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HEROES

Perhaps emboldened by Starwood Hotels <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HOT)") else Response.Write("(NYSE: HOT)") end if %> takeover of much larger ITT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %>, paired-share healthcare real estate investment trust (REIT) Meditrust Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MT)") else Response.Write("(NYSE: MT)") end if %> announced its intention to buy lodging chain La Quinta Inns <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LQI)") else Response.Write("(NYSE: LQI)") end if %>, which gained $2 3/4 to $23 on the news. The total consideration for the deal is $26 per share in a combination of newly issued Meditrust shares and cash. Meditrust will also assume roughly $900 million in outstanding La Quinta debt. REITs can shelter income from federal taxes as long as they pay out 95% of their earnings in the form of a dividend. Paired-share REITs (there are only four) are allowed to operate businesses on the land that they own -- meaning that they can afford the luxury of being unconcerned about potential conflicts between the management of properties and the collection of rents (with La Quinta owning all of its properties, the fit is a good one). Duff & Phelps Credit Rating Co. put Meditrust's BBB rating on its senior debt on "Rating Watch," reflecting concerns about Meditrust's increase in business risk (operating hotel properties and experiencing less financial flexibility).

The battle for steel maker Lukens Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUC)") else Response.Write("(NYSE: LUC)") end if %> continued today as Bethlehem Steel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BS)") else Response.Write("(NYSE: BS)") end if %> increased its offer to $740 million to buy the specialty steel maker, beating a rival $715 million bid made in December by Allegheny Teledyne <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALT)") else Response.Write("(NYSE: ALT)") end if %>. Bethlehem is now offering $30 a share in cash and stock, which competes with Allegheny's $28 all cash offer. Lukens shares rose $2 1/16 to $30 7/16 on the news. This increased offer from Bethlehem comes on the heels of the bid by Allegheny that attempted to trump Bethlehem's initial offer. Allegheny may yet emerge the victor in this battle, as the key issue of pension obligations weighs heavily in its favor. Allegheny's pension fund is overfunded by $690 million as of Dec. 1996, which could easily absorb Lukens' $25 million in pension liabilities. Bethlehem, on the other hand, has a liability of $500 million (down from as high as $1.6 billion in the early nineties).

QUICK TAKES: Computer and telecommunications systems company Comverse Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMVT)") else Response.Write("(Nasdaq: CMVT)") end if %> rose $2 5/8 to $41 1/8 after receiving a "buy" rating in new coverage by Hambrecht & Quist... Electronic design automation software company Avant! Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %> gained $2 1/8 to $17 1/2 after announcing that it was awarded two new contracts with semiconductor vendors with a combined value of $57 million... The announcement that consumer electronics giant Sony Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNE)") else Response.Write("(NYSE: SNE)") end if %> is planning to take a 5% stake in NextLevel Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NLV)") else Response.Write("(NYSE: NLV)") end if %>, a maker of digital TV set-top devices, boosted shares of the former component of General Instrument Corp. by $1 1/2 to $19 11/16... Bio-Plexus Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BPLX)") else Response.Write("(Nasdaq: BPLX)") end if %>, a designer, developer, manufacturer, and marketer of medical safety products under the name PUNCTUR-GUARD, gained $11/16 to $5 1/16 after accidental needlestick victim "Dr. Jane Doe" received a $12.2 million jury award, which is precisely the type of accident that Bio-Plexus products attempt to prevent. The victim contracted the virus that causes AIDS from the needlestick.

Comshare Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSRE)") else Response.Write("(Nasdaq: CSRE)") end if %> a designer and marketer of "Strategic Merchandise Management software" rose $1 7/16 to $7 9/16 after retailer The Sports Authority <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %> announced that it had purchased Comshare's Arthur Planning application to be implemented in its stores... NuCo2 Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NUCO)") else Response.Write("(Nasdaq: NUCO)") end if %>, a supplier of bulk carbon dioxide systems and liquid carbon dioxide, expects to add approximately 1,400 accounts through an acquisition, which raised the company's stock $1 3/8 to $12 1/2... Donaldson, Lufkin & Jenrette initiated coverage on shares of AgriBioTech Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABTX)") else Response.Write("(Nasdaq: ABTX)") end if %> with a "buy" rating, stating that the company has "pursued an aggressive acquisition strategy and has become the market share leader in the forage and turfgrass seed market." The company's shares grew $2 1/8 to $18 3/8 on the news.

BancAmerica Robertson Stephens analyst Steve DeLuca initiated coverage today on machine vision company ICOS Vision Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IVISF)") else Response.Write("(Nasdaq: IVISF)") end if %> with a "buy" rating and a 12-month price target of $16, which pumped the stock up $15/16 to $11 1/2... MapInfo Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAPS)") else Response.Write("(Nasdaq: MAPS)") end if %> gained $1 1/16 to $11 5/8 after the company announced that it had signed OEM agreements to integrate its MapX control (OCX) into the supply chain management systems software of IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> and Manugistics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MANU)") else Response.Write("(Nasdaq: MANU)") end if %>... Zila Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZILA)") else Response.Write("(Nasdaq: ZILA)") end if %>, an international provider of healthcare products for dental/medical professionals, added $5/8 to $6 11/16 after announcing that its Zila Dental Supply subsidiary had contracted with CIGNA Dental Health, one of the nation's largest dental managed care organizations, to meet the dental supplies needs of its 43,000 network dentists.

