The Motley Fool, 05/28/97: The Evening News

HEROES

Construction materials company FIBREBOARD CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: FBD)") else Response.Write("(AMEX: FBD)") end if %> added $6 13/16 to $54 5/16 on agreeing to be acquired by OWENS CORNING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OWC)") else Response.Write("(NYSE: OWC)") end if %>, the world's largest maker of fiberglass insulation. The deal is all cash, valuing Fibreboard at $55 per share, or $460 million including Fibreboard's net cash position. Owens Corning said the deal will add $0.20 to $0.25 per share to 1998 earnings, or up to 5%, based on current estimates of $5.17 per share. As in the networking business where acquisitions are talked about in terms of "end to end" appeal to customers, Owens Corning is going with its "System Thinking...[which delivers to customers] integrated systems that address whole-project needs."

COMMNET CELLULAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CELS)") else Response.Write("(Nasdaq: CELS)") end if %> jumped $4 13/16 to $34 3/8 after investment group Blackstone Capital Partners said it will acquire the rural cellular company for $36 per share in cash, or about 8 times annualized gross cash flow (earnings before interest, taxes, depreciation, amortization, and minority interests). That doesn't mean that Blackstone will be able to recover its investment on a cash-on-cash return basis over the next eight years. A big component of that gross cash flow is non-cash interest accrual on zero-coupon debt. That means the company will have to pay interest and principal down the road. The price to gross cash is just about the same as PRICE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PR)") else Response.Write("(AMEX: PR)") end if %> agreed to pay last week for cellular telephone company PALMER WIRELESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PWIR)") else Response.Write("(Nasdaq: PWIR)") end if %>. However, Price paid just over 1 times the book value of Palmer's cellular licenses, way under the more than 4 times that Blackstone is paying for CommNet.

Fuddruckers and Champps restaurants operator DAKA INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DKAI)") else Response.Write("(Nasdaq: DKAI)") end if %> rose $1 5/8 to $12 7/8 after announcing that it has agreed to sell its foodservice business for $195 million to kill much of its debt. In effect, Daka is selling itself for $7.50 a share and spinning off its restaurant business to its shareholders. That new restaurant business, to be called Unique Casual Restaurants, will be traded as a public company and now has an implied share value of $5 3/8, which is the current price of Daka minus the $7.50 per share in cash Daka holders will receive. According to Daka, that new business will be "basically debt free" with a net worth of $100 million. Based on the implied price for Unique Casual, it is trading at just over half of book value.

Is there anything else that can be said about U.S. ROBOTICS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %>? Well, besides the fact that it gained $7 3/4 to $88 1/2 today and it's up over $40 over the last thirty trading days, other developments bode well for it and other purveyors of telecom backbone access equipment such as ASCEND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>, YURIE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YURI)") else Response.Write("(Nasdaq: YURI)") end if %>, and PREMISYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRMS)") else Response.Write("(Nasdaq: PRMS)") end if %>. Should an AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> mega-merger with SBC COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBC)") else Response.Write("(NYSE: SBC)") end if %> take place, AT&T will take away lessons from markets such as Silicon Valley that data is where the bucks are and not necessarily voice. With its brand name recognition and the bloodying it has taken spending so much money on consumer long-distance, it should be clear, especially from MCI's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCIC)") else Response.Write("(Nasdaq: MCIC)") end if %> success, where the future lies. GTE's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %> purchase of Internet specialist BBN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBN)") else Response.Write("(NYSE: BBN)") end if %> should reinforce that lesson.

QUICK TAKES: Brokerage company CHARLES SCHWAB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCH)") else Response.Write("(NYSE: SCH)") end if %> gained $2 7/8 to $38 3/4 after Standard & Poor's announced yesterday that it will add the shares to its S&P 500 Index... VISIGENIC SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VSGN)") else Response.Write("(Nasdaq: VSGN)") end if %> rose another $1 11/32 to $10 15/32 after yesterday announcing that its "Interface Definition Language (IDL)-to-Java language mapping has been recommended for adoption by the Object Management Group (OMG) as a new Internet standard"... Breast cancer biopsy products maker FISCHER IMAGING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FIMG)") else Response.Write("(Nasdaq: FIMG)") end if %> added $1 1/16 to $6 1/4 following last week's move by JOHNSON & JOHNSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> to get into the minimally invasive biopsy business... Network access products maker LARSCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LARS)") else Response.Write("(Nasdaq: LARS)") end if %> jumped $1 3/8 to $12 3/8 on a "buy" rating from Alex. Brown... BAY NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> was helped $2 5/8 higher to $25 3/8 on a "short-term buy" rating from SoundView Associates... Closed-end mutual fund KOREA FUND INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KF)") else Response.Write("(NYSE: KF)") end if %> gained $1 1/8 to $13 3/4, partly on news from POHANG IRON AND STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PKX)") else Response.Write("(NYSE: PKX)") end if %> that it is establishing a joint venture to make cold-rolled stainless steel in Indonesia... Networker CABLETRON SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> gained $3 to $46 on the strength of a positive research note from Robertson Stephens... AMWAY ASIA PACIFIC LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAP)") else Response.Write("(NYSE: AAP)") end if %> rode $2 7/8 higher to $45 5/8 after yesterday saying it will extend a tender offer to purchase another two percent of its shares, moving Morgan Stanley to award the shares an "outperform" rating... NIKE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> gained $3 7/8 to $64 on rumors that BERKSHIRE HATHAWAY (BRK.A) is buying shares in the company. Berkshire already owns a good chunk of Nike through its ownership of GEICO.

