Penril Datacomm (PNRL) is spinning off their remote-access business to tidy up their company before Bay Networks's (BAY) acquisition of their modem business. Tonight we'll be offering a Foolish Take on the mechanics of the upcoming Penril spin-offs, sales, and merger with Bay Networks. This will include a look at the products involved, a valuation of Penril's parts, and terms of the Penril/Bay deal.
MF Merlin's Economic News today presents the results of the National Association of Home Builders' June member survey on conditions in the housing market. You'll find the Economic News, as well as all our Special Sections, FoolWires, and earnings reports, on either the Evening News or Stock Research screens. In tonight's Fool on the Hill, MF Templar examines some semiconductor stocks. Enjoy!
Shares of PENRIL DATACOMM NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PNRL)") else Response.Write("(NASDAQ: PNRL)") end if %> surged $3 5/8 to $13 5/8 today after it was announced that BAY NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> had agreed to buy Penril's digital signal processing (DSP) modem business for $10 per share, payable in Bay Networks stock. Penril's DSP technology was attractive to Bay because it allows for the adoption of new communications standards without the expensive hardware changes that currently accompany modem upgrades. Penril's remaining businesses, which include advanced modem, ISDN, remote access, internetworking and terminal connectivity, will be spun off to shareholders in the form of a new public company called Access Beyond. The deal, valued at approximately $120 million, is expected to be completed by mid-September.
DURAMED PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DRMD)") else Response.Write("(NASDAQ: DRMD)") end if %> was embroiled in something of a controversy today, after the company denied published reports indicating that it expected Food & Drug Administration approval by mid-June for its conjugated estrogen drug. Despite the denial, shares of the generic-drug manufacturer closed up $2 to $17 3/4 on five times its daily volume. The controversy surrounding the company dates back a few months, when shares of the Cincinnati-based concern were buoyed by comments by an Ohio legislator that approval for the drug was "imminent". If Duramed is granted approval for this drug, it would gain access to the lucrative market for estrogen replacement.
BRENCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BREN)") else Response.Write("(NASDAQ: BREN)") end if %>, a maker of railroad car bearings, popped up $3 3/4 to $16 after it announced that it will be acquired by VARLEN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VRLN)") else Response.Write("(NASDAQ: VRLN)") end if %> for $16 1/8 per share, or $165 million in cash. According to the company, the deal positions Varlen "as a preeminent global manufacturer of precision engineered railroad products". The merger would transform Varlen into a company with approximately $500 million in 1997 annual sales, and would add an estimated 7 cents per share to fiscal 1996 earnings. Ultimate confirmation of the deal is subject to shareholders' approval. Varlen stock rose $1 3/4 to $24 3/4 on the news.
QUICK TAKES: Shares of WYNDHAM HOTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WYN)") else Response.Write("(NYSE: WYN)") end if %> rose $1 to $23 3/4 after Smith Barney initiated coverage on the stock with an "outperform" rating... FLOWERS INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLO)") else Response.Write("(NYSE: FLO)") end if %> bloomed today, up $1 1/2 to $17 3/8 on a recommendation by Donaldson Lufkin & Jenrette... Shares of IN FOCUS SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INFS)") else Response.Write("(NASDAQ: INFS)") end if %> recovered $2 1/8 to $33 7/8 after Smith Barney raised its rating on the stock from "buy" to "outperform". In Focus had taken an absolute beating on Friday on fears of increased competition... KANSAS CITY POWER & LIGHT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KLT)") else Response.Write("(NYSE: KLT)") end if %> lit up for $1 1/2 to $27 3/8 today after WESTERN RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WR)") else Response.Write("(NYSE: WR)") end if %> increased its takeover bid for the utility concern to $31 from $28... Shares of the SPORTS AUTHORITY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %> rose $1 3/4 to $33 1/4 after the company announced a 3-for-2 split effective July 16... SYQUEST TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYQT)") else Response.Write("(NASDAQ: SYQT)") end if %> alleviated concerns of a possible de-listing today when it secured a $20 million convertible bond offering. The stock closed up $1 7/8 to $11 1/4... SAKS HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKS)") else Response.Write("(NYSE: SKS)") end if %> rose $1 5/8 to $34 5/8 after Goldman Sachs issued a "strong buy" and set a price target of $40 a share. Goldman helped to underwrite the company's initial public offering a month ago.
APTARGROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATR)") else Response.Write("(NYSE: ATR)") end if %> fell $3 3/8 to $36 3/8 this morning after revising expectations for its fiscal second quarter down to the range of $0.47 EPS to $0.51 EPS from $0.61 EPS. The manufacturer of perfume and odor dispensing products cited European softness and a strong lira. AptarGroup's President and Chief Executive Officer Carl Siebel added that, "We expect the fragrance/cosmetic market to recover and that AptarGroup will continue to lead the dispensing packages market."
Several issues were down today, on little news other than some insider selling. For example, networking concern ANCOR COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ANCR)") else Response.Write("(NASDAQ: ANCR)") end if %> slipped $1 1/2 to $16 1/4. Who has sold recently? Ancor Vice President Terry Anderson sold 16,500 shares at $23.38, leaving him with 440,000. Fellow V.P. Robert Cornelius sold 2,000, keeping 442,500, while Chief Financial Officer (CFO) Lee Lewis sold 1,000, keeping 284. What does this mean for investors? Not very much. While insider buying suggests confidence in a company's future, insider selling does not necessarily portend the opposite. Perhaps these people were buying new homes. Or paying for one or more kids' college tuitions. The point is, insiders sell for lots of reasons.
