Gemstar-TV Guide rises; Dow Jones dives; Greenbrier gains; Huntsman slips; retailers retreat

By Ronda Fears

Memphis, July 10 - Gemstar-TV Guide International Inc., which is controlled by News Corp., took off on its announcement to explore strategic alternatives, but traders said players are waiting for more visibility on whether it will be a piecemeal sale of its media and licensing businesses or an outright sale.

With a market capitalization of $2.3 billion, plus a potential premium in a sale scenario, one trader said Gemstar-TV Guide could help Rupert Murdoch of News Corp. in his effort to buy out Dow Jones & Co. Inc. Many expect Murdoch will have to up his $5 billion, $60-per-share, bid, the trader said. "It may take a while to cash out of Gemstar, though," he said. But amid earnings scares Tuesday, Dow Jones (NYSE: DJ) dropped $1.20, or 2.04%, to $57.69.

Railcar manufacturer Greenbrier Cos. Inc. rocketed upward after posting better-than-anticipated results for second quarter, which traders said perpetuated market chatter pegging the company as a takeover target.

It was a negative day in the markets, however, as earnings misses and warnings compounded anxiety about the interest rate climate and soaring oil prices. But, traders said it was welcomed with open arms by players who have been shorting the roaring hot market.

"The shorts got another tailwind, but whether it will stick is another thing. They have seen this before only to have the market bounce back bigger and better than before," one trader said. "I think the market will come back and they again will be feeling some pain. But for now they have a little respite."

Amid the broad market slide, it was a red-smeared day for retailers. Macy's Inc., Dillard's Inc. and Build-A-Bear Workshop Inc. - which are either on the auction block, are speculated to be looking for a deal or under pressure from activist stockholders to do so - were under heavy pressure Tuesday amid downbeat forecasts from retailers Home Depot Inc. and Sears Holding Corp. Macy's (NYSE: M) fell $1.52, or 3.65%, to $40.13; it added all that back in after-hours action, however. Similarly, Dillard's (NYSE: DDS) lost $1.33, or 3.63%, to $35.33; it also was higher in after-hours activity. Build-A-Bear (NYSE: BBW) dropped 31 cents, or 1.19%, to $25.82.

"There is huge anxiety in the retail group because that is one of the first places to feel the pain of a downturn in the economy," one trader said. "As buyout candidates they are not as attractive in this environment."

Public Storage Inc. and U-Store-It Trust, which both operate as real estate investment trusts, were lower on the day with the market, but a buyside market source said he was a buyer on the dip and he sees those companies as a potential buyer for Clearwater, Fla.-based PODS, Inc., a closely held provider of mobile storage units. PODS announced Tuesday that it has hired Morgan Stanley to explore a broad range of potential strategic alternatives to maximize shareholder value.

All parties involved in the bid for chemical company Huntsman Corp. said Tuesday that Wednesday is the deadline for Dutch company Basell to top rival suitor Hexion Specialty Chemicals. Meanwhile, Huntsman weakened further on growing skepticism that the bidding war will continue.

Gemstar could see interest

The level of interest in Gemstar-TV Guide is expected to be rather high, market sources said, and it could come from private equity as well as buyers for separate business units. Whether an outright sale or sum-of-the-parts would pay more was a matter of debate, but in any event, traders said many expect a nice payoff.

On news of going into play, the stock (Nasdaq: GMST) saw heavy activity in a band of $5.85 to $6.11 before settling at $5.98 for a gain of 64 cents, or 11.99%.

"The easier route would be private equity, and they could pay up a pretty hefty premium - they could leverage the company up because they have no debt," one trader said.

"They could also go with a sum-of-the-parts and that could run up the price a good deal. Microsoft or Google might be interested in the licensing division. Dow Jones or Gannett might want the media business."

On Monday, Google Inc. announced it is buying e-mail security specialist Postini Inc. for $625 million, fortifying the internet search leader's effort to sell online software services to corporate customers seeking alternatives to Microsoft Corp.'s long-dominant products. That could give Microsoft incentive to look at Gemstar's licensing business, which licenses its interactive program guide to cable and satellite TV companies as well as hardware makers, a buyside market source said.

"I think Google, Microsoft or even Apple could easily pick up TV Guide, and maybe even want the whole ball of wax," the buysider said.

"Private equity is what it is, but the big online guys could just as easily do a deal. Of course, that's what we'd like - a single transaction and have it over with. But even if they piecemeal it, we think there will be a nice premium."

