HEROES
TEJON RANCH CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TRC)") else Response.Write("(AMEX: TRC)") end if %>, which owns a 270,000 acre tract of land
60 miles north of Los Angeles, exploded $9 15/16 higher to $32 11/16 after
being written up in this weekend's Barron's. Before today, the commercial
real estate, farming, ranching, recreation, filming, and mining company was
valued on the real estate assets alone at $1,068 per acre of land. Assuming
that 30% of the land could be developed into useable square footage, the
company is valued today as of the close at $0.12 per square foot. That's
not expensive, even if it is scrubby land. Total equity value in the company
at $1,538 per acre is still darned cheap, especially considering where that
land is located.
Non-standard auto lender ACC CONSUMER FINANCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACCI)") else Response.Write("(Nasdaq: ACCI)") end if %>
surged $5 3/8 to $21 1/8 after succumbing to the takeover overtures of consumer
lender and credit card company HOUSEHOLD INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HI)") else Response.Write("(NYSE: HI)") end if %>.
Although ACC is in the same business as the now-infamous MERCURY FINANCE
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MFN)") else Response.Write("(NYSE: MFN)") end if %>, its asset-backed loans carry an AAA rating from Standard
& Poor's since that paper is insured and pays to the trust to which it
was sold a fixed rate of interest of 6.4% per year. ACC then collects servicing
fees on that paper, which means that the more ACC can lend and the more loans
it can turn into paper, or securitize, the more it can build its non-interest
income. That builds profit margins -- great for Household International,
to which none of this is foreign as a major credit card lender.
Radio broadcaster and regional radio network owner SFX BROADCASTING
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFXBA)") else Response.Write("(Nasdaq: SFXBA)") end if %> added $6 1/4 to $74 1/8 after agreeing to be acquired
for $75 per share in cash by buyout firm Hicks, Muse, Tate & Furst. Calling
all arbitrageurs! Calling all arbitrageurs! Shareholders will also receive
a tax-free spin off of shares in SFX's live music and entertainment business,
which operates venues like Jones Beach Marine Amphitheater on Long Island.
SFX says that company will have a book value of $5.50 per share, meaning,
as a service business, it's doing a middling business if it can generate
return on equity of 10%. At 15 times that earnings figure, that business
would carry a price of $8.25, leaving about a 12.5% risk arbitrage premium
lying on the table as of this afternoon.
NATIONWIDE FINANCIAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NFS)") else Response.Write("(NYSE: NFS)") end if %> moved up $1 5/8 to $28 1/4
after Donaldson, Lufkin & Jenrette added the shares to its "recommended
list" saying it doesn't believe a price war in the variable annuity market
is imminent. That's an interesting view of things, seeing that broadline
insurers are still operating in an unbelievably competitive market in things
like auto and life insurance. Variable annuities is one market where a company
can differentiate itself through marketing or by touting great returns in
the underlying mutual funds (thanks to the bull market). One problem, though,
for the price stability argument -- the more companies getting into the business,
the more price competition will result. DLJ also started coverage of annuity
underwriter HARTFORD LIFE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLI)") else Response.Write("(NYSE: HLI)") end if %> with a "buy" rating, sending
its shares $1 9/16 higher to $35 1/2.
QUICK TAKES: MOSINEE PAPER CORP.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MOSI)") else Response.Write("(Nasdaq: MOSI)") end if %> traded up $5 3/8 to
$30 1/2 after the specialty paper products company agreed to merge with
WAUSAU PAPER MILLS CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WSAU)") else Response.Write("(Nasdaq: WSAU)") end if %> in a stock swap of 1.4 Wausau
shares for each Mosinee share... Flash memory maker SANDISK CORP.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNDK)") else Response.Write("(Nasdaq: SNDK)") end if %> rose $5 3/8 to $30 3/8 after Morgan Stanley started coverage
of the company on Friday with an "outperform" rating. The company's CEO also
appeared on this morning's CNBC Squawk Box, and the company received
a rating upgrade today from Merrill Lynch, according to Reuters...
