HEROES
Uninterruptible power supply manufacturer EXIDE
ELECTRONICS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XUPS)") else Response.Write("(Nasdaq: XUPS)") end if %> surged $7 3/4 to $20 5/8 on receiving
a buyout offer from Washington, D.C.-based holding company DANAHER CORP.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DHR)") else Response.Write("(NYSE: DHR)") end if %> for $20 per share. The deal values Exide at 25 times 1997
earnings estimates and 14.8 times 1998 estimates, but Danaher may raise the
bid pending a closer look at Exide's books. The offer also falls $2 per share
below an earlier confidential offer Danaher made to Exide's board. At those
multiples, competitor AMERICAN POWER CONVERSION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APCC)") else Response.Write("(Nasdaq: APCC)") end if %> would
be valued at between $22.05 and $30.75 per share.
Online brokerage E*TRADE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> moved $4 1/2 higher to $24 5/8 after reporting Q3 earnings per share
(EPS) of $0.16 (before a charge) on a 138% jump in revenues. Deutsche Morgan
Grenfell raised its rating on the company to "buy" from "accumulate," calling
this quarter's performance a "blowout," as operating earnings beat estimates
of $0.09 per share by a whopping 78%. E*Trade proves that a company can make
money just from the retail side of the brokerage business, but the valuations
of about 48 times 1998 earnings estimates and 10 times book value do clash
with valuations across the brokerage industry, even given E*Trade's growth
rate. If one could break out the DLJ Direct (formerly PCFN) segment of
DONALDSON, LUFKIN & JENRETTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLJ)") else Response.Write("(NYSE: DLJ)") end if %> and assign those same
multiples, the rest of that investment bank and brokerage (along with its
antique collection and some other assets) would be free.
MOTOROLA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> tacked on another $3 3/8 to $85 7/8, hitting
all-time highs, after
reporting
Q2 operating EPS of $0.62, beating estimates of $0.56. Excluding the
charge taken for exiting DRAM manufacturing, operating earnings increased
16.4% year-over-year and increased 42 basis points (1 basis point = 1/100
of a percentage point) as a percentage of sales. For the rest of the story,
Fools can dial into the company's conference call to listen to what is normally
a comprehensive and informative discussion of the quarter by dialing (402)
220-4831.
QUICK TAKES: Software services firm CONTROL DATA
SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDAT)") else Response.Write("(Nasdaq: CDAT)") end if %> jumped $4 9/16 to $20 1/4 after a holding company
formed by a private investment firm announced that it has agreed to acquire
all the outstanding shares of the company for $20.25 per share in cash...
INTELECT COMMUNICATIONS SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICOMF)") else Response.Write("(Nasdaq: ICOMF)") end if %> exploded $1 13/32
upward to $6 on a "buy" rating from Robinson-Humphrey, which estimates the
telecom equipment maker will lose $0.89 per share in 1997... Container producer
U.S. CAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USC)") else Response.Write("(NYSE: USC)") end if %> moved up $2 3/8 to $15 3/8 after the company
announced it will close four facilities and and reduce employment by 300,
which will result in annual earnings accretion of $6 million, or about $0.45
per share, according to Dow Jones... APPLIED MAGNETICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %>
gained $1 5/8 to $25 3/8 in front of SEAGATE's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> kickoff
of the storage technology and storage component makers' earnings reporting
season. HUTCHINSON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HTCH)") else Response.Write("(Nasdaq: HTCH)") end if %> also moved up, gaining
$2 1/8 to $28 5/8 ... UNISON SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UNSN)") else Response.Write("(Nasdaq: UNSN)") end if %> added $1 to $8
3/8 after the production automation software company last night reported
Q4 EPS of $0.16, slightly better than estimates, on a 24% increase in revenues...
