DJIA 8922.37 +22.42 (+0.25%) S&P 500 1090.98 +0.16 (+0.01%) Nasdaq 1746.82 -32.05 (-1.80%) Value Line ndx 944.42 -6.06 (-0.64%) 30-Year Bond 104 29/32 +11/32 5.78% Yield
Steel maker Bethlehem Steel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BS)") else Response.Write("(NYSE: BS)") end if %> gained $1/2 to $12 3/4 after being upgraded to "outperform" from "neutral" by Morgan Stanley Dean Witter. The company completed its purchase of fellow steel producer Lukens Inc. on Friday, which consisted of $335 million in cash, $215 million in stock, and $250 million in assumed debt. Allegheny Teledyne <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALT)") else Response.Write("(NYSE: ALT)") end if %>, which also was involved in the bidding for Lukens, has agreed to take Lukens's three stainless steel production mills off Bessie's hands to the tune of $175 million. Lukens' stainless steel distribution business will be the next unit to go, continuing Bethlehem Steel's recent strategy of divesting weak operations to focus on products offering higher growth potential, such as steel plates.
Carolina Power & Light Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPL)") else Response.Write("(NYSE: CPL)") end if %> picked up $1 9/16 to $42 9/16 after Wheat First Union upgraded the power provider to "outperform" from "hold." Other electric utilities rose as well, possibly as investors shift their sentiment toward presumably "safer" stocks. Southern Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SO)") else Response.Write("(NYSE: SO)") end if %> gained $1 3/8 to $27 15/16; Consolidated Edison <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ED)") else Response.Write("(NYSE: ED)") end if %> moved up $2 to $44 13/16; Houston Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HOU)") else Response.Write("(NYSE: HOU)") end if %> tacked on $1 to $29 5/8; PG&E Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PCG)") else Response.Write("(NYSE: PCG)") end if %> rose $1 3/8 to $32 7/8; and PP&L Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PPL)") else Response.Write("(NYSE: PPL)") end if %> gained $15/16 to $23 1/16. Duke Energy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DUK)") else Response.Write("(NYSE: DUK)") end if %> increased $2 1/6 to $59 11/16; American Electric Power <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AEP)") else Response.Write("(NYSE: AEP)") end if %> climbed $1 15/16 to $47 5/16; FPL Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FPL)") else Response.Write("(NYSE: FPL)") end if %> added $2 3/8 to $63 13/16, and Texas Utilities <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXU)") else Response.Write("(NYSE: TXU)") end if %> advanced $7/8 to $40 3/8.
QUICK TAKES: Brokerage and insurance firm Travelers Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %> moved up $1 3/4 to $63 after agreeing to buy a 25% stake in Japan's Nikko Securities for $1.6 billion... Bell Atlantic Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> rang up $2 1/2 to $94 1/8 after Lehman Brothers upgraded the provider of local and wireless telecommunications services to "outperform" from "neutral." Lehman is forecasting fiscal 1998 earnings of $5.43 per share and $5.96 per share in fiscal 1999... Minnesota Mining & Manufacturing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %> increased $1 1/2 to $94 1/8 as Prudential Securities reiterated its "buy" rating on the maker of Post-It notes and Scotch tape. Also, a 3M executive told Reuters that the company expects to maintain annual revenue growth of 20% in Asia despite that region's continuing financial crisis.
Number two automaker Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> moved up $1 to $52 7/8 on reports that the company is thinking about allowing dealerships organized into Ford Retail Networks in certain markets to sell shares in the networks to the public. Salomon Smith Barney upgraded the company to "buy" from "outperform"... Zero-emission fuel cell developer Ballard Power Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BLDPF)") else Response.Write("(Nasdaq: BLDPF)") end if %> rose $3 1/8 to $104 3/4 after its Ballard Generation Systems received an order for four fuel cell power plants from GEC Alsthom valued at about $8 million... Pharmerica Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DOSE)") else Response.Write("(Nasdaq: DOSE)") end if %>, which provides pharmacy services to long-term care facilities and correctional institutions, was lifted $13/32 to $12 19/32 after Merrill Lynch started coverage of the firm with a "buy" rating.