Pharmaceuticals, cosmetics, and medical equipment wholesaler distributor
BERGEN BRUNSWIG CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBC)") else Response.Write("(NYSE: BBC)") end if %> gained $12 1/16 to $42 on agreeing
to merge with CARDINAL HEALTH INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAH)") else Response.Write("(NYSE: CAH)") end if %> in a stock swap. Cardinal
Health shareholders also liked the deal, sending those shares up $3 1/4 to
$65 9/16... Pharmaceutical and biotech analysis equipment maker PERSEPTIVE
BIOSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PBIO)") else Response.Write("(Nasdaq: PBIO)") end if %> jumped $1 13/16 to $12 7/16 after agreeing
to merge with life sciences equipment company PERKIN-ELMER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PKN)") else Response.Write("(NYSE: PKN)") end if %> in a stock swap that values PerSeptive Bio at $13 per share.
IDAN SOFTWARE INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IDANF)") else Response.Write("(Nasdaq: IDANF)") end if %> picked up $2 1/16 to $13
after the company announced that it has received a $13 million contract to
provide Year 2000 remediation services for Bank Leumi, one of Israel's two
largest banks... SMART MODULAR TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMOD)") else Response.Write("(Nasdaq: SMOD)") end if %> ran up
another $6 1/8 to $65 1/8 after the semiconductor memory module and PC card
manufacturer last week announced third quarter EPS growth of 84%, better
than bit growth in the dynamic random access memory market to which its fortunes
are largely tied... ADAC LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADAC)") else Response.Write("(Nasdaq: ADAC)") end if %> gained $1 5/8
to $19 1/4 on saying that its new imaging technology for detecting cancers
has the potential to reduce unnecessary cancer surgeries... AMERICAN WOODMARK
CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMWD)") else Response.Write("(Nasdaq: AMWD)") end if %> gained $2 3/4 to $16 3/8 after the
cabinetry company
reported a 21% year-over-year increase in Q1
EPS of $0.34, its sixth consecutive quarter of record earnings.
CHINA EASTERN AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CEA)") else Response.Write("(NYSE: CEA)") end if %> gained $8 1/4 to $39 1/4 as trading
in Hong Kong is going nuts. Shares of other Chinese companies are also climbing
today, including CHINA SOUTHERN AIRLINES CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZNH)") else Response.Write("(NYSE: ZNH)") end if %>, up $4 3/4
to $35 15/16; JILIN CHEMICAL INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCC)") else Response.Write("(NYSE: JCC)") end if %> up $2 5/8 to $39
1/2; and SHANGHAI PETROCHEMICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHI)") else Response.Write("(NYSE: SHI)") end if %>, up $3 15/16 to $44 7/8...
QUANEX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NX)") else Response.Write("(NYSE: NX)") end if %> rose $1 3/4 to $33 1/2 after the maker of
specialty metals products reported Q3 operating EPS of $0.67, rolling over
estimates of $0.57... Closed-end mutual fund GREATER CHINA FUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GCH)") else Response.Write("(NYSE: GCH)") end if %> rose $1 1/4 to $ 23 1/4 after reporting on Friday a 73% increase in
net asset value (NAV) year-over-year... Drug wholesaler BINDLEY WESTERN
INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDY)") else Response.Write("(NYSE: BDY)") end if %> climbed $1 5/8 to $26 1/8 after the company's
CEO appeared on CNBC's Squawk Box and as investors reassess the company
in light of the Bergen Brunswig acquisition.
BIOWHITTAKER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BWI)") else Response.Write("(NYSE: BWI)") end if %> added $1 3/16 to $11 1/2 after the life sciences supplies company agreed to be acquired by specialty chemicals company CAMBREX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CBM)") else Response.Write("(AMEX: CBM)") end if %> for $11 5/8 per share in cash... Petroleum refiner and marketer GIANT INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GI)") else Response.Write("(NYSE: GI)") end if %> rose $2 7/8 to $18 3/8 after Donaldson, Lufkin & Jenrette started coverage of the company with a "buy" rating... In keeping with the recent motif of radio industry deal making, Radio broadcaster and publisher EMMIS BROADCASTING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EMMS)") else Response.Write("(Nasdaq: EMMS)") end if %> rose $2 3/16 to $46 1/16 after announcing an agreement to acquire "assets of Network Indiana and the AgriAmerica Network from Wabash Valley Broadcasting Corp"... COR THERAPEUTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CORR)") else Response.Write("(Nasdaq: CORR)") end if %> gained $1 3/8 to $12 15/16 after announcing positive results in treating angina and non-Q-wave myocardial infarction sufferers with the company's Intergrilin drug. Both Lehman Brothers and Oppenheimer raised their ratings on the company to "buy"... STB SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STBI)") else Response.Write("(Nasdaq: STBI)") end if %> gained $4 9/16 to $42 11/16 after the PC graphics controller maker reported Q3 EPS of $0.33, in line with estimates... JARDINE FLEMING CHINA REGION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JFC)") else Response.Write("(NYSE: JFC)") end if %> added $1 5/16 to $16 9/16 as many of the closed-end mutual fund's holdings percolated in the hot Hong Kong stock market.
