DJIA: 7650.82 -47.40 (-0.62%) S&P 500: 938.23 -7.97 (-0.84%) Nasdaq: 1600.44 -13.67 (-0.85%) Dow Jones Utilities 248.53 -2.00 (-0.80%) 30-Year Bond 100 23/32 -4/32 6.07% Yield
Philadelphia-based CoreStates Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CFL)") else Response.Write("(NYSE: CFL)") end if %> jumped $6 1/2 to $79 before being held this afternoon after numerous reports that the company is in negotiations to merge with Charlotte superregional bank First Union <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTU)") else Response.Write("(NYSE: FTU)") end if %> in a deal valuing CoreStates at up to $3.5 billion more than the next largest banking deal ever announced. That deal was the recent $13.5 billion merger between NationsBank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> and Barnett Banks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBI)") else Response.Write("(NYSE: BBI)") end if %>. The rumors swirling around today carry such an air of legitimacy because it's well known that CoreStates is on the block after stumbling for a number of quarters with poor financial results. The reports have First Union offering $85 per share in stock, which some will say is "staggering" or somesuch at more than 5 times CoreState's book value. What would be staggering to some if the deal does get done is that CoreStates had rejected a similar bid from in-market competitor Mellon Bank Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEL)") else Response.Write("(NYSE: MEL)") end if %>. That bid was rumored to be in the $80 to $85 per share range and, being an in-market merger, would have offered higher cost savings possibilities. That deal also offered an acquirer with return on equity, return on assets, and 10-year shareholder return all superior to First Union's.
Visigenic Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VSGN)") else Response.Write("(Nasdaq: VSGN)") end if %> rose $2 1/2 to $7 3/4 after Borland International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BORL)") else Response.Write("(Nasdaq: BORL)") end if %>, a supplier of database and distributed object connectivity software for the Internet, announced that it had signed an agreement to acquire the company. Visigenic stockholders will receive 0.81988 Borland shares for each outstanding share of Visigenic common stock, valuing the transaction at roughly $126.47 million, which is about 6 times Visigenic's trailing sales. The key to Borland's future is its product line, and its focus has switched from desktop software to programming tools after struggling against industry giant Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>. Visigenic's technology will allow Borland to sell tools that developers can use to write programs in "small chunks that will work on all types of computer systems."
QUICK TAKES: Aerial work platforms manufacturer JLG Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JLG)") else Response.Write("(NYSE: JLG)") end if %> rose $1 7/16 to $12 15/16 on announcing after the bell yesterday that it expects fiscal 1998 EPS to approach the "upper end of analysts estimates" of $0.48 to $0.75, including the effects of restructuring charges... Home equity loan company Southern Pacific Funding Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFC)") else Response.Write("(NYSE: SFC)") end if %> added $1 1/8 to $13 1/4 on news that its directors authorized the repurchase of up to 5% of the company's stock (1 million shares)... Software company and Year 2000 problem-fixer Software AG Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGS)") else Response.Write("(NYSE: AGS)") end if %> rose $1/2 to $10 1/2 after 7.7 million of its common shares were offered for initial public sale at $10 each... SBC Warburg Dillion Read raised multinational telecommunications provider RSL Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RSLCF)") else Response.Write("(Nasdaq: RSLCF)") end if %> to a "buy" rating, which boosted shares $1 15/16 to $24 3/8... Warburg also raised its rating on shares of Becton Dickinson & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDX)") else Response.Write("(NYSE: BDX)") end if %> to "outperform" from "neutral," which helped the medical supplies and devices firm gain $2 11/16 to $49 1/8.
