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Stocks in Motion: School Specialty

Shares of School Specialty (SCHS) were among Nasdaq's losers Monday, falling 19% after the company said backers of its going-private deal with LBW Holdings terminated certain financing for the acquisition. The educational products company also warned that fiscal 2006 earnings would fall well short of expectations.

The company said that Banc of America Securities, J.P. Morgan Securities and Deutsche Bank Securities terminated the $350 million in senior-notes because "certain conditions to their obligations under the senior notes purchase agreement have not been and cannot be satisfied," School Specialty said. The company said it believes the decision relates to "disappointing results in August and September and concerns about near-term financial and operating performance.

As a result of the debt-financing situation, the $1.5 billion merger, which was supposed to close on or about Sept. 30, won't close on time. The "drop dead date" under the transaction is Oct. 31. LBW Holdings and its financing sources, meanwhile, have asked for more time to perform supplemental due diligence into School Specialty's recent and near-term operating performance.

As for the company's financial performance, School Specialty now expects fiscal 2006 earnings, before items, of $2.17 to $2.31 a share on sales of $1.03 billion to $1.06 billion. Previously, the company predicted that it would earn $2.35 to $2.60 a share on sales of $1.04 billion to $1.07 billion. Analysts polled by Thomson First Call had been expecting earnings of $2.53 a share on sales of $1.06 billion. The company blamed the shortfall on difficulties related to the start-up of its new Lancaster, Pa., distribution center and a decline in order flow from PreK-12 customers. Shares were recently down $9.43 to $39.35.

Lennar (LEN) rose 3% after Standard & Poor's said it would add the homebuilder to the S&P 500 Index after the close of trading Monday. Lennar will replace Gillette, which was acquired by Procter & Gamble (PG). Lennar shares rose $1.84 to $61.60.

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