GOATS
AAMES FINANCIAL CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAM)") else Response.Write("(NYSE: AAM)") end if %> fell $1 9/16 to $20 1/2 after reporting a $0.48 loss, as opposed to somewhat rosier estimates. Aames provides home equity loans and other mortgage lending and brokerage services to individuals with bad credit. Aames had risen somewhat last week upon reports that the company was engaging in talks surrounding a possible acquisition, which was confirmed today. Despite the stated attempts to improve shareholder value, results for the quarter were hurt by a $28 million valuation adjustment of the company's "interest-only strip," an increase in its loan carryover amount, severance costs and more conservative prepayment assumptions. Included in the results was a charge of $32 million, of which $28.1 million was related to an acquisiton in the first quarter.
CONSO PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNSO)") else Response.Write("(Nasdaq: CNSO)") end if %> fell another $1 1/4 to $10 today after Friday's announcement from the furniture trimmings maker that Q4 EPS could fall as low as $0.16, well below estimates of $0.29, with full year EPS estimates possibly falling to $0.93. The company attributes the results to "year-end inventory adjustments at British Trimmings, the Conso subsidiary in the U.K." Apparently all inventories for the unit were transferred to a consolidated shipping point and a year-end count yielded a shortfall, meaning that the inventory on the books must be adjusted to reflect its current value (at cost). The company denies the possibility of theft and acknowledges that a poor inventory count last year (which would have already worked itself out) may have affected the current count. This also means that margins may not have been as high as previously thought due to the fact that some cost of goods sold (COGS) may have not been properly recorded. In any event, a one-time charge will be forthcoming.
QUICK CUTS: The THAI CAPITAL FUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TC)") else Response.Write("(NYSE: TC)") end if %> fell $1 1/8 to $7 3/8 and the THAI FUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TTF)") else Response.Write("(NYSE: TTF)") end if %> lost $1 7/16 to $12 9/16 as monetary problems in Thailand have sent holders of the bhat scurrying to safer harbors like the dollar and the Hong Kong dollar, which is linked the U.S. dollar... Meat processor HUDSON FOODS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HFI)") else Response.Write("(NYSE: HFI)") end if %> lost $7/8 to $14 5/16 after Burger King announced that Hudson will no longer supply its beef patties. This announcement comes following news of e. coli contamination that has been traced back to Hudson... OSICOM TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FIBR)") else Response.Write("(Nasdaq: FIBR)") end if %> got slammed $1 11/16 to $4 3/16 after an article critical of the company appeared in Barron's this past weekend... Operating a fleet of tractors and trailers, CANNON EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CANX)") else Response.Write("(Nasdaq: CANX)") end if %> put on the skids today, losing $13/16 to $6 3/16 after reporting 4Q EPS of $0.17 versus estimates of $0.19... In other earnings news, PMR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMRP)") else Response.Write("(Nasdaq: PMRP)") end if %>, a provider of ambulatory psychiatric care, posted Q1 EPS of $0.16, a penny higher than estimates but still fell $2 1/8 to $20 1/4... CORSAIR COMMUNICATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CAIR)") else Response.Write("(Nasdaq: CAIR)") end if %> slipped $1 3/4 to $19 7/8 even after Deutsche Morgan Grenfell started coverage of the company with a "buy" rating... Circuit board and electronic component maker CONTINENTAL CIRCUITS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCIR)") else Response.Write("(Nasdaq: CCIR)") end if %> shorted out $1 3/4 to $20 1/4 after reporting 4Q EPS of $0.32, in line with estimates.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
Lawyers Title Looks to be Number One
How much is it worth to be number one? When a company like LAWYERS TITLE
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LTI)") else Response.Write("(NYSE: LTI)") end if %> moves into the number one spot overnight with an acquisition,
it can be worth quite a bit. Shares of the title insurer jumped $2 to $28
3/8 today when the company acquired one of its largest competitors and increased
its market share from just under 9% to a whopping 22% in one fell swoop.
