ACS BUYOUT APPEARS LIKELY

It appears the days of Peridot owning shares of Affiliated Computer Services (ACS) may be coming to a close. Rumors have been swirling in recent weeks that the company is up for sale, with a long list of private equity firms in on the bidding process. Reports have pegged potential price tags in the range of $62 to $65 per share.

While a deal seems likely, I am really hoping to get close to $65, as my fair value calculation nets a $66 price objective. Since rumors have been out there, but no deal is in place, ACS has drifted down a couple of points to its current $60 quote.

For short term players looking to make a few points on the announcement, a deal could be announced as early as Monday, and I would speculate that the odds of one falling apart completely are no more than 25%. Even if no buyer emerges, ACS stock trades 10% below what I think it's ultimately going to be worth later this year.

NETWORK APPLIANCE RALLY GETTING FROTHY

I was selling shares of Network Appliance (NTAP) into yesterday's strength as the shares jumped as much as $4 (13%) to $34.49 per share. Evidently, rumors of an IBM (IBM) buyout offer were swirling, which led to an upside breakout.

Even though I am very bullish on NTAP's business prospects, and an IBM bid could very well send the stock even higher, I don't think the odds of a buyout are very high. On top of that, with the stock at $34 per share, it's hard for me to justify much upside to the stock without such a deal.

Estimates for 2006 currently stand at about $0.85 per share. That's a very high multiple, even with the company's 25% growth rate and solid balance sheet. For me, the risk/reward trade-off at these lofty levels has lost its luster, at least for now.