PROXIM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PROX)") else Response.Write("(NASDAQ: PROX)") end if %> shares retreated $4 1/2 to $30 1/8 after the wireless data communications company announced a joint venture with ALLTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AT)") else Response.Write("(NYSE: AT)") end if %> to integrate Proxim's local area network (LAN) technology with Alltel's healthcare applications and to market a wide range of services to healthcare providers.
QUICK CUTS: Goldman Sachs started OPEN MARKET <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OMKT)") else Response.Write("(NASDAQ: OMKT)") end if %> as a "moderate outperform" -- pretty weak considering they helped to underwrite it last month. The stock dropped $2 1/4 to $29 1/4... Interior protective packaging manufacturer TUSCARORA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TUSC)") else Response.Write("(NASDAQ: TUSC)") end if %> slipped $1 7/8 to $22 1/2 after posting third quarter earnings of $0.38 per share, when $0.44 was expected... Communications equipment maker SHIVA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SHVA)") else Response.Write("(NASDAQ: SHVA)") end if %> tumbled $5 3/4 to $79 1/4 after announcing that it is taking an acquisition-related $2 million charge in the second quarter... The FBI is now investigating the management of EXIDE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EX)") else Response.Write("(NYSE: EX)") end if %> trying to figure out how 200,000 batteries disappeared from a company warehouse a few months back, causing the shares to fall $1 1/2 to $21 1/8... ZYTEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZTEC)") else Response.Write("(NASDAQ: ZTEC)") end if %> continues to slide, down $1 1/4 to $14 1/4, a little over a week after filing to issue 2.3 million common shares, including about 300,000 from current shareholders.
An Investment Opinion
by Randy Befumo (MF Templar)
FOOL ON THE HILL
More Chips Are down
Most readers will recall the slaughter in semiconductor-related shares in late 1995, pushing many of these companies down 25% to 50% in the space of two months. A similar but silent purge has gone on in the past two weeks as institutions and professional money managers have begun to turn even more negative on near-term prospects for these companies, liquidating their positions and driving many of the larger, more liquid semiconductor manufacturers toward their all-time lows.
-- ZILOG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZLG)") else Response.Write("(NYSE: ZLG)") end if %> began June at $38 with a market capitalization of $739 million. In the past 11 trading sessions, shareholders have seen $231 million whittled off of this company's valuation, pushing the stock to a meager $26 1/8 per share. Although today's $3 1/4 drop can be traced to an analyst at C.J. Lawrence, the company has pointed the finger at the recently-replaced Chief Financial Officer (CFO), William Walker. Walker, who resigned on June 11th, has apparently started to sell his 200,000 shares, helping to push Zilog to a new 52 week-low today. As over 2.5 million Zilog shares have traded in the past 11 sessions, however, I think it is hard to blame all of the problems on Mr. Walker. Given that the average daily volume is 99,820 shares, suffice to say that someone has been getting rid of a lot of Zilog.
-- INTERNATIONAL RECTIFIER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IRF)") else Response.Write("(NYSE: IRF)") end if %> was also thrashed today, losing $1 7/8 to fall to $19 1/4. Montgomery Securities dropped the hatchet on International Rectifier, moving it to "hold" based on "slower anticipated order growth". In addition to the 3.0 million shares that traded hands today, 2.7 million shares have been exchanged since June 7th, when the company closed at $26 a share. This amounts to an average of 950,000 shares a day, quite a bit higher than the 344,700 average daily volume listed in Daily Graphs. Friday's 1.3 million volume actually seems pretty suspicious, all things being equal -- we wonder whether Montgomery Securities clients were exiting their International Rectifier positions fortuitously ahead of the pending downgrade.
-- CYRIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYRX)") else Response.Write("(NASDAQ: CYRX)") end if %> got mashed for $2 1/16, closing at $23 1/2. The stock traded hands for close to $33 on June 5th, a mere nine trading days ago. A whopping 8.93 million Cyrix shares have traded in that nine day period, 1.7 million today and 1.0 million the day before. A small regional firm called Southcoast Capital cut their rating on Cyrix along with their estimates, moving 1996 to $1.40 EPS from $2.40 last year. Ouch. In his notes, Ashik Kumar questioned Cyrix's 6x86 products, suggesting they were selling for 25% less than comparable Pentiums. And people say name brands don't matter in this generic age. With Cyrix's average daily volume at 0.96 million shares, volume is in line with normal trading, although apparently it has all been liquidation of large positions.
So what does this all mean? With the mid-year mark quickly coming up, it appears that a number of money managers are beginning to dump semiconductor manufacturers and semiconductor equipment concerns in the face of mounting concerns over what fiscal 1997 will bring. The scary thing is that these guys are still far from cheap, given the prices of peer stocks. With TEXAS INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> sporting a price/sales ratio of 0.76 and NATIONAL SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSM)") else Response.Write("(NYSE: NSM)") end if %> holding on at 0.72, Zilog's 1.79, International Rectifier's 1.79 and Cyrix's 2.27 still seem quite elevated.
Given the near-term outlook for these companies, the Wise are probably going to keep liquidating large positions as June 30th approaches, reluctant to report to shareholders in their various funds that they actually held these dogs during the first half of the year. Fools looking to exploit the market's mis-pricing of cash-rich, debt-free companies in the coming days and weeks would do well to start doing their homework now. Make those calls to get investor information packets. Set up those spreadsheets to measure what kind of liquid assets these companies have on their balance sheets. Figure out who competes with whom and whose valuation is just out of whack. And tune back into this space tomorrow at noon when I describe in the Lunchtime News how to use an easy-to-figure metric called Economic Value to spot mis-priced, high cash, low debt securities.