HEROES
PROMUS HOTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRH)") else Response.Write("(NYSE: PRH)") end if %> gained $1 15/16 to $40 3/4 after agreeing
to merge with hotel management company and franchisor DOUBLETREE CORP.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TREE)") else Response.Write("(Nasdaq: TREE)") end if %> in a $4.7 billion deal. The new Promus, 45% of which Doubletree
shareholders will own, will combine Doubletree's namesake hotel brand, Club
Hotels, and Red Lion hotels with Promus' Hampton Inns, Embassy Suites, and
other properties. Even though each Promus shareholder will receive 92.5 shares
of the new company for each 100 they now own, the immediate accretion to
1998 EPS looks like $0.11 per share, while Doubletree shareholders look like
they will take a 7% dilution on 1998 EPS estimates, but these estimates don't
build in cost savings that the two companies are planning on. Unfortunately
for Doubletree holders, today's deal valued each of their shares at $38 13/16,
well below Friday's $50 close.
The Netherlands has always been seen as a haven for business, ignoring many
of the religious and secular parochialism of the other continental states.
Today it is home to a partying bunch of traders, as the main stock index
on the Amsterdam bourse exploded almost 5% higher as the dollar strengthened
against European currencies. An international long-distance tariff cut of
25%-50% from former Dutch telecom monopoly ROYAL PTT NETHERLANDS NV
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KPN)") else Response.Write("(NYSE: KPN)") end if %> doesn't hurt the major Netherlands multi-nationals such as consumer
giant UNILEVER NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UN)") else Response.Write("(NYSE: UN)") end if %>, which jumped $17 1/8 to $218 3/8. ING
GROEP NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ING)") else Response.Write("(NYSE: ING)") end if %>, a major financial services company, also gained
$3 11/16 to $47 1/4, while KLM ROYAL DUTCH AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KLM)") else Response.Write("(NYSE: KLM)") end if %> picked
up $1 15/16 to $34 11/16. ROYAL DUTCH PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RD)") else Response.Write("(NYSE: RD)") end if %> moved up
$4 1/2 to $55 1/4, and PHILIPS ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHG)") else Response.Write("(NYSE: PHG)") end if %> ascended $4
13/16 to $76 7/16.
Steering wheels and auto safety systems maker BREED TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDT)") else Response.Write("(NYSE: BDT)") end if %> rose $1 13/16 to $23 1/16 after announcing that it had acquired the
automotive safety restraints business of ALLIED SIGNAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALD)") else Response.Write("(NYSE: ALD)") end if %>.
Although terms of the transaction were not made clear and the press release
didn't discuss the possible earnings ramifications of the deal, this may
have a big impact on Breed's results in the coming year. While Allied Signal's
automotive segment is a low-margin affair, each 1.5 percentage points of
pre-tax margin on the $900 million in sales from these operations brings
in $0.44 per share, pre-tax, for Breed. That's about 15% accretion to pre-tax
earnings, before interest expenses, to 1999 earnings estimates.
QUICK TAKES: Gaming machine supplier
INTERNATIONAL GAME TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IGT)") else Response.Write("(NYSE: IGT)") end if %> began a field trial of its
new "Vision Series(TM) Slot Machine" at the Mirage Resort Casino last Friday,
sending shares $1 1/2 higher to $21 1/2 today... Although it makes zero
difference in shareholder wealth and makes for a more volatile issue,
shareholders of ANDREA ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AND)") else Response.Write("(AMEX: AND)") end if %> celebrated the announcement
of a 2-for-1 split by bidding up Andrea's shares $4 13/16 to $38 11/16...
Toy company JAKKS PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JAKK)") else Response.Write("(Nasdaq: JAKK)") end if %> surged $1 3/8 to $10 3/8
in conjunction with a favorable write-up in "The New America" section of
today's Investor's Business Daily... AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> jumped $4 3/8 to $68 7/8 on surmounting the nine million member mark,
having added 400,000 net new members since June 30.
