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Early Edge: Terra Industries Inc., Blue Nile, Oshkosh Corporation, and STEC, Inc.

The fertilizer firm finally submits to a sector peer's buyout bid

by 2/16/2010 9:29:57 AM
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Today's column includes buyout news for Terra Industries Inc. (TRA), a negative write-up for Blue Nile, Inc. (NILE), upbeat contract news for Oshkosh Corporation (OSK), and a bearish note for STEC, Inc. (STEC). Each day, Early Edge focuses on the hot stocks in the news and gives you a unique insight into each stock's sentiment backdrop. Our time-tested contrarian approach centers on options, and gives you the trading tools to approach the day with a much-needed edge over the investing herd.

Terra Industries Inc.

Terra Industries Inc. (TRA: View sentiment for TRAsentiment, chart, options), which dodged the merger-and-acquisition overtures of CF Industries (CF) for a full year, has finally found a suitor. Norwegian firm Yara agreed to purchase Terra for $4.1 billion in cash, valuing shares of the latter company at $41.10 each. The offer represents a premium to CF's final bid of $38.89 per Terra share, and it's a mark-up of nearly 24% from TRA's Friday close.

TRA price chartThe deal is Norway's biggest-ever foreign takeover announcement, and the merger will create the world's largest producer of mineral fertilizer. Yara, which is 36.2% owned by the Norwegian government, is planning a rights issue valued between $2 billion and $2.5 billion to finance the acquisition.

The purchase of Terra will also allow Yara to expand its presence in the U.S. from the East Coast into the Midwestern region. "We expect the U.S. markets to pick up in a big way," said Yara Chief Executive Joergen Ole Haslestad.

TRA has jumped roughly 22% ahead of the open, drawing close to its purchase price. Today's pre-market rally should help propel the shares well north of recent resistance from their 50-day moving average.

Front-month option traders will no doubt be pleased by today's news, as bullish bettors were favoring the February 31 strike. This option is home to peak call open interest of 13,522 contracts, which were narrowly in the money as of Friday's close -- but, thanks to Yara's bid, these calls will likely be deep in the money at the open.

Blue Nile, Inc.

Blue Nile, Inc. (NILE: View sentiment for NILEsentiment, chart, options) was the topic of a skeptical Barron's article over the weekend, with the financial publication citing the "brutal business climate and still-lofty valuation" as points of concern. Even more troubling, NILE experienced declines in unique monthly visitors during the past year, compared to increased traffic for brick-and-mortar rival Tiffany & Co. (TIF). The author also pointed to heavy insider selling during the past 12 months, "suggest[ing] Blue Nile's executives might not have considered the shares such a gem."

NILE is off 1.7% in pre-market trading, adding to its unimpressive year-to-date decline of 20.7%. The shares have been guided steadily lower by their 10-day and 20-day moving averages since early January, and this double-barreled resistance shows no signs of weakening.

However, short sellers are likely cheering NILE's lackluster price action. Despite a 7.4% decline during the most recent reporting period, shorted shares still account for a substantial 19.8% of the equity's float.

Oshkosh Corporation

Oshkosh Corporation (OSK: View sentiment for OSKsentiment, chart, options) is in focus this morning, with the U.S. Army upholding a $3 billion cargo truck contract after considering objections by rival firms. A stop-work order was issued by the Army back in September after BAE Systems and Navistar International (NAV) requested that the U.S. Government Accountability Office (GAO) review certain portions of the bids submitted.

"We are very pleased the Army affirmed its original decision that Oshkosh Corp.'s bid clearly represents the best overall value," stated Oshkosh Chairman and CEO Robert Bohn. Under the terms of the five-year pact, OSK will supply 12,415 trucks and 10,926 trailers worth $3.02 billion.

OSK has added 6.8% ahead of the open, with the shares poised to reclaim the round-number $40 region. This psychological resistance level has frustrated the equity's progress since late December 2009.

In fact, the February 40 strike also happens to be home to peak call open interest of 10,893 contracts for the front-month series. If OSK can establish a firm foothold above this level in today's trading, the shares might not have to contend with options-related resistance this expiration week.

STEC, Inc.

STEC, Inc. (STEC: View sentiment for STECsentiment, chart, options)

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