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Iomega trades on buyout rumors

The company has seen stock trading soar to some of its highest levels for the year amid rumors of a Hewlett-Packard buyout.

Portable storage maker Iomega (IOM) has seen stock trading soar to some of its highest levels for the year amid rumors that Hewlett-Packard (HWP) is interested in buying the company.

Shares closed at 20-1/8 today, down slightly from yesterday but up from its Friday close of 17-3/8, as 6.8 million shares traded hands. Nearly 17.2 million Iomega shares were traded yesterday, far outdistancing the year's usual volume of under 3 million shares.

Hewlett-Packard and Iomega representatives said their companies' policies are not to comment on rumor and speculation.

"I've heard the rumors," said Susan Stillings, an Iomega spokeswoman. "I think the stock trades on different information."

She noted the company released several announcements this week, which ranged from global shipments reaching 6 million last month to an introduction of software that allows audio recording and playback on PCs.

The last time the volume reached such levels was last September, when 27.8 million shares traded hands.

Despite the flurry of rumors, however, certain traders and analysts discounted the possibility of an HP acquisition.

"It makes no sense to me. At Iomega, the goal is to sell to OEMs. Does Compaq really want to buy their stuff from HP?" asked Jeff Matthews, general partner at RAM Partners, an investment firm in Greenwich, Connecticut.

He added that Iomega's purchase price would be more expensive than duplicating the product for a few hundred million dollars. By contrast, because of Iomega's strong brand equity, it would take roughtly $3 billion to buy the company.

"Iomega would be captive to HP machines," said Abishek Gami, vice president at Nesbitt Burns Securities in Chicago.

Nonetheless, rumors and their effect on its stock are nothing new to Iomega. The company is one of the few notable cases that has seen its stock get a tremendous boost as talk on electronic bulletin boards reached a fever pitch.

In a 1995 Securities and Exchange Commission filing, the company noted that past bulletin board postings had included false information on company developments and had misled investors by falsely attributing quotes to its executives. Iomega cautioned that this was contributing to some of the volatility in its stock.