Home Depot up on HD Supply price cut; court OK of Whole Foods, Wild Oats merger sends both up

By Sheri Kasprzak

New York, Aug. 24 - Shares of Home Depot improved on Friday after the company agreed to chop $1.2 billion off of its asking price for its wholesale distribution business.

The move, according to traders, is a positive one but one sell-side trader said he feels the move may not be enough.

In other merger news, the U.S. Court of Appeals gave the nod to Whole Foods Market, Inc.'s merger with smaller competitor Wild Oats Markets Inc.

This news sent the stock of both companies up.

Home Depot drops asking price

Moving back to Home Depot, the retailer was widely reported Friday to have dropped the asking price on its wholesale distribution arm to $9.1 billion from $10.3 billion.

By 10.32 a.m. ET, Home Depot's stock had gained 63 cents, or 1.85%. At the end of the day, the stock was up 66 cents, or 1.94%, to close at $34.68 (NYSE: HD).

"Their asking price was way, way too high," said one sell-side trader. "This may be more reasonable, at least their stock price seems to indicate that it may be more reasonable."

Another sell-side trader said he feels the home-improvement retailer may have to come down even more for the deal to go through.

"It's an improvement," he said of the decision to take off $1.2 billion from the $10.3 billion asking price. "I don't think it's enough to make the deal go through, at least that's what I've been hearing. They may have to cut even more."

The Wall Street Journal reported Friday that the deal may, in fact, not go through, even at the amended price, citing unnamed source familiar with the offering.

The sale is being negotiated with Clayton, Dubilier & Rice, Bain Capital, and Carlyle Group, the group that originally agreed to the $10.3 billion asking price.

The buyers have until next Thursday to make their decision on the sale.

Court OKs Whole Foods acquisition

Elsewhere in merger news, the U.S. Court of Appeals denied a motion by the Federal Trade Commission to block Whole Foods Markets acquisition of Wild Oats.

The court decision sent shares of Whole Foods Markets up 2.77%, or $1.22, to end the session at $44.54, and up another 3 cents after hours (Nasdaq: WFMI).

Wild Oats' stock was up 39 cents, or 2.16%, to end the day at $18.46 (Nasdaq: OATS).

The FTC had brought concerns to the appeals court that the merger of the two organic foods concerns would limit competition in an already limited marketplace.

The appeals court rule, however, that there is little evidence that this would be the case.

The $565 million deal will be allowed to go forward.

"We are pleased to have cleared what we expect to be our last legal hurdle," said John Mackey, Whole Foods' chief executive officer, in a news release.

"We look forward to closing this merger and believe the synergies gained from this combination will create long-term value for our customers, vendors and shareholders as well as exciting opportunities for our new and existing team members."

National Grid, KeySpan merger closes

In other news, National Grid said Friday that its merger with KeySpan Corp. is complete to create National Grid USA, an electric and gas utility.

The news sent National Grid's stock up $2.01, or 2.79%, to close at $74.15 (NYSE: NGG).

Shares of KeySpan edged up by 12 cents to close at $42.20 and gained another penny after hours (NYSE: KSE).

Following the deal, KeySpan's CEO Bob Catell will become chairman of National Grid USA.

The merger makes National Grid the second largest utility in the United States. It serves customers in Massachusetts, New Hampshire, New York and Rhode Island.

"We've been working towards this goal for well over a year and I am absolutely delighted that we have achieved the final milestone," said National Grid CEO Steve Holliday in a statement.

"We are totally committed to making sure our customers and shareholders receive the benefits coming from this merger. The substantial opportunities for cost savings are clear and with our investment capability we can really unlock KeySpan's growth potential. Everyone is keen to start working towards these goals, and now the work really starts."

"I'm proud of our record on community commitment," Catell said in the news release.

"We will soon become a larger company but I'm determined to make sure that we use our size and scale to continue to enhance customer service and continue to play an active role in the local areas that we serve. These are exciting times for our company and our customers."

Countrywide dips

Even though shares of Countrywide Financial Corp. were bumped up on Thursday following a $2 billion investment from Bank of America, the mortgage lender watched its stock fall again on Friday.

"I think the drop is just more proof that it [the investment] was a temporary fix," said one sell-side trader when asked about the impact of the BofA investment on Countrywide's stock. "It's really the news that moved the stock yesterday. There is still an enormous amount of uncertainty in the mortgage market."

In fact, shares of other mortgage lenders fell again on Friday after getting boosted by the Countrywide capital infusion news.

Friday, Countrywide's stock gave up $1.02, or 4.63%, to end at $21 (NYSE: CFC). On Thursday, the first trading day after the investment was announced, the stock gained 20 cents to close at $22.02.

Volume was also amazingly high with 63,794,000 shares traded compared with an average 25,607,600 shares. On Thursday, 145,854,374 shares of Countrywide were traded compared with an average 23,338,800 shares.

Meanwhile, shares of Thornburg Mortgage Inc. were down 22 cents at $13.25 on Friday after gaining 63 cents on Thursday following the Countrywide news.

But Luminent Mortgage Capital Inc. saw its stock jump.

The sell-side trader said Friday that, much like Countrywide's stock got a jump from its $2 billion BofA investment, Luminent's stock has benefited.

"Again, it's a short-term relief for their stock," the trader said. "I'm not saying it doesn't benefit them in any way. But the next time something happens, you're going to see another drop. It's not a stable, steady climb."

Luminent is working on a $65 million infusion from Puerto Rican hedge fund Arco Capital Corp.

This move, one analyst notes, may save the REIT from certain bankruptcy.

"It's really the only option, other than bankruptcy, that they had," said the analyst on Friday when asked about earlier rumors of bankruptcy surrounding Luminent. "I think they realized that they either needed to get into an arrangement like the Arco deal or else file for bankruptcy."

Luminent's stock jumped 11.67%, or 11 cents, to end at $1.34 (NYSE: LUM).

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