Takeover Caution CME#39;s Nymex Advantage Solar#39;s Swoon Timshel
Takeover Caution, CME;s Nymex Advantage, Solar;s Swoon: Timshel
Commentary by David Wilson
Jan. 29 (Bloomberg) — Enthusiasm for takeovers has
diminished this year, and the near-collapse of Blackstone Group
LP;s $6.6 billion buyout of Alliance Data Systems Corp. is just
one reason why.
To gauge the current attitude toward deals, look at the
shares of Landry;s Restaurants Inc. and Matria Healthcare Inc.,
which yesterday received offers valued at more than $1 billion
each with the assumption of debt.
There was a 13 percent gap — $3.05 a share — as of
yesterday;s close between the market price of Landry;s, the
owner of the Chart House and Rainforest Cafe restaurant chains
and the Golden Nugget casinos, and the higher cash bid from
Chief Executive Officer Tilman Fertitta.
The differential for Matria, a provider of disease
prevention and management programs, was even wider: 21 percent,
or $8.83 a share. Inverness Medical Innovations Inc., a maker of
medical tests, is seeking to buy the company for cash and stock.
Both the percentages were high enough to signal concern
that the deals may never be completed. Similar skepticism was
evident before Alliance Data, which manages credit cards for
retailers, said yesterday that regulatory requirements may
scuttle Blackstone;s takeover.
Assuming the bid falls through, the Dallas-based company
would suffer the same fate as Harman International Industries
Inc., SLM Corp. and United Rentals Inc., targeted in buyouts
that ultimately failed.
Extraordinary Decline
Alliance Data would also become the second failed deal this
year that involved Blackstone. PHH Corp., a mortgage and auto-
leasing company based in Mount Laurel, New Jersey, ended a
proposed $1.8 billion sale to the buyout firm and General
Electric Co. on New Year;s Day.
Blackstone, based in New York, couldn;t acquire PHH;s
mortgage unit because banks wouldn;t provide the financing. The
agreement with Alliance Data has hit a different snag, according
to a company statement: “extraordinary measures;; required by
the U.S. Comptroller of the Currency.
Whatever those measures might be — the company didn;t
specify them — the possibility that the purchase won;t happen
triggered a 35 percent drop in Alliance Data;s shares yesterday.
The loss was the steepest since the company went public in 2001.
Even before then, doubts about the completion of takeovers
were more widespread. Offers for Alliance Data and 18 other U.S.
companies exceeded their closing prices by more than 20 percent
at the end of last week, Bloomberg;s data shows. The total more
than doubled from nine at the start of the year.
Lacking Confidence
Fertitta;s takeover offer for Landry;s, based in Houston,
was 41 percent higher than last week;s close. The premium that
Inverness, based in Waltham, Massachusetts, agreed to pay for
Marietta, Georgia-based Matria was 27 percent.
While these percentages dropped quite a bit after the
proposals were made public, they didn;t narrow enough to give
the dealmakers an unqualified vote of confidence. Too many
people are gun-shy for that, and understandably so.
* * *
Now that CME Group Inc. has the inside track on buying the
New York Mercantile Exchange;s owner, Nymex Holdings Inc., don;t
expect a competing bidder to emerge. Valuation might be too much
of a hurdle for anyone else to overcome.
The cash-and-stock offer that Chicago-based CME, the
world;s largest futures exchange, is pursuing values Nymex at
47.4 times the average earnings forecast for 2008, according to
data compiled by Bloomberg. The bid price also amounted to 15.1
times revenue and 11.7 times book value, or the value of assets
after excluding liabilities, as of yesterday;s close.
CME comes closer to matching Nymex by these yardsticks than
two other possible suitors, Deutsche Boerse AG or NYSE Euronext,
that were identified in June by people involved in the New York-
based exchange owner;s takeover talks.
Price-to-sales ratios are a good example. The CME is 14.5
times revenue, in line with Nymex. Deutsche Boerse is valued at
10.3 times and NYSE Euronext is valued at 4.5 times. This makes
their shares less desirable, especially to Nymex;s holders.
* * *
Makers of solar-power equipment have followed the lead of
ethanol producers, another segment of the alternative-energy
industry, by going through a boom-and-bust cycle in stock
markets worldwide.
The World Solar Energy Index, consisting of 10 of the
industry;s biggest members, has declined 37 percent this year
after soaring almost 21-fold in the last four years. Renewable
Energy Corp., the worst performer among the index;s five most-
heavily weighed components, has tumbled 48 percent.
Rising costs have contributed to the retreat. Renewable
Energy, based in Hovik, Norway, said this month that research
and development spending will climb fourfold through 2010. The
company also wants to build three new solar-cell factories and
add a plant for making polysilicon, a type of purified silicon
used in cells.
The index peaked in December, about 18 months after a surge
in ethanol makers ended. Pacific Ethanol Inc., for one, has lost
87 percent since setting an all-time high in May 2006.
(David Wilson is a Bloomberg News columnist. The opinions
expressed are his own.)
To contact the writer of this column:
David Wilson in New York at