Supply chain software company 12 TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITWO)") else Response.Write("(Nasdaq: ITWO)") end if %> jumped
$7 3/8 to $42 5/8 after TEXAS INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> said it will
use the company's software in its semiconductor manufacturing operations
pursuant to an agreement worth up to $24 million for i2... DSC
COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIGI)") else Response.Write("(Nasdaq: DIGI)") end if %> gained $3 15/16 to $26 1/16 after announcing
an interoperability pact with 3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %>, which will integrate
DSC's equipment with 3Com's Total Control Hubs, making a carrier class remote
access concentrator which allows data traffic to be combed away from voice
traffic at a telco central office.
MORE TAKES:
Furniture retailer SEAMAN FURNITURE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEAM)") else Response.Write("(Nasdaq: SEAM)") end if %> moved up $3
1/4 to $23 after a majority investor group offered to buy out minority holders
for $24 per share in cash... Energy drilling contractor BOUYGUES OFFSHORE
SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BWG)") else Response.Write("(NYSE: BWG)") end if %> popped up $1 1/8 to $14 5/8 on signing a $70 million contract
for three drilling platforms and six pipelines off the coast of Nigeria for
MOBIL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOB)") else Response.Write("(NYSE: MOB)") end if %>... SYNOPSYS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNPS)") else Response.Write("(Nasdaq: SNPS)") end if %> rose $3 13/16
to $38 15/16 after SoundView Financial raised its rating on the maker of
integrated circuit design automation software to "short-term buy" from "hold"...
Wireless telecom equipment company POWERWAVE TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PWAV)") else Response.Write("(Nasdaq: PWAV)") end if %> climbed $4 to $32 5/8 on reporting Q2 EPS of $0.20, smashing estimates
of $0.17, on a 35% sequential increase in revenue... Property and casualty
insurance company HIGHLANDS INSURANCE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HIC)") else Response.Write("(NYSE: HIC)") end if %> added $1 1/8
to $20 7/8 on initiation of coverage from Smith Barney with an "outperform"
rating... PITTSTON BURLINGTON GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PZX)") else Response.Write("(NYSE: PZX)") end if %> rose $2 to $30 5/8
after its Burlington Air Express subsidiary announced the acquisition of
Cleton and Company, a Dutch shipping logistics company… Supermarket
chain SAFEWAY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWY)") else Response.Write("(NYSE: SWY)") end if %> gained $3 5/16 to $53 9/16 after reporting
Q2 operating EPS of $0.54, beating the First Call estimate of $0.53. Sales
increased 44% year-over-year due to the acquisition of Vons… South Carolina
S&L FIRSTSPARTAN FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FSPT)") else Response.Write("(Nasdaq: FSPT)") end if %> jumped $16 11/16 to
$36 11/16 from its IPO price of $20 in a 4.4 million share initial public
offering.
GOATS
OUTBOARD MARINE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OM)") else Response.Write("(NYSE: OM)") end if %> slid $3 5/8 to $15 7/8 after agreeing
to be acquired by DETROIT DEISEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DDC)") else Response.Write("(NYSE: DDC)") end if %> for $16 per share in
cash. Outboard Marine had announced earlier this year that it would be
investigating strategic alternatives for creating shareholder value. Yesterday,
the stock picked up $1 1/8 in anticipation of the company's planned announcement
on the progress of that process. Unfortunately for OMC shareholders, the
company was sold to the engine maker for about the average price at which
it has sold over the last year. With only a brief three-month dip below those
levels, long-time OMC holders probably think management and its bankers could
have done better than today's agreement. The buyout is still at about a 60%
premium to a low reached earlier this year when the company reported a quarterly
loss and said it was looking for a capital infusion.
Though same-store sales numbers for June have not yet been released, growth
retailers are hurting today. Among these, GADZOOKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GADZ)") else Response.Write("(Nasdaq: GADZ)") end if %>,
which has already
pre-announced
below-estimate results, declined $2 5/16 to $16 13/16; HOT TOPIC
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HOTT)") else Response.Write("(Nasdaq: HOTT)") end if %> was dropped like a hot potato, falling $4 to $17 1/2;
and PACIFIC SUNWEAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSUN)") else Response.Write("(Nasdaq: PSUN)") end if %> faded $3 1/4 to $30 1/8, all on
no news. One company that did report, though, was TALBOTS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLB)") else Response.Write("(NYSE: TLB)") end if %>, which was taken down $5 15/16 to $23 1/16 on its poor results. The
women's apparel retailer reported a 7.9% decrease in June same-store sales,
and said that this performance will result in a loss of $0.28 to $0.38 per
share for its quarter ending in August.