The company gave no timeline for making a decision but said it could take several months.

Gemstar has struggled over the years with declining circulation of its flagship magazine as well as distractions caused by federal investigations of its founder, Henry Yuen, and another executive, who were accused of inflating revenue to meet quarterly earnings targets. The company began to rebound in 2006 under the leadership of chief executive Richard Battista and recently began a series of new efforts, including a search tool for internet video.

Greenbrier rides results up

Greenbrier has been on the rise for about three months on speculation as a takeover target, according to traders, and its better-than-anticipated second-quarter results helped propel it further in that vein.

"There has been a lot of speculation about Greenbrier in the past few months as a takeover candidate. Industrials are hot on that angle right now," one trader remarked.

"There was a big short position out there covering today but a lot of it, I think, was new buyers that are beginning to believe the chatter, you know. We think they could get $40, easily, in a buyout scenario."

Greenbrier posted adjusted earnings of $16.1 million, or $1 a share, versus year-ago profits of $10.7 million, or 67 cents a share, on revenue of $386.6 million, up from $266.1 million. Analysts expected earnings of 39 cents a share on revenue of $299.5 million.

Amid heavy volume, the stock (NYSE: GBX) traded in a band of $33 to $34.79 before closing with a gain of $4.52 on the day, or 15.79%, at $33.15.

Another trader agreed that Greenbrier is a "great one on the takeover angle, particularly since Warren Buffett [the famed Oracle of Omaha and chief executive of Berkshire Hathaway Inc.] is keen on railroads," but he said a fair amount of Tuesday's gain in the stock was short covering.

"At the last count, about two weeks ago, something like 25% of the float was short. 16% of the float changed hands today [Tuesday]," he noted.

"That said, there were new buyers today and I don't believe these new buyers will dump given the nature of the news today. The stock, if you factor in the surprise quarter and the pre-earnings expectation of the next couple of quarters, it is trading at PE of 13. There are no negative statements about the outlook for Greenbrier; in fact, there are plenty of positive statements - especially about maintaining the momentum of this quarter going forward. This stock at $34 is still dirt cheap."

Storage buyers seen on dip

U-Store-It and Public Storage caught another buysider's attention on their downswings Tuesday amid the broader market slump, and he thinks they could be likely candidates to link up with PODS to improve their fixed storage businesses. Both stocks have been "down huge this year," he noted, but he was particularly a buyer of Cleveland-based U-Store-It on the drop.

Public Storage (NYSE: PSA) on Tuesday fell $3.76, or 4.66%, to $76.91 but in after-hours added back $1.26, or 1.64%, to $78.17.

U-Store-It (NYSE: YSI) lost 22 cents on the day, or 1.34%, to settle at $16.20.

"U-Store-It looks pretty good at this price, so I figure it is time to jump in," said the buysider.

"If the economy goes into the tank, people are going to have to downsize and will need a place to put all the Chinese junk they acquired over the last five years. It's got to be good for rent, but I anticipate bumps going forward. I am always amazed at what people pay for these closets."

Glendale, Calif.-based Public Storage is not as attractive, in his opinion, but "it has more cash per share" so if it continues to drop and hits the $70 neighborhood he said he would be a buyer.

"The last several years at Public Storage have seen a decline in the physical property buildings, the value of that real estate," he said.

"I think, though, that this pig could put on some lipstick - they could put some money into fixing up the properties - and it could fly."

Huntsman drops below bid

Conviction continued to wane that Basell, which is controlled by U.S. industrial group Access Industries - which is controlled by Russian-born billionaire Len Blavatnik - would up its bid for Huntsman to match the sweetened bid of $28 per share from Apollo Management LP's Hexion, traders said.

"It doesn't look like the market believes there will be a big bidding war," one trader remarked.

Huntsman (NYSE: HUN) traded in a band of $27.63 to $28.38 before settling the session at $27.72 for a loss of 35 cents on the day, or 1.25%.

Hexion on Monday offered up what was considered a pre-emptive bid boost to $28 per share, topping its own bid of $27.25 last week, to best a $25.25 per share bid by Dutch conglomerate Basell Holdings and, thereby, avoid a bidding war with Basell.

A lengthy closing timeframe in the Hexion deal could pull the shares lower, the trader said. The new Hexion bid gives up to 12 months, subject to a 90-day extension, to close the deal. It also provides that the cash price per share would bump up at the rate of 8% per annum - inclusive of any dividends paid - nine months after a deal is inked.

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