Home Depot edges up; Penn National drives Trump, casinos; Expedia rises; FiberNet higher

By Ronda Fears

Memphis, June 15 - Home improvement retailer Home Depot Inc. was rumored to have offers in the neighborhood of $10 billion from at least two private equity groups, with final bids reportedly due Friday. Traders said the rumored price tag is less than many had expected, and the slate of bidders had narrowed in recent weeks; thus, much of the gains from the sale have been priced into the stock.

Penn National Gaming Inc. agreed to a buyout by Fortress Investment Group LLC and private equity firm Centerbridge Partners LP for $6.1 billion, or $67 per share - a 31% premium to Thursday's market. It was somewhat of a surprise, traders said, even though virtually the entire gaming sector is thought to be in play. Traders also said the news bodes well for Trump Entertainment Resorts Inc., which is on the auction block.

Expedia Inc. asserted Friday that the online travel agent is not the target of a private equity takeover nor is it planning to spin off its traveler networking business. Speculation of a takeover at $30 per share had drove the stock (Nasdaq: EXPE) to $26.71 before it drifted back down to close the day at $25.37 for a gain of 91 cents, or 3.72%.

Nvidia Corp. piggybacked Intel Corp.'s gain from several upgrades, but it also continues to be a hot takeover target play. Speculation that Nvidia might be acquired has swirled around the name for roughly a year, heating up particularly when Advanced Micro Devices Inc. bought rival ATI Technologies Inc. for $5.4 billion. Nvidia also was affected by Friday's option expiry, one trader said. The stock (Nasdaq: NVDA) added $1.72, or 4.55%, to close at $39.55.

Chaparral Steel Co. was better Friday, also somewhat attributed to options expiry, but one trader said there was "increased takeover speculation." He did not have any further details, however; the company in April hired Goldman Sachs to review strategic options. The stock (Nasdaq: CHAP) advanced $1.74, or 2.45%, to $72.71. This trader also noted a "surge" in $75 and $80 July call options.

FiberNet Telecom Group Inc. is getting pressure from stockholders for the wholesale broadband company to explore strategic alternatives to increase shareholder value, and the stock shot up but with little volume. FiberNet (Nasdaq: FTGX) added 53 cents on the day, or 6.62%, to $8.53 with 67,982 shares changing hands versus the norm of 62,980 shares.

The Bancroft family, which controls Dow Jones& Co. Inc., has rejected a proposal drawn up by their own lawyers to protect the editorial independence of the Wall Street Journal in the event of a takeover of Dow Jones by Rupert Murdoch's News Corp., according to a report Friday in The New York Times. Murdoch has bid $60 per share, or $5 billion, which has met strong resistance. "Everyone thinks they are talking to some deep pockets and will get a better deal or defeat Murdoch," one trader said. Dow Jones (NYSE: DJ) traded up to $60.80 before ending at $59.01 for a gain of $1.11, or 1.92%.

Elsewhere, sellside boutique JGiordano Securities Group gave Augusta Resource Corp. a plug on the heels of its C$37.5 million PIPE deal - 10,719,827 common shares at C$3.50 per share - for which 71% was placed with Sumitomo Corp. of America and the remainder to hedge fund Harbinger Capital Partners.

"We continue to believe that Augusta shares provide compelling upside potential over the next two to three years for more risk-oriented investors," the JGiordano analysts said in a report. "With Sumitomo's commitment to the company, Augusta has, in our view, just received a very large dose of credibility." Following the deal, Augusta said Sumitomo will have an 8.7% stake in the company and Harbinger's position grew to 19.9%.On the event, Augusta shares (Toronto: AZC) dipped as expected with a loss of C$0.02, or 0.65%, to C$3.08.

Home Depot delivery lacks

Home Depot is rumored to be getting offers for the HD Supply unit from two private equity groups at around $10 billion - but that is what the market had been expecting to be the low end of the bidding range - and a deal could be announced as early as the June 18 week. One group reportedly consists of Bain Capital LLC, Carlyle Group and Clayton Dubilier & Rice Inc., and the other Thomas H. Lee Partners LP and CCMP Capital Advisors LLC.

