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HEROES

Providing further proof that investors' appetites for initial public offerings is far from sated, Exodus Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EXDS)") else Response.Write("(Nasdaq: EXDS)") end if %> blasted ahead $12 5/8 to $27 5/8 in its first day of trading. The Santa Clara, California-based firm, which provides network management systems to corporate Internet operations, sold 4.5 million shares this morning at a price of $15 per share. The company's underwriters yesterday raised the price range for the shares to $13 - $15 from the original $9 - $11 per share range due to heavy demand. The company's list of high-profile clients includes such biggies as Computer Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>, Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>, and National Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSM)") else Response.Write("(NYSE: NSM)") end if %>. Fiscal 1997 revenues rolled in at $12.4 million, producing a compounded annual growth rate of 205% over the past three years. The company has yet to post any profits, however, as last year's loss was an eye-popping $25.3 million, or about 200% of sales.

Dart Group Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DART)") else Response.Write("(Nasdaq: DART)") end if %>, which owns the Shoppers Food Warehouse grocery store and Crown Books book retailer chains, streaked $7 higher $138 1/2 after The Washington Post reported that grocery wholesaler Richfood Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RFH)") else Response.Write("(NYSE: RFH)") end if %> may make a bid for the company. Problem is, an investment group led by former Dart president Robert Haft offered to buy Shoppers Food Warehouse, the company's best performing unit, on Feb. 12 for $360 million. Reportedly, Haft may raise his bid to include the rest of the company if Richfood actually decides to make an offer. An all-out bidding war could develop, since both Haft and Richfood have vested interests in the company. Haft is the son of Dart founder and Washington, D.C., celebrity Herbert Haft, who tossed Robert out of the company's executive suite in 1993. Robert went on to sue Papa Haft for breach of contract and won $34 million -- avenging his ousting by taking sole control of Dart would probably cause Papa Haft's white pompadour-styled hair to fall out. Meanwhile, Shoppers is Richfood's second largest customer, accounting for 9% of fiscal 1997 sales.

Discount long-distance telecommunications provider I-Link Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ILNK)") else Response.Write("(Nasdaq: ILNK)") end if %> rang up a $3/4 gain to $8 7/16 after announcing the deployment of its enhanced Internet protocol telephony network. The network will enable the company to offer customers in Los Angeles, Dallas/Fort Worth, Houston, Phoenix, and Salt Lake City long-distance phone services at rates as low as 4.9 cents per minute, the firm said. Entrenched long-distance phone companies such as AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> and Sprint Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %> are not exactly shaking in their boots, however -- at least not yet. The 4.9 cent a minute deal is only available for calls starting and ending in the five specified markets. AT&T and the other big time providers of long distance are more worried about interexchange carriers developing national fiber backbones with more than enough bandwidth to carry voice-over-Internet protocol traffic at a cost that can blow away switch-based traffic. Among these comers, IXC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IIXC)") else Response.Write("(Nasdaq: IIXC)") end if %> and Level 3 Communications (OTC: KIWT) are the companies to watch. That's why number-four long-distance carrier LCI International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCI)") else Response.Write("(NYSE: LCI)") end if %> has agreed to merge with Qwest Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %>.

QUICK TAKES: Semiconductor equipment maker KLA-Tencor Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLAC)") else Response.Write("(Nasdaq: KLAC)") end if %> added $2 1/16 to $38 after Hambrecht & Quist raised its rating on the stock to "buy" from "hold"... Power management semiconductor products maker Semtech Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTC)") else Response.Write("(Nasdaq: SMTC)") end if %> rose $1 1/2 to $28 and telecommunications services provider ICG Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICGX)") else Response.Write("(Nasdaq: ICGX)") end if %> gained $2 1/16 to $43 as BancAmerica Robertson Stephens upgraded both stocks to "buy" from "long-term attractive"... Book retailer Books-A-Million <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAMM)") else Response.Write("(Nasdaq: BAMM)") end if %> picked up $11/16 to $6 1/16 after reporting Q4 EPS of $0.37, which was 48% higher than a year ago and in line with the First Call mean estimate... Rental car company Dollar Thrifty Automotive Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DTG)") else Response.Write("(NYSE: DTG)") end if %> drove $1 5/16 higher to $22 after J.P. Morgan started coverage of the company with a "buy" rating and a 12-month price target of $27 per share.

