Harrah's accepts PE bid; Nasdaq falls on LSE resistance; Home Depot, Lowe's slip

By Ronda Fears

Memphis, Dec. 19 - Harrah's Entertainment Inc.'s acceptance of a takeover bid from private equity groups Apollo Management, LP and Texas Pacific Group for $90 per share in cash, or roughly $27.8 billion, was anticlimactic, one observer remarked, but the market will be focused Wednesday on the Las Vegas casino's mention that it can solicit superior proposals for the next 25 days.

While there were brokerage analysts suggesting there would be no rival bid for Harrah's show up - and a Citigroup analyst cut his view of Harrah's on Monday saying a private equity buyout even at $90 won't return enough to justify buying shares - an equity trader at another bulge bracket firm said Penn National Gaming Inc. may still step up to the plate.

The trader said that while the PE group is paying a 36% premium to where Harrah's shares were trading before the bid surfaced Sept. 29, and it was bumped from an original $81 per share, it was just a 9% premium to the stock's current level, and could be pushed with a stock-and-cash offer from the likes of Penn National.

Harrah's shares (NYSE: HET) ended Tuesday at $82.30, up just 12 cents on the session.

"Penn with stock and matching cash is a good deal, I think," the trader said. "It ain't over yet, I don't think."

Nasdaq shares turn bearish

Another story that seems far from over is Nasdaq Stock Market Inc.'s play for the London Stock Exchange Group plc. In the latest turn of events in the takeover battle, Nasdaq shares took a big hit Tuesday as the LSE upped its earnings forecast and boosted its dividend payout, yet Nasdaq remained steadfast it its current bid of 1,243p per share, which is below the current LSE market price.

"Nasdaq is bearish on the LSE but the markets are bearish, very bearish, on Nasdaq by the look of those options," said one options specialist.

"They keep pushing but the LSE just keeps pushing back. It's one of the best stand-offs we've seen in a while. Right now, LSE looks like the favorite in this race, but it's not over until it's over. If the Nasdaq isn't victorious, though, the market will bring it down like a rock."

Nasdaq shares (Nasdaq: NDAQ) fell $1.94, or 5.39, to $34.05 on Tuesday.

LSE shares (London: LSE) lost 7p, or 0.53%, to 1,310p.

Nasdaq, which has amassed a 29% stake in the LSE, launched a hostile bid for the remainder of LSE shares earlier this month and has revised its bid to 1,243p, or roughly $5.3 billion.

The London Stock Exchange plc issued a strong profit forecast and promised a higher dividend Tuesday as it urged shareholders to reject a hostile takeover bid by the Nasdaq Stock Market Inc.

The New York-based Nasdaq already owns nearly 29% of the London Stock Exchange's shares, and its bid values the entire exchange at about $5.3 billion.

"There is nothing in the (LSE) circular which causes us to change our view on value," said Nasdaq chief executive Robert Greifeld in a statement.

"LSE's current share price is not supported by the company's standalone prospects and is only sustainable because of Nasdaq's final cash offers."

In its latest effort to discourage support for the offer, the LSE on Tuesday boosted its forecast for adjusted basic earnings per share for 2006 to show a gain of more than 58% to at least 50.4p and added that it will recommend a final dividend in 2007 of at least 12p, bringing the full-year dividend to 18p or more.

"Nasdaq's offer is wholly inadequate and significantly undervalues the LSE," said LSE chief executive Clara Furse on a conference call. "We continue to urge our shareholders to reject Nasdaq's offer."

Nasdaq last week gave investors until Jan. 11 to accept its offer.

Home Depot, Lowe's slump

Amid conflicting housing data out Tuesday and a call for changes at Home Depot Inc., the building supplies and home improvement retailer saw its shares tumble. Traders said rival Lowe's Cos. Inc. was lower, as well, in sympathy. Amid the doubt, however, one buysider said there is strong interest in Home Depot as a turnaround story.

"The underlying tone in the market overall today was bearish, but the housing data and concerns about a spike in inflation really hit these two," said a trader, referring to Home Depot and Lowe's.

"Something needs to be done at Home Depot, though, and now is as good a time as any. Certainly, it doesn't look like things are going to get better there on their own. But, I think the stock is still looking pretty rich."

Home Depot shares (NYSE: HD) slipped 32 cents on the day, or 0.8%, to $39.64. The stock's 52-week range is $32.85 to $43.95.

Lowe's shares (NYSE: LOW) dipped 14 cents, or 0.45%, to $30.94. The stock's 52-week range is $26.15 to $34.85.

Home Depot said on Monday in the face of projections of falling profits and a regulatory probe about its options practices that an investment firm plans to propose a special panel of independent directors review the retailer's business strategy.

Home Depot turnaround keen

The planned proposal to Home Depot, by Relational Investors LLC, a small holder of Home Depot shares, would call for a committee to study the company's direction, management performance and strategic options, including a buyout.

"The big boys see big turnaround potential and have stated that in no uncertain terms. They have laid out clearly the mistakes senior management has made in destroying the brand to make numbers. Don't believe that just one major player feels this way; Relational is just the first to step forward with a stated plan of action to deal with problems that everyone sees. This is too big an opportunity to pass up for big players that need to generate returns on billion- and multibillion-dollar positions," said an equity fund manager.

"Bottom line is HD is formally now in play. I like the idea of large activist shareholders instead of a buyout for you don't debt up the company and employees and small stock holders can get some of the benefit. Also the customer wins with a stronger, more focused company. Let's all hope for a good outcome."

San Diego-based Relational Investors holds about 0.6% of Home Depot stock but is buying more. Ralph Whitworth, head of Relational Investors, said Home Depot needs to improve its core retail stores to compete better against smaller rival Lowe's.

As a backdrop to the troubles at Home Depot, the U.S. Commerce Department reported Tuesday that new housing construction increased by 6.7% in November to a seasonally adjusted annual rate of 1.588 million units. However, in a sign of the overshadowing negative trends, applications for new home building permits fell for a 10th consecutive month.

UnitedHealth rebounds

In a positive move, UnitedHealth Group Inc., which is trying to emerge from a stock options scandal, was rebounding Tuesday on a better-than-expected forecast for 2007 revenue and an increase in 2007 earnings of about 14%, even as the insurance firm said it may adjust historical earnings by as much as $660 million to fix the stock-options pricing scandal that led to the resignation of its former chief executive in October.

Traders said short covering accounted for a great deal of the stock's move Tuesday because of the company's forecast.

UnitedHealth shares (NYSE: UNH) gained $1.93 on the day, or 3.83%, to $52.33.

The company said it doesn't yet know how large the tax hit for the matter will be, but it will likely be bigger than the $286 million tax adjustment it had initially projected. A company-sponsored report, released earlier this year found that stock options were probably backdated over several years.

The company also gave its financial projections, reiterating a forecast of 2006 earnings of $4.14 billion with revenue of $71.5 billion.

For 2007, UnitedHealth said it estimates earnings of $4.7 billion to $4.75 billion on revenue of about $79.5 billion.

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