller company and will simply take its case to shareholders.

Reuters writes that "Oracle said BEA's price represented an 80 percent premium to its shares before activist shareholders started pushing for a sale of the company, and nearly 11 times BEA's revenue from software maintenance services in the last 12 months." If the BEAS shareholders do not push its board to take the offer, Oracle has threatened to move on.

BEA Systems has a problem. The number it has picked for valuing the company is arbitrary. The company's stock price before the Oracle offer does not support it. Shares changed hands in the $13 to $14 range. And, no other company has come along to even match? Oracle's $17 offer.

The BEAS board may be dooming a buyout and that would probably send shares back to their pre-offer lows. That kind of behavior often brings shareholder lawsuits and trouble that the company's management does not need.

BEA Systems ought to wise up and take the money on the table.

Douglas A. McIntyre is an editor at 247wallst.com.

Back in August, BloggingStocks writer Kevin Kelly suggested that readers take a look at Steven Madden (NASDAQ: SHOO), a well-known maker of middle- to upper-market footwear.

His reasoning was excellent, but the stock continued its decline -- perhaps making it more attractive than others. Apparently some other people agreed with Kevin's logic because the stock is up more than 11% today after the company announced that it was putting itself up for sale.

According to the press release announcing the move, Madden has "received inquiries from third parties with respect to an acquisition of the Company and shareholder communications urging that the Company explore alternatives to enhance shareholder value. The Board of Directors has determined to evaluate strategic alternatives available to the Company and, to this end, has formed a Strategic Review Committee..."

The stock looks cheap compared to its peers, and the company's efforts to find a sale could yield favorable results for shareholders. If you didn't get into Steve Madden when Kevin first suggested, you may have a terrific opportunity now.

Ford (NYSE: F)'s negotiations with the UAW should be over soon. If it gets a deal that looks like the ones the union put together with Chrysler and General Motors (NYSE: GM), the No. 2 car company should have labor costs much closer to its Japanese rivals. It may have to put $20 billion into a health-care fund for the union, but the firm has almost twice that much cash on its balance sheet.

The New York Times has pointed out that the sale of Ford unit Jaguar is going much slower than expected. The paper says: "Ford's bidding date is now Oct. 30, a person involved in the process said Thursday. That is a month later than bidders originally thought they would be making offers." Several private equity firms -- including Cerberus Capital Management, Terra Firma, and Texas Pacific Group -- as well as India's Tata Motors are rumored to be interested in the British car company and another Ford unit, Rover.

But, taking a step back for a moment, Ford may not sell the Jaguar unit at all. The U.S. company may have needed the money if the UAW payment was going to be onerous. But, the funding of a union benefit plan now seems within Ford's means. It is entirely possible that the car units were being shopped in case Ford needed the money. Now, it does not.

Ford management should have a look at the fact that if a private equity firm can turn Jaguar around, then a big car company should be able to do just as well. If Ford can't get a premium price for Jag, it should not sell it.

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

The gunfight at the OK Corral: Private equity firm JC Flowers tried to back out of its deal to buy student loan company Sallie Mae (NYSE: SLM). Then the firm came back with an offer $10 below the original $60/share price.

The whole matter put the Sallie Mae board in a bind. Take a lower price, or take nothing and watch the shares fall. The stock trades just above $49 now.

But SLM got a big vote of support in its efforts to push Flowers to honor the original deal. Three of its big institutional shareholders said that the private equity firm has to do the right thing and write the $60-a-share check. The firms include Barrow, Hanley Mewhinney & Strauss, New York hedge fund QVT Financial and Capital Guardian Trust Company.

"We strongly support your decision to hold firm to your contract and a $60-per-share sale price and hope you will continue to reject any overtures to renegotiate the contract price or the structure of the consideration," QVT Managing Director Nick Brumm said in a letter obtained by The New York Post.

Now, it would appear that Flowers is on the hot seat. These large investors are saying that it is liable for the $25 billion deal. No one should be surprised if they decide to take the buyout operation to court.

With $25 billion on the table, the action has turned very unfriendly.

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

Rowan Companies Inc. (NYSE: RDC), a provider of international and domestic offshore contract drilling services, is recently down $0.33 to $37.42. RDC has been frequently mentioned as an unconfirmed buyout candidate over the last 18 months. RDC has a market cap of $4.1 billion, with long-term debt of $450 million. RDC has a P/E ratio of 12. RDC is expected to report EPS on November 1. RDC call option volume of 4,251 contracts compares to put volume of 62 contracts. RDC October option implied volatility of 38 is above its 26-week average of 33 according to Track Data, suggesting larger risk.

Diamond Offshore Drilling (NYSE: DO) implied volatility Flat as oil trades at $83. DO, a drilling service provider to the energy industry, is recently trading down $0.04 to $114.01. DO has a market cap of $15.9 billion with long-term debt of $502 million. DO has a P/E ratio of 18. DO is expected to report EPS in late October. DO has been frequently mentioned as a potential acquirer of drilling service assets. DO October option implied volatility of 32 is near its 26-week average according to Track Data, suggesting non-directional price risk.

