When was the last time you kept a retailer buyout rumor on a watch list?  Or two retailers for that matter?  Friday’s trading was mixed with two buyout rumors in the retail segment.  GameStop Corp. (NYSE: GME) and SuperValu Inc. (NYSE: SVU).  The issue at hand is if private equity is back to making deals.  In these two particular cases, one buyout may make sense but one seems rather hard to fathom.

SuperValu Inc. (NYSE: SVU) almost put in a new 52-week high.  This seems hard to fathom on the surface considering the new normal, but everything we have seen points to a resumption of private equity.  SuperValu’s new CEO is on the job less than a year and is supposed to be winning with cost cuts and managing inventories and products.  Its $3.6 billion market cap does not send up a red flag for any deal limits even in the new normal now that the markets have recovered so well.

The grocery chain owner hit a Friday high of $17.89 but closed up 6.6% at $17.13 versus a prior 52-week high of $17.93.  Still, this was a $30 stock in 2008 and more than $40 in 2007.  There is no growth expected here, but the stock trades at only about 8.8-times Thomson Reuters estimates for its fiscal Jan-2010 and Jan-2011 estimates.  Even though the analysts who follow the stock have an average price target of under $15.00, this trades at a significant discount to peers.  Kroger is more than 12-times forward earnings versus Safeway’s multiple of more than 13-times forward earnings.

SuperValu is tough to love over its segment, but this is a value stock with a turnaround to boot.  This stock be a $21.50 stock before its valuation gets too close to peers.

GameStop Corp. (NYSE: GME) is the hard buyout rumor to buy.  It has come up as a buyout name in the past but nothing every materialized.  A buyer wants to be able to buy a company on the cheap and GameStop is definitely on sale or at least at a significant discount.  But the company also has no real catalysts behind it.  The video game industry is no longer growing as it was and the launch of a new wave of game consoles is a notion that does not seem like a promise any time in the near future.

The GameStop rumors also look very short-lived.  The video game retailer hit a high of $19.84 early Friday morning but the stock closed down 0.7% at $19.12 on the day.  Not much conviction.  In the world of M&A we are never be surprised by anything.  But the Friday trading was not active enough to merit the bother of a rumor, and the sector news flow has pointed more toward a consolidation of game publishers more than a consolidation of the pure-play video game retail sales locations.  As far as all those downloadable games, that is a risk ahead for GameStop that a potential buyer might not be able to escape.  On GameStop, we noticed how more of the options trading seemed to be hedged trading rather than anything with conviction.

SuperValu saw 4-times normal trading volume in the stock and its stock options were among the largest standout trades and most active options.  Our only notion here is that the APR-2010 Calls are not factoring in much more than a $18.50 share price for a month out.

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JON C. OGG

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