WELLS FARGO & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WFC)") else Response.Write("(NYSE: WFC)") end if %> slid $18 3/8 to $260 5/8, after
announcing that it will miss Q2 EPS estimates of $3.49 in reporting Q2 earnings
of around $2.53 per share, down 30% from last quarter. The number-two California
bank said integration costs from its First Interstate acquisition will crimp
results but that these will only be one-time charges. Other observers of
the merger think that Wells Fargo has been bungling the changeover for First
Interstate customers. Banking is still a consumer-oriented business, both
on the lending side as well as on the deposit side. A banking franchise can
be created through service, and not just by having the highest CD rates.
Banks can be hurt by insensitive handling of customer concerns and accounts
in such transitions, and those customers can have long memories. The sell-off
today may be related to just such concerns.
QUICK CUTS: GENERAL CIGAR HOLDINGS
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MPP)") else Response.Write("(NYSE: MPP)") end if %> lost another $1 3/4 to $25 1/8 after yesterday reporting earnings
that weren't up to snuff. Merger partner CULBRO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBO)") else Response.Write("(NYSE: CBO)") end if %>
lost another $6 1/2 to $110 1/2, as well... Computer telephony subsystems
company NATURAL MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NMSS)") else Response.Write("(Nasdaq: NMSS)") end if %> fell $3 1/4 to $36 1/4
despite an appearance in Investor's Business Daily's "New America"
column... IONICS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ION)") else Response.Write("(NYSE: ION)") end if %> slipped $2 9/16 to $42 7/8 on
CS First Boston analyst Michael Hoffman's negative
comments on pricing in the wastewater treatment
systems industry, which also dropped CULLIGAN WATER TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CUL)") else Response.Write("(NYSE: CUL)") end if %> $2 7/8 to $40 5/8.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
Never Say Diet
Recent merger and acquisition activity in the dietary supplements market
gives us some interesting benchmarks that we can use to analyze the rest
of the industry. The valuations given to AMRION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMRI)") else Response.Write("(Nasdaq: AMRI)") end if %>,
TWINLABS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TWLB)") else Response.Write("(Nasdaq: TWLB)") end if %>, and REXALL SUNDOWN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RXSD)") else Response.Write("(Nasdaq: RXSD)") end if %>
in the past few months provide an excellent indication as to whether or not
any of their peers are dramatically undervalued relative to their fair market
price. Although certainly these acquisition multiples should not be taken
as gospel, they serve as a touchstone for our independent valuation
efforts.
Amrion develops and manufactures "nutriceuticals" for sale to distributors,
health food stores, catalogs that it produces, and other direct mail sources.
The company makes nutritional supplements, vitamins, homeopathic remedies,
and other nutritional products. Amrion is relatively small, having reported
$59.3 million in revenues over the past twelve months. The company has grown
revenues at a compound annual growth rate of 52% over the past five years
with its share price jumping 54% a year since the company came public under
its current name after a merger. We last covered Amrion in detail on
January
31 in a column that concluded, "This might
be worth looking at for long-term investors willing to tolerate a lot of
volatility."
The potential acquisition of the company by another party has been in the
works for months. Although the company terminated discussions with one potential
acquirer on
January
31, the bid from WHOLE FOODS MARKET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %> was not completely
unexpected. On
June
9th, Whole Foods announced that it would issue 0.87 shares for each share
of Amrion, valuing Amrion at $28 5/8 per share as of July 8th. Based on current
earnings estimates, the 4.7 million shares Whole Foods will issue for Amrion
will not affect current earnings estimates, although the higher rate of growth
at Amrion should positively affect forward estimates -- perhaps explaining
why, according to First Call, three of the six analysts covering the company
have raised 1998 estimates in the past 30 days.
