Calpine Corporation (CPN) - NRG Energy (NRG):- Initial Analysis

NRG's offer appears to be just about borderline in terms of acceptability, yet probably falls short of the level in which CPN will happily accept. On the other hand, the offer does seem to be significant to the point of initiating good-faith discussion/negotiations will may very well lead to a formal agreement under more favorable terms to CPN. Naturally, this is only a general observation at this early stage.

If a deal is reached by the two companies, the regulatory processes can be expected to be extremely lengthy, as any untility deal involving California regulators promises to be volatile on many fronts. An 18-month-plus transaction would be expected if a formal agreement is reached.

For the time being, it is expected that CPN will politely decline NRG's current proposal, while leaving open the possibility of future negotiations for a combination.

Radyne Corporation (RADN) - Comtech Telecommunications (CMTL)

CMTL has filed the initial tender offer statement and offer to purchase for this transaction with the SEC.

The current tender offer expiration date is Friday, June 20, 2008.

The offer statement discloses that only HSR consent will be required for this transaction:

"(N)o mandatory antitrust premerger notification filing is required outside the United States."

It will be pointed out again at this time that a very real possibility of an HSR delay -- via re-filing or second request -- exists in this situation due to the very clear overlaps satellite modems and "small earth stations", the complexity of these particular products, and the high combined market share shown in the previous update. While there has been virtually no indication from within the satellite hardware industry that this deal is problematic from a competitive standpoint, the data appears to suggest otherwise -- at least in an abbreviated tender offer HSR review period.

Given the information available at this time, the chances of an HSR delay are percevied at 35%+, with an HSR re-filing being the more probable of the two delay outcomes.

Iomega Corporation (IOM) - EMC Corporation (EMC)

EMC has extended the tender offer expiration date until Friday, May 30, 2008, in order to allow the EU to complete its pending review of the transaction.

As noted previously, the EU review deadline in this case is June 6, 2008, but decision are often issued early to accommodate tender offer transactions. Nevertheless, EMC may be required to extend the tender offer a second time due to this regulatory matter. Again, European Commission approval is fully anticipated without a review extension, so there is no expectation that the deal will continue beyond the first week of June.

BCE, Inc. (BCE) - Teachers Private Capital

May 22, 2008 (8:25a) - Québec Court of Appeal Rules For Bondholders

In a major surprise and blow to this transaction, the Québec Court of Appeal has ruled in favor of BCE bondholders vy a unanimous decision.

The following statement was included as part of the Court of Appeal decision:

"BCE never attempted to justify the fairness and reasonableness of an arrangement that results in a significant adverse economic impact on the debentureholders while at the same time it accords a substantial premium to the shareholders. Once there is, as in this case, a significant adverse effect on a class of securityholder (debentureholders), while other securityholders (shareholders) derive substantial benefits by an arrangement, the corporation has the burden of demonstrating that the arrangement is, nonetheless, fair and reasonable.

"The (special oversight committee) did not take into consideration the adverse financial impact of the potential transaction on the debenture holders. No detailed analysis was made of the costs and benefits of the (leveraged buyout) insofar as it affects the security-holders other than the shareholders.

"From that point on, the process was fatally vitiated."

A BCE press release states the following:

"'The judgment overturning the Quebec Superior Court decision rewrites Canadian law relating to the duty of Canadian boards of directors to maximize value for shareholders in the context of a change of control transaction, as well as to the entitlements of bondholders in those circumstances. Both the transaction and the issues of law involved are of public importance in Canada. We believe the Supreme Court of Canada should reverse this decision, and allow the transaction to proceed.'

"In light of today's Quebec Court of Appeal decision, the expected timing for the closing of the transaction will be contingent on the Supreme Court granting leave to appeal and the timing related to any such appeal."

This is yet another perplexing development in a transaction that has encountered more unusual barriers to completion than any deal in recent memory. Although this publication tends to agreee with BCE's assessment of the decision, it is now very difficult to anticipate a second reversal from Canada's Supreme Court.

It almost goes without saying that this deal is now in serious jeopardy of falling through, despite the company's and Teacher's claim that they remain comitted to the transaction.

Penn National Gaming(PENN) - Fortress (FIG)

May 21, 2008 (9:55a) - Financing Status

This deal has apparently developed into yet another situation where late-stage financing problems are surfacing. According to various reports, the primary lenders (Deutsche Bank/Wachovia) are currently in negotiations with Fortress to revise the lending commitments and/or the terms of the merger agreement.

Obviously, this is now beyond a trend for these highly-financed deals and must be considered, on a case-by-case basis, as legitimate threats to deal completion. It must also be pointed out that that it is the specter of a failed deal and subsequent negative publicity for the banks which should allow transactions like this to ultimately close, albeit under revised terms.

Until contradictory information or developments occur, it is anticipated that this deal will be successfully completed, but with a very high chance that the $67 per share terms will be revised down in a negotiated settlement.