Insurance and financial services concern WASHINGTON NATIONAL CORP.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WNT)") else Response.Write("(NYSE: WNT)") end if %> rose $2 3/8 to $31 7/8 after calling off a planned merger with
PENNCORP FINANCIAL GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFG)") else Response.Write("(NYSE: PFG)") end if %>... ASTRA AB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAB)") else Response.Write("(NYSE: AAB)") end if %>,
the international pharmaceutical company headquartered in Sweden, rose $1
3/8 to $16 1/2 after a announcing the construction of a major research facility
in Waltham, Mass., as part of a comprehensive plan to increase its research
and development capabilities... Financial companies did well today, with
BANKAMERICA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> gaining $4 1/2 to $70 5/16 and CONSECO
INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNC)") else Response.Write("(NYSE: CNC)") end if %> moving up $2 7/8 to $45 7/8... TYCO INTERNATIONAL
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TYC)") else Response.Write("(NYSE: TYC)") end if %> jumped $5 9/16 to $84 on announcing the completion of its acquisition
of Keystone International... Aerospace products company KREISLER MANUFACTURING
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KRSL)") else Response.Write("(Nasdaq: KRSL)") end if %> surged $3 to $8 on reporting Q4 EPS of $1.96.
Year 2000 problem solver ACCELR8 TECHNOLOGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACLY)") else Response.Write("(Nasdaq: ACLY)") end if %> rose
$2 1/2 to $16 1/2 on little news outside of announcing it will present at
the Cruttenden Roth Millennium Solution Providers Conference... QUESTRON
TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QUST)") else Response.Write("(Nasdaq: QUST)") end if %> added $1 to $7 1/4 after announcing an agreement
to acquire California Fasteners Inc... Machine vision and sensor systems
company GENERAL SCANNING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSCN)") else Response.Write("(Nasdaq: GSCN)") end if %> rose $2 3/4 to $24 1/2 on
a Cowen & Co. rating upgrade to "strong buy" from "buy"... Defense systems
and specialty plastics manufacturer ENGINEERED SUPPORT SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EASI)") else Response.Write("(Nasdaq: EASI)") end if %> gained $3 to $22 on no news, although investors might be perusing the
company's 10-Q, which was filed late last week... Oilfield services company
KEY ENERGY GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: KEG)") else Response.Write("(AMEX: KEG)") end if %> ticked up $1 5/8 to $27 1/2 on announcing
the acquisition of BRW Drilling Inc., a land drilling company.
GOATS
The specialty brewing segment is crying in its beer these days. With no
appreciable barriers to entry, the industry is overflowing with capacity,
all in the face of a static demand picture. PETE'S BREWING CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WIKD)") else Response.Write("(Nasdaq: WIKD)") end if %> went flat today, falling $13/16 to $4 15/16 after reporting that it
expects a significant shortfall in revenues and shipments for the third quarter
1997, with net income projected to yield a loss of $0.11 to $0.14 per share
(as opposed to estimates of $0.01). All this brings to mind the sector-wide
selloff from which the industry still hasn't recovered, sparked at the end
of last year by industry bellwether BOSTON BEER CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SAM)") else Response.Write("(NYSE: SAM)") end if %> when
it announced lower-than-expected volume in its
1996 fourth quarter.
On Monday, Hong Kong's
leading index,
the Hang Seng, fell 5% (a 17-week low) only to recover on Tuesday by 2.3%.
However, Chinese issues suffered steep losses during both sessions. The Hang
Seng H-share index (shares of state-owned enterprises that are listed in
Hong Kong) ended at 1132.34 on Tuesday, down a total of 329.93 for the week.
American Depository Receipts (ADRs) of these companies on the NYSE took a
drubbing today as well, attributed largely to their
rapid
rise over the last couple of weeks that led to an overvalued condition
out-of-line with business fundamentals. JILIN CHEMICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCC)") else Response.Write("(NYSE: JCC)") end if %>
lost $7 15/16 to $25 3/8; SHANGHAI PETROCHEMICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHI)") else Response.Write("(NYSE: SHI)") end if %> fell
$7 1/4 to $33 3/4; GUANGSHEN RAILWAY CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GSH)") else Response.Write("(NYSE: GSH)") end if %> put on the brakes
$2 5/16 to $19; BEIJING YANHUA PETROCHEMICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYH)") else Response.Write("(NYSE: BYH)") end if %> spilled $2
5/8 to $18 3/8; and CHINA EASTERN AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CEA)") else Response.Write("(NYSE: CEA)") end if %> descended $3
9/16 to $32 1/16.
QUICK CUTS: EXCEL INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EXC)") else Response.Write("(NYSE: EXC)") end if %> said today that it notified
the holders of its 10% convertible subordinated notes of its intent to prepay
those notes on October 31, 1997, which moved the shares of the motor vehicle
parts company down $3 to $2 1/2... U.S. CAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USC)") else Response.Write("(NYSE: USC)") end if %> fell $1 3/16
to $15 1/16 after reporting that an evaluation by Salomon Brothers concluded
that a sale of the company is "not an appropriate alternative at this time"...
