DJIA: 7922.59 +84.29 (+1.08%) S&P 500: 963.39 +10.00 (+1.05%) Nasdaq: 1536.56 -0.02 (0.00%) S&P Utilities 224.41 +3.20 (+1.45%) 30-Year Bond 102 5/32 -19/32 5.97% Yield
Bethlehem Steel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BS)") else Response.Write("(NYSE: BS)") end if %>, the nation's second largest steel company,
helped boost the shares of steelmaker Lukens Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUC)") else Response.Write("(NYSE: LUC)") end if %> $6 3/8
to $23 7/8 after announcing an offer to acquire the company for $650 million,
including $250 million of assumed debt. Bethlehem will issue common stock
for 38% of the total equity value, with the balance paid in cash. Due to
another development today, the specialty metals and steel industry might
start to show up in momentum-driven screens, so watch out. Specialty alloys
and metals products manufacturer Handy & Harman <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HNH)") else Response.Write("(NYSE: HNH)") end if %> jumped
$10 3/16 to $32 7/16 on receiving what looks like a surprise $30 per share
cash takeover offer from steel producer WHX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHX)") else Response.Write("(NYSE: WHX)") end if %>. Whether
or not WHX gets an answer from Handy & Harman, WHX has wanted a specialty
metals operation since it was thwarted in its bid to take over Teledyne a
couple years back. To that end, WHX will commence its tender offer tomorrow,
which is planned to run through mid-January.
In other merger news, U.S. Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USB)") else Response.Write("(NYSE: USB)") end if %> announced that it will
acquire Minneapolis neighbor Piper Jaffray Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PJC)") else Response.Write("(NYSE: PJC)") end if %>,
a full-service securities brokerage and investment banking company, in a
cash transaction valued at $730 million, or $37.25 per Piper Jaffray common
share. Piper jumped $6 5/8 to $36 3/8 and U.S. Bancorp finished up $1 3/4
at $115 today, reflecting a positive market reaction to the acquisition.
At four times book value, the possibility to add product offerings, increase
ways to retain customers, and add another source of earnings and funding
make the acquisition a more compelling value than just gathering another
bank into the fold at two times book value. Assuming a price-to-book multiple
of 4 for a brokerage earning a 25% return on relatively unleveraged shareholders'
equity versus a price-to-book multiple of 2 for a run-of-the-mill bank earning
15% on highly leveraged equity, the "more expensive" brokerage's cumulative
earnings yield on the original purchase price crosses over that of the bank
at year six, assuming a 100% earnings payout ratio to keep things simple.
Better to pay 4 times book for a business that can generate excellent returns
on unleveraged equity as well as complimenting your base business rather
than buying a bank that will run more modest rates of return on highly leveraged
equity.
Diversified gaming company Anchor Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLOT)") else Response.Write("(Nasdaq: SLOT)") end if %> gained $8
7/16 to $51 15/16 after announcing that second quarter EPS will be between
$1.10 to $1.20, which puts earnings squarely within the range of analysts'
estimates for the quarter. Anchor shares have declined in the last three
weeks from a peak near $100 as rumors surfaced that the company's results
wouldn't meet estimates. On the Dec. 3 the company confirmed that results
would be hurt somewhat by Colorado snows early in the quarter, but that its
analysis was preliminary. After some shareholder wailing and the launch of
a lawsuit, Anchor's earnings may actually increase sequentially, which would
be a feat in a seasonally slow quarter. Anchor added that it has authorized
the repurchase of an additional 514,000 shares, bringing the current outstanding
buyback authorization level to 1 million shares of common stock.