Benton Oil & Gas Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BNO)") else Response.Write("(NYSE: BNO)") end if %> was lifted $3/4 to $11 15/16 after an ABN Amro analyst told Bloomberg News that the oil and gas production company is an attractive takeover target... American depositary shares of U.K. telecommunications company British Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTY)") else Response.Write("(NYSE: BTY)") end if %> rose $5 1/2 to $112 after the company said it probably won't invest in another U.S. phone company following its aborted plan to acquire MCI Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCIC)") else Response.Write("(Nasdaq: MCIC)") end if %>. The company today also signed a phone service memorandum with China Telecom (Hong Kong) Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHL)") else Response.Write("(NYSE: CHL)") end if %>... Jan Bell Marketing <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: JBM)") else Response.Write("(AMEX: JBM)") end if %>, which operates the jewelry departments at 448 of Wal-Mart's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> Sam's Clubs stores, tacked on $1 1/8 to $5 3/8 after reporting Q4 EPS of $0.58, beating the Street estimate of $0.38.

Fingerprint security systems firm Identix Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: IDX)") else Response.Write("(AMEX: IDX)") end if %> picked up $1/2 to $9 5/16 after announcing that its joint venture with educational services provider Sylvan Learning Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLVN)") else Response.Write("(Nasdaq: SLVN)") end if %> has started a program to make electronic fingerprinting available to the members of the National Association of Securities Dealers (NASD) for purposes such as cutting down on fraud in testing... The Quigley Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QGLY)") else Response.Write("(Nasdaq: QGLY)") end if %> was up $2 1/16 to $12 1/2 today after signing an agreement with a Chinese company to distribute its Cold-Eeze cold remedy in China... Investment advisory firm Siebert Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SIEB)") else Response.Write("(Nasdaq: SIEB)") end if %> gained $8 to $42. The company's CFO told Reuters that there was "no news" to account for the rise of the stock with the ridiculously small float.

Permanent Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PERM)") else Response.Write("(Nasdaq: PERM)") end if %>, the holding company for Evansville, Indiana-based thrift Permanent Federal Savings Bank, climbed $3 9/16 to $36 1/2 after announcing a two-for-one stock split effective April 14... Interactive voice and video software developer NetSpeak Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSPK)") else Response.Write("(Nasdaq: NSPK)") end if %> added $1 7/8 to $30 3/4 after Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> said it would increase its stake in the company to 34.5% from 10.1% through a cash tender offer for 3 million outstanding NetSpeak shares... Pharmaceutical company Dura Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DURA)") else Response.Write("(Nasdaq: DURA)") end if %> moved up $1 3/4 to $28 1/4 after EVEREN Securities started coverage of the company yesterday with an "outperform" rating... Ocular Sciences <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OCLR)") else Response.Write("(Nasdaq: OCLR)") end if %> rose $3 to $30 5/8 after the maker of contact lenses sold 4.65 million shares in a public offering at $27 1/2 per share.

Motorhome manufacturer National R.V. Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NRVH)") else Response.Write("(Nasdaq: NRVH)") end if %> rolled $1 1/4 higher to $30 1/4 after being upgraded to "buy" from "neutral" by Schroder & Co... LeCroy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCRY)") else Response.Write("(Nasdaq: LCRY)") end if %>, a maker of digital oscilloscopes, advanced $1 to $19 3/8 after Salomon Smith Barney raised its rating on the company to "buy" from "outperform"... Ortech International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORTC)") else Response.Write("(Nasdaq: ORTC)") end if %> increased $1 7/16 to $16 11/16 and Organogenesis Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ORG)") else Response.Write("(NYSE: ORG)") end if %> moved up $2 3/16 to $33 1/8 after Techvest started coverage of the therapeutical skin developers with a "hold" rating... Premiere Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTEK)") else Response.Write("(Nasdaq: PTEK)") end if %> picked up $2 13/16 to $32 3/16 after the provider of telecommunications services said it expects to strengthen its presence in the conference call segment by acquiring a company specializing in that business sometime this year.

