Big Monday for Mergers

Capital One Financial Corp. and North Fork Bancorporation; McClatchy and Knight-Ridder; Pinnacle Entertainment and Aztar; Watson Pharmaceuticals an...
Stephen TaubMarch 13, 2006

At least five major mergers made headlines Monday morning, including one hostile bid that has yet to be accepted.

Late Sunday night, Capital One Financial Corp. agreed to buy North Fork Bancorporation Inc. for cash and stock totaling $14.6 billion.

The newly combined company will be one of the 10 largest banks in the United States, based on deposits and managed loans, and the third-largest retail depository institution in the New York region, according to a joint press release. Capital One also stated that it expects minimal disruption for North Fork employees, customers, and communities since the companies have no geographically overlapping banking operations.

In the struggling newspaper industry, The McClatchy Co. announced that it will buy Knight-Ridder Inc., which put itself up for sale amid pressure from the investment community, in a cash and stock deal valued at $6.5 billion, including about $2 billion in assumed debt.

In a press release, McClatchy added that after the planned sale of 12 Knight-Ridder papers, the combined company will have 32 daily newspapers and roughly 50 non-dailies. The dailies will have a combined circulation of about 3.2 million, the nation’s second largest newspaper company by that daily measure.

Wall Street, however, was unimpressed with the price Knight-Ridder is receiving. “We think the multiple paid is unlikely to produce much cheer for newspaper investors,” said Merrill Lynch analyst Lauren Fine in a report to clients. The multiple represents a discount to the historical average private multiple of 12-13 times, added Fine, who also noted that this will “likely cap multiples in the group for some time unless fundamentals improve.”

In a midsized deal in the casino industry, Pinnacle Entertainment Inc. is shelling out $2.1 billion in cash (including about $723 million in assumed debt) to acquire Aztar Corp. “We intend to create a nationwide casino network, not unlike that of some of our larger competitors,” said Daniel R. Lee, Pinnacle’s chairman and chief executive officer, in a press release.

Watson Pharmaceuticals Inc. is buying Andrx Corp. for $1.9 billion in an all-cash deal financed with cash reserves and committed bank financing, net of cash acquired from Andrx. Following the acquisition, Watson will be the third-largest generic pharmaceutical company in the United States, based on prescriptions dispensed, according to its press release.

German drugmaker Merck KGaA (no relation to U.S.-based drugmaker Merck & Co.) made an unsolicited $17.4 billion offer for Schering AG, according to the Associated Press. Shares of Schering surged 26 percent on the news, suggesting that investors are confident that company will sell either to its hostile suitor or someone else. “This is an ideal union for both companies,” said Merck chief executive officer Michael Roemer, according to the AP report.

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