As Sprint had acquired all of its former public affiliates, we wondered why the company did not acquire iPCS sooner.  It seemed as though there was a case, particularly as the Sprint buyout of Nextel gave it some potential and literal direct competition with those regional affiliates.

This should also formally clear up any of those “new” old issues that had been filed due to Sprints move with Clearwire Corporation (NASDAQ: CLWR).  Again, all suits were dismissed upon the merger being agreed to rather than pending the closure date.  BUt as with all of those cases, this will prevent any of those former suits from ever coming back.

Sprint Nextel will say it acquired the user base and geography.  It noted:

• More than 700,000 former iPCS wireless customers will now be counted as direct Sprint Nextel subscribers. As part of the acquisition, Sprint also expanded its direct service territory to cover an additional 12.6 million people. Since iPCS’s services were sold under the Sprint brand name and in Sprint-branded stores, iPCS customers should not experience any change in their service as a result of this transaction.

The reality, at least by our take, is that Sprint bought out the affiliate suit(s) in this buyout, and got to count more subscribers and a larger geography as a result.  The latter was probably deemed just an added benefit.

Jon C. Ogg

Gannett Co. Inc. (NYSE: GCI) hit a yearly high of $14.02 after the company’s earnings beat analyst estimates.

iPCS Inc. (NASDAQ: IPCS) rallied over 30% to a yearly high of $23.95 after Sprint Nextel announced that it had entered into an agreement to acquire the company for roughly $831 million, with the shares valued at $24.

Garrett W. McIntyre

• Allion Healthcare, Inc. (NASDAQ: ALLI) and iPCS, Inc. (NASDAQ: IPCS) are the two largest gainers, due to them both being buyout stocks this morning.
• Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) are both active and lower as KBW called them both ZERO in a downgrade.
• Amgen Inc. (NASDAQ: AMGN) is down about 3% on an FDA delay.
• CIT Group, Inc. (NYSE: CIT) was indicated up 8% early on from a sweetened debt exchange offer.

You can join our open email distribution list to get updates on top analyst upgrades and downgrades, top day trader alerts, IPO’s, secondary offerings, Warren Buffett and other guru activity, M&A and more.

JON C. OGG
OCTOBER 19, 2009

This transaction value represents 6.4-times projected 2010 Adjusted Earnings Before Income, Taxes, and Depreciation. Sprint noted that it expects to achieve approximately $30 million of synergies annually in the transaction and expects the transaction to be free cash flow accretive to Sprint in 2010.

iPCS has been suing Sprint for so long after Sprint spent part of the decade rolling up effectively all of its large affiliates.  This will be the end of a very long saga.  In addition to buying the assets, Sprint is effectively also buying out any future lawsuit liabilities from this affiliate.

JON C. OGG
OCTOBER 19, 2009

• Centennial Communications Corp. (NASDAQ: CYCL) by AT&T Inc. (NYSE: T);
• Harleysville National Corp. (NASDAQ: HNBC) by First Niagara Financial Group (NASDAQ: FNFG);
• Patriot Capital Funding Inc. (NASDAQ: PCAP) by Prospect Capital Corp. (NASDAQ: PSEC);
• Sun Microsystems Inc. (NASDAQ: JAVA) by Oracle Corp. (NASDAQ: ORCL);
• Virgin Mobile USA Inc. (NYSE: VM) by Sprint Nextel Corp (NYSE: S).

We have provided specific background and added in some color to highlight the risks and chances of closure of each deal.  There are some significant opportunities here in some of these deals, and some significant risks in others.

Centennial Communications Corp. (NASDAQ: CYCL) is still being acquired by AT&T Inc. (NYSE: T) in a deal that has taken almost forever to complete.  This $8.50 cash buyout has been on the books since last November and has faced multiple delays and extensions.  Centennial shareholders have approved the deal and AT&T said recently that it now anticipates a Q4 closing date because of delays.  The premium or merger-arbitrage spread today is close to 7.5%, which is frankly a concern.  Centennial used to trade north of $10.00 in the year before the deal was announced, but shares also crashed to as low as under $2.00 last October.  This is being held up by an FCC review and there are still discussions with the DOJ.  Now that AT&T is effectively the old AT&T, SBC, BellSouth, and Cingular combined, it looks like Uncle Sam is giving this one more scrutiny.  The deal size here is not even $1 billion.

Harleysville National Corp. (NASDAQ: HNBC) is in a deal to be acquired by First Niagara Financial Group (NASDAQ: FNFG) in an all-stock deal valued at $237 million at the time the deal was announced.  This is a score for First Niagra as it gets to add the 80+ branches along with the old 50+ branches it acquired from PNC.  The spread here is significant and one which many leave significant arbitrage opportunities for those who can take advantage of it.  There may be some very unhappy Harleysville holders that are buried in this as it used to be a $20.00 to $25.00 stock, but the bank was in need of capital and the all-stock deal does allow for future upside.  The ratio is 0.474 FNFG shares per HNBC share, which comes to an implied price of $6.176 versus a $5.75 price of Harleysville shares today.  This spread here is over 7.4% as the result of a share price-drop today and the deal is expected to close in Q4.