Restaurant operator Cheesecake Factory <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CAKE)") else Response.Write("(Nasdaq: CAKE)") end if %> tacked on $11/16 to $20 7/8 after CS First Boston reiterated its "strong buy" rating, named the stock its "featured stock of the week," and added the company to its "focus list"... Pharmaceutical company Vical Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VICL)") else Response.Write("(Nasdaq: VICL)") end if %> was lifted $1 5/8 to $17 7/8 after saying its Leuvectin drug was "well tolerated" in Phase I/II clinical trials and may be effective in causing an immune response against cancerous cells in the prostate... Trucking firm Covenant Transport <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CVTI)") else Response.Write("(Nasdaq: CVTI)") end if %> motored ahead $7/16 to $16 13/16 after an analyst at Stephens Inc. told Barron's that the firm is the "clear No. 1 pick" for investors among low-valued truckload carriers.
Biopharmaceutical company Sugen Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUGN)") else Response.Write("(Nasdaq: SUGN)") end if %> added $3/4 to $15 7/8 after announcing it has discovered a gene that is overexpressed in more than 50% of primary colorectal cancers. The company said it will "pursue aggressively" opportunities to use its finding to develop anti-cancer agents through its collaboration with Britain's Zeneca Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZEN)") else Response.Write("(NYSE: ZEN)") end if %>... Golf apparel maker Ashworth Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASHW)") else Response.Write("(Nasdaq: ASHW)") end if %> was lifted $1 1/16 to $13 3/4 after saying it was not aware of any developments to account for the recent decline in the company's share price. Last week, Ashworth's shares tumbled 34%... Business software developer Intersolv Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISLI)") else Response.Write("(Nasdaq: ISLI)") end if %> rose $7/16 to $14 13/16 after reporting fiscal Q4 EPS (before acquisition charges) of $0.33 compared to $0.11 a year ago.
Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> sank $3 7/16 to $68 after the world's largest chip maker announced it will delay releasing its next-generation 64-bit Merced processor until mid-2000 instead of 1999 because testing the complex chip will take longer than expected. The delay could hurt PC and software makers that are basing their product development on this first in a new line of powerful Intel chips designed for the corporate server and workstation market. Intel's design partner Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>, which slipped $15/16 to $61 3/8, will have to wait longer before it can shift the job of making chips for its high-end servers and workstations to Intel. Dell <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, which only sells Intel-based computer systems, dropped $4 1/32 to $78 3/8. Software and operating systems giant Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>, which is counting on Merced to further drive Windows NT into the highest levels of corporate computing and to better compete against the rival Unix operating system, lost $1 1/16 to $83 3/4. Even competitors Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> and Digital Equipment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %>, which have developed their own 64-bit chips, stand to lose from the delay. Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, which is acquiring Digital, is expected to make PCs using Merced, while Sun is adapting its Unix system for the new chip. Digital dipped $1 to $54 1/8, Compaq slipped $5/8 to $26 3/4, and Sun managed to move up $1 3/8 to $41 7/8.
Machine vision systems company Cognex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGNX)") else Response.Write("(Nasdaq: CGNX)") end if %> got whacked today, losing $3 to $16 after announcing that it does not expect revenues and earnings for the final three quarters of 1998 and for the entire fiscal year to match those achieved in 1997 due to a slowdown in the semiconductor and electronics industries. This news also sent Cognex semiconductor capital equipment OEM customer KLA-Tencor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLAC)") else Response.Write("(Nasdaq: KLAC)") end if %> down $2 1/2 to $31 1/4 on the day, though KLA discussed its delivery push-out situation when reporting its third quarter results in April. Cognex's competitors and sector compatriots also took some hits today, as Robotic Vision Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROBV)") else Response.Write("(Nasdaq: ROBV)") end if %> lost $5/16 to $6, CyberOptics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYBE)") else Response.Write("(Nasdaq: CYBE)") end if %> dropped $1 to $16 1/4, and Orbotech <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORBKF)") else Response.Write("(Nasdaq: ORBKF)") end if %> lost $1 3/8 to $31 5/8.
