FOOL PLATE SPECIAL
An Investment Opinion
by Warren Gump

French Fiddler on Red Roof

Investors hoisted Red Roof Inns (NYSE: RRI) $4 1/4 to $22 9/16 this morning after French lodging giant Accor SA announced it will acquire the Columbus, Ohio economy lodging chain for $22.75 per share in cash. A tender offer for the Red Roof shares will commence shortly, and Accor has obtained commitments to tender from holders of 68.3% of Red Roof's stock, virtually assuring the deal's completion. Accor is not new to economy lodging, as it also operates the Motel 6 chain in the U.S. and the Formule 1 and Etap Hotel chains in Europe. In addition to these lower-priced operations, Accor also operates the upscale Novotel and luxury Sofitel brands.

This sale ends a lackluster period for Red Roof. Although the company's properties generate strong cash flow, it has struggled to develop strong, consistent earnings growth. Management seemed to be on the right track to achieve this goal, but investors became impatient during the process. When the company came public, it owned all of its properties, subjecting it the full brunt of the competitive economy lodging sector. Intensifying competition from a slew of new low-priced lodging offerings over the past two years brought earnings growth to a sputter.

Realizing it needed to find a way to leverage the company's strong brand name, management implemented a franchising program that would create a stream of relatively consistent, high-margin royalty fees. Beyond starting a coveted fee-income stream, the franchise program would increase brand presence using the holy grail of real estate investing -- other people's money. The company was successful from a unit expansion perspective -- it opened 34 franchised properties last year (compared to expectations of 20) and hoped to exceed 50 opening this year, but this program didn't have the oomph to boost earnings dramatically. Earnings per share were only expected to rise 8% for the year.

Sensing an opportunity to scoop up Red Roof at a low price, Accor decided to swoop in before Red Roof became a more potent competitor. It just goes to show that value doesn't sit around forever on Wall Street. Strategic or financial buyers will invariably come in and swoop up companies with valuations that are too low.

UPS

Shares of World Color Press (NYSE: WRC) rolled up $4 5/16 to $34 1/8 after Quebecor Printing (NYSE: PRW) said it will acquire all outstanding shares of the company for $2.7 billion in cash, stock, and assumed debt. The new company, to be called Quebecor World Inc., will be the world's largest commercial printer, cranking out magazines, catalogs, books, retail inserts and circulars, and direct mailings.

Property and casualty insurance and reinsurance company St. Paul Cos. (NYSE: SPC), which agreed to sell its personal insurance operations to MetLife Auto & Home for approximately $600 million, gained $1 to $30 1/8. St. Paul plans to use the proceeds form the deal for general corporate purposes -- possibly including acquisitions to augment the company's specialty insurance and general commercial lines -- and to buy back shares.

Property and casualty insurer Orion Capital Corp. (NYSE: OC) rose $6 5/8 to $47 3/8 after London's Royal & Sun Alliance Insurance Group agreed to buy the company for $1.4 billion in cash. The $50 per share deal represents a 23% premium to Friday's closing price.

Health care services company Specialty Care Network (Nasdaq: SCNI) rose $1 to $5 1/16 after its HealthGrades.com subsidiary inked an agreement with online women's network iVillage Inc. (Nasdaq: IVIL) to feature HealthGrades.com's proprietary health care ratings information on Better Health, iVillage's health channel.

Medical products company Baxter International (NYSE: BAX) jumped $2 7/8 to $63 3/4 after it announced plans to spin off its cardiovascular business to Baxter shareholders on a tax-free basis in the first half of next year, creating a new publicly traded company. Baxter itself will continue to focus on providing critical medical therapies for patients with life-threatening conditions. Baxter believes the two businesses will be "more competitive and have greater financial flexibility to invest and grow."

Educational programs company Argosy Education Group (Nasdaq: ARGY) advanced $9/16 to $8 on Friday night's news of fiscal Q3 EPS of $0.27, up from $0.16 a year ago and a penny ahead of the estimate one analyst gave First Call. "Prospects for continued improvement in revenues and earnings are favorable," said Chairman Michael Markovitz.