QUICK TAKES: Sano Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SANO)") else Response.Write("(Nasdaq: SANO)") end if %>, a developer of proprietary
transdermal drug delivery systems, gained $9 9/16 to $32 9/16 after drug
delivery and biopharmaceutical company Elan Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELN)") else Response.Write("(NYSE: ELN)") end if %> announced
that it intended to acquire Sano in a tax-free all-stock transaction that
values Sano at $35.50 per share, or approximately $375 million... Mobile
communications company SK Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKM)") else Response.Write("(NYSE: SKM)") end if %> rose $1 1/8 to $6 1/8
after the company announced that it had gained an additional 340,000 new
CDMA (Code Division Multiple Access) subscribers in the month of November.
This is a 40% increase over the 243,000 new subscribers reported in October...
Morgan Stanley raised its rating on networking programmable processors company
MMC Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MMCN)") else Response.Write("(Nasdaq: MMCN)") end if %> to "strong buy" from "outperform," which
boosted the stock $2 1/8 to $15.
After being smashed last week, medical device maker Gliatech Inc.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GLIA)") else Response.Write("(Nasdaq: GLIA)") end if %> gained $3 3/4 to $11 7/8 after announcing on Friday that it
had received FDA advisory panel approval for its application to market an
anti-adhesion gel in the U.S... European telecom company Esprit Telecom
Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESPRY)") else Response.Write("(Nasdaq: ESPRY)") end if %> rose $2 3/8 to $11 3/8 after successfully placing
$300 million in 11.5% ten-year notes in the U.S. and Europe... Gaining a
respite from merciless selling over the last month, semiconductor fabrication
equipment concerns gained some ground today, with Applied Materials
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %> rising $1 15/16 to $28 1/16, wafer handling company
Brooks Automation <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRKS)") else Response.Write("(Nasdaq: BRKS)") end if %> gaining $1 1/2 to $14 3/8, and wafer
stepper firm Ultratech Stepper <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UTEK)") else Response.Write("(Nasdaq: UTEK)") end if %> picking up $2 1/2 to
$21 1/4... On the eve of tomorrow's first quarter earnings report, electronics
contract manufacturer Jabil Circuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBIL)") else Response.Write("(Nasdaq: JBIL)") end if %> climbed $2 3/8
to $34 7/8. Analysts are expecting Q1 EPS of $0.48... Specialty semiconductor
design firm Integrated Circuit Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICST)") else Response.Write("(Nasdaq: ICST)") end if %> gained $2 9/16
to $22 7/8 after advising investors that it has a high level of confidence
in its ability to meet Q2 EPS estimates of $0.42 to $0.44, due in part to
the company's shift toward higher value-added, non-PC semiconductor devices.
UST Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USTB)") else Response.Write("(Nasdaq: USTB)") end if %> and Affiliated Community Bancorp
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFCB)") else Response.Write("(Nasdaq: AFCB)") end if %> jointly announced today that UST will acquire the
Massachusetts bank and financial services company in a stock swap in which
each share of Affiliated will be exchanged for 1.41 shares of UST common
stock. The $259 million deal raised Affiliated's shares $4 to $36 5/8...
Childcare company Bright Horizons <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRHZ)") else Response.Write("(Nasdaq: BRHZ)") end if %> moved up $1 3/4 to
$16 1/2 after Everen Securities last week raised its rating on the company
to "outperform" from "market perform"... Cordiant <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDA)") else Response.Write("(NYSE: CDA)") end if %> gained
$2 15/16 to $8 15/16 after the parent company of advertising and marketing
agency Bates Worldwide "demerged" with ad agency Saatchi & Saatchi
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SSA)") else Response.Write("(NYSE: SSA)") end if %>... Specialty steel company Lone Star Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LSS)") else Response.Write("(NYSE: LSS)") end if %> gained $4 to $28 1/2 after the company announced that it has bought
back more of its stock under a standing repurchase authorization. Reuters
also reported today that the Bass family might be looking at acquiring
the company or participating in a recapitalization of the company.
