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Halftime: Is Office Depot the Next Takeover Target?

Wednesday, 22 Dec 2010 | 1:35 PM ET

Office Depot is a prime takeover candidate with private equity the most likely buyer, according to investment research firm Morningstar. As a result, shares of the specialty retailer surged and options remained active in midday trading Wednesday.

"The company filed a change of control agreement with the SEC," said Scott Nations, president and chief investment officer of NationsShares. "I don't know if that means they expect a change in control, but the options here are just on fire."

Nations noted that more than 27,000 calls had been traded by midday trading versus the average of less than 2,000. Feb. 6 calls are aggressively being bought.

CNBC's Melissa Lee noted this isn't the first time Office Depot has been mentioned as a possible takeover target.

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MICROSOFT USING ARM HOLDINGS' CHIPS A 'GAME CHANGER'?

Reports that Microsoftis planning a new version of its mobile operating system using ARM Holdings' chips sent the stock to new 52-week highs by midday trading on Wednesday. But are investors overreacting to the news?

Who is Arm Holdings?
Arm Holdings hits new 52-week high on Microsoft news, with the Fast Money team.

Yes, said Gary Mobley, a top ranked analyst at Benchmark. Mobley explained that this isn't likely to be a joint venture between the two companies. Instead, Microsoft is simply working with ARM on the mobile side where it just doesn't have much market share.

Brian Kelly of Kanundrum Capital, on the other hand, views it as a "game changer." Kelly said Microsoft is starting to realize people want to integrate all of their electronic devices, including their laptops, cell phones and tablets. Inteldoesn't seem to get it.

"Intel can not perform and Microsoft is never in favor," said Stuart Frankel's Steve Grasso, adding that valuations on ARM are too high.

Mobley has long had a 'sell' rating on ARM with a price target of $10. He also thinks valuation is high.

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POPS & DROPS

By midday trading Wednesday, stocks were narrowly mixed following news that existing home sales rose in line with expectations, and that third-quarter GDP grew slightly more than reported previously, but less than expected. In light of it all, the following market movers grabbed the attention of the "Fast Money" traders:

Pops (stocks that went up)

American Greetings (AM) popped 8%: The Cleveland-based maker and seller of greeting cards reported its profits grew by 8.3 percent in the third-quarter. Revenues, however, fell to $430 million compared to $440 million in last year's Q3. Kelly recommends taking profits now.

Carnival (CCL) popped 4%: The cruise and vacation company caught an upgrade from Standard & Poor's, which raised the Miami-based company to ‘buy’ from ‘hold’. On Tuesday, the services name reported its fourth-quarter profits jumped by 28 percent. Nations likes Carnival's stock right now.

Priceline.com (PCLN) popped 2%: American Airlines on Tuesday pulled its flights from Orbitz, an online travel company that competes with Priceline. On Wednesday, ThinkEquity upgraded PCLN to 'buy' from 'hold'. Citing its international exposure and expansion, Steve Cortes of Veracruz called Priceline "best of breed."

Drops (stocks that went down)

Akamai Technologies (AKAM) dropped 2%: The U.S. Court of Appeals on Tuesday ruled that Limelight Technologies did not infringe on Akamai's patents. On Wednesday, Akamai was initiated to 'market perform' at Wells Fargo.

"I think around these levels it's been oversold," Grasso said, adding he'd watch the $49 level with support at $46.

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CALL THE CLOSE

At the conclusion of Wednesday's program, the "Fast Money" traders guessed whether the market would close up or down and a few trades, too:

"Don't sell a quiet market," Nations said, adding he expects the market to possibly close higher.

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"With the VIX under 16, I think insurance is very cheap," Cortes said. "Time to buy an umbrella in some puts."

Grasso recommends trimming positions going into year-end.