At $28 5/8, Amrion was valued at 29 times trailing earnings, 2.49 times trailing
sales, and 6.1 times shareholder's equity. The company had 12.9% operating
margins last quarter and generated a 25.7% annualized return on average equity
over the same period. That valuation fully recognized the fact that operating
margins had increased to 12.9% from 8.7% in the last quarter and that asset
turnover (sales/assets) increased almost 50% year-over-year in the last reported
quarter. Amrion's improving, high-growth, high-return business combined with
Whole Food's distribution through its supermarkets created a combination
that both companies apparently found compelling.
Rexall Sundown's recent merger discussions with Twinlab provide another look
at valuation. Rexall has proposed that it swap 0.74 shares of its stock for
each outstanding share of Twinlab, a deal that caused investors to dump Rexall
when the potential merger was announced on
July
1st. This price values Twinlab at $25 5/8 per share. With 27 million
shares outstanding, Rexall would have to issue $691 million in equity and
assume $100.3 million in debt to complete the deal. The deal represents a
substantial premium to Twinlab's initial public offering price of $12 a share
on November 15, 1996.
At the given price, Rexall is valuing Twinlab's debt and equity at 4.46 times
the company's $177.3 million in trailing sales, approximately equal to the
4.93 times sales that Rexall shares currently warrant. Twinlab's valuation
of 31 times trailing earnings is actually a slight discount to Rexall Sundown's
39 times multiple, indicating that the merger may actually not be dilutive
to earnings. Why did investors react negatively to Rexall's potential acquisition
of Twinlab? Looking a little deeper into the financials gives us an indication
that it has to do with the fact that Twinlab generates its returns with $100
million in debt capital that Rexall would have to assume.
Twinlab sells its vitamins, sports drinks, and herbal supplements mainly
through health food stores, generating operating margins in the 23% to 24%
range. Although Twinlab's operating margins are much better than Amrion's,
the company generates these margins with debt equal to 14% of its market
capitalization compared to Amrion's spotless balance sheet. Asset turns are
also much lower at Twinlab, as the company has more than 60
days
sales outstanding compared to 10 for Amrion. Inventory turns are
approximately equal, although Twinlab's deteriorated from the prior year.
Because of Twinlab's substantial accumulated losses, comparing the two companies'
return
on equity is impossible.
Looking at the two acquisitions, these fast-growing, relatively small companies
were valued at roughly 30 times trailing earnings and 3.25 times trailing
sales, including any debt. The companies making the acquisitions were in
similar or complementary businesses, and consequently probably placed a premium
on the acquired companies because they believed they could squeeze out some
costs. The remaining supplement manufacturers that would even be remotely
comparable to these two companies are NATURAL ALTERNATIVES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAII)") else Response.Write("(Nasdaq: NAII)") end if %>, NATURE'S SUNSHINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NATR)") else Response.Write("(Nasdaq: NATR)") end if %>, NUTRAMAX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NMPC)") else Response.Write("(Nasdaq: NMPC)") end if %>, and WEIDER NUTRION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WNI)") else Response.Write("(NYSE: WNI)") end if %>.
CONFERENCE CALLS
MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>
(402) 220-4831 -- replay available through 7/10
HELEN OF TROY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HELE)") else Response.Write("(Nasdaq: HELE)") end if %>
(800) 275-2442 -- replay through 7/9
CANANDAIGUA WINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WINEA)") else Response.Write("(Nasdaq: WINEA)") end if %>
(800) 839-1153 (password: 1234) -- through 12:30 p.m. EDT on 7/10
07/10/97 (Thursday)
HEILIG-MYERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMY)") else Response.Write("(NYSE: HMY)") end if %>
(Re: June sales and the purchase of Mattress Discounters)
(804) 254-3939 (option 1) -- replay
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Randy Befumo (TMF Templr), a Fool
Fool Plate Special
Dale Wettlaufer (TMF Ralegh), another
Fool
Ups & Downs
Brian Bauer (TMF Hoops), and yet
another Fool
Editing