Even more importantly, after this deal has closed, Lawyers Title and competitors
First American Financial Corp.'s First American Title Insurance Co. and Alleghany
Corp.'s Chicago Title & Trust Co. will split up 60% of the title market,
a huge number that will probably cause more consolidation among the remaining
players.
The Richmond, Virginia-based company bought Commonwealth Land Title and
Transnational Title Insurance Co. from RELIANCE GROUP HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: REL)") else Response.Write("(NYSE: REL)") end if %> in a cash and stock deal valued at $502 million. The payment terms are
somewhat complex, with Lawyers Title funding the acquisition with a mix of
cash, stock, and convertible preferred stock, a specialized form of debt
that can be converted into common stock at some future point.
Lawyers Title will issue Reliance Group $238 million in cash, 4.474 million
shares of common stock (worth $127 million at today's price), and $110 million
in 7% preferred, which can be converted into 4.825 million common shares
worth $137 million assuming that certain conditions are met. Lawyer's Title
will get the $238 million in cash by issuing 1.316 million shares before
the deal closes in the fourth quarter, increasing the share count by 10.6
million, or 119%.
As an insurance company offering a very specialized form of insurance that
can be efficiently delivered from a few central locations, Lawyers Title
not only gets the benefit of the revenues of its acquisitions but also has
the opportunity to cut costs through creation of some economies of scale.
With some of the offices of Commonwealth Title literally down the street
from those of Lawyers Title, the savings the company can generate on overhead
are potentially enormous.
Lawyers Title plans to close the Philadelphia, Pennsylvania headquarters
of both Commonwealth and Transnational and move some of the jobs to its Richmond
headquarters. The company's initial bogey on cost savings from the overhead
reduction, better technology, and a larger balance sheet to write insurance
from should save the company at least $30 million in 1998 and $10 million
in the beginning of 1999, with some analysts suggesting that this number
may be too conservative.
Title insurance is a form of commercial and residential insurance that
indemnifies the policyholder from being liable for any outstanding liens
or encumbrances to a property. Lawyers Title has services that help search
records for outstanding liens on a property and once it believes it has done
enough due diligence, it will write a policy that protects the owner against
some prior claimant coming along and demanding payment for some past agreement.
The business is highly competitive as it is pretty straightforward, but with
a larger balance sheet and cost efficiencies that come from operating on
a greater scale, Lawyers Title will be better prepared to compete after the
deal closes. The only downside is that title insurance carries a "long tail,"
meaning that at any point some past event could come along and cost a lot
more than the policy was written for, wiping out years of profitability.
This is in contrast to something like health insurance, which is a kind of
insurance where you either make the claim during the term of the policy or
the insurance company gets to keep all of the money.
With 19.5 million shares outstanding, 48% controlled by the Reliance Group,
the company has an implied market capitalization of $554 million. The company
is debt-free with a minimal amount of cash after the acquisition, leaving
it with a very unleveraged balanced sheet for the combined company that wrote
$1.3 billion in premiums in 1996. With significant accretion to earnings
as a result of the deal, the combined company now sells for less than 0.5
times sales and 7 times earnings with substantial room to reduce costs and
increase margins.
Although certainly the valuation is on the low side, investors should keep
in mind that title insurance is an intensely competitive, slow growth business.
Unless Lawyers Title can provide sustained, multi-year earnings growth as
a result of cost savings, it will probably not achieve anything close to
a market multiple. The cost savings discussed could boost 1998 earnings by
$1.53 per share and 1999 earnings by $0.51 per share if you take them at
face value, which means the company could earn north of $4.00 per share in
1998 without even taking the accretion into account. Investors who are interested
in the company should take a very close look at Reliance Group's SEC filings
to figure out what the earnings from the two units have been historically
and what the company has had to spend to earn this.
CONFERENCE CALLS
ROSS STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROST)") else Response.Write("(Nasdaq: ROST)") end if %>
(402) 222-9936 -- replay through 8/26
ACE CASH EXPRESS INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:AACE)") else Response.Write("(Nasdaq:AACE)") end if %>
(800) 642-1687 (give last name and confirmation #566078) -- relay through
8/27
THIS WEEK'S CONFERENCE CALL SYNOPSES
DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> Call
WE
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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