Northwest Airlines (NWA) - Delta Air Lines (DAL)

DAL filed the initial proxy statement for this transaction with the SEC yesterday, May 21.

The regulatory matters section of the proxy states the following:

The parties filed the required HSR notification and report form on April 21, 2008, and the waiting period under the HSR Act will expire at 11:59 p.m., Eastern time, on May 21, 2008.

Delta and Northwest each conduct business in member states of the European Union, and they are required to make a merger notification to the European Commission.

In addition to the antitrust related filings and approvals discussed above, completion of the merger is conditioned on Delta and Northwest obtaining approval of the U.S. Department of Transportation for the transfer of Northwest’s international routes to Delta. The parties must also either notify or obtain consent from certain foreign regulatory agencies in connection with the consummation of the merger and will make international merger filings in Brazil, Canada, China, Mexico, South Africa and South Korea.

As discussed previously, as second request under HSR is expected in this case despite the fact that there are virtually no route overlaps or antitrust issues in general. The companies claim that a second request will result in the transaction continuing into the fourth quarter of this year. This is essentially the opinion of this publication, as an October close is anticipated if a second request is issued today or tomorrow.

As of this entry, the European Commission has not published this case to its pending review list.

Puget Energy (PSD) - Macquarie Infrastructure Partners

The Washington UTC will hold its second public hearing today, followed by a third scheduled meeting on June 4, 2008. The first hearing held last week (5/15) yielded the anticipated concerns from citizens involving the prospect of non-U.S. ownership of a local utility. Excerpts from some local press coverage include the following:

From a Seattle Times report:

"Many speakers worried that a takeover by foreign investors, which Puget Energy says is necessary to raise capital for new investments, could instead lessen the region's energy independence, and result in higher rates in the future.

"Not all voices were against the proposed merger. Richard Cole of Redmond, who said he has owned Puget Energy shares for 30 years, testified in favor of the acquisition. Puget Energy's 'ability to raise capital has been restricted' by rocky markets, he said.

From a Seattle Times editorial:

"Puget Energy is the largest private utility in Washington. Its managers and directors are here, and they are where the buck stops. After the acquisition, the buck will stop in Australia. The citizens and ratepayers who spoke at the Utilities and Transportation Commission's hearing in Bellevue Thursday sensed this issue, though some of their specific worries may have missed the mark.

"Even if all its shares are owned by foreigners, Puget will remain a separate company with books open to state regulators. Puget will have to follow the same laws to build a power plant, to raise rates, and so on.

"The UTC should take a hard look at this proposal, and the behavior and character of the acquirer, the Macquarie Group of Australia. The regulators should keep in mind whom they work for, and who will benefit from their decision."

And from a Seattle Post-Intelligencer article:

"So far, comments received by the commission overwhelmingly oppose both the rate increases and the sale, which has also been referred to as a merger. As of early May, the commission had received 2,854 comments on the proposed increase -- 2,754 opposed, 27 in favor and 73 undecided. It had received 1,513 comments on the proposed sale -- 1,445 opposed, 20 in favor and 48 undecided. An additional 3,200 written comments have arrived since then.

"'They overwhelmingly reject the rate hike and reject the merger unless it's going to result in rate cuts,' said commission spokeswoman Lynda Johnson."

Again, the public opposition to this merger is not in the least surprising, but at this early stage it does not appear rabid enough to directly impact the UTC review process going forward. This is of course subject to change over the coming months, particularly if local/state politicians become involved, as occurred in the NWEC-Babcock deal.

The UTC review will remain precarious throughout the summer and into the fall, regardless of the direction public sentiment takes during that period. It will be the efforts of the companies over the next few months to sway public and UTC staff opinions in favor, or even towards neutrality, that will ultimately determine if the key state approval will be obtained.

At this point in the proceedings there is no substantial indication that the transaction is in danger of failing due to the UTC. This too could change very quickly in the next several months if the companies fail to present a very effective public relations campaign.

Electronic Data Systems (EDS) - Hewlett-Packard (HPQ)

There are two clear aspects to this transaction that have been covered ad nauseam to this point: 1) HPQ's primary rationale for this acquisition is to compete directly with IBM as a top-tier information technology services outsourcer and; 2) there exists a great deal of uncertainty with respect to the long-term benefits of the combination. However, neither of these aspects will have any impact on the timing of the transaction, as there should be no regulatory delays and there is virtually no chance HPQ will reconsider the acquisition.

With respect to competition in the IT outsourcing industry, fragmentation defines the market, with IBM controlling less than 10% of the broader IT services market. Combined, EDS will still have less than 6% of the overall market and remain positioned behind IBM in this regard. In short, despite the large relative value and industry magnitude of the transaction, this looks to be a non-issue with respect to competition regulators.