GOATS

Data storage company STORAGE DIMENSIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STDM)") else Response.Write("(Nasdaq: STDM)") end if %> fell $1 1/4 to $11 3/4 on no apparent news. The shares were down as much as 16% this morning on unspectacular volume. What is curious about the maker of RAID (redundant array of inexpensive disks) and tape drives is its institutional sponsorship. Both Smith Barney and Salomon Brothers cover the company, and, what a surprise, those are the two companies that brought it public. Such sponsorship is pretty sweet for a company with a market cap under $100 million. The company now trades at 1.2 times annualized revenues and about 11 times 1998 EPS estimates. Enterprise tape drive company STORAGE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STK)") else Response.Write("(NYSE: STK)") end if %> is priced at less than 11 times 1998 estimates. One wonders why Storage Dimensions is priced at the same level as a proven industry leader. Of course, estimates are never written in stone, which may explain why Storage Dimensions, a small-cap that grew EPS by 550% last quarter, is priced at this level.

QUICK CUTS: AMTRAN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMTR)") else Response.Write("(Nasdaq: AMTR)") end if %> lost $1 to $8 1/2 after the charter airline announced the resignation of its CEO... ALCATEL ALSTHOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %> lost another $1 1/2 to $22 1/8 and COMPAGNIE GENERALE DE GEOPHYSIQUEIN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GGY)") else Response.Write("(NYSE: GGY)") end if %> sank $1 1/4 to $16 1/8 in an uncertain political and monetary environment in France... Food company NABISCO HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NA)") else Response.Write("(NYSE: NA)") end if %> was rolled for a $2 3/8 loss to $40 after Goldman Sachs cut its rating on the company to "market performer" and removed it from its "recommended list."

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

Synergy: '90s Style

Nothing is more indicative of how important marketing has become to business than today's merger between CUC INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CU)") else Response.Write("(NYSE: CU)") end if %> and HFS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HFS)") else Response.Write("(NYSE: HFS)") end if %>. Membership fee-based CUC International will swap 2.4031 of its own shares for each share of franchise-owning HFS in a deal that combines 68 million members with household names in lodging establishments, car rental agencies, and real estate brokerages. Although both companies sang the praises of the merger in a conference call held with analysts this morning, investors were apparently not quite as sanguine on the merger. Shares of CUC International slipped $1 3/4 to $23 1/4, dragging shares of HFS down $4 1/4 to $54 3/4 because of the stock-for-stock nature of the deal.

HFS has become one of the best-known marketing savvy companies in the investment arena, with shares having risen an extraordinary amount in the past two years, from a split-adjusted $13 to as high as $79 7/8 in the fall of 1996. The company has gobbled to grow, making acquisition after acquisition of franchises in the hotel, car rental, mortgage broker and relocation arena. The company owns the rights to hotel chains like Days Inn, Ramada, Knights Inn, Villager Lodge, Wingate Inn, Howard Johnson and Super 8, as well as Coldwell Banker, ERA, Century 21, Resort Condomiums, Avis and PHH Corp. The company has sold investors the notion that it represents the perfect business -- a franchisor avoids capital expenditures, collecting a fixed percentage of all franchisee revenues in return for running national marketing campaigns.

Chief Executive Harry Silverman stresses that he runs a new-age franchise operation where HFS cross-markets customers from one franchise property to another. Relocating cross-country? Perhaps PHH can move you after your Century 21 broker finds you a house that you looked at while staying at a Super 8 Motel and renting an Avis automobile. Although this cross-marketing does not really create new revenue, it does potentially combine revenue that was split among many different parties and keep it all in the pockets of HFS franchisees -- and therefore HFS. Despite the fact that the actual growth of this concept is difficult to monitor because of the frequent acquisitions, the company has convinced investors to pay more than 30 times earnings and three times sales for businesses that traditionally have traded for less than half those multiples on the pure possibility of synergies.