Online stock trading service E*Trade Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> gained $2 3/8 to $25 5/16 after the company reported pro forma net income of $6,565,000, or $0.16 per share, excluding a one-time charge of $0.04 per share for acquired in-process research and development (due to the company's acquisition of OptionsLink). The company had been expected to earn $0.14 per share... Flash memory data storage products company SanDisk Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNDK)") else Response.Write("(Nasdaq: SNDK)") end if %> gained $2 5/16 to $24 5/16 after receiving a "market outperform" rating in initial coverage by Goldman Sachs & Co... Pharmaceutical company Pfizer Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> rose $4 1/8 to $79 13/16 after the company was announced to be "one of the top choices for 1998" by Laszlo Birinyi on Wall $treet Week with Louis Rukeyser.

GOATS

Intranet/Internet software company Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> lost $4 13/16 to $18 9/16 today, hitting a new all-time low, after the company announced that it will lose $0.15 to $0.19 per share in the first quarter, significantly below the First Call mean EPS estimate of $0.14. While the company expects enterprise and server software revenues to grow 68.5% year-over-year during the quarter, that missed the company's even higher growth estimates. Compounding the problem of a lengthening sales cycle that comes along with more competitors and more sophisticated choices of software packages available in the market, Netscape said client revenues were down, including Navigator revenues, which fell 67% from last year. That's a natural result, though, of Navigator not being the only well-marketed web client the company produces. An unknown going forward is competition in server software pricing and the ability of Netscape to keep winning commercial accounts for its various suites of software. Competing head-on with Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MSFT)") else Response.Write("(NYSE: MSFT)") end if %> Exchange and Outlook products, where Microsoft can offer the O/S, database software, and applications will be no easy task for Netscape going forward.

Following the rather bleak earnings warning from Netscape, other application software vendors sold off on worries that corporate software spending in general may be weak in Europe as well as in Asia. The most damaged among the larger enterprise resource planning (ERP) software vendors was Baan Co. N.V. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAANF)") else Response.Write("(Nasdaq: BAANF)") end if %>, which fell $3 9/16 to $29 1/8. SAP AG, meanwhile, was flat in German trading, and Peoplesoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSFT)") else Response.Write("(Nasdaq: PSFT)") end if %> slid $1 7/8 to $36. Oracle's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> slowdown and subsequent share price decline is also on the minds of investors, but others are taking another tack: that Netscape's problems have to do with price competition and integration issues with Microsoft and that Oracle's problems are execution-oriented and not macro-driven. With earnings season just around the corner, investors won't have to wait too long to get a check-in on the outlook for the ERP companies.

Medical device manufacturer Arterial Vascular Engineering <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVEI)") else Response.Write("(Nasdaq: AVEI)") end if %> lost $6 5/8 to $57 after J.P. Morgan lowered its rating on the company to "market performer" from "buy" based on long-term growth concerns. The mean 1999 EPS estimate on the company has risen from approximately $1.40 in September to over $2.25 now. But analyst Mike Weinstein says the company's earnings will peak earlier than that, in the second quarter of 1998, leading to calendar 1998 EPS of $2.45. The growth rate Weinstein has modeled, then, is much steeper than other analysts believe will take place and tops out one year before his peers in the analyst community believe. In its most recent quarterly report, the company said it may see a continuation of price pressure, which could hurt the company's growth prospects given its limited product line. Without additional products in the pipeline, competing against Johnson & Johnson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> in the stent market limits growth for all but the most well-run companies with the best product lines.

QUICK CUTS: Accounting for the bulk of downside movers on NYSE today, oil services stocks dropped another couple notches as the price of West Texas Intermediate crude oil fell below $17 per barrel. Among the most badly hit was Tuboscope Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBI)") else Response.Write("(NYSE: TBI)") end if %>, which lost $3 to $20. Supply and service vessel company Tidewater Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TDW)") else Response.Write("(NYSE: TDW)") end if %> fell $3 5/16 to $50 3/16 as Prudential Securities guru Ralph Acampora recommended selling short the company's shares on this week's Wall $treet Week with Louis Rukeyser... Drilling and air transport company Rowan Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDC)") else Response.Write("(NYSE: RDC)") end if %> lost $2 13/16 to $27 5/8.

