Blockbuster up, Movie Gallery off; Oracle, Hyperion higher; AMD off; CMGI up; TXU firm

By Ronda Fears

Memphis, March 1 - Blockbuster Inc. got a nice bounce Thursday amid rumors that it is in late-stage talks to buy the private online movie download service Movielink, which to some extent pressured rival Movie Gallery Inc. Also, software maker Oracle Corp. spiked on its acquisition of Hyperion Solutions Corp.

Elsewhere technology names were volatile amid the overall negative trend in the markets. Chipmaker Advanced Micro Devices Inc. was lower as many players were sidelined with hesitation about which way to take the company in the face of tight chip markets and chatter of a takeover. Software and business services concern CMGI Inc. saw heavy buying, however, as a takeover candidate on the Oracle news.

Also of note, Motorola Inc. shot up on news that billionaire investor Carl Icahn has filed to purchase another $2 billion of stock, which he said in January is undervalued. Icahn has challenged the company to tweak its leverage ratios with a larger stock buyback and take on more than its $4.4 billion in debt. The stock (NYSE: MOT) gained to $19.17 before easing back to close better by 31 cents, or 1.67%, at $18.83.

Otherwise, however, it was a roller coaster session on Wall Street that began with a huge dip and subsequent comeback that mostly erased the morning's plunge. Eagerly awaited comments from insurance and investment giant Berkshire Hathaway Inc. chairman Warren Buffett, the famed Oracle of Omaha, in the company's annual report will probably calm some jitters, one trader said, but the market did not have any time Thursday to digest it as the report was filed at 3 p.m. ET.

"Warren Buffett isn't panicking and selling out, so that tells me no one else should, either," one equity trader said, who said he had "skimmed" Buffett's letter and the Berkshire report.

"He's probably not going to make any big declarations; he never does. It's not his style to promise the moon. He sets your sights lower and then delivers more."

An excerpt from Buffett's letter goes: "... a confession about our 2006 gain is in order. Our [Berkshire] most important business, insurance, benefited from a large dose of luck: Mother Nature, bless her heart, went on vacation. After hammering us with hurricanes in 2004 and 2005 - storms that caused us to lose a bundle on super-cat insurance - she just vanished. Last year, the red ink from this activity turned black - very black."

The broad market's wild swing Thursday ended with the major indexes ended slightly in the red but the upshot of the session by several traders' accounts was that while they anticipate pockets of further downside pressure, as in the subprime mortgage sector, they generally expect that the markets will stabilize on firm ground.

"I agree with a lot of the smarter guys who are saying that people were really wanting to take advantage of the market's rise, looking for any reason to sell and pocket those profits," said another equity trader at one of the bulge bracket firms.

"Bernanke's [Federal Reserve chairman Ben Bernanke] remarks, the shape of corporate America's balance sheets, it being election year, these are all good signs. There are no flaming arrows pointing to the market tanking. Housing numbers are bad and there is a huge amount of subprime mortgage risk but that has been going on for almost a year now and the Dow [Dow Jones Industrial Average] still kept hitting high after high after high.

"My take on this week is that people were wanting to cash in on some profits. Then there was some short covering and today we saw a little of both going on."

TXU seeks other bids

Of the week's big deals, TXU Corp.'s buyout at a record $45 billion, including $13 billion of debt, met with mixed reactions because of uncertainty of approval from Texas utility regulators, but the stock got a lift Thursday from news that the company will actively seek a better bid.

TXU shares have seesawed since the news leaked Friday and was announced Monday, but the stock (NYSE: TXU) on Thursday closed with a gain of 31 cents to $66.50.

The company has agreed to a $69.25-per-share buyout by a private equity group led by Kohlberg Kravis Roberts & Co. and Texas Pacific in what would be the largest leveraged buyout ever, but also by that agreement has until April 16 to solicit a better offer.

TXU chief executive C. John Wilder said Thursday that a special board committee will contact as many as 60 entities, including financial, energy and non-energy firms, to that end.

"I don't think there is a great deal of people expecting a better bid," said a utility stock trader.

"Everyone is still holding back, waiting for a better indication that any offer will fly."

Blockbuster better

On rumors that movie rental giant Blockbuster is in talks to buy Movielink propelled buyers who see the deal as a positive move in the battle to lure more online movie viewers, but one trader also attributed a good deal of the rise to short covering by players with a negative slant on the story.

Blockbuster shares (NYSE: BBI) advanced 17 cents, or 2.56%, to close at $6.81.

The Wall Street Journal reported Thursday that Blockbuster is in "advanced talks" to buy Movielink, which is owned by a group of moviemakers such as MGM, Paramount, Sony, Universal and Warner Brothers, for up to $50 million in cash and stock.

