Thursday, February 08, 2007

Calls of Note Part 1

- JP Morgan believes that there may be more than simply soft 4Q results behind the decision of General Atlantic to pull out as an equity sponsor in conjunction with CEO Jim Crane's offer to buy EGL (NASDAQ:EAGL) at $36. Firm's sense is that a difference of opinion about control and input for GA in the management of EAGL was probably an issue.

They believe that the cash flow characteristics and growth potential of non-asset transportation companies are attractive to private equity investors and they believe Mr. Crane is likely to find another equity sponsor to help fund a buyout.

With little information in the press release, visibility is limited. However, the firm believes reward to risk is favorable for EAGL. Emergence of another equity sponsor clearly could boost the stock and even on lower 07 EPS they suspect potential downside is only to the high $20s area. Historically EAGL has meaningful EPS volatility especially during periods of weak demand. JPM has lowered their 2007 EPS estimate from $1.75 to $1.40 to reflect a difficult 1H07.

They uspect that another private equity buyer could show up and firm's sense continues to be that a $38 to $40 type of takeout price could be justified.

Notablecalls: Expect to see some buy interest in EAGL today. The 16% drop is share price looks like a bit of an overreaction.

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