Patriot Capital Funding Inc. (NASDAQ: PCAP) is a stock buyout by Prospect Capital Corp. (NASDAQ: PSEC) that still has a 5.6% merger-arbitrage spread.  The deal is expected to close in October and the share ratio was 0.3992 shares, coming to an implied price today of $4.117 versus a current share price of $3.90 for Patriot Capital.  Prospect is paying off $110.5 million in Patriot debt and this aberration may be part of a disappointing Prospect earnings report on Monday.

Sun Microsystems Inc. (NASDAQ: JAVA) has a fairly wide spread on the surface in the $9.50 cash buyout by Oracle Corp. (NASDAQ: ORCL).  The $9.14 price leaves 4% to the $9.50 price, and this is because of the European Commission giving it an in-depth review on concern that it could hurt competition.  The kids running the E.U. antitrust department have not taken into consideration that Sun HAS TO become part of a larger company unless it wants to convert to a not-for-profit entity.  Sure, they gave Java for free for far too long but the company cannot effectively generate steady profits on its own. We expect that the E.U. will come to its senses considering that the U.S. DOJ has cleared it.  The risks here are a perpetual review by the E.U. and that may give the arb-spreaders some pause.

Virgin Mobile USA Inc. (NYSE: VM) is in a strange spot in the acquisition agreed to by Sprint Nextel Corp (NYSE: S).  There is a huge wild card in this deal, actually two wild cards…. There have been rumors that drove Sprint shares through the roof a week ago noting that Deutsche Telekom (NYSE: DT) is looking into Sprint to decide if it wants to make a deal to capture a large network to bolster its market share for T-Mobile.  The second wild card is that iPCS Inc. (NASDAQ: IPCS) has been in a long battle with Sprint and it added in another suit in Illinois specifically to block the Sprint acquisition of Virgin Mobile USA.  There is a third wild card in that we do not expect a deal to close until late Q4 or into 2010 even if these two big situations get themselves worked out.  Then there is the issue of a deal collar with an exchange ratio of 1.0630 to 1.3668 Sprint shares per Virgin share.  Merger-arb spreaders that have significant fortitude and gumption can clip a spread here north of 11%.  But that is a showing that the deal is not a slam dunk and a sign that many feel it could just like trying to take a piece of cheese off a mousetrap.

As a reminder, generally speaking, the higher the arbitrage-spread is, the higher chance that there is of the deal not happening.  That is not a golden rule but is definitely what you want to keep in mind when considering any trades in the land of merger-arbitrage.  Again, here is that $335 billion in raw cash that the largest companies have on hand that could be used for deals.

You can join our open email distribution list which goes out several times per week for mergers and buyouts, private equity, top analyst upgrades and downgrades, top day trader alerts, IPO’s, key secondary offerings, guru investor data on Buffett and others and more.

See also:

• Is Dendreon really a buyout candidate?
• Our chances and formula for odds that Omniture get milk a higher buyout price….
• SPAC activity heated up this week…
• MetroPCS… a Leap or just a prayer?

Jon C. Ogg
September 18, 2009

American Eagle Outfitters Inc. (NYSE: AEO) broke under $10.00 early Monday and hasn’t been able to look back.   After a same store sales drop of 12% last week, the coolness looks long gone.  Maybe they could do a deal with Gap and really damage themselves.

Barclays plc (NYSE: BCS) hit $9.65 today, which is back to mid-1990′s levels.  The number one position in ETF’s can’t keep the financial giant from ruin.

Citigroup (NYSE: C) has just broken under $10.00.  Vikram Pandit must beeating PB&J these days.  Amazingly enough, every bank is nowcopying their old model and the banking giant still can’t win.  is that atwo-decade low now?

Corning Inc. (NYSE: GLW) traded briefly under $10.00 last week afterearnings made it come clean about a slowdown in LCD and flat panelglass.  This company and sector is learning to love a song from theRolling Stones… "Shattered"

DryShips Inc. (NASDAQ: DRYS) went briefly under $10 yesterday, but now at $8.85 it is farther and farther away.  China shipping and shipping in general is tough love right now.

Inter Parfums Inc. (NASDAQ: IPAR) broke $10.00 this Monday, and at$8.50 that is looking farther and farther away.  They better not giveaway samples and testers if they want to sell perfume.

iPCS Inc. (NASDAQ: IPCS) broke $10.00.  Reselling Sprint wireless muststink even if they possibly stand to collect hundreds of millions in acase against them.  Speaking of Sprint, that dog is under $2.00.

lululemon athletica (NASDAQ: LULU) broke $10.00 yesterday and at$8.50.  With all the stress investors are under, they need more yogaand yoga-wear even if they can’t afford it.

