It has been an eventful week for rumors.

The week started off with rumors supposedly coming from Credit Suisse (CS) on Monday that the Carolina Group (CG) would receive a bid from Reynolds American Inc (RAI). This takeover rumor, combined with the quarterly dividend announcement on Friday, May 9, was primarily responsible for the climb in CG from $69.20 to $74.01 on Monday and Tuesday.

Now that Yahoo (YHOO) has formally rejected the buyout offer of Microsoft (MSFT), there is debate as to what will happen next. People are talking again about a merger between Yahoo and AOL. Even though this merger would be probable, as Time Warner (TWX) has been trying to spin off AOL for some time now, it is not too exciting.

The combination of two search engines that are losing market share is not the answer. Instead, the answer is to acquire another separate search engine in a new and developing market.

During the last year, Sepracor (SEPR) has had a substantial correction in price, dropping over fifty percent. This significant decline has taken the market cap of the company to only $3.11B. Even with this significant drop, however, takeover rumors continue to circulate. StockRumors.com has received and reported takeover rumors on Sepracor virtually every two months since the beginning of 2006.

Most of Sepracor's current product line deals with Asthma. They also own the drug Lunesta, which is a sleeping aid for insomnia. Sepracor is currently developing several drugs which will mostly be used to treat depression, anxiety, and epilepsy. The product line that Sepracor owns, therefore, is small and very limited. Regardless of this, the earnings of the company have been, for the most part, growing.

One year ago in November, 2006 when Baidu (BIDU) was just $75 per share, we posted an analysis of BIDU takeover rumors.

At the time, BIDU had a P/E of about 100, and a market cap of about $3B.

Since 2004 BSX has seen strong negative momentum, dropping to its low, at 28% of what its market cap was at its peak. Even during the last two years while takeover and leveraged buyout rumors have circulated the stock has continued its decline. In the end of May, 2007 negative rumors were circulating on BSX's stent sales, and we saw fulfillment of that near the end of July.

However, even throughout these times, leveraged buyout rumors have continued to circulate steadily. The rumor has become cliché, and is to the point where people who are familiar with the rumor say "There it goes again... It will happen some day".

Takeover rumors again began to circulate in September of 2006 when OPCO said that HANS would get bought out soon. In December rumors of a leveraged buyout circulated.

Since May of 2007 rumors have run rampant that Anheuser-Busch Companies Inc (BUD) or Pepsico Inc (PEP) are interested in buying out Hansen.

A Divisive Stock

Micron develops memory, and has some specialization in the Flash memory business. Over the past month, several financial firms have upgraded MU based on DRAM pricing improvement. During the past month, UBS and Avian have both come out with very positive notes on MU related to pricing. On the other hand, Deutsche Bank came out with a negative note on MU in late March citing possible memory operation losses and the downside risk to consensus estimates. In early April there were several other downgrades and upgrades on MU.
As we can see, there has been significant division in opinions of MU.

A Divisive Stock

Micron develops memory, and has some specialization in the Flash memory business. Over the past month, several financial firms have upgraded MU based on DRAM pricing improvement; UBS and Avian have both come out with very positive notes on MU related to pricing. On the other hand, Deutsche Bank came out with a negative note on MU in late March citing possible memory operation losses and the downside risk to consensus estimates. In early April there were several other downgrades and upgrades on MU.

MAMA

Mamma.com Inc provides search technology for the Web, for desktop space, and now has entered the mobile search/multimedia market with their new "revolutionary" plug-in (See press release from May 1, 2007).

India and IT

Satyam is an Indian based IT company that offers a variety of services from application development and maintenance to infrastructure management. India is a growing market and will add millions of internet and IT users within the next few years. The opportunity for tech companies in India is immense.

This growth is certainly a possibility. Flash memory technology is getting used more and more in a variety of devices. Cell phones use it, GPS systems use it and iPods use it. Almost everything that stores any data in the future may end up using it (including cars, light posts, stoplights, refrigerators and anything else electronic).

MU has a market cap of about $11B. However, MU has current assets of almost $5B, and total equity of $8.5B. This equity ratio makes it an extremely attractive target for private equity. A current asset ratio of 0.46 or 46% is extremely high, as is a total equity ratio of 0.77 or 77%. Revenues for Micron Technology, Inc. were about $5.25B last year alone, 8% ($408M) of which was net.

Why would TLAB be a good takeover candidate? With a market cap of almost $5B, 40% of which is held in current assets, and quarterly revenues of around $500M ($60M net), and with the international market penetration TLAB has been able to attain, they could be an attractive takeover target for a similar network based company.

Tellabs, Inc.

Overstock.com:

Overstock.com is an online closeout retailer based in Salt Lake, UT that offers discounted brand name merchandise. OSTK currently has a market cap of $346M. True, OSTK earnings and growth have been negative, along with its Alexa ranking [traffic to their site] decreasing, but quarterly revenues have still been almost 50% of its market cap. Much of the blame has been put on the CEO, and he was recently named second-time runner up for the "Worst CEO of 2006".

As early as 2005, StockRumors.com reported Rediff.com (REDF) as a takeover target. Sify Limited (SIFY) takeover rumors, however, have been more recent.

Rediff.com (REDF)

With roughly $53M in liquid assets and a market cap of $530M and ever increasing revenue, there has been speculation that REDF is a takeover target. REDF's business model consists of communication services [i.e. e-mail and instant messaging], news, community features, search engines, and mobile and online marketplace services tailored for the global Indian community. Many of the users of Rediff.com are not in India, but have significant connection to the Indian community.

Marvell Technology Group Ltd.

Both companies are growing and appear to have good future potential; however all of the takeover and merger speculation that has been going around has affected the valuation of the stocks. Some have argued that the shares are not overpriced as merger and takeover premium could be built in.

XMSR has typically been the target of the takeover rumors, as it has the smaller market cap of $3.7B. XMSR posted a positive surprise on its earnings, losing less than expected per share (-$0.32). XMSR has cash and securities of $211M.

Historical Rumor Data
StockRumors.com has reported takeover rumors on BIDU as early as August, 2005. Throughout the entire year BIDU takeover rumors have circulated, but they specifically picked up steam in early June, and lost it after GOOG sold their position in mid June. In August and September, takeover rumors circulated again.
In the past, BIDU has been rumored as a GOOG (most prominently) or YHOO takeover target. There have also been rumors of an LBO (leveraged buyout) on BIDU, and that several firms may have started to make a move.

Analysis of the Rumors
In June, BIDU had over $1B in cash, and today has a market cap of only $2.8B. A company that has roughly 35% of its market cap in cash could definitely be a target of a LBO.

SEPR will post earnings tomorrow. If SEPR meets its estimates of $0.19 per share, it would still have a P/E of about 70 (which is still significantly more than the P/E ratio which its competitors trade around -- typically between 15 and 25). However, one very positive note is that SEPR's forward P/E is near that range. If they are able to consistently meet their estimates, they could definitely be worth their current price.

Why then is SEPR valued so high?
StockRumors.com reported SEPR takeover rumors as early as November 2005. Starting May 11, 2006 more reports of takeover chatter circulated. Again, throughout at least 5 days in June 2006 the takeover rumors were reported. During this time, SEPR reached its 52 week high of $60.75. SEPR's 52 week low occurred in April at $42.29 after posting their earnings -- which at the time still meant it had a P/E of over 100.

There has been a lot of negative sentiment towards YHOO, and the negative growth does bring some concern. However, Yahoo.com is still the #1 most visited site on the internet, catching about 30% of all web traffic.