Information technology training software developer CBT Group (Nasdaq: CBTSY) rose $2 13/16 to $24 11/16 after Morgan Stanley upgraded the stock to "outperform" from "neutral." Last week, the company hired a CFO and signed a five-year, $25 million deal to develop and administer virtual technical certification programs for employees of Unisys Corp. (NYSE: UIS).

Development stage viral treatment firm Trimeris (Nasdaq: TRMS) moved up $1 1/4 to $19 3/4 after signing an agreement to develop two of its anti-HIV fusion inhibitors with Swiss drug develop Roche. Roche will pay Trimeris $10 million in cash and up to an additional $78 million in cash and funding upon achievement of various milestones.

Photronics Inc. (Nasdaq: PLAB), which makes photomasks used in the production of semiconductors, won $2 1/4 to $28 3/8 on news that it will team with IBM (NYSE: IBM) to develop technology for making smaller, faster computer chips.

Enterprise reporting software company Actuate Software Corp. (Nasdaq: ACTU) ascended $4 to $31 7/8 after Credit Suisse First Boston raised its rating on the stock to "strong buy" from "buy," setting a 12-month share price target of $45.

DOWNS

Internet portal Infoseek (Nasdaq: SEEK) dropped $4 1/16 to $47 7/16 after Walt Disney Co. (NYSE: DIS) agreed to acquire the remaining 57% stake in the company it doesn't already own and combine it with its Buena Vista Internet Group to create a single network called go.com. Each Infoseek share will be converted into 1.15 shares of go.com, which will trade on the New York Stock Exchange under the ticker symbol "GO." For more details, see this morning's Breakfast With the Fool.

Lawn and garden and pet supplies retailer Central Garden & Pet Co. (Nasdaq: CENT) was mowed down for a $2 loss to $8 5/16 after lawn care products firm Scotts Co. (NYSE: SMG) said it will end its exclusive distribution deal with Central for its Ortho products and Monsanto's (NYSE: MTC) Roundup consumer products when the arrangement runs out in September. Instead, Scotts will use direct sales and several distributors, with Central being the largest. Central will lose $200 to $250 million in annual sales due to the changes and about 4% to 7% of its gross profit for this year. "Substantial" charges will be recorded for the fiscal year ending this September.

Network server vendor Sequent Computer Systems (Nasdaq: SQNT) lost $3/16 to $17 1/4 after computing products and services giant IBM (NYSE: IBM) ended weeks of speculation and finally agreed to buy the company for $18 per share in cash, or about $810 million. IBM fell $1 1/4 to $136 1/8.

Online horse race wagering network Youbet.com (Nasdaq: UBET) pulled up lame and stumbled $11/16 to $11 11/16 after casino and race track operator Hollywood Park (NYSE: HPK) said it is terminating its agreement with the company and will not permit Youbet.com to accept any wagers on Hollywood Park races. Hollywood Park said the wager volume handled by Youbet.com "amounts to $21,000 a day, which is substantially less than we anticipated."

Computer scanners software developer Caere Corp. (Nasdaq: CAER) sank $3 to $10 3/4 after saying lower-than-expected sales will result in Q2 EPS between $0.18 and $0.20, short of the First Call mean estimate of $0.22.

Contract electronics manufacturing services (EMS) firm Sanmina Corp. (Nasdaq: SANM) slid $3 5/16 to $79 15/16 following a BancBoston Robertson Stephens downgrade to "long-term attractive" from "buy."

Online music technologies company Liquid Audio (Nasdaq: LQID) gave back $1 13/16 to $34 3/4 after rising 144% on Friday following its initial public offering of 4.2 million shares at a price of $15 per share.

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Contributing Writers Brian Graney (TMF Panic), a Fool David Marino-Nachison (TMF Braden), a new Fool Editing Brian Bauer (TMF Hoops), another Fool Bob Bobala (TMF Bobala), a Fool's Fool Jennifer Silber (TMF Amused), Fool at last