Well, the good news is that our weekly "10 Stocks Under $10" newsletteris getting more and more widely held stocks as candidates to becovered. 

Here is a link for the second list of major stocks breaking under $10.00 today or this week.

Jon C. Ogg
November 12, 2008

• Animal Health (AHII) Cut to Neutral at Piper Jaffray.
• Blue Nile (NILE) Cut to Underweight at JPMorgan.
• Fossil (FOSL) Cut to Underweight at JPMorgan.
• Health Net (HNT) Cut to Hold at Deutsche Bank.
• HSN (HSNI) Started as Underweight at JPMorgan.
• IPCS (IPCS) Cut to Hold at Jefferies.
• Louisiana-Pacific (LPX) Cut to Neutral at Banc of America.
• Microchip Technology (MCHP) Cut to Sell at Goldman Sachs.
• Palm (PALM) Cut to Market Perform at Morgan Keegan.
• Penwest Pharmaceuticals (PPCO) Cut to Neutral at Baird.
• Raymond James Financial (RJF) Cut to Underperform at Wachovia.
• Southern Copper (PCU) Cut to Sell at Deutsche Bank.

Jon C. Ogg
November 5, 2008

• Bankrate (RATE) Raised to Buy at Jefferies.
• Best Buy (BBY) Raised to Neutral at JPMorgan.
• GOL Linhas (GOL) Raised to Neutral at Goldman Sachs.
• Highwoods (HIW) Raised to Outperform at Baird.
• iPCS (IPCS) Raised to Buy at Jefferies.
• Jarden (JAH) Raised to Buy at Goldman Sachs.
• Polypore International (PPO) Raised to Outperform at Baird.

Jon C. Ogg
October 31, 2008

This lawsuit pertains to Sprint’s planned WiMax transaction with Clearwire.  iPCS’s subsidiaries are seeking a declaratory judgment alleging that Sprint’s consummation of the transaction, and its plan to compete against iPCS, violates an affiliation agreement.

  The iPCS subsidiaries are asking the court for a permanent injunction enjoining Sprint and "those acting in concert with it" from consummating the transaction until it can be modified to comply with the deal between the iPCS subsidiaries and Sprint. 

iPCS has been involved in suits against Sprint for about three years over exclusivity provisions.  Sprint has  appealed its case to the Illinois Supreme Court. iPCS noted that a decision on whether or not the court will hear the Sprint appeal is expected this fall.

Disputes between iPCS and Sprint go back to the Nextel transaction.  The denial came from Judge Kathleen M. Pantle of the Circuit Court of Cook County, Illinois, Chancery Division.

So far the ruling is working in iPCS’s favor.  iPCS shares are up about 2.5% at $17.54, while Sprint Nextel shares are down more than 2% at $6.62.  Clearwire shares are not really affected today as shares are currently up 1.5% at $9.75.

Jon C. Ogg
September 16, 2008

The Clearwire Corporation (NASDAQ: CLWR) $14.5 billion venture with Sprint Nextel Corp. (NYSE: S) announced last week to form the first national WiMAX network is already getting some play in the legal system.  iPCS (NASDAQ: IPCS), the largest and one of the remaining only Sprint affiliates, has had issues with Sprint in the past about exclusivity agreements and this transaction prompted another lawsuit.

Anticipating an iPCS lawsuit, last Wednesday Sprint asked courts for judgment declaring that the venture will not violate exclusivity agreements with iPCS because the WiMAX network uses a different frequency.  Unfortunately it leaves many affiliate stores potentially in the lurch.

This morning, three iPCS subsidiaries are suing Sprint Nextel over the Clearwire transaction and consequential breaches of contractual agreements. iPCS noted believes that the transaction between WiMax and Clearwire breaches exclusivity provisions with Sprint. Additionally, iPCS sued Sprint because its failure to adhere to court judgments over the Sprint merger with Nextel in which the courts ruled that Sprint Nextel must cease owning, operating, and managing the Nextel networks iPCS territory.

This morning, Sprint Nextel reported earnings showing a loss of $505 million after losing 1 million customer to other carriers.  This suit is in reality a bad situation for all three parties.  Sprint’s issues of of stinking up Wall Street are not the fault of iPCS, but this is still iPCS’s problem.  The company sells Sprint Nextel exclusively in 81 markets and it has 640,600 subscribers out of an available population it lists as about 12 million residents being inside the existing coverage network.. 

iPCS is up over 6% to $28.88 in early afternoon trading. The 52-week range is "approximately $17.50 to $37.60.  Sprint Nextel is down almost 1% at $9.60 with a 52-week range of $5.48 to $23.42.  Clearwire is down over 9% to $12.78 with a 52-week range of $10.10 to $35.41.

You can also sign up to our open email distribution list to see about other secondary offerings, IPO’s, break-ups, spin-offs, and more.

Jon C. Ogg
May 12, 2008