Fair Isaac up; Komag, Western deal lifts Seagate, Hutchinson; Intertape slides; IKON higher

By Ronda Fears

Memphis, June 29 - Credit scoring firm Fair Isaac Corp. got a bounce from private investment firm Sandell Asset Management Corp., which owns a 5% stake in the company, saying the company might be better off being acquired by a larger company or taken private. Traders said amid the subprime mortgage crisis and new, tighter mortgage application standards the company might get a lot of interest.

IKON Office Solutions Inc. also got a boost from Steel Partners Ltd. suggesting a recapitalization or possible sale process for the document management firm. "A big buyer showed up at the end of the day," said one trader. The stock (NYSE: IKN) added 60 cents on the session, or 4%, to close at $15.61.

Data storage firm Komag Inc. rose on its $1 billion buyout from hard disk drive maker Western Digital Corp., one of its largest customers, and the news also boosted competitors Seagate Technology and smaller player Hutchinson Technology Inc.

Elsewhere in the tech sector, mobile device makers were obviously in focus, with Apple Inc.'s launch of its highly anticipated iPhone. It gave no pressure to Research in Motion Ltd., however, which saw a sharp gain after reporting a 76% increase in revenues and a 73% jump in quarterly profit; it also announced a three-for-one stock split. Apple (Nasdaq: AAPL) advanced $1.48, or 1.23%, to $122.04 while Research in Motion (Nasdaq: RIMM) rose $34.40, or 20.77%, to $199.99.

Meanwhile, the laggard among mobile device makers was Palm Inc., which was the subject of takeover talks earlier this year, after beating the Street's earnings estimates but missing on revenues and guiding lower for fiscal first quarter. Earlier this month, Palm agreed to a $940 million recapitalization plan with private equity firm Elevation Partners. Palm (Nasdaq: PALM) lost 54 cents, or 3.26%, to $16.02.

Retail names in play, or rumored to be in play, were mixed, with Dillard's Inc. (NYSE: DDS) off 76 cents, or 2.07%, to $35.94 while Macy's Inc. (NYSE: M) added 11 cents, or 0.28%, to $39.78 and Build-A-Bear Workshop Inc. advanced 44 cents, or 1.71%, to $26.14. One trader said there is a growing expectation that Macy's could be announcing a deal imminently, and believers want to get in on Dillard's and Build-A-Bear early in their deal-shopping exercise.

Continuing with themes, uranium names were hot on Friday with Yellowcake Mining Inc. leading the pack. There might be some consolidation in the group with the smaller players getting snagged by some of the bigger players, said a trader in Canada. Mark Mills, co-founder of the private equity firm Digital Power Capital, said the fundamentals speak for themselves, noting a threefold spike in raw uranium prices over the past year.

To the downside, Canadian packaging company Intertape Polymer Group Inc. took a hit after stockholders rejected the company's planned $500 million takeover by private equity firm Littlejohn & Co. LLC at $4.76 per share, which had been struck in May. Investor 6789536 Canada Inc. solicited proxies to fight the deal. Altacap Investors Inc., which controls 6789536 Canada, also presented a new slate of directors, including Eric Baker, who has been Altacap president, and Melbourne Yull, the former Intertape Polymer chief executive. Baker and Yull were elected to the board. Intertape (NYSE: ITP) lost 24 cents, or 5.06%, to close Friday at $4.50.

World Wrestling Entertainment Inc. also was lower; a trader said there was some buzz batted around that the company may be on the auction block following some recent sensational press - the murder-suicide of wrestler Chris Benoit and his wife and child in Atlanta on Monday, and WWE founder Vince McMahon faking his own death as a publicity stunt two weeks prior.

"They are losing ratings. The headlines have not been helpful for them lately, but the bottom line is they are losing their grip to WCW [World Championship Wrestling]," the trader said. He said there is some speculation that Turner Broadcasting, via parent Time Warner Inc., might be interested or Viacom Inc., which airs WWE matches on various cable channels. On Friday, the stock (NYSE: WWE) lost 27 cents, or 1.66%, to settle at $15.99.

Fair Issac interest fair

In addition to suggesting Fair Isaac hit the auction block, Sandell also urged the Minneapolis-based company to "continue to aggressively repurchase shares at the current depressed valuation levels." A trader said what with credit screening becoming evermore intense, the company could see "a fair amount of interest."

Fair Isaac shares (FIC) shot up $2.74 on the day, or 7.33%, to $40.12.

"Credit screening standards are getting tougher everywhere, not just for mortgages, but credit cards, merchant cards, all those and that is good for Fair Isaac if it goes on the auction block," the trader said.