Mexican construction company Empresas ICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICA)") else Response.Write("(NYSE: ICA)") end if %> rose $1 5/16
to $15 15/16 on signing a strategic alliance to participate in energy contracts
with a company affiliated with Gaz de France, according to Reuters... Cox
Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COX)") else Response.Write("(NYSE: COX)") end if %> gained $3 to $39 15/16 after updating investors
on its whiz-bang broadband services at a company-sponsored gathering of investors
and analysts... Olympic Steel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZEUS)") else Response.Write("(Nasdaq: ZEUS)") end if %> picked up $1 1/4 to $13
7/8 after the company announced a joint venture with Trumark Inc. to produce
flat-rolled steel products for the auto industry. Goldman Sachs raised its
rating on the company today to "trading buy" from "market outperform"...
Clinical research organization Quintiles Transnational <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QTRN)") else Response.Write("(Nasdaq: QTRN)") end if %>
rose $3 1/8 to $34 3/8 after Salomon Smith Barney raised its rating on the
company to "buy" from "outperform."
Cypress Semiconductor Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CY)") else Response.Write("(NYSE: CY)") end if %> fell $11/16 to $7 7/8 after
announcing that it would fail to meet analysts' expectations for the fourth
quarter. The company makes static RAM, EPROM, and other specialty memory
products, programmable logic devices (PLDs), and data communications products
as well as timing devices and USB microcontrollers. Cypress was expected
to take in $152-155 million in revenues and post EPS between $0.09 and $0.10.
The company now states that it expects revenues in the range of $140-143
million and EPS of breakeven to $0.01. Cypress attributed the decline to
a $5 million shortfall in wafer-foundry revenue and a $10 million shortfall
in static RAM (SRAM) revenue, due to a "timing problem in shipping by the
quarter-end cutoff." Assuming that $0.04 per share will eventually flow to
the bottom line, the company now trades at 28 times the low end of its expected
1997 EPS. Morgan Stanley and Gruntal and Co. both lowered their ratings on
Cypress today.
Enamelon <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENML)") else Response.Write("(Nasdaq: ENML)") end if %> got drilled for $1 13/16 to $14 3/8 today
after an article in Barron's this weekend questioned the medical support
that undergirds the company's claims that its over-the-counter products actually
"stop cavities before they begin." Robert Sherman, a biologist in the FDA's
division of over-the-counter drugs told Barron's that his "agency
does not have any evidence to support the combination of the active ingredients
of calcium and phosphate and fluoride as safe and effective for the prevention
of cavities." Enamelon, in order to distinguish itself from other fluoride
toothpastes, maintains that its toothpaste makes fluoride work better by
adding increased quantities of calcium and phosphate to saliva, which gives
the re-mineralization process a boost. Enamelon stated that human trials
are under way, and each study involves 30-40 people at 17 dental schools
around the country. Results may be years away, so Enamelon plans a national
rollout of its products in early 1998. It has to -- the company doesn't expect
to be profitable until the year 2000 and has amassed a trailing 12-month
loss of $1.17 per share.
Legal woes continue to plague electronic design automation software company Avant! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %>, which may have an injunction placed against its main software product line called "Aquarius." The company has been engaged in one of the most virulent intellectual property disputes in the software industry with antagonist Cadence Design Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDN)") else Response.Write("(NYSE: CDN)") end if %>, which has charged Avant! with outright theft of computer code. During a U.S. district court hearing last Friday, judge Ronald Whyte said he would decide this Friday whether to allow Avant! the opportunity to submit arguments on why Aquarius should not be enjoined (prompting further investigation). If this doesn't happen, Avant! may see a major source of revenue disappear. Back in March, Judge Whyte decided not to enjoin any Avant! products, but the the Ninth Circuit federal appeals court overturned that ruling and ordered Whyte to cut-off Avant!'s "ArcCell" product group. Since ArcCell has been replaced by Aquarius, it was next on the chopping block.