French telecommunications equipment firm Alcatel Alsthom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %> rose $2 9/16 to $33 1/2 after announcing its operating margins for fiscal 1998 will be about 8% of sales, or twice last year's margin... Bethlehem Steel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BS)") else Response.Write("(NYSE: BS)") end if %> moved $3/4 higher to $14 7/16 as Donaldson, Lufkin & Jenrette upgraded the steel maker to "buy" from "market perform"... Color picture tube components manufacturer BMC Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMC)") else Response.Write("(NYSE: BMC)") end if %> tacked on $1 1/8 to $21 1/4 after its board announced a quarterly dividend of $0.015 per share after the bell yesterday... Cleveland-based closeout wholesaler and retailer Mazel Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAZL)") else Response.Write("(Nasdaq: MAZL)") end if %> climbed $1 3/4 to $20 1/4 on reporting Q4 EPS of $0.37, which beat the Street's estimate of $0.30 for the quarter. The company said it is shifting its business mix toward the retail segment which, when combined with seasonality, will result in most of its earnings coming in the second half of the year.

Luxury goods company Gucci Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GUC)") else Response.Write("(NYSE: GUC)") end if %> rose $3 9/16 to $49 9/16 on reporting Q4 EPS of $0.69 versus $0.86 a year ago. The company said that the Asian financial crisis "restricted" its sales growth in the region. However, its Japanese retail business grew at a double-digit rate and European sales jumped 36.3% in the quarter... Toronto-based DNA sequencing systems maker Visible Genetics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VGINF)") else Response.Write("(Nasdaq: VGINF)") end if %> connected for a $1/2 gain to $7 7/8 after biotechnology supplier Amersham Pharmacia Biotech ordered 100 customized DNA sequencing systems from the company... Cancer diagnostic products maker Matritech Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NMPS)") else Response.Write("(Nasdaq: NMPS)") end if %> advanced $1/2 to $5 9/16 after a division of medical and scientific instruments manufacturer Fisher Scientific International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FSH)") else Response.Write("(NYSE: FSH)") end if %> agreed to distribute Matritech's bladder cancer testing kit in the United States.

HMT Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMTT)") else Response.Write("(Nasdaq: HMTT)") end if %> picked up $1 3/16 to $11 1/4 after Deutsche Morgan Grenfell began coverage of the supplier of thin film disks to computer disk drive manufacturers with a "buy" rating... Ammunition supplier Allied Research Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALR)") else Response.Write("(NYSE: ALR)") end if %> shot up $1 1/8 to $13 after its Belgian subsidiary received an order from an unspecified customer for $61.3 million in conventional ammunition... CoreStaff Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSTF)") else Response.Write("(Nasdaq: CSTF)") end if %> gained $2 3/8 to $38 13/16. The company changed its name today to Metamor Worldwide Inc. in order to position itself as an information technology services company rather than just a personnel staffing firm... Microelectronic circuits and interconnect products maker Aeroflex Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARX)") else Response.Write("(NYSE: ARX)") end if %> rose $5/8 to $14 1/8 on announcing a public offering of 2.5 million shares at a price of $13 per share. The firm plans to use $10 million of the proceeds from the offering to pay down bank debt.

Data networking products manufacturer Bay Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> traded up $1 5/16 to $27 13/16 following yesterday's earnings warning. The Street believes the company is on track, though, and rewarded it with as many "buy" reiterations and ratings upgrades as ratings downgrades... Icon CMT Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICMT)") else Response.Write("(Nasdaq: ICMT)") end if %> was lifted $3 11/16 to $14 13/16 after Donaldson, Lufkin & Jenrette started coverage of the corporate computer services provider with a "buy" rating.