Times Mirror Co. PEPS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TME)") else Response.Write("(NYSE: TME)") end if %> fell $4 7/16 to $20 5/8 as the securities are yield-bearing derivatives linked to the value of Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> common stock... Food processor ConAgra <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAG)") else Response.Write("(NYSE: CAG)") end if %> dropped $2 3/8 to $30 13/16 as live cattle prices declined and as Goldman Sachs downgraded the shares to "market perform" from the firm's "recommended list." Goldman Sachs' analyst was also concerned about demand for chicken dropping in Hong Kong, where a poultry flu has spread in the past few weeks... New Jersey Resources Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NJR)") else Response.Write("(NYSE: NJR)") end if %> lost $2 7/16 to $36 1/4 after the natural gas distributor said it is offering New Jersey Natural Gas customers $125 to switch their service to NJR's New Jersey Natural Energy Co. service, which will meet New Jersey Natural Gas' rates. New Jersey Natural Energy said customers can designate charities to receive the cash and that the cash incentive will be limited to 5,000 customers.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

SBC Consumes Another

Confusion over how to shorten the extraordinarily long corporate name of Southern New England Telecommunications Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNG)") else Response.Write("(NYSE: SNG)") end if %>, otherwise known as SNET, ended today. Management solved this issue by deciding to go under a new moniker altogether -- that of SBC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBC)") else Response.Write("(NYSE: SBC)") end if %>. Western regional bell operating company (RBOC) SBC Communications announced this morning that it would merge with SNET, paying approximately $4.2 billion in stock and assuming $1.2 billion in long-term debt for the privilege. The deal gives the ever acquisitive SBC Communications a stake in rival Bell Atlantic's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> home territory and expands the firm's wireless operations.

Southern New England Telecommunications is a relic of an era where there were dozens of phone service providers named after various cities, states, and regions throughout the country. Although many of these were consolidated into AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> through the years, a few escaped assimilation and have remained publicly traded ever since. Probably the most successful of these besides SNET have been Cincinnati Bell <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSN)") else Response.Write("(NYSE: CSN)") end if %> and GTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %>, although ALLTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AT)") else Response.Write("(NYSE: AT)") end if %>, Telephone & Data Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TDS)") else Response.Write("(AMEX: TDS)") end if %>, Century Telephone Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTL)") else Response.Write("(NYSE: CTL)") end if %>, and Aliant Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALNT)") else Response.Write("(Nasdaq: ALNT)") end if %> have all provided local service for years and seem in many ways to be the inheritors of small local markets that were not consolidated in AT&T. Unlike the competitive local exchange carriers that have cropped up in recent years, these companies have been in business for decades.

SNET shareholders will get 0.8784 shares of SBC Communications for each share of SNET they hold, worth between $63 to $64 at the start of the day. SNET territories include most of Connecticut, some of Rhode Island, and western Massachusetts -- basically what was once a no man's land between Bell Atlantic and NYNEX. The region is an attractive one for an SBC because of the population density. Unlike the West, there is not a lot of open space in New England, and it makes for a very dense customer base. In addition, Connecticut boasts a very high per capita income, which combined with customer concentration means a pretty nice revenue stream.

The acquisition dovetails well with SBC's wireless presence, as SBC owns licenses up and down the East Coast centered in places like New York, Washington D.C., and Baltimore. This is probably the most exciting aspect of the deal, as SNET's wireless properties have been growing at a 15% to 20% annual rate over the past few quarters. Overall, the valuation is not completely out-of-whack given the market share that Southern New England enjoys. At 2.0 times sales, however, this is not a cheap deal either, given that Southern New England's net margins are currently around 10% and the company is losing market share. SBC management believes that the deal will be non-dilutive, meaning that the additional shares issued will not make earnings per share lower than they otherwise would be. This makes sense given that SBC currently trades at 2.6 times sales and tit is acquiring SNET at a discount to this valuation.

With continued consolidation in the local phone industry and long-distance providers itching to start offering local service again, more mergers are not out of the question. In fact, the situation smacks of what has gone on among the investment banks over the past 18 months. When the Federal Reserve Board modified its interpretation of the Glass-Steagall Act to allow commercial banks to generate up to 25% of revenues from investment banking, a wave of consolidation hit that saw many mergers occur at valuations that previously would have been considered unthinkable. Although the recent court challenge of the Telecommunications Act of 1996 by SBC muddies the waters, over the next few years many of these smaller companies will no longer trade independently.

Unlike the competitive local exchange carriers like Intermedia <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICIX)") else Response.Write("(Nasdaq: ICIX)") end if %> and ICG Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICGX)") else Response.Write("(Nasdaq: ICGX)") end if %>, which have already seen prices appreciate, many of the profitable local phone providers outside of the Bell system have not seen similar appreciation. Investors looking for a high-yield idea might want to poke around shares of GTE, ALLTEL, Telephone & Data Systems, Century, Cincinnati Bell, and Aliant to see if any value remains. Although when the deals might come remains fuzzy due to turmoil in the law, they seem inevitable, and many of these companies provide hefty dividends to pay you while you wait.

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