Shoe and boot maker Genesco Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GCO)") else Response.Write("(NYSE: GCO)") end if %> rose $5/8 to $12 7/16 after reporting Q3 EPS of $0.35 before an extraordinary charge of $0.01 per share for the early retirement of debt. The consensus estimate was for $0.31 per share... General builder Turner Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TUR)") else Response.Write("(AMEX: TUR)") end if %> added $1 1/4 to $22 7/8 on announcing a stock repurchase program under which up to 5% of the company's stock may be repurchased... Granite Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GFNL)") else Response.Write("(Nasdaq: GFNL)") end if %> jumped $3 3/8 to $15 7/8 after agreeing to be acquired by Fidelity National Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNF)") else Response.Write("(NYSE: FNF)") end if %>, a provider of title insurance and real estate services, in a stock swap deal valued at $37.12 million... Contract electronics manufacturer CMC Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CMCI)") else Response.Write("(NASDAQ: CMCI)") end if %> gained $2 13/16 to $13 3/4 after reporting Q1 EPS of $0.18 versus expectations for $0.11... Century Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYFN)") else Response.Write("(Nasdaq: CYFN)") end if %> gained $4 1/2 to $23 3/4 after signing a letter of intent to merge with bank holding company Citizens Bancshares <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CICS)") else Response.Write("(Nasdaq: CICS)") end if %> in a transaction valued at approximately $138 million.
Micro Therapeutics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTIX)") else Response.Write("(Nasdaq: MTIX)") end if %>, a developer of therapeutic devices for the treatment of neurovascular and peripheral vascular diseases, rose $15/16 to $6 7/16 after it announced a strategic alliance with Guidant Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDT)") else Response.Write("(NYSE: GDT)") end if %> in which the medical device manufacturer may invest up to $10 million... Shares of the Hungarian Broadcasting Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HBCO)") else Response.Write("(Nasdaq: HBCO)") end if %> gained $1 to $7 after announcing that it had been granted a national television broadcasting license for its satellite operations... Specialty retailer The Wet Seal <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WTSLA)") else Response.Write("(Nasdaq: WTSLA)") end if %> rose $3 3/8 to $29 5/16 after Q3 EPS came in at $0.39 versus expectations of $0.32. Year-over-year comparable quarter sales increased 9.3%... Pegasystems Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PEGA)") else Response.Write("(Nasdaq: PEGA)") end if %> added $2 1/16 to $18 5/8 after announcing last night that it had entered the utilities market with an agreement to provide Central Vermont Public Service Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CV)") else Response.Write("(NYSE: CV)") end if %> with customer service management software.
Shares of Bright Horizons <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRHZ)") else Response.Write("(Nasdaq: BRHZ)") end if %> was up $1 11/16 to $18 3/4 after the back-up child care centers company held a grand opening of its Newark facility today... Norwegian shipping company Stolt-Nielsen SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STLTF)") else Response.Write("(Nasdaq: STLTF)") end if %> gained $1 1/8 to $23 after saying it would post a $132 million gain ($2.40 a share) from the public offering of shares of its Stolt Comex Seaway <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCSWF)") else Response.Write("(Nasdaq: SCSWF)") end if %> affiliate... Regal Cinemas <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REGL)") else Response.Write("(Nasdaq: REGL)") end if %> climbed $1 9/16 to $24 1/4 on completing its previously announced purchase of some select theater assets from Capitol Industries for $24 million in cash... Printed circuit board maker Hadco Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HDCO)") else Response.Write("(Nasdaq: HDCO)") end if %> jumped $3 5/16 to $63 3/16 after it reported Q4 EPS of $0.84 versus estimates of $0.77... Telecommunications giant AT&T Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> gained $3 7/8 to $52 1/2 amid optimism that newly appointed CEO Michael Armstrong will cut costs in a rapid fashion and after Lehman Brothers reiterated its "buy" rating on the firm.
Biopharmaceutical company Zonagen <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZONA)") else Response.Write("(Nasdaq: ZONA)") end if %> lost $1 3/8 to $33 1/2 after Asensio & Co. issued a report claiming that Zonagen's Phase III clinical trials for Vasomax were "seriously flawed" and that Zonagen had no defendable proprietary position in the male impotence pill market. Based upon this information, Asensio initiated coverage of the company with a "strong sell" recommendation. Asensio & Co. has placed itself in the spotlight in recent months by issuing scathing press releases about companies that it feels are misleading investors (as well as companies that it might have short positions in). This practice has landed Asensio some lawsuits in the process. Asensio claims that Zonagen does not own a patent for any pill to treat impotence and that Zonagen's pill has only one active ingredient, Phentolamine, which is a 45-year-old generic drug. Asensio further asserts that Phentolamine has been shown to be ineffective in treating impotence and that the company's own Phase II German trial bears this out.
