Home Depot builds after-hours; Expedia zooms; Color Kinetics up; Trump rebounds

By Ronda Fears

Memphis, June 19 - After the close, Home Depot Inc. rocketed higher on confirming the sale of HD Supply to a private equity group for $10.3 billion and a $22.5 billion hike to its stock buyback program with proceeds from the sale, cash on hand and an anticipated $12 billion of new bonds.

Online travel agent Expedia Inc., which fended off rumors of a private equity takeover or spinoff of its travel networking unit last week, also zoomed Tuesday on its plans to launch a $3.5 billion tender offer to repurchase up to 116.7 million shares, or 42% of outstanding stock, at $27.50 to $30 per share. The news caused Standard & Poor's Corp. to cut its credit rating to junk and Moody's Investors Service to put it on negative watch for possible downgrade to junk. But the stock (Nasdaq: EXPE) climbed $3.64, or 14.27%, to $29.14.

On to deals and potential deals, one trader remarked that there is speculation that American motorcycle icon Harley-Davidson Inc. and Italian motorcycle maker Ducati Motor Holding SpA could be working on a linkup that he thinks "would surely rock HOG [Harley Owners Group] members as violently as Ford's pickup of Jaguar." He thinks the two are talking but he doesn't expect a deal for maybe another year, or until Ducati get its reorganization in hand.

Color Kinetics Inc. jumped after the LED lighting systems company agreed to be acquired by Koninklijke Philips Electronics NV for roughly $791 million, or $34 a share - a 14% premium to Monday's close. Color Kinetics (Nasdaq: CLRK) climbed $3.86, or 12.96%, to $33.65 while Philips (NYSE: PHG) added 32 cents, or 0.76%, to $42.25.

Natural gas pipeline operator Regency Energy Partners LP took off after General Electric Co.'s Energy Financial Services unit said Tuesday it would pay $603 million to buy 91% of Regency and 16.7 million subordinated units from HM Capital, the Dallas-based private equity firm that helped take Regency public in February 2006. In addition, GE Energy Financial Services acquired 1.1 million subordinated units from members of Regency's management; in all, the GE unit now owns 37% of the limited partner units. HM Capital Partners sold 91% of its general partner interest and 94% of its subordinated limited partnership units. Regency (Nasdaq: RGNC) shot up $4.77, or 18.91%, to $30.

Agriculture names were hot Tuesday, as well, following recent hikes to guidance from Agrium Inc. and Monsanto Co. Several peers were higher, too, including Mosaic Co., which traders say has seen some takeover speculation in recent weeks with Potash Corp. of Saskatchewan Inc. as a potential suitor. Terra Industries Inc. was higher as well, although its affiliate Terra Nitrogen LP lost ground.

Openwave Systems Inc. firmed but saw little activity on its announcement to stand by its stand-alone plan in reaction to a proxy battle and offer from Harbinger Capital Partners to buy 49% of the company stock in a tender offer, which has been extended to Friday at a lower price per share to $7.10 per share from $8.30. The software company also said it is on track to deliver $300 million in 2008 annual sales and expects about $50 million in annual savings from cutting costs related to a restructuring announced earlier this month. The stock (Nasdaq: OPWV) added 6 cents, or 0.89%, to $6.82.

Trump Entertainment Resorts Inc. saw a strong rebound Tuesday from the big drop the day before on its chief executive's departure, but traders said investors are at odds over which direction the company will go - a buyout or recapitalization. Supposedly, one trader said, the Gomes group eyeing Trump has an exclusive arrangement to make a formal offer by day's end Tuesday, but nothing was seen by press time. But, he said the speculated buyout bid numbers have ticked up a bit on the CEO's exit.

Wendy's International Inc., however, continued to slide following its lowered guidance and another trader said it, too, may have to resort to a leveraged recapitalization to address its woes, as no bids have even been rumored to come for the fast-food chain. The stock (NYSE: WEN) on Tuesday lost another $1.02, or 2.67%, to close at $37.24.

Home Depot delivers buyback

Home improvement retailer Home Depot announced the sale of HD Supply to private equity firms Bain Capital Partners, The Carlyle Group and Clayton, Dubilier & Rice for $10.3 billion, which was no surprise and offered little movement in the stock. But, the $22.5 billion stock buyback program sparked a huge buying spree in after-hours activity, traders said.

"This was exactly what a lot of us were wanting to hear," one trader remarked.

Home Depot (NYSE: HD) added 31 cents, or 0.82%, in the regular session to settle at $38.27. After the close when the announcement came, the stock shot up by $2.03, or 5.3%, to $40.30.

While some had thought Friday when the bids were due that the bids were not hitting Home Depot's target, a buyside market source said $10 billion was smack on. Charles Bobrinskoy, co-manager of the Ariel Focus Fund, in which Home Depot makes up 4% of portfolio holdings, said he's a fan of Home Depot and sees some positive points to hold investors' interest.