Despite the small size of the deal, some onlookers said it would be significant because it will allow Blockbuster to offer a so-called triple play of rental services: in-store, online mail order and download. Blockbuster management has been quoted as saying acquisitions of download platform such as Movielink's would be cheaper and less risky than developing its own.

"The numbers last week were rather weak," said one equity trader.

"From what I see the view on Blockbuster is still mostly negative," because a lot of people don't think the $50 million acquisition would help matters much.

Blockbuster's chief rival, Netflix Inc., which has three times the number of online subscribers at 6 million, introduced a 1,000-title streaming video download service in January. Neflix shares (Nasdaq: NFLX) were unfazed by the situation, gaining 30 cents, or 1.33%, to close Thursday at $22.83.

Movie Gallery, however, a smaller rival to Blockbuster's brick and mortar rental stores, took a hit on the news. The company has struggled financially since acquiring Hollywood Entertainment Corp. in 2005 and is widely viewed as a late-comer in the online movie rental craze. Movie Gallery shares (Nasdaq: MOVI) traded as low as $4.50 on Thursday but settled with a loss of 9 cents, or 1.86%, at $4.76.

Apple Inc. and Wal-Mart Stores Inc. also have introduced online movie downloading, injecting more competition into the industry.

Oracle, Hyperion firm

Software giant Oracle was a lead gainer in the tech sector and the source of renewed speculation about further consolidation, traders said, after announcing that it would buy Hyperion Solutions for $52 cash a share, or about $3.3 billion - a 21% premium over Wednesday's market.

Oracle shares (Nasdaq: ORCL) gained 34 cents, or 2.07%, to $16.77 on the news.

Hyperion (Nasdaq: HYSL) was moved up to settle just shy of the offer with a gain of $8.73 on the day, or 20.38%, to $51.57.

"There has been a great deal of speculation in the space," another trader said.

"Oracle has spent like $20 billion on acquisitions in the last couple of years; I think they have made 25 to 30 deals. There are lots of smaller software companies that make a lot of sense."

Last year, Oracle bought Siebel Systems Inc. for $5.9 billion and in 2004 purchased PeopleSoft Inc. for $10.3 billion.

The trader said there were several analysts suggesting that the Hyperion acquisition could trigger a scramble among other software makers to get bids from the likes of IBM Corp.

CMGI sees big buying

A smaller software player, CMGI, saw some big buying that the trader attributed in part to the Oracle development. But he also said that CMGI is a "great turnaround story."

CMGI shares (Nasdaq: CMGI) closed higher by 13 cents, or 8.44%, at $1.67. It traded in a band of $1.46 to $1.73 with a whopping 31.6 million shares changing hands versus the norm of 5.5 million shares, the trader pointed out.

There was a big buy of 1.4 million shares on the open, he said, and that triggered a domino effect of buying on the imbalance. But he was positive on the CMGI story, both as a takeover candidate and on the company's turnaround.

"They had a very good quarterly report followed by a strong presentation at the Baird [Robert W. Baird & Co. 2007 Business Solutions Conference on Wednesday] conference," the trader said.

"Deep pockets are jumping in. This isn't a fluke. It was a big spike on very impressive volume. That's very bullish for the closing price today."

CMGI is one of the old internet incubators. The Waltham, Wash.-based company provides supply chain management services and marketing distribution solutions that help businesses market, sell and distribute their products worldwide.

AMD extends losses

The Oracle deal could even prod Hewlett-Packard Co. to wade into the acquisition fray with a bid to buy a software firm or chipmaker, the trader continued. Hewlett-Packard has been named in the chatter that AMD is a takeover target, but both continued to lose ground on Thursday.

Hewlett-Packard (NYSE: HPQ) lost 42 cents on the day, or 1.07%, to $38.93.

AMD (NYSE: AMD) dropped 28 cents, or 1.86%, to $14.79.

The trader said a Bear Stearns note advising players to wait on the sidelines as far as AMD goes accounted for its lackluster performance. But he noted that AMD rival Intel Corp. was similarly lower on the session.

Bear Stearns analyst Gurinder Kalra said in a research note Thursday that it is "clearly not yet time to bottom fish" as a buyer of AMD.

"Investors should stay on the sidelines on AMD even at current levels," Kalra said in the report.

"Trough valuations get us to a price of $11-$12, and given further deterioration in fundamentals and negative data points from our recent channel checks, we believe AMD has downside to these trough levels."

The analyst said he expects AMD to gain market share in the second half of 2007 and into 2008, after share losses in the first half of 2007, but these gains will be achieved through aggressive pricing, not because of its technological edge.

Thus, the trader said many players view AMD in need of some sort of deal, either as a buyer but more likely as a target.

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