Adobe Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADBE)") else Response.Write("(Nasdaq: ADBE)") end if %> was whacked for a $6 5/8 loss to $42 1/8 after the company reportedly told a private audience of investors at SoundView Associates conference that revenues for one of its products will fall short of projections. According to Reuters, SoundView's research director Russ Crabs said the product shortfall would only account for a $5 million to $10 million revenue miss, which would be mitigated by higher margins in other product areas. Crabs would be going way out on a limb to say that Adobe said such a thing if it weren't true, which leaves Fools shaking their heads in wonderment that a widely held company such as Adobe would reserve these comments for a select few individuals who may not even own the stock. A press release simultaneous with these remarks would be appreciated by stockholders, rather than giving institutional investors and traders preference to the information.
Oil services companies had a slight letdown today, though crude oil prices dropped only marginally. Those interested in game theory might believe that the good cop/bad cop routine going on with the U.S., the world community, and Iraq may well solve the tensions over that country. Whatever the reasons, heavyweights such as Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> lost $4 9/16 to $83 5/8, Western Atlas <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAI)") else Response.Write("(NYSE: WAI)") end if %> moved down $4 3/16 to $70 13/16, and Halliburton <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAL)") else Response.Write("(NYSE: HAL)") end if %> fell $4 1/4 to $55. Elsewhere in the sector, BJ Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BJS)") else Response.Write("(NYSE: BJS)") end if %> declined $4 1/4 to $79 3/4, and contract oil and gas driller Global Marine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLM)") else Response.Write("(NYSE: GLM)") end if %> slid $1 5/8 to $ 28 3/8. Oil and gas exploration company Newfield Exploration <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NFX)") else Response.Write("(NYSE: NFX)") end if %> was drilled for a $2 loss to $24 11/16, while drilling equipment manufacturer National Oilwell <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOI)") else Response.Write("(NYSE: NOI)") end if %> declined $5 5/8 to $68 3/4. All of this might be explained, too, by investors' belief that in a deflationary world, oil and gas prices are more likely to follow a downward path in price. The move down was also exacerbated by a Barron's Online story published today titled "Oil Service May Fall Further as Insiders Dump Shares."
QUICK CUTS: Australian-themed restaurant Outback Steakhouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OSSI)") else Response.Write("(Nasdaq: OSSI)") end if %> lost $2 7/16 to $27 3/16 after it announced that it will take a $27 million pre-tax charge in the fourth quarter to write down the value of some of its Carrabba's Italian Grill restaurant properties... Green Tree Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GNT)") else Response.Write("(NYSE: GNT)") end if %> lost $2 1/16 to $31 9/16 after Standard & Poor's lowered its financial strength rating and senior debt rating on Green Tree following the financial services company's writedown of securities, which reduced owners' equity by approximately 10%... Uniform rental company Unitog Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UTOG)") else Response.Write("(Nasdaq: UTOG)") end if %> declined $3 to $20 1/4 after reporting Q3 EPS of $0.40, which beat estimates. The company said it was disappointed by the level of direct sales during the quarter... Hasbro Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HAS)") else Response.Write("(AMEX: HAS)") end if %> lost $2 1/2 to $28 3/8 after Tucker Anthony lowered its 1997 EPS estimate on the toy company to $1.65 from $1.75, saying results in individual product lines are not coming along as expected... Avon Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVP)") else Response.Write("(NYSE: AVP)") end if %> was smeared for a $5 loss to $57 1/2 after saying that punk international sales will knock down Q4 EPS to $0.87 to $0.92, at least 18% below the First Call mean estimate of $1.13 per share.
Correction: In yesterday's " Quick Cuts" it was erroneously reported that Asia Electronics Holding Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AEHCF)") else Response.Write("(Nasdaq: AEHCF)") end if %> reported Q3 EPS of $0.17, compared with prior year EPS of $0.25. Asia Electronics actually reported Q3 EPS of $0.25, an increase over the prior year period EPS of $0.17. We regret any confusion this swapping of EPS figures may have caused.
