Claire's stock up 5%; Reckson, Mack-Cali, SL Green off; Calpine gains big; Home Depot up on buzz

By Ronda Fears

Memphis, Dec. 1 - Takeovers and talk of takeovers along with restructurings steered traders to Home Depot Inc., Claire's Stores Inc., Calpine Corp. and Lear Corp. in reaction to news out Friday or anticipation of news come Monday, although there were plenty of skeptics sitting on the sidelines.

It should be noted, too, that Winn-Dixie Stores Inc. was back on a northward track Friday after retreating a tad the day before on light profit taking, as several onlookers expected, but traders said the selling was very light. The Jacksonville, Fla., grocery chain's when-issued stock (Nasdaq: WINNV) regained 52 cents, or 3.8%, to $14.19, more than erasing the 3% decline Thursday.

Also of note, Reckson Associates Realty Corp. along with suitors Mack-Cali Realty Corp. and SL Green Realty Corp. mostly extended losses Friday as the latter two's buyout battle over Reckson lacks clarity. Reckson shares (NYSE: RA) slipped 29 cents, or 0.6%, to $48.09. SL Green shares (NYSE: SLG) edged off by 29 cents, or 0.21%, to $134.95. Mack-Cali shares (NYSE: CLI) spent much of the session on lower ground, but settled with a gain of 14 cents, or 0.26%, at $54.78.

"Pretty much everyone has set up and are sitting on the sidelines waiting for something to happen now" with Reckson, one trader said.

Home Depot deal panned

Home Depot shares rose almost 5% Friday following reports that two huge private equity firms are preparing a $100 billion buyout of the home improvement retail giant, but traders said the stock ended way off the day's highs as players lost enthusiasm on analyst comments that it didn't make sense.

"It was a nice trade day for HD, but in the end I think there were more sellers taking profits than people setting up for a deal," said one trader.

Home Depot shares (NYSE: HD) traded up to $39.96 but ended the session with a gain of $1, or 2.63%, at $38.97, with a whopping 47.25 million shares traded versus the norm of 13.7 million shares.

"Names are flying around like crazy," the trader continued. "But I think in the end people were hearing analysts say that it doesn't make sense for a Home Depot to be a private equity takeover. They are not that deep in trouble."

Fort Worth-based Texas Pacific and New York-based Kohlberg Kravis Robert & Co. were named by CNBC and The New York Post as constructing a buyout of Atlanta-based Home Depot, which at $100 billion would set a record for leveraged buyouts.

But with other CNBC reports this week of potential buyouts fizzling to no end, like Dollar General Corp., the trader said there was heavy profit taking in Home Depot on Friday.

"It reeks of a bogus rumor being planted," the trader said. "The home building market is going into a slump, retail is hurting and all those would spell trouble for Home Depot. I would revisit this a year from now."

Claire's on the sale block

But sometimes market chatter pans out, keeping players jumping into situations. For example, Claire's confirmed market noise Friday with an announcement that it had hired Goldman, Sachs & Co. to explore strategic alternatives for enhancing shareholder value, including a possible sale of the company.

The Pembroke Pines, Fla.-based retailer, which sells low-priced fashion jewelry to teens and younger girls, reported this week that same-store sales in November were flat, compared with analysts' consensus forecast for a 1.3% gain.

Claire's shares (NYSE: CLE) rocketed on the news, gaining $1.55 on the day, or 4.87%, to $33.36.

But traders said the bet on Claire's price tag was being heavily hedged as expectations of a hefty premium were scarce. Volume in the stock ran 8.5 million shares on Friday, compared with the norm of 1.2 million shares.

"When they sell, there will not be much of a premium," said a hedge fund trader in New York. "Same store stores are flat. Europe is flat. Icing is not doing very good. The only way this stock could really appreciate is if Claire's bought out another company, but I don't see that happening."

Claire's operates the namesake stores as well as Icing by Claire's, with some 3,000 stores, mostly in North America, but with units in Canada, Puerto Rico, the Virgin Islands and much of Europe. It also has partnerships and licenses in Japan, the Middle East, Turkey and South America.

Calpine comes off day's high

Calpine shares zoomed more than 22% at one point Friday - a rise speculated to be driven by takeover buzz as well as short covering by bondholders - before easing back sharply to settle with half of the day's gain.

In tandem with Calpine bonds, the stock (Pink Sheets: CPNLQ) has been on a steady rise this week, spiking to $1.26 on Friday before easing back to close with a gain of 12 cents, or 12.63%, at $1.07.

The Sane Jose, Calif., independent power producer is trying to climb out from under a massive debtload through a Chapter 11 bankruptcy, filed in December 2005.

"I just think it is a confluence of events leading up to the deadline for submitting the re-organization plan. PG&E being the latest catalyst," said one equity trader, referring in part to electricity giant Pacific Gas & Electric Co.'s recent purchase of a partially built gas-fired, 530-megawatt generating unit from independent power producer Mirant Corp.

"If the common shares get a seat at the table in the reorganization somehow, it could amount to a couple billion in market cap (10-20%) of the new Calpine. That could translate to maybe $3 to $5 a share, I don't know. But that could be behind the speculative buying [in the stock]."

Or it could just be short covering by bondholders, another equity trader said, noting huge volume in Calpine stock of 34.4 million shares versus the norm of 4.63 million shares.

"Someone is buying up the unsecured debt big time. This is causing the hedged bond owners to cover their shorts, driving the stock price," the trader said.

"I believe it is short covering by the convertible bondholders, and once completed, the bid support will all but disappear, causing a downward trend in the share price."

Last week, Calpine requested a second extension for its exclusive period to file a Chapter 11 reorganization plan to June 20, 2007 from Dec. 31.

Lear languishes on Ross deal

Lear Corp. shares took a dive Friday after the automotive components maker said it reached an agreement with WL Ross & Co. and Franklin Mutual Advisers to transfer its North American interiors business and $25 million cash to a new joint venture and, as a result, would take a $675 million charge.

The stock (NYSE: LEA) dropped $1.22 on the day, or 3.94%, to $29.73.

Basically, traders said the news put the kibosh on speculation that Lear might be a takeover target, or at the very least the event would severely lessen the company's value. Lear said it expects a fourth-quarter charge of about $675 million for the divestiture of the North American interior business.

"It came down to time to bail out," one equity trader said. "For a lot of people it was a fun ride from $20. If it gets back down to $20 again, I think we'll see some people come back."

The Dearborn, Mich., company said it will hold a 25% stake in the venture, to be dubbed International Automotive Components Group North America LLC. Lear will also hold warrants for an additional 7% stake in the venture. Ross and Franklin will make total cash contributions of $75 million to the venture, in exchange for the remaining equity stake, and will provide a $50 million term loan to the venture.

The magnitude of those investors, however, was enough to keep some Lear players on the hook as a cash play.

"I recognize management always wants a positive optimistic spin but I think it does seem Lear may have turned the corner and this stock may still be oversold long term," said a hedge fund manager in New Jersey.

"I don't see any great moves up in the next year, but as a long-term investment that pays a dividend and has growth potential, it may be a good long-term hold. Based upon its revenue increases and past history, when industry conditions improve, $4 per share income looks reasonable."

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