Oil exploration and production company FX
ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FXEN)") else Response.Write("(Nasdaq: FXEN)") end if %> slipped $3 1/2 to $5 5/8 on an announcement that
a well on the company's 2.4 million acre Baltic concession is not capable
of commercial production... Search and retrieval applications provider
VERITY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRTY)") else Response.Write("(Nasdaq: VRTY)") end if %> was pounded $1 3/8 to $5 1/16 after announcing
that it expects to report a "substantial'' net loss for its first fiscal
quarter ended August 31, with revenues in the period expected to drop by
up to 40%.
Healthfood concern NATURAL ALTERNATIVES INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAII)") else Response.Write("(Nasdaq: NAII)") end if %>
fell $1 1/8 to $7 1/4 after it said that it expects to report a net loss
for the fourth quarter of fiscal 1997... GEOSCIENCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSCI)") else Response.Write("(Nasdaq: GSCI)") end if %> announced an anticipated loss in the range of $0.16 to $0.24 per share
for the quarter ended September 30, 1997, which cut the seismic data company's
shares $1 1/4 to $12 1/2... NEOMEDIA TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NEOM)") else Response.Write("(Nasdaq: NEOM)") end if %>
gave back $13/16 to $10 1/16 after entering into a definitive
agreement to acquire all of the stock of privately held Allegiant Legacy
Solutions Inc... UGLY DUCKLING CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UGLY)") else Response.Write("(Nasdaq: UGLY)") end if %> slipped $7/8 to
$13 after the used car dealership and finance company said Monday that it
expects to record a $4 million to $6 million one-time charge to net earnings
in the third quarter of this year.
FOOL ON THE
HILL
An Investment Opinion by Jim
Surowiecki
Another Turn at TCI
[Note: Today's Fool on the Hill is written by Jim Surowiecki, who takes over the Tuesday spot from here on out. Jim has written extensively for the Fool as part of Rogue and now also writes a column for Slate. His debut effort is an interesting look at the spin-off of TCI Ventures, a deal that looks a lot like the 1991 spin-off of Liberty Media.]
TELE-COMMUNICATIONS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %> Chief Executive Officer (CEO)
John Malone has never met a spin-off he didn't like. In 1991, he spun off
TCI's cable programming services into Liberty Media
through a complicated mechanism called a rights
offering and watched that stock's price soar 1,700%. By exercising rights
as well as options granted to him by TCI, Malone ended up owning 20% of Liberty
after it began trading separately compared to a 2% stake in TCI, making most
his wealth off of this trade. TCI ended up buying back Liberty three years
later, allowing Malone to lock in a profit and convert it into a TCI equity
stake. Eighteen months after that, TCI again spun off Liberty, which now
trades on Nasdaq under the symbol LBTYA.
Sound complicated? It certainly was... but in the end, Liberty shareholders
made a bundle. And now Malone is at it again. As of September 10, TCI Ventures,
which is essentially a tracking stock for TCI's investments in fields other
than domestic cable, will become a publicly traded company. Analysts originally
expected TCI Ventures' 205 million shares to begin trading at somewhere between
$22-$24, which would give the company a market cap of nearly $5 billion,
but the stock is currently quoted (although you can't yet buy it) at $19.25,
giving it a market cap of just under $4 billion.
There will be no TCI Ventures initial public offering, though, because current
TCI shareholders are in the process of trading up to one-third of their TCI
shares for shares in the new company on a one-for-one basis. According to
the New York Times, both Malone and TCI president Leo Hindery plan
to exchange the full complement of their shares in TCI, which closed Friday
at $17.50 -- just as Malone and then TCI executive Bob Magness loaded up
on Liberty Media shares in 1991. Given the array of assets collected under
the TCI Ventures' banner, the one-for-one deal seems to be a bargain for
TCI shareholders.
What, exactly, are those assets? They include a $1.8 billion stake in
TELEPORT COMMUNICATIONS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCGI)") else Response.Write("(Nasdaq: TCGI)") end if %>, a company looking to
break into local phone services; a $914 million stake in @HOME <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATHM)") else Response.Write("(Nasdaq: ATHM)") end if %>, the much-hyped company that expects to provide high-speed Internet
access to the home; a 30% stake in Sprint PCS, a real comer in the wireless
phone service market; and a $1.5 billion stake in TELE-COMMUNICATIONS
INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TINTA)") else Response.Write("(Nasdaq: TINTA)") end if %>, which owns all of TCI's international
cable business. That would make TCI Ventures worth more than $4.5 billion
as of Friday, which means that the company is already trading at a
discount.
