Fresh Bait Shop Updates to Takeover Names (FINL, WDC, ATK, BEAS, IMAX)


By Jon C. Ogg
November 22, 2006

Today we are making several free public BAIT SHOP updates for a small fraction of our BAIT SHOP MEMBERS.  The BAIT SHOP is quite simply a group of companies that 24/7 Wall St., LLC feels could be acquired by either private equity funds, other public or large private companies, and even by turnaround managers.  We send out some fairly regular updates for free on various names that are on our buyout candidate list.  Please read the disclaimer at the end to see our policy on this, but send an email to [email protected] if you would like to get on the free email distribution list.


Finish Line (FINL)
Western Digital (WDC)
Alliant Techsystems (ATK)
BEA Systems (BEAS)

What a difference a year makes.  You have CNBC daily asking if there is a private equity bubble.  Jim Cramer has gone from saying the equivalent of “I won’t go after a stock just because it may be a takeover target, because that’s not my game.  I look for growth!” to now recommending a new “buyout candidate” almost every day.  The WSJ this morning ran an article about WHO’s NEXT?, Barron’s has picks regularly, the New York Times has the New York Times runs its Dealbook, and so on.  With a myriad of multi-billion deals coming in every Monday and half of every other weekdays this is not a surprise.

So for free today we’ll update some of our BAIT SHOP stock picks with new commentary:

Finish Line (FINL):  FINL was a name that was added to the BAIT SHOP with a 1/3 to 1/2 Position after the weekend of June 30 at $11.83, and the rest of the position add came in August (Aug. 25) at a $10.87 close after it had briefly dipped under $10.00.  So if you had an average purchase price of $11.30 to $11.50, this is time to take the money off the table.  This addition to the BAIT SHOP was after Foot Locker (FL) was looking more and more like it was about to be gobbled up and FINL was a better play in my opinion all around from valuations to size to everything.  There was a short period where this required some fortitude to stick by, but now we think it is time to unload the shares.  Any chance of a Foot Locker deal appears to be toast, and if that one doesn’t fall then the odds that FINL needs to be bought falls drastically.  This should have been recommended last week when the stock was around $15.00.  At $14.00 the valuations just aren’t any different than on FL, particularly with the dual class of ownership and insiders being THE stop.  There is just no reason to fight this, so just take the profits and run.  As a reminder, this was only looking at the company as a related buyout candidate, so we are not making any fundamental call here that the company is done nor are we saying there is something wrong with Finish Line.  There is just very little chance of a takeover occurring now.

Western Digital (WDC)
:  We added Western Digital as a full BAIT SHOP member at $18.20 on September 29, 2006
Right now, we see no reason to make any change to this stance that it should be acquired.  The price appreciation from $18.20 up to today’s $21.00 is more symptomatic of the PC-related and tech/storage environment than it is a buyout, and this can still be acquired by private equity firms or by a myriad of foreign players that could go after Seagate’s (STX) sharp dominance.

Alliant Techsystems (ATK): ATK is on that has been baffling to me as to why it is still independent.  I have thought this would be acquired back in 2003, then 2004, and even re-noted this THE defense sector stock to buy on January 18, 2005 at $66.18 and again on March 17, 2006 at $75.76 closing price. It sits today at $78.00 and has traded over the last 52-weeks at $84.90.  Now that L-3 (LLL) is potentially up for grabs, this may not be THE next M&A target in defense and defense technology but it should still be acquired down the road.  The company is just too valuable for its full spectrum of what the company product offering is, and its low $2.57 Billion market cap would make it a simple acquisition.

BEA Systems (BEAS):  Still neutral on this one after having had huge profit taking opportunities.  Last night it ran back up after Jim Cramer on MAD MONeY said that it could be acquired.  We have had it on a buyout list in the past but recommended that investors take profits because BEAS is a name that is always a target that may never really be targeted (is that a paradox?).  This had been a BAIT SHOP name forever and was listed at $8.00+ originally, and then at $7.50, and then again at $9.00.  Back on March 16, 2006 I noted that this should be time to sell half since it had gone over $12.00 and at least write CALLS on the other half.  This would be a very attractive company to a myriad of buyers, BUT at $5.5 Billion and with its valuations where they stand now I think Cramer’s new “Chase buyout candidates” may be too optimistic and too much of a flavor of the day call.  I fully admit that the stock did march much higher to over $16.75 this year, but that was not on buyouts.

IMAX Corp. (IMAX):  We are NOT yet adding IMAX back onto a formal list at all, but this is starting to feel like it is becoming worth at least putting IMAX on a WATCH LIST again as one to begin re-researching since the valuations have come way in.  Last year I recommended this when it was under $8.00 and recommended taking profits on 65% or 75% of the shares back when this was in play to be acquired (at $10.75).  After it started petering out it was time to sell.  We didn’t bother looking at this after that and certainly didn’t look at each stock drop as a buying opportunity because its fundamentals were changing.  Unfortunately this one requires a turnaround specialist now, and that is much different than a private equity buyer that is looking for some low-hanging fruit that can easily be plucked.  Shares today are at roughly $3.50, and while it “sounds” cheap there is obviously a whole lot of work to do before I can feel comfortable telling you this could be a worthwhile buyout target after it has eroded its fundamentals so much.

We are publishing this as a sample of our work only, because much of this analysis for an overall BAIT SHOP has been provided to private clients in the past.  We do not publish our full list of buyout candidates for free on the web at all, and now that we have the new website platform we will be making some of the data available to the public on a subscriber basis.  Please inquire for details or stay tuned in the coming weeks for details.

Here are three BAIT SHOP full member stocks that have been acquired this year: Vail Banks (VAIL), Yankee Candle (YCC), and Univision Communications (UVN).

We email out many special situations to clients and to a public email list that pertain to buyouts, backdoor plays into upcoming IPO’s, and many other special situations.  If you would like to be on a FREE private distribution email list, please send an email to [email protected] to get on the list.  As we respect privacy, we do not share our email distribution list with any outside partners or vendors and do not engage in selling or sharing private emails with any outside parties.

Happy Thanksgiving!

Jon C. Ogg
November 22, 2006

DISCLAIMER: Information has been taken from sources deemed reliable, but no assurances can be made to the accuracy of any figures, claims, or opinions. This is for informational purposes only and is not to be interpreted as investment advice or a recommendation to buy or sell securities. It is the sole responsibility of each individual to do their own research and form their own opinions. Neither 24/7 Wall St., LLC nor its officers assume any responsibility or liability for investor gains or losses, and neither holds any material knowledge that any merger in any form will occur. The writer of this does not hold any securities in the companies mentioned, and has not been compensated by outside parties to portray this situation in any particular manner.

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