GOATS

Nike Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> tumbled $2 3/8 to $43 3/4 after reporting third quarter earnings of $0.25 per share on revenues of $2.22 billion, compared with EPS of $0.80 on revenues of $2.4 billion for the year-earlier period. The athletic footwear company took a fall last month when it pre-announced that it expected Q3 earnings to be between $0.24 and $0.28 per share, short of the First Call mean estimate at that time of $0.38. Even this venerable industry leader has been hard hit by order cancellations in economically troubled Asian countries and by changing fashion trends in the U.S. Teenagers are now sporting brown hiking boots instead of $130 athletic shoes, and retailers have continued marking down prices. Nike expects U.S. sales to pick up in spring of 1999, so in the meantime, the strategy is to cut costs through restructuring. The company will lay off about 1,600 employees worldwide, or 7% of its workforce, contributing to an estimated fourth quarter restructuring charge of between $125 million and $175 million. Nike expects the restructuring will cut costs by more than $100 million in fiscal 1999.

Consumer products company Sunbeam Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SOC)") else Response.Write("(NYSE: SOC)") end if %> fell $4 11/16 to $45 3/8 after announcing that its first quarter sales may be lower than the $285 to $295 million predicted by analysts, but they are expected to top Q1 1997 sales of $253.4 million. The likely shortfall would result from fewer orders for appliances and other products from key retailers, who are cutting inventory to lower warehouse and distribution costs. With revenue increases of 13%, 17%, 28%, and 31% from the first quarter of 1997 to the fourth quarter, this warning is somewhat of a letdown for investors. At some point, though, revenue and earnings growth at the former turnaround that operates in a low-growth industry must normalize. If the company can still grow sales 5-10% and generate a decent return on capital in the quarter, it's ahead of the game.

QUICK CUTS: Caterpillar Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> dipped $2 to $56 1/16 after The Wall Street Journal reported that the maker of construction equipment and diesel engines has made a surprise offer to rehire discharged workers, which increases the chances that members of the United Auto Workers union will vote to resolve their long labor dispute... Marlboro cigarettes maker Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> was smoked for a $1 1/16 loss to $41 3/8 amid speculation that tobacco companies may lose an Indiana lawsuit involving secondhand smoke, which would hurt chances for congressional approval of an industry-wide settlement... Healthcare management and services company MedPartners Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDM)") else Response.Write("(NYSE: MDM)") end if %> dropped $1 3/16 to $10 11/16 after reporting a fourth quarter loss of $1.01 a share (before charges), compared with $0.24 in Q4 1996 and the First Call mean estimate of a loss of $0.25. The company also announced that Mac Crawford, former president and CEO of Magellan Health Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MGL)") else Response.Write("(NYSE: MGL)") end if %>, has been appointed MedPartners's president and CEO.

Alteon Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALTN)") else Response.Write("(Nasdaq: ALTN)") end if %>, a pharmaceutical company specializing in developing drugs for diabetes and age-related diseases, plummeted $4 7/8 to $4 15/16 after announcing yesterday that it may discontinue its ACTION II trial of its pimagedine diabetes drug... America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> dropped $1 7/8 to $61 5/8 after Merrill Lynch downgraded the online services provider to a near-term "neutral" from "accumulate" but kept its "long-term buy" rating... Kitty Hawk Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KTTY)") else Response.Write("(Nasdaq: KTTY)") end if %> plunged $3 9/16 to $19 1/16 after the air freight carrier announced that it is "concerned" about its first quarter earnings due to poor operating results at newly acquired subsidiary American International Airways... Liquid and gas purification products company Calgon Carbon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCC)") else Response.Write("(NYSE: CCC)") end if %> slid $15/16 to $11 1/2 after announcing that it expects first quarter earnings will be between $0.06 and $0.08 per share, down from Q1 1997 EPS of $0.14.