QUICK CUTS: Abercrombie & Fitch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANF)") else Response.Write("(NYSE: ANF)") end if %> took a $2 3/8 dive
to $30 3/8 after Claire Young of the Olympus Fund dissed the company in
Barron's over the weekend, questioning whether revenue growth could
continue... Semiconductor capital equipment vendor ATMI Inc.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATMI)") else Response.Write("(Nasdaq: ATMI)") end if %> dropped $2 3/4 to $21 3/8 after Byron Walker of BT Alex. Brown
downgraded the shares to "market perform" from "buy"... Keith Benjamin of
BA Robertson Stephens nailed software distributor GT Interactive
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GTIS)") else Response.Write("(Nasdaq: GTIS)") end if %> for $1 3/8 to $6 9/16 when he downgraded it to "long-term
attractive"... Green Tree Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GNT)") else Response.Write("(NYSE: GNT)") end if %> continues to look
for a bottom as it slipped another $2 to $20 1/2 after Standard & Poor's
revised its outlook to "negative" on the company's commercial debt even though
it "affirmed" the actual ratings.
Concerns over mass mortgage refinancing are still hurting some lenders, with
Thornburg Mortgage Asset Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TMA)") else Response.Write("(NYSE: TMA)") end if %> off $13/16 to $17 1/16
after a bad week last week. More analysts cut ratings and earnings estimates
today, although estimates were only shaved by a few pennies... Jennifer Smith
of BA Robertson Stephens downgraded two electronic data automation (EDA)
software companies today, putting Summit Design <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMMT)") else Response.Write("(Nasdaq: SMMT)") end if %> down
$1 3/4 to $10 and Synopsys <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNPS)") else Response.Write("(Nasdaq: SNPS)") end if %> down $1 1/4 to $35 3/4 with
"long-term attractive" ratings... Rock Bottom Restaurants <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BREW)") else Response.Write("(Nasdaq: BREW)") end if %> sank $1 1/2 to $7 1/8 after the microbrewry/restaurant operator said
financial results to-date in the fourth quarter were below company projections
due to bad weather and poor performance at some of its restaurants As a result,
the company will write down some of its underperforming restaurant assets
and fourth quarter profitability levels will be affected by company expenditures
for "exploration of strategic alternatives"... Pomeroy Computer
Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMRY)") else Response.Write("(Nasdaq: PMRY)") end if %> was cut $1 7/8 to $18 3/8 after the computer
integration firm announced that it will not be the 1998 computer product
supplier for Columbia/HCA's Nashville, Tennessee headquarters.
Correction: In Friday's Evening News, we incorrectly identified Consolidated Edison <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ED)") else Response.Write("(NYSE: ED)") end if %> as a New Jersey utility. While we might have been thinking of Menlo Park when we wrote that, the namesake of Thomas Alva Edison is headquartered not in the Garden State but in New York, the Empire State.
FOOL
ON THE HILL
An Investment Opinion by Randy
Befumo
Shame on Shareholder Relations
Shareholder relations hit a new low last week. Those who live within the
happy time continuum where individuals and institutions have equal access
to information got a quick double jolt of reality from the likes of Bay
Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> and Fine Host <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FINE)") else Response.Write("(Nasdaq: FINE)") end if %>. Whether it
was carefully crafted management doublespeak to the press accompanied by
obvious plain talking to the institutional contacts or no speaking at all,
rebuffed individual investors were confused, stupified, or otherwise just
plain stunned by the information, disinformation, and just plain lack of
information while the two stocks wilted under intense selling.
Going in alphabetical order, we have the all-to-common story of Bay Networks
last week informing Donaldson, Lufkin & Jenrette analyst Stephen Koffler
during a company visit that revenue growth would not meet expectations.
Specifically, Koffler stated in a research note published Wednesday morning
that the company's line of routers would turn in flat quarter-over-quarter
growth in the fiscal second quarter ending December 31. Koffler concluded
in the note that Bay's router growth was "slowing considerably" and would
not deliver the kind of results in fiscal 1999 that the company had originally
planned on. Although Koffler only cut earnings estimates for the full year
by two cents to $1.08 per share, the implications for next year were still
undetermined.