"It's funny; earnings have been very good at Home Depot, but the stock has not performed," Bobrinskoy told Prospect News. "We're very optimistic in the brand."

Plagued by flagging customer loyalty amid complaints of poor service and dirty, convoluted stores, Home Depot has come under fire from investors. And this sale was largely cheered, as was the stock repurchase program. Home Depot also has said it may look at new investments; it developed the HD Supply unit over the course of several years with acquisitions totaling about $7 billion.

Bobrinskoy has pegged the intrinsic value on the stock at $52.

HOG riders going global?

Harley-Davidson and Ducati appears to be working on or talking about a merger, another trader said, citing comments from Ducati chief financial officer Enrico D'Onofrio last week in a European news outlet.

"There doesn't seem to be a lot of doubt that they are wanting to do a deal, Ducati. It's not so clear if Harley is keen on the idea," the trader commented.

"But it seems like Harley might be open to talking about it. They have had some production problems, mostly related to labor, this year and some hard times in years past. Ducati has had the same thing."

Harley-Davidson shares (NYSE: HOG) ended Tuesday off by 12 cents, or 0.2%, at $60.70 amid light volume, but the trader said there was some buying on the dip that pushed the stock as high as $61.04 intraday.

He said last week Ducati's D'Onofrio was quoted as saying the Italian company would consider a merger with Harley-Davidson but declined to specifically comment on speculation that the two firms had been in talks.

"From what I gather, they have been visiting but Ducati is in the middle of a restructuring and probably wouldn't attempt anything until that is done," the trader said.

He said there also has been speculation regarding a Harley-Davidson linkup with Piaggio, another Italian motorcycle maker.

Trump bluff getting called?

With the rebound in Trump shares Tuesday after a big slide on the chief executive exit news Monday, traders said speculation was rampant about the fate of the Atlantic City casino ranging from a buyout north of where the market has pegged a deal recently to some sort of recapitalization.

"There's a bigger camp that thinks an outright buyout will not get done, that Trump [Donald Trump, who owns 30% of the company] cannot get the price he wants, but that there will be some sort of investment made by the Gomes group, a recap of some sort," one trader commented.

"In any event, from here we don't see a lot of downside risk."

Trump shares (Nasdaq: TRMP) gained 39 cents, or 2.67%, to close at $15 after trading in a range of $14.31 to $15.24.

This trader said Monday's news of Jim Perry's departure was a way for the company to call the hand of the lead bidding group, rumored to be former Atlantic City gaming executive Dennis Gomes in partnership with JEMB Realty. He noted that those bidders supposedly have an exclusive right to negotiate a purchase of TER that expires Tuesday.

Call option activity in recent sessions has pointed to a view from the market that a buyout would come in the neighborhood of $17.50, the trader continued, and there continues to be strong activity in those contracts. But on Tuesday, he said there was speculation that the number being considered was "closer to $18 or $19."

Ag names grow in popularity

Agriculture names were hot Tuesday with Canadian fertilizer producer Agrium leading the pack on the heels of its boosted second-quarter outlook the day before. Seed giant Monsanto continued gains from late last week when it also bumped up its 2007 guidance.

Mosaic, the fertilizer company spun out of Cargill Inc. in 2004, has been frequently mentioned as a takeover target of fertilizer giant Potash and fellow Canadian fertilizer concern Agrium.

Terra Industries was another big gainer, which the trader attributed to it becoming a speculated takeover target amid the growing interest in ag names, although its affiliate Terra Nitrogen was lower.

"There is a growing sentiment that there will be more consolidation in the ag industry," the trader said. "All of these have been on a tear for the past month or so."

Agrium said Monday it expects second-quarter results to reach or beat the high end of a previous outlook range in part because of increased sales in its sidedress fertilizer business. Sidedressing is the addition of liquid fertilizer between crops after they sprout. The Calgary, Alta.-based company, which had previously provided a guidance range of $1.45 to $1.55 per share, also cited a longer season.

Also Monday, BMO Capital Markets said absence of seasonal price weakness in phosphate fertilizer prices will lead to a stronger improvement in Mosaic's earnings outlook and boosted its price target to $45 from $30.

On Friday, Monsanto, the world's biggest seed company, raised its profit projections for 2007, citing strong corn seed and herbicide sales, to a range of $1.75 to $1.80 from the earlier estimate of $1.60 to $1.65.

Agrium (NYSE: AGU) added $1.95, or 4.61%, to $44.26.

Mosaic (NYSE: MOS) gained 21 cents, or 0.53%, to $39.98.

Potash (NYSE: POT) was higher by 83 cents, or 1.04%, to $80.29.

Monsanto (NYSE: MON) advanced $1.45, or 2.2%, to $67.44.

Terra Industries (NYSE: TRA) rose 56 cents, or 2.58%, to $22.27.

Terra Nitrogen (NYSE: TNH) lost $2.05, or 1.76%, to $114.65.

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