Polypropylene fabrics and fibers manufacturer Synthetic Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SIND)") else Response.Write("(Nasdaq: SIND)") end if %> sank $2 15/32 to $2 13/16 after pre-announcing second quarter earnings of $0.10 to $0.15 per share, compared with Q2 1997 EPS of $0.24. The company also announced it will acquire Novocon International, a Chicago-based steel fibers manufacturer, in an all-cash transaction... Richardson Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RELL)") else Response.Write("(Nasdaq: RELL)") end if %>, which makes electron tubes and power semiconductors, fell $1 to $12 3/4 after reporting third quarter earnings of $0.17 per share, compared with a loss of $0.04 in the prior-year quarter. The First Call mean estimate was $0.16... Electronic controls and communications company Rockwell International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ROK)") else Response.Write("(NYSE: ROK)") end if %> plunged $6 1/16 to $54 7/16 after announcing that its second quarter earnings will be about 25% lower than Q2 1997 EPS of $0.71. The company expects year-end earnings will be about even with 1997 earnings of $2.89 per share.

Dr. Solomon's Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SOLLY)") else Response.Write("(Nasdaq: SOLLY)") end if %> shed $3 3/8 to $39 1/8 after Goldman Sachs cut its rating of the anti-virus software developer to "market perform" from "recommend list"... Pharmaceutical company Interferon Sciences <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFSC)") else Response.Write("(Nasdaq: IFSC)") end if %> sank $1 3/32 to $7 13/32 after announcing that the Food and Drug Administration will take more time to review a study of its Alferon N drug in HIV-positive patients before allowing the company to file for approval to market the drug... Andrx Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADRX)") else Response.Write("(Nasdaq: ADRX)") end if %> fell $2 15/32 to $28 21/32 after Cymedix Lynx Corp., a subsidiary of Medix Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDIX)") else Response.Write("(Nasdaq: MDIX)") end if %>, charged the drug-delivery systems developer with theft and unlawful appropriation of Cymedix medical software and demanded $397 million in damages.

FOOL ON THE HILL
An Investment Opinion
by Alex Schay

Cablevision Buys Big Apple

News that "The Boss" George Steinbrenner has met with Cablevision <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CVC)") else Response.Write("(AMEX: CVC)") end if %> chairman Charles Dolan on numerous occasions over the past several months to discuss the status of their ongoing relationship led to speculation today surrounding a possible sale of the New York Yankees baseball franchise to the cable TV concern.

The two have many reasons for discussing business, thanks to Steinbrenner's negotiation of a record-setting $486 million cable TV deal with Madison Square Garden (now fully owned by Cablevision) just ten years ago. The agreement is set to expire in two years and in an interview yesterday Steinbrenner stated, "Naturally if there is an interest in maintaining our relationship, it stands to reason that they'll have interest in extending the contract or owning the team. I'm not saying we are in negotiations right now."

Scooping up the Yankees or extending the contract would slide another piece of the Cablevision puzzle into place, as the company has slowly made its intentions more transparent over the course of the last year -- it plans to gain complete control of New York. Well, maybe not all of New York, but an acquisition of the Yankees would pretty well round-out Cablevision's stable of sports and media properties. Cablevision acquired half of Madison Square Garden (MSG) in 1995, and completed its purchase of the outstanding portion in March 1997 for $650 million. Through the acquisition of MSG, Cablevision controls "the Garden," the Knicks, and the Rangers, in addition to the network that televises the teams and the systems that distribute the programming. Finally, the company also holds the local cable rights to the Mets, and the Islanders, as well as the New Jersey Devils and the Nets. And these are just some of the sports-related interests.

To what end has the company been accumulating these properties? Well, in conjunction with these assets (most are owned through its subsidiary Rainbow Programming Holdings), Cablevision has been making substantial infrastructure upgrades to enable new services, in addition to building-out its telephony service through its subsidiary Lightpath -- all for the purpose of marketing services to an increasingly more concentrated and receptive customer base. Cablevision's maneuvering with respect to the consolidation of its customer base and the services that it will offer them is impressive, and contributed to the company's $8 rise to $120 1/4 today after Goldman Sachs put the company on its "Recommend List" and issued a report that put the pieces of the master plan into focus.