In reaction, Home Depot shares (NYSE: HD) barely moved, settling the session with a gain of 16 cents, or 0.42%, at $37.95.

"A lot of the deal had been priced in," one trader remarked. He noted the stock closed at the session low after trading up to $38.49.

"Everyone would have liked to see a bigger number."

Market chatter circulating over the past week pointed to Home Depot having difficulties attracting buy interest because of the softening housing market.

But the above trader noted that the supply unit sells building materials, waste water and utility products to municipalities and contractors, not homebuilders - which are bearing the brunt of the construction slowdown.

"What Home Depot is suffering from is lousy customer service. Customer relationships are annuities. That is what franchise businesses are built on," he remarked.

"They are going to have to do better. There is less brand loyalty just as there is more competition in a tough market. Consumers are fickle. Most will not bother and simply shop elsewhere with a poor perception of Home Depot. And that is even more pronounced when you are talking about contractors and municipal customers."

Early this year Home Depot hired Lehman Brothers to explore options for HD Supply. At various points of the process, it has been speculated that many bidders were interested.

Penn time frame ups risk

Penn National shares traded sharply higher but lingered well below the buyout price because of the lengthy closing time frame. Also, traders said they did not expect anything to come of the 45-day go-shop period in which the company can solicit a better bid. There were some analysts saying the gaming concern could see a better bid, however.

The stock (Nasdaq: PENN) rose $10.98, or 21.47%, to $62.12 versus the buyout price of $67 per share - a 31% premium to Thursday's market. The stock traded up to $63.68 on volume of 11 million shares versus the norm of 1 million shares.

"We have heard the bid could go up 20% but I don't think there's a shot of that," one trader said.

He noted that a week ago Penn National lost a vote in West Virginia to run table games at its Charles Town Races and Slots racetrack and casino.

Otherwise, he said that with the deal not expected to close for 12 to 16 months, a lot of time value risk was being priced in, so the stock probably will trade below the deal price until closer to closing.

Key members of Penn National's management team, including chairman and chief executive Peter Carlino, chief financial officer William Clifford and Leonard DeAngelo, executive vice president of operations, are expected to stay with the company.

If the deal isn't completed within a year, the purchase price can be increased by $0.0149 per share per day.

Like most other gaming names, the trader said, Penn National has been mentioned in merger and acquisition activity - in December, Penn attempted to acquire Harrah's Entertainment Inc. for $87 per share but lost out to Apollo Group and TPG's $90 bid - so many onlookers still saw it as a suitor rather than a target.

Trump oomph boosted

Trump and several other smaller gaming stocks were boosted by the Penn National news. Trump is actively looking for a deal, but also higher were Pinnacle Entertainment Inc., Boyd Gaming Corp. and Melco PBL Entertainment (Macau) Ltd.

"Valuations in the sector are going up and up," said one trader.

"Lots of guys are willing to roll the dice now."

Last week, it was confirmed that former Nevada gaming regulator Dennis Gomes and JEMB Realty Corp. are making a bid to buy Trump. Other bidders rumored to be involved are Dune Capital Management LP and Las Vegas gaming mogul Steve Wynn.

Trump shares (Nasdaq: TRMP) added 68 cents, or 4.46%, to close at $15.91. Again, a trader noted heavy action in the $17.50 July call options with volume of 13,690 contracts and open interest of 18,469.

But another trader said, "Don't be surprised if there is a low bid because Gomes has to cover $100 million for Trump's taxes."

In any event, the sector moved higher with Pinnacle (NYSE: PNK) advancing $2.35, or 8.25%, to $30.83, Melco PBL (Nasdaq: MPEL) gaining 54 cents, or 4.47%, to $12.62 and Boyd Gaming (NYSE: BYD) gaining $1.35, or 2.71%, to $51.15.

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