Option update provided by Stock Specialist Paul Foster of theflyonthewall.com.

After years of losing money in its hard drive business, it appears that Japan's Hitachi Ltd. (NYSE: HIT) may be ready to sell. The hard drive business, which Hitachi acquired from IBM in 2002 for $2 billion, has not been profitable for Japan's largest electronics conglomerate since it was purchased, which is too bad. Hitachi makes some great products (including hard drives), but market leader Seagate Technology (NYSE: STX) is too fully leveraged with vertical integration and an ultra-competitive product line.

Will Hitachi bring in an outside investor to help turn the business around, or will it sell the unit completely? At this point in time, Seagate is a touch nut to crack, even for Hitachi. The reason? Hard drives are all Seagate makes, and that segment is apparently not a focus area for Hitachi, even though the company also makes products with cutting-edge technology.

What would private equity do with Hitachi's hard drive business? Merrill Lynch has said many buyout firms such as The Carlyle Group, Kohlberg Kravis Roberts, Bain Capital, and Silver Lake may be interested. You may remember, Texas Pacific Group and Silver Lake bought off Seagate seven years ago and took the company private, only for it to go public again three years later. This handed the partners a nice investment sum at the time, but would this scenario be warranted again in some fashion?

Can Hitachi's hard drive business ever make money in the face of Seagate and other competitors, like Western Digital (NYSE: WDC)? The unit lost $375 million in calendar 2006 -- a 60% bigger loss from the previous year -- and it's unclear whether it will ever be ready to compete in the brutal price environment of the unforgiving hard drive industry.

This will begin to seem like a broken record now. KKR and Goldman Sachs (NYSE: GS) are close to either renegotiating or walking away from a deal to buy Harman International (NYSE: HAR), the big audio components company (check the name on your computer speakers). According to The Wall Street Journal, due to "a credit crunch and lackluster financial results from Harman, KKR and other investors in the deal have soured on the transaction."

Most buyout deals have clauses that say that if a company's fortunes go through a "material change," buyers can back out. But operating income at Harman in the June quarter was over $81 million on revenue of $911 million. Not as good as some quarters in the past, but hardly a disaster.

The buyout does have a $225 million break-up fee, but Harman's board is likely to insist that KKR and Goldman stay in the deal. The stock trades at about $112 a share, which is well below the $125 offer. Harman traded under $100 before the offer to take the company private was made.

Although KKR's and Goldman's reputations could be harmed by walking on the deal, they may feel that it is better to face this kind of setback than to lose billions of dollars on a company they no longer believe can cover the debt that a buyout would require. But, Harman's board and management are unlikely to be satisfied with that explanation. It is not much to take to their shareholders.

If the transaction falls apart, the odds are very high that Harman will take the two big financial firms to court. And, it may be only the first case among several brought on by a tough credit environment where risk is no longer popular.

Douglas A. McIntyre is a partner at 247wallst.com.

Harman (NYSE: HAR) put volatility Elevated as hedge if KKR & Goldman Sachs do not complete deal. HAR, a manufacturer of audio products and electronic systems, announced on April 26 it would be purchased by KKR and Goldman Sachs Capital Partners for $120 a share in cash. The deal is expected to be completed in the fourth quarter. HAR is recently trading at $100 in pre-open trading, below its close of $112.25. The Wall Street Journal says "The private-equity buyers of HAR are balking at completing the $8 billion purchase of the audio-equipment maker, people familiar with the matter said." HAR January call option implied volatility is at 11; puts are at 20; above its 18-week average of 13 according to Track Data. Elevated put implied volatility suggests funds are hedging their position in HAR in case the deal doesn't close. Puts are contracts that give the right to sell a stock at a certain price in the future.

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

L-3 Comm(NYSE:LLL) volatility Up; Unconfirmed chatter management lead buyout of unit. LLL, a defense contractor is recently up $3.76 to $96.86 on unconfirmed chatter of a potential management lead buyout of division of LLL. LLL has a market cap of $12.2 billion with long-term debt of $4.5 billion. LLL's, Frank Lanza, the well known industry veteran who built LLL into a large defense contractor, died in June of 2006. BAE Systems has been frequently mentioned as potential buyer of LLL. LLL September option implied volatility of 28 is above its 26-week average of 23 according to Track Data, suggesting larger risk.

Daily Mergers Update provided by Stock Specialist Paul Foster of theflyonthewall.com.

Station Casinos Inc. (NYSE: STN) -- volatility Elevated; LBO expected to close by year end. STN, a gaming & entertainment company, owns & operates eight major hotel/casino properties and six smaller properties in Las Vegas. STN is recently down 16 cents to $86.87. STN Chairman and Chief Executive Frank J. Fertitta and Colony Capital expect to close on their $90 purchase of STN before year end. STN overall option implied volatility of 28 is above its 30-week average 17 of according to Track Data, suggesting larger price risks.