Bay Networks management responded to this looming crisis with one of most
skilled examples of press release doublespeak ever witnessed. A company official
told Dow Jones late Wednesday that it stands by its second-quarter earnings
per share estimates of $0.26 and anticipates that revenue overall will grow
sequentially. Conspicuous in its absence was any confirmation or denial by
Bay that router growth was de minimus and whether or not the company's
estimates for the rest of the fiscal year would be impacted by new assumptions
about how much the router business could grow. The company also carefully
avoided saying whether or not it would make its revenue estimates, indicating
that more than likely revenue would be off as Koffler had confided to his
institutional clients.
Although for "competitive reasons" Bay does not offer individual investors
a breakdown of where its revenues come from in its federal filings with the
SEC, Nutmeg Securities Ltd. analyst Andy Schopick stated in the same Dow
Jones wire story detailing Koffler's note that routers and shared media hubs
account for "most of Bay's revenues." With routers not panning out and shared
media products suffering "an industry wide decline in demand" for Bay in
fiscal 1996 that has continued until today, the picture hardly looked good
for the company. However, by skillfully handling the media and affirming
earnings estimates for the quarter (without confirming revenue estimates),
the company got the mass of individual investors to stay put. (In fact, Bay
investors got very defensive when the potential that Bay would miss its revenue
estimates was mentioned in this column
Friday.)
As much as one can rag on Bay Networks for sending a different message to
institutional analysts during company tours than it did to individual investors,
at least it was talking to somebody. As horrible as it is to give institutional
analysts a sense of the revenue breakdown without disclosing this same info
to individuals in spite of 18 filings made to the SEC over the last twelve
months, at least it was saying something. By comparison, management at Fine
Host is not even keeping their analysts informed about what was going on
until late Friday when the stock closed at $10 -- down $18 in the past four
trading days. The food service contract manager admitted on Friday that it
would have to restate the last three fiscal quarters because of how it
capitalized certain contract rights. Although Fine Host has not said anything
about the magnitude of the error, it did fire its Chairman and Chief Executive
Richard Kerley as well as the Treasurer Nelson Barber -- never a good sign.
Currently halted at $10 1/8 for news dissemination, anyone unfortunate enough
to own Fine Host will probably lose a substantial chunk of his money by
the time this debacle is through. The fact that all the while someone at
Fine Host was communicating that something bad was going on to someone is
a classic example of how the institutional analyst can get the shaft right
alongside the lil' guy. The company's recent $175 million bond offering
convertible into stock at $44 1/2 was purchased by institutions, not individual
investors. The analysts and investment bankers on the deal are feeling just
as bad (if not worse) as the individual investors holding the stock. In a
classic example of just how inefficient information dissemination can be,
someone trading knew on Monday or Tuesday that something was wrong and initiated
a sell-off, triggering a five-day extravaganza that saw more than two-thirds
of all of the shares outstanding trade.
What can individual investors (or even the occasional institutional investor)
do about information inefficiencies of this scale? Events like this should
remind investors that the company that informs the most and the quickest
is often the best, even if a peer company might be a little cheaper on a
pure numbers basis. Berkshire Hathaway Chairman Warren Buffett has reminded
investors time and time again since 1977 in his revered
Letters to
the Shareholders that the quality and caliber of the management team
is one of his key investment criteria. Straight and forthcoming reports that
give detailed revenue breakdowns and fully notate how the accounting for
amortization and depreciation is done is the ideal. Investors who settle
for nothing less will rarely be disappointed. Investors who simply do some
quick math or take a glance at a chart will unfortunately be disappointed
quite a bit.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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Have You Given? The Fool Charity Fund
Randy Befumo (TMF Templr), a Fool
One
Dale Wettlaufer (TMF Ralegh), Fool
Two
Alex Schay (TMF Nexus6), Fool
Three
Contributing Writers
Brian Bauer (TMF Hoops), Fool
Four
Editor