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Trader disclosure: On Dec. 22, 2010, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Scott Nations owns (MSFT), (SPY) and (CME). Steve Cortes owns (TSN). Steve Cortes is short (LVS). Steve Cortes is short (MOS). Steve Cortes is short (XRT) vs S&P 500. Steve Cortes is short Gold. Steve Cortes is short Nat Gas. Steve Cortes is short Wheat. Steve Cortes is short Corn. Steve Cortes is long treasuries. Steve Cortes is long USD vs. Mexican Peso and Canadian Dollar. Steve Grasso owns (ASTM), (BA), (BAC), (BWC), (C), (CSCO), (JPM), (LIT), (LPX), (MHY), (NDAQ), (PFE), (PRST) and (S).

GE is the parent company of CNBC
NBC Universal is the parent company of CNBC

BRIAN KELLY
Accounts Managed By Kanundrum Capital Own (JPM)
Accounts Managed By Kanundrum Capital Own (BBT)
Accounts Managed By Kanundrum Capital Own (WFC)
Accounts Managed By Kanundrum Capital Own (QCOM)
Accounts Managed By Kanundrum Capital Own (JJC)
Accounts Managed By Kanundrum Capital Own (FCX)
Accounts Managed By Kanundrum Capital Own (JJG)
Accounts Managed By Kanundrum Capital Own (MON)
Accounts Managed By Kanundrum Capital Own (XLE)
Accounts Managed By Kanundrum Capital Own (OIH)
Accounts Managed By Kanundrum Capital Own (ANDE)
Accounts Managed By Kanundrum Capital Own USD
Accounts Managed By Kanundrum Capital Are Short The Euro
Accounts Managed By Kanundrum Capital Are Short The Yen

STEVE GRASSO
Stuart Frankel & Co and its partners own (AAPL)
Stuart Frankel & Co and its partners own (AMGN)
Stuart Frankel & Co and its partners own (BP)
Stuart Frankel & Co and its partners own (CUBA)
Stuart Frankel & Co and its partners own (GE)
Stuart Frankel & Co and its partners own (GERN)
Stuart Frankel & Co and its partners own (HPQ)
Stuart Frankel & Co and its partners own (HSPO)
Stuart Frankel & Co and its partners own (NWS.A)
Stuart Frankel & Co and its partners own (NYX)
Stuart Frankel & Co and its partners own (OPEN)
Stuart Frankel & Co and its partners own (PDE)
Stuart Frankel & Co and its partners own (PFE)
Stuart Frankel & Co and its partners own (PRST)
Stuart Frankel & Co and its partners own (RDC)
Stuart Frankel & Co and its partners own (TLM)
Stuart Frankel & Co and its partners own (XRX)
Stuart Frankel & Co and its partners own (SDS)
Stuart Frankel & Co and its partners own (UNM)
Stuart Frankel & Co and its partners are short (QQQQ)
Stuart Frankel & Co and its partners are short (AAPL)

STEVE GRASSO SOT
Grasso owned (X) on 12/03/2010

GARY MOBLEY
Mobley has no disclosures

CHRIS MUTASCIO
Stifel, Nicolaus & Company, Inc. makes a market in the securities of (CMA)
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Stifel, Nicolaus & Company, Inc. makes a market in the securities of (BAC)
Stifel, Nicolaus & Company, Inc. or an affiliate managed or co-managed a public offering of securities for (BAC) in the past 12 months
(BAC) is provided with investment banking services by Stifel, Nicolaus & Company, Inc. or was provided with investment banking services by Stifel Nicolaus or an affiliate within the past 12 months
(BAC) is a client of Stifel, Nicolaus & Company, Inc. or an affiliate or was a client of Stifel Nicolaus or an affiliate within the past 12 months Stifel, Nicolaus & Company, Inc. expects to receive or intends to seek compensation for investment banking services from (BAC) in the next 3 months
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CNBC.com with wires

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AKAM
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AM
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ARM
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CCL
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INTC
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LLNW
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MSFT
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ODP
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OWW
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The Priceline Group
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VIX
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