The stock is off 8% since the beginning of the year, the trader noted, adding that the company in mid-April warned that its results would fall short of guidance for 2007.

"The stock held up well on that news," he said. "You would have maybe expected it to drop somewhere in the neighborhood of $34 but it didn't. There's a lot of faith in the story among people involved."

Sandell advised Fair Isaac to hire a financial adviser to review its options, and urged the board to hold management responsible for making progress in the company's turnaround plan.

"Fair Isaac has excellent products and strong market positions, but there is a clear disconnect between the value that these assets should be able to command in the marketplace and the current value implied by the share price," Thomas Sandell, chief executive of Sandell Asset, wrote in the letter.

Komag deal terms seen steep

Komag climbed sharply on the buyout by Western Digital, but as the $32.25-per-share price tag was considered expensive by many onlookers, Western Digital took a hit. Still, most analysts thought the deal was a positive development, as the hard drive industry is in a slump.

The offer price was just a 9% premium to Thursday's close, as Komag has been speculated as a takeover target for some time, traders said.

Komag (Nasdaq: KOMG) gained $2.31, or 7.81%, to close Friday at $31.89.

Bear Stearns analyst Andrew Neff said the acquisition was "pricy but strategically important" as it "positions Western Digital as a vertically integrated competitor." Part of what made the deal seem expensive is that Komag has warned twice in the past quarter about future results, after missing second-quarter revenue estimates following multiple downward revisions.

Not only was the deal pricey on Komag valuations, Neff said that the all-cash deal could consume a significant amount of Western Digital's net cash and is requiring it to take on a secured term loan of up to $1.25 billion.

"Given difficult industry conditions and near-term deal dilution, Western shares could be under pressure and we'd stay on the sidelines until we see reversal in industry deterioration," Neff said.

A trader said many players were cashing out of Komag to move on to other hard drive names.

Seagate, Hutchinson follow

Seagate Technology, a speculated takeover target for several weeks now, advanced on the Komag news, as well as a smaller player in the disc drive space, Hutchinson Technology. A trader said Seagate may still be on the hunt, however, rather than being the hunted, unless other top rival EMC Corp. gets busy.

He noted Seagate bought rival Maxtor last year, and Seagate chief executive William Watkins has been on the record saying he expects some consolidation in the Japanese market.

"Seagate has been at the center of the consolidation chatter for a while, and some think it may be looking to buy EMC; others think EMC is looking to buy Seagate. It may turn out to be a bid-counterbid situation like the Alcoa-Alcan situation," the trader remarked.

He thinks Seagate and/or EMC are also looking at Hutchinson.

Seagate (NYSE: STX) gained 22 cents, or 1.02%, to $21.77 on Friday, and the trader noted ongoing heavy options activity in the name. He said the July $22.50 calls saw heavy volume and open interest, gaining 5 cents to 45 cents.

EMC (NYSE: EMC) added 27 cents, or 1.51%, to $18.10.

Hutchinson (Nasdaq: HTCH) advanced 18 cents, or 0.97%, or $18.81.

Yellowcake, uranium firms

Several uranium miners took a leap Friday, as an article by Digital Power Capital's co-founding partner Mark Mills showed up in Forbes' online service. Mills told Prospect News that while the gain in the sector was a nice coincidence to the timing of his article, the fundamentals of the industry speak for itself.

Yellowcake Mining led the pack with that stock (OTCBB: YCKM) advancing 14 cents, or 6.12%, to $2.60. Another smaller player with a gain was Toronto-based Uranium One Inc. (Toronto: SXR), which added 3 cents, or 0.22%, to C$13.57.

"Most investors have no idea that there is currently a mad speculative scramble going on in the commodities markets over the future price of uranium. Yellowcake, the raw unrefined uranium oxide from mines, has jumped from $10 per pound five years ago to $138 per pound recently. A year ago, yellowcake was selling for $45 per pound," Mills said.

Small companies like Yellowcake Mining and Uranium One hint at promise. But the big miners have advantages in this challenging field, such as BHP Billiton Ltd., Rio Tinto plc, Cameco Corp. and Cogema owned by France's still private Areva - which together account for almost 60% of world yellowcake production.

BHP (NYSE: BHP) rose 50 cents, or 0.84%, to $59.75 on Friday. Rio Tinto (NYSE: RTP) gained $3.09, or 1.02%, to $306.12. And, Cameco (NYSE: CCJ) added 29 cents, or 0.57%, to $50.74.

Other likely winners, he said, are pure exploration-for-hire companies like Fronteer Development Group Inc. "All they do is find the uranium, leaving the mining and political jockeying to others," he said. Fronteer shares (NYSE: FRG) gained 18 cents, or 1.54%, to $11.90 on Friday.

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