For the record, market share data for the year ending 2006 was as follows:

With respect to the SEC review, EDS has had a few late quarterly and annual report filings recently (2005 and Q3 2004, respectively), but no encounters which suggest potential problems with the proxy review for this transaction. Although the SEC has shown some signs of taking interest in merger proxies of late, this does not look like situation where a proxy review of more than 60 days should be anticipated. More likely, the proxy will be cleared in less than 45 days, which would put the EDS shareholder meeting and close in roughly late-August, 2008. This assumes an initial proxy filing by the second week of June.

Frontier Pacific Mining Corp (FRP) - Eldorado Gold Corp (ELD)

Frontier Pacific announced on May 16 the adoption of shareholder rights plan "to encourage the fair treatment of shareholders in connection with any take-over bid for the Company’s securities, including the unsolicited offer of Eldorado Gold Corporation." This event followed the company's May 9 response in which Frontier Pacific recommended no action by shareholders to the unsolicited offer. In other words, the maneuvering at this stage is fairly routine, yet not in any way indicative of direction from either company with respect to the offer.

Frontier Pacific intends to issues its formal recommendation by May 26, 2008. It is fully anticipated that the current offer will be summarily rejected with the Perama Hill venture being cited as the primary reason for an undervalued offer.

Once again, this is a highly unusual (and unique to this publication) scenario involving a single potential mining operation that is entirely unknown in terms of reserves, but remains uncertain with respect to mining permits. Thus, the motivation for Eldorado to increase its current offer appears to be fairly low, as does Frontier's motivation to accept, or even negotiate, under the current conditions.

Nevertheless, the very general impression remains the Eldorado believes the Greek government mining permits will be issued within the next two months (give or take) and that Perama Hill will be a successful operation. Therefore, it is more likely that the offer will be increased within this time frame, and perhaps before the current June 17 offer expiration.

This is, of course, a very tentative assessment at this point.

Yahoo! Inc. (YHOO) - Microsoft Corp (MSFT)

This entry will not both the continued involvement of Carl Icahn and current discussing between the two companies regarding MSFT's possible purchase of YHOO's search engine operations.

The Icahn matter is perceived in the same manner as virtually every similar situation involving this individual in that his efforts will ultimately have very little, if any, impact on a future merger transaction between the two companies. Mr. Icahn's attempts routinely add an interesting element to unsolicited offers, as well a generating immeasurable self-publicity, but in major situations such as this one, he often serves as nothing more than a distraction. This will almost certainly be repeated in this case.

The search engine issue is clearly of more importance and, if an agreement is reached, will accomplish MSFT's original goal of forging a stronger competitor to Google. To be clear, the YHOO's search engine operations are and haven the primary rationale for MSFT's attempts since February -- the Internet portal aspect is secondary (if a consideration at all) due to redundancy. In other words, while there has been much speculation that discussions involving a sale of YHOO's search engine operations may lead to a formal merger agreement, is is much more likely that both entities will be perfectly content without a merger if MSFT is able to obtain the search engine business.

Thus, under the current circumstances, a merger between the companies is not anticipated. However, it will be noted once again that MSFT could quite easily change this to a formal merger agreement if it desired to do and would be able to complete the transaction with very little difficulty. Only if the search engine negotiations fail, would MSFT's have a renewed interest in a merger with YHOO

Huntsman Corporation (HUN) - Hexion Specialty Chemicals

According to various reports from European sources, the companies have already placed unidentified epoxy resin operations up for sale in order to appease both the FTC and EU. It has also been reported that the intention is to reach agreements to formalize the divestitures before July 4, 2008 (the current termination date) in hopes of obtaining the regulatory consents before that date.

Although the companies themselves have neither confirmed, nor denied these reports, it must be assumed that efforts to deal with the epoxy resin overlaps are indeed well under way. This should pretty much be a given after such a long period of review with the FTC and pre-notification period with the European Commission.

However, as discussed throughout this deal, the volume and complexity of overlaps here suggest a quick disposition of this case is not very likely. On the contrary, it currently seems much more likely the the FTC/EU reviews and divestiture process will continue well into the summer. Furthermore, it must still be acknowledged, regardless of the progress made to this point, that regulatory approvals for this deal are by no means assured by divestitures. The perception remains that rejection from the EU and/or FTC has a higher-than-average chance in this situation: +/- 20%.

Take-Two Interactive Software (TTWO) - Electronic Arts (ERTS)

ERTS has extended its unsolicited tender offer for TTWO until Monday, June 16, 2008.

ERTS has not increased its offer above the current $25.74 level which will be necessary if the company has any intention of completing this acquisition, or even obtaining TTWO interest.

It is currently expected that ERTS will increase its offer to the $29-30 level within the current tender offer expiration period. Realistically, ERTS will have to offer more than $30 to reach an amicable agreement. At this stage, there is no indication that ERTS will attempt to make an adequate offer in the near future.

With respect to the HSR second request, there continues to be no expectation of major FTC problems with the proposed combination, although if an agreement is reached, there is some possibility that the companies will need to address the overlaps in sports-related gaming. This can be fairly easily resolved by selling or licensing certain older/established gaming products, as the rationale behind this merger is clearly combining the companies' non-overlapping games.