Now investors have the tantalizing carrot of the biggest synergy of all dangled before them -- the 68 million members of various CUC International membership clubs. Stamford, Connecticut-based CUC International provides an array of membership-based discount clubs for shopping, travel, dining and health products. The company is best known among consumers for the ubiquitous Entertainment coupon book, a package of restaurant and travel savings designed for more than 30 regions across the U.S. Getting these 68 million members to drive Avis, stay at Ramada, buy houses through ERA, relocate with PHH, and get a time-share with Resorts Condomiums is an attractive option to these executives. Although a little difficult to conceptualize now, management promises that in time it will see the benefits.

Unfortunately for CUC shareholders, it is a promise they have heard before when billions of dollars worth of stock were issued on fuzzy concepts that were hard to explain. Investors are most familiar with the CUC because of its confusing purchase of Sierra Online and Davidson & Associates in February of 1996. CUC was clocked for $3 7/8 to fall to $20 5/8 after the acquisitions were announced, as CUC was widely viewed as overpaying for the properties, offering $2.2 billion in stock. CUC promised that these properties were vital for its new online, Internet-oriented strategy and that patient investors would eventually see how the businesses all fit together.

More than a year later the much touted interactive games that were to spice up CUC's aggressive web presence at www.netmarket.com have yet to materialize. In fact, CUC bought these properties right after Softkey International (now known as THE LEARNING COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLC)") else Response.Write("(NYSE: TLC)") end if %>) had finished an ugly takeover battle with BRODERBUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %> for the Learning Company, an event that pushed up the valuations of many software companies. When CUC purchased both of those properties, cash-rich Broderbund traded at $49 compared to $25 1/2 today, while leveraged Softkey traded at $24 compared to $7 today. These purchases were partially responsible for CUC's extraordinarily disappointing 1997 results, although the earnings reported today of $0.17 per share versus $0.13 per share last year on a 21% revenue rise were a return to the company's salad days of growth.

Whether this marriage will bring synergistic profit growth or demonstrate forever that marketing cannot be mistaken for product will be proven over the next few years. Why HFS is accepting $55 in tattered CUC stock for its shares when CUC is $6 from its 52-week low should spark some skepticism among its new owners and some feeling of vindication for those who have been skeptical of the ultimate value of the company's franchises. By paying more than 8 times sales for the company, CUC is putting quite a bit of stock in HFS's impressive 27% operating margins over the last five years and the potential future benefits inherent in the synergies. To some, it seems like Sierra and Davidson all over again.

CONFERENCE CALLS

CUC INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CU)") else Response.Write("(NYSE: CU)") end if %>
(regarding HFS deal)
Replay available for 24 hours
(800) 633-8284
(code: 2798293 for Part 1 and code: 2802466 for Part 2)

WIND RIVER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WIND)") else Response.Write("(Nasdaq: WIND)") end if %>
(800) 633-8284 (reservation # 2748792, code: 2589) -- replay
(303) 248-1201 (reservation # 2748792, code: 2589) -- replay (Intl. callers)

05/28/97 (Wednesday)
PETSMART <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PETM)") else Response.Write("(Nasdaq: PETM)") end if %>
(800) 696-1563 (code: 203061) -- replay avail. for 24 hours after noon EDT
(303) 267-1037 (code: 203061) -- replay (International callers)

05/28/97 (Wednesday)
MFRI <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MFRI)") else Response.Write("(Nasdaq: MFRI)") end if %>
4:00 p.m. EDT
(800) 275-2442 -- live and replay available for 24 hours

05/29/97 (Thursday)
INTUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %>
(800) 839-4232 -- replay available after 6:00 p.m. EDT
(402) 220-4869 -- replay available after 6:00 p.m. EDT

THIS WEEK'S CONFERENCE CALL SYNOPSES

DAYTON HUDSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %> Q1 Call
HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %> Q1 Call
URBAN OUTFITTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: URBN)") else Response.Write("(Nasdaq: URBN)") end if %> Q1 Call
ROSS STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROST)") else Response.Write("(Nasdaq: ROST)") end if %> Q1 Call

WE DELIVER - Get The Evening News delivered
to your e-mailbox every evening!

MORE FOOLERY
Your Own Number Cruncher

Valuations! Ratios! Factors! Rates! There are so many numbers tossed around Fooldom that it's easy to get lost, swimming in a sea of calculations, adrift on the waves of fractional roots, desperately searching for the shores of mathmatical reason. Okay, that might be a bit dramatic, but there are a lot of numbers to crunch. Enter Fooldom's brand-new and exciting ValuTool! This Foolish software package is a simple and powerful way to work with the vast amount of data necessary to determine the value of a stock. Give ValuTool the raw numbers and it'll compute many of the ratios and valuations that you read about as you wander through Fooldom and beyond -- The Foolish eight, PEG ratio, and lots more! Spend more of your time researching and less of it doing calculations. Check out ValuTool in FoolMart today!

Randy Befumo (TMF Templr), a Fool
Fool Plate Special, Ups & Downs

Brian Bauer (TMF Hoops), yet another Fool
Editing

Julia Wilson (TMF Delete), and still another Fool
Editing