A major tool employed by Cablevision to get the customer concentration that it wants is the asset swap. In June 1997, Cablevision and Tele-Communications Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %> engaged in a transaction where TCI traded 820,000 of its New Jersey and Westchester County subscribers (as well as $669 million in debt) for 12.2 million shares of Cablevision, or roughly 28% of Cablevision's fully diluted equity. At the beginning of this year, Cablevision sold 51,000 of its subscribers in Kalamazoo, Michigan, to TCI and bought (with 1.47 million newly issued shares) 250,000 subscribers in Hartford, Connecticut. With respect to these transactions, investors were bludgeoned with language like "the divestiture of non-strategic assets" and "focus on core clusters," which both boil down to the fact that more densely packed service areas maximize the use of the company's assets (i.e reducing marketing and distribution costs, among other benefits).

Many industries have employed asset swaps and mergers as a means of filling out their markets. The solid waste industry has increasingly used asset swaps to maximize route density and improve returns, and even Tuesday's consumer banking merger between Washington Mutual <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WAMU)") else Response.Write("(Nasdaq: WAMU)") end if %> and H.F. Ahmanson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHM)") else Response.Write("(NYSE: AHM)") end if %> was driven in part by efficiencies stemming from a degree of branch saturation in certain regions of California. At first blush it would seem that these tactics should run up against opposition from the trustbusters at the Justice Department. However, the important difference is that in all of these cases there are still a significant number of competitors that theoretically could enter these markets -- and Justice largely chooses to focus on issues surrounding a diminished amount of players on the field and in "relevant" markets.

This kind of maximum density goal is not uncommon these days, where a focus on profits gleaned from targeted markets makes more and more sense. Massive, non-concentrated bids for market share are rapidly becoming a thing of the past, evolving now into an assessment of what customers a company wants and then aggressively pursuing that segment.

Clearly, Cablevision likes New York and here's why: Cablevision's revenue-per-subscriber is the industry's best at $45 per month, compared with less than $40 for most other operators. Sure, everything's more expensive in New York, but the company's marketing and packaging of its services plays a strong role. The company also sports industry-leading penetration of premium services. According to Goldman Sachs, the Cablevision's high-end "Optimum" brand, an advanced package of analog programming, is getting snatched up by 50% of the homes that it is marketed to -- which is yielding recurring revenue increases of over $6 per month, and that is on top of the $3 per month in additional pay-per-view revenue that the company is taking in. Optimum will be marketed to another 450,000 homes in 1998 and will be coupled with a rate increase that will average $2.25 per subscriber.

These factors combined are expected to increase total revenue per subscriber by 6% to 9% in 1998 and by the time 1999 rolls around, roughly half of Cablevision's systems will be both Optimum and cable modem ready. (Long Island cable modem penetration is at 2% with little marketing support.) In addition, Cablevision has been pursuing both business and residential telephony on Long Island since the end of last year.

Overall, Cablevision is one of the largest, concentrated cable operators in the country with 3.5 million subscribers, 2.6 million of which are located in the NYC metro area, but this has nothing to do with the company's current valuation. Its business may have great prospects, but investors that pay too much will not maximize returns. Addressing Cablevision's complex valuation based on an EBITDA or discounted cash flow model is presently beyond the scope (and length) of this column. However, interested investors should check out this week's Industry Snapshot on the cable industry.


[Correction: In yesterday's Fool on the Hill column, "How Berkshire Hathaway Builds Value," our sharecount for Berkshire Hathaway <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRK.A and BRK.B)") else Response.Write("(NYSE: BRK.A and BRK.B)") end if %> was, as Bob Uecker might say, "Just a bit outside." The mistake arises from accounting for new shares issued for the acquisition of Dairy Queen, but failing to take into account shares in Treasury. With a sharecount of 1.234 million shares rather than 1.402 million shares, our estimate of intrinsic value (not accounting for the addition of Dairy Queen) for Berkshire is increased to $62,399 to $69,083 per share. We apologize for the error.]

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