FOOL ON THE HILL
An Investment Opinion by Jim Surowiecki
Keep an Eye on CBS
We may all want to be like Mike, but Mike, it seems, wants to be like Ted. As part of his ongoing effort to reshape Westinghouse Electric Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WX)") else Response.Write("(NYSE: WX)") end if %> from a diversified maker of durable goods and power-generating equipment into a media giant, company CEO Michael Jordan announced Friday that Westinghouse would sell its non-nuclear power-generation business to German giant Siemens AG for $1.53 billion, which spells an end to plans to spin off Westinghouse's industrial assets into a separate firm. Coming on top of the company's $2.65 billion sale of its Thermo King unit -- Thermo King makes temperature-control devices for the transportation industry -- the Siemens deal effectively transforms Westinghouse into a pure-play media company. Westinghouse will cap that transformation by changing its name to CBS, under which symbol it will begin trading on the NYSE on December 1.
Considering that Westinghouse has only owned CBS since 1995, this does seem to be a curious case of the conquered becoming the conqueror, but Westinghouse's evolution has less to do with the overwhelming strength of CBS than it does with Jordan's faith that the media industry offers the best hope for a high-growth strategy. Westinghouse has actually been in broadcasting since the early 1920s in the form of radio, but for most of this century it was a definitive example of a widely diversified corporate behemoth. That began to change in the 1980s, when the company sold off more than 70 businesses and began to focus its industrial business more tightly on power-generation and electrical goods, but the real shift came in 1993, when Jordan arrived with a mandate to shake things up.
Under Jordan, Westinghouse began to sell off businesses -- including Knoll furniture -- and to pay down its debt. But the decision to make media Westinghouse's core business was not an obvious one. Although it did own 18 radio stations at the time of the CBS acquisition, it was not until it bought the network -- an acquisition that came at a price that now looks relatively cheap -- that Westinghouse's media strategy took shape. The purchase of Infinity Broadcasting earlier this year, along with The Nashville Network, solidified the company's foundation in the industry.
The power-generation business that Westinghouse is selling accounted for $2.2 billion in revenue last year, and the company still has a nuclear-power unit, which it also plans to sell, that brought in $1.2 billion in sales. But these were relatively low-margin businesses, and Westinghouse's return on equity last year was just 2.1% while it has actually reported losses in three of the last four quarters, primarily as a result of writing off discontinued operations. While the value the market has placed on the major networks has fluctuated dramatically over the last five years, the prevailing wisdom suggests that CBS is an invaluable platform for national programming and that its size and brand identity are crucial leverage in the industry. That brand name should only be strengthened by the fact that CBS will now be at the heart of everything Westinghouse -- excuse me, CBS -- does.
The network and its associated local TV stations have also been turning in solid bottom-line performances, with cash flow for the stations up more than 34% to $78 million and CBS' cash flow up 42% to $47 million. CBS continues to suffer from the demographics of its audience -- skewed heavily toward older viewers -- which keeps down ad revenues. But its ratings and its ad rates are up substantially from where they were just two years ago. Westinghouse's radio business also has the potential to grow rapidly, since the company now has stations in 19 of the nation's top 50 markets and since radio, against all expectations, appears to be more popular than ever.
Needless to say, the media business remains one that is difficult to negotiate without missteps, and the continued expansion of cable, coupled with the potential intrusion of the Internet, makes the future of network television uncertain. On the other hand, the networks have seen their viewership decline dramatically throughout this entire decade without really feeling the impact on their balance sheets, since ad rates have continued to rise even as ratings have continued to fall. If anything, the continued fragmentation of the media audience has made platforms with truly broad reach more appealing to advertisers than ever.
Westinghouse will not be fully divested of its industrial assets for at least a year, and it remains debt-heavy, with $5.8 billion in debt. But Jordan's strategy has been reaping dividends on the Street, where Westinghouse stock has risen more than 50% since the beginning of the year. It seems more than possible that Jordan's plan to make an asset-heavy Westinghouse into a lean CBS will reap long-term rewards in terms of the market's valuation of the company. At the very least, CBS is a firm that now deserves another look.
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Randy Befumo (TMF Templr), a Fool One
Dale Wettlaufer (TMF Ralegh), Fool Two
Alex Schay (TMF Nexus6), Fool Three
Jim Surowiecki (TMF Cinder), Fool Four
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