Harrah's Entertainment Inc. (NYSE: HET) -- volatility Flat; buyout expected to close by year end. HET is recently at $84.59. HET accepted a $90 share bid from Apollo Management and Texas Pacific Group on December 19, 2006; the deal is expected to close in late 2007. HET over all option implied volatility of 15 is near its 26-week average of 13 according to Track Data, suggesting non-directional price risks.

Beckman Coulter Inc. (NYSE: BEC) -- implied volatility & share price spikes on Siemens (NYSE: SI) purchasing Dade Behring (NASDAQ: DADE).

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

Clorox (NYSE: CLX) - Call volume & volatility spikes on renewed takeover chatter. CLX is recently up $0.82 to $63.44 on renewed & unconfirmed takeover chatter. CLX is expected to report EPS on August 2. CLX has a market cap of $9.5 billion with long-term debt of $1.4 billion. CLX reported 2006 total annual revenue of $4.6 billion. CLX August 65 calls have traded 317 times on contract volume of 7,478 contracts, above its open interest of 455 contracts. CLX August option implied volatility of 33 is above a level of 24 from this morning and above its 26-week average of 17 according to Track Data, suggesting larger risk.

Daily Update is provided by stock specialist Paul Foster of theflyonthewall.com.

Over a week ago, the European private equity firm Terra Firma extended the deadline for its offer to buy EMI Group PLC (LSE: EMI) from July 5 to July 12. It was the second extension the firm had made, and this morning a third extension was made until July 19. According to Billboard.com, by 1 p.m. yesterday, just 3.82% of EMI's shares had been sold to Terra Firma. A week ago, that figure was 3.56%.

Yesterday, the European Commission approved the buyout; the regulatory commission found no antitrust issues. At the same time, EMI stocks dropped from the boost they enjoyed last week, falling from 271 pence on Wednesday's closing to close at 268.75 yesterday afternoon. The stock has fared nicely today, but has not risen much more than one pence in trading.

This third extension from Terra Firma comes in the face of continued hopes from EMI shareholders that Warner Music Group (NYSE: WMG) will make a counterbid. Billboard.com has also commented that "WMG is reported to have appointed Alan Mnuchin, of Wall Street investment group AGM Partners, to re-assess how to make another counterbid for EMI."

A merger between EMI and WMG might be beneficial for shareholders, but consumers of music from both companies may not be as happy. EMI dropped the use of Digital Rights Management technology in April, paving the way for higher quality downloads from online stores like Apple Inc. (NASDAQ: AAPL)'s iTunes Store and a future Amazon.com (NASDAQ: AMZN) store. WMG has remained firm in its support for DRM use. A combination of the two may result in the reversal of DRM-free use of EMI's products.

Option players made some nice profits in the Rio Tinto (NYSE: RTP)'s offer for Alcan Inc. (NYSE: AL). It was widely reported yesterday afternoon in Toronto's Globe and London's Times that a proposal could be coming from Rio Tinto. Another offer for Alcan is not surprising since Alcoa Inc. (NYSE: AA) previously offered $76.03 a share.

A call option can be a great way to play news events like this as it has an unlimited upside and limited downside. A call option is advanced financial instrument that gives the buyer the right to purchase a stock at a set price. If the stock goes above that price investors can either sell the appreciated option or exercise them buying the stock at the predetermined strike and selling it at market.

Yesterday, with the news on Alcan, there were 14,884 call options traded versus 3,124 put options. There were four times as many call options traded on Alcan as put options. Total open interest on Alcan was 103,926 call options and 66,229 put options. That means that about 14.3% of all the open calls on Alcan were traded just yesterday -- a very active day for the options on the stock.

Some of these call buyers did quite well -- the most active strike was the August 90 call (AL HR), which saw 3,787 contracts trade against an open interest of only 760 contracts. These contracts traded for less than $4.00 a piece yesterday, and are now worth about $8.30, a 107% gain.

Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure: Mr. Kersten owns and or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

It was back in 1929 that Norman Alexander started Sequa Corp. (NYSE: SQA.A), a major industrial conglomerate (with operations in aerospace, automotive, metal coating, specialty chemicals and industrial machinery). However, late last year, he died. And that is often something that leads to the sale of a company.

That happened today, when Sequa agreed to a $2.7 billion from the Carlyle Group.

Sequa is definitely a solid company. In the most recent quarter, revenues were $526.7 million and net income was $11.3 million.

As for Carlyle, it has extensive experience in aerospace and automotive. For example, the company recently purchased the Allison Transmission segment from General Motors (NYSE: GM). Thus, the deal should be a nice fit for Carlyle.

It's also a nice pick-up for Sequa shareholders. On the news of the deal, the stock price surged $59.56 to close at $173.41.

If you want to see more recent M&A deals, click here.

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