Malone has long complained that investors' concerns about the future of cable,
and more specifically about TCI's strategy for expanding its subscriber base,
have led to the undervaluation of the rest of TCI's businesses. Spinning
off TCI Ventures, then, allows investors to value the company's non-core
businesses without worrying about the impact cable will have on them. Since
Ventures is a tracking stock, Malone is able to reap the benefits of the
new company without giving up any control. When you buy shares in TCI Ventures,
you will not be purchasing the assets grouped under the company's name --
those assets will still be owned by TCI itself. Essentially, you'll be
speculating on the growth of those assets, without actually having a stake
in them.
As a result, tracking stocks have historically traded at a discount to other
shares, although the performance of Liberty Media in the early 1990s certainly
bucked this trend. More to the point, coming up with a fair value for TCI
Ventures demands that you come up with a fair value for the different companies
in which it's invested. In one sense, that's not that different from what
you have to do if you want to value General Electric, which is a kind of
holding company for businesses in many different markets. But where investors
in GE know that Jack Welch is on the watch, the links between the companies
that make up TCI Ventures and TCI are more tenuous, since in three of four
cases, TCI has investments with no managerial control.
What about those investments, though? Teleport Communications is one of the
first companies in America to make a real dent in the Baby Bells' domination
of local phone service and currently does business in 17 of the country's
20 largest markets. In 1997, San Diego selected Teleport as its primary local
carrier over Pacific Bell. Teleport has seen year-over-year revenues increase
by 65% since 1995, but has also seen losses increase even more sharply. The
company has yet to report a profit. It currently trades at 23 times trailing
sales.
@Home, meanwhile, could not be more difficult to figure out. John Doerr and
John Malone believe in it, but so far the company has spent more than $40
million to assemble a subscriber base of 11,000. In fiscal year 1996 it had
$700,000 in revenues and lost $24.5 million, but has a current market cap
of $2.2 billion. On the other hand, if everyone does eventually end up accessing
cable and the Internet through the same device, @Home could have a corner
on a huge market. TCI International's business parallels that of TCI itself:
increased cash flow and revenues, but profitability still a distant dream.
The dark horse in TCI Ventures' stable may very well be Sprint PCS, which
many analysts believe has a real chance to command a sizable share of the
wireless market, a market that should see geometric growth over the next
decade. But here, too, Malone is making a calculated gamble, and the prospects
are far from certain. Initial acceptance of the new digital wireless bandwidth
has been impressive, in spite of the fact that the network does not yet have
nationwide coverage.
TCI Ventures, then, will almost certainly be trading at a discount to the
current value of its holdings on September 10. The problem is that those
holdings may, in turn, be overvalued -- in the case of @Home, massively
overvalued, which would obviously justify a lower price for TCI Ventures.
One is tempted to say that if you believe in @Home or in Teleport enough
to invest in TCI Ventures, you should believe in them enough to buy their
actual stock. But perhaps TCI Ventures can be thought of as a way of diversifying
a portfolio with one purchase. You get a little bit of many different things
when you buy it.
CONFERENCE CALLS
APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %>
Regarding acquisition of PowerComputing
(800) 377-4562 -- replay 9/2 @ 8:00 pm EDT and 9/3 @ 8:00 am EDT
BECKMAN INSTRUMENTS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BEC)") else Response.Write("(NYSE:BEC)") end if %>
Re: acquisition of Coulter Corporation
(800) 633-8284 (password 3104980) -- replay through 9/4 @ 8:00 pm EDT
OSICOM TECHNOLOGIES, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FIBR)") else Response.Write("(Nasdaq: FIBR)") end if %>
(800) 475-6701 (Access code 352514) -- replay through 9/2
(320) 365-3844 -- replay for International callers
09/03/97 (Wednesday)
ETEC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ETEC)") else Response.Write("(Nasdaq: ETEC)") end if %>
(800) 633-8284 (code: 3030112) -- replay from 7:00 pm EDT for 24 hours
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Jim Surowiecki (Surowiecki), a
Fool
Fool On The Hill
Dale Wettlaufer (TMF Ralegh), another
Fool
Heros & Goats
Brian Bauer (TMF Hoops), and yet
another Fool
Editing