Sallie Mae shares advance on 'renegotiated price' rumor; Rosetta Resources shares ease on Calpine claim

By Paul A. Harris

St. Louis, Oct. 18 - Against a backdrop in which the broad indexes were basically flat on Thursday, sources reported tracking four special situations equities stories.

SLM Corp. (NYSE:SLM) gained nearly 2.9% on rumors that a new buyout price has been successfully negotiated.

Elsewhere Rosetta Resources Inc. (NASDAQ: ROSE), closed slightly lower on Thursday.

However one analyst told Prospect News that investors are expecting the company to suffer limited damage as the result of a Calpine Corp. lawsuit seeking to recoup $400 million from Rosetta for assets Calpine says it sold to Rosetta for less than their actual value.

The shares of ENGlobal Corp. (AMEX: ENG) were up $0.25, or 1.88% on Thursday, as an analyst reflected that the Houston-base engineering services provider to the petrochemical industry's shares have had a pretty good run.

And although the shares of DXP Enterprises, Inc. (Nasdaq: DXPE) were nearly 2% off on Thursday, an analyst sees plenty of upside.

Sallie Mae's possible truce

A trader who was watching Sallie Mae shares on Thursday said they were higher on rumors that a renegotiated buyout price could soon be announced.

Sallie Mae shares closed at $48.61 on Thursday, up $1.35 or 2.86% on the day.

"The stock has been beaten down on the expectation that nothing would happen," the trader reflected.

"The rumor is that the renegotiated price will be $56.00 per share, versus the original $60.00, and versus the $50.00 per share that had been announced by the acquirer.

The buyer is an investor group consisting of J.C. Flowers & Co., Bank of America, and JPMorgan Chase. They had agreed to buy Sallie Mae for $25 billion and subsequently, citing a material adverse condition, tried to get the company to accept a lower purchase price, or pull the deal altogether.

The parties are due in court on Monday.

Rosetta dips on dispute

Also facing litigation is Rosetta Resources, the analyst said.

Rosetta's shares closed lower on Thursday at $18.24 per share, down $0.33 or 1.78% on the day.

"They are involved in a legal dispute with Calpine, having to do with Rosetta purchasing assets from Calpine, which Calpine now claims it sold below fair value, and is looking to recover $400 million," the analyst explained.

Calpine sold substantially all of its oil and gas assets to Rosetta in July 2005.

According to the source, among Calpine's contentions is that people from Rosetta who were involved in buying the leases had once worked in the Calpine division that sold them.

"That only seems to indicate that they pretty much knew the value of what they were getting, and made a bid accordingly, which advisors supported and Calpine accepted," the analyst reflected.

"We don't think the creditors have a very strong hand, here.

"We see very little downside, at this price.

"But we do see some upside, with a chance for a nice pop, if this litigation goes away or is settled below the amount that Calpine is looking for."

DXP slips

Also lower on Thursday were the shares of DXP Enterprises, which closed at $39.95, down $0.80 (or 1.96%).

The analyst said that the stock has recovered somewhat from a near-term low in the low $30s.

"They have a lot of momentum behind them on an operating basis," the analyst said.

"Most of the Street estimates look for that stock in the mid-$50s.

The source said that the DXP stock hit its low on Aug. 7, after the company issued about a million shares in a private placement.

"Then, when they reported earnings, numbers came in lower than the Street had expected, although the Street had been very bullish.

"So there was a somewhat expected correction."

ENG up a quarter

ENGlobal's share price advanced during the session, closing at $13.55, up a $0.25 or 1.88% on the day.

The analyst reflected that the company's shares have had a pretty strong run, with "a fairly steady ascent."

ENG provides high end engineering consulting services to processing plants, and refineries, the source explained.

All of their customers have done well on a cash flow basis.

The share price started perking up in May, the analyst added.

On May 7 it was selling for $6.50 per share. Two days later the price shot up to $8.51 per share.

In the June-July period it traded in the high $11s and low $12s, then slid back to the high $8s in Augusts and early September ($8.87 on Sept. 7).

From that point the price has continued to advance.

"It's a good company, with good management," the analyst said.

"Bill Coskey is the current CEO. He basically founded the company in the mid-1980s, with only one employee...himself.

"Now the company has over $300 million in revenues."

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