Houston-based oil and natural gas producer USX-Marathon Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRO)") else Response.Write("(NYSE: MRO)") end if %>, a unit of USX Corp., fell $1 3/16 to $33 13/16 after announcing after Friday's close that its Marathon Oil Co. unit will acquire Canada's Tarragon Oil & Gas for about $1.1 billion in cash, stock, and $340 million in assumed debt. The deal will give Marathon a foothold in western Canada's natural gas-rich province of Alberta and increase the company's oil and natural gas reserves by 20%. Tarragon produces 210 million cubic feet of natural gas per day to Marathon's 1.2 billion, and 21,000 barrels of crude oil to Marathon's daily production of 172,000 barrels. The acquisition is expected to have "minimal dilution" on this year's earnings and be accretive to EPS next year.
QUICK CUTS: Telecommunications equipment company Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> lost $2 to $68 15/16 after announcing a tentative agreement with two unions on a five-year labor contract... Zip and Jaz drive maker Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %> fell $5/8 to $5 3/4 after announcing price cuts of up to $150 on its Jaz 2GB drives, as much as $50 on 2GB disks, and as much as $25 on 1GB disks. Jaz 2GB drives are available for $499, down from $649 for the external model and $549 for the internal model... America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> sank $4 9/16 to $78 3/4 after a German court gave former CompuServe president Felix Somm a two-year suspended sentence and a $56,000 fine for failing to block Internet access to child pornography. The conviction is raising fears that there will be stricter global regulation of the Internet. Rumors also made the rounds today that AOL's accounting for gains will be questioned in tomorrow's "Heard on the Street" column in the Wall Street Journal.
Chemicals and life sciences company DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> fell $1 11/16 to $75 1/2 on news of the merger between Monsanto <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %> and American Health Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %>, which will create a formidable rival in the life sciences industry... PC direct seller Micron Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MUEI)") else Response.Write("(NYSE: MUEI)") end if %> fell $5/8 to $10 after announcing it is cutting prices on its NetFRAME computer servers and by as much as 10% to 17% its line of Millennia desktop PCs. Majority owner Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> also lost $1 1/16 to $22 1/2... WellPoint Health Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLP)") else Response.Write("(NYSE: WLP)") end if %> tumbled $1 5/8 to $63 3/8 after The Wall Street Journal's "Heard on the Street" column reported that the healthcare management company is facing complaints from hospital companies that its reimbursement rates are inadequate -- one big company quit its network last month and another is threatening to do so.
Pfizer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> was cut $7/8 to $103 15/16 after the drug company's unit in Argentina said that because local drugmakers aren't required by law to respect international drug patents, they will cut into sales of its hot-selling impotence drug Viagra. At least four companies plan to sell versions of the drug within several months... Telebras <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBR)") else Response.Write("(NYSE: TBR)") end if %> dropped $2 1/4 to $103 3/4 after Brazil's government postponed the privatization of the telecommunications company by two weeks until July 29. 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 %> CFO Mark Hamburg also directly refuted intimations that Berkshire had talked with a Brazilian investment group, Opportunity Private Equity, about participating in a public offering of Telebras securities, according to Bloomberg News.
Network management and security company Network Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NETA)") else Response.Write("(Nasdaq: NETA)") end if %> fell $2 1/16 to $38 13/16 after announcing that it has settled patent infringement and copyright lawsuits brought against it by RSA Data Security, a subsidiary of Security Dynamics Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SDTI)") else Response.Write("(Nasdaq: SDTI)") end if %>... Communications network company Qwest Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> lost $1 1/16 to $32 and long-distance carrier LCI International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCI)") else Response.Write("(NYSE: LCI)") end if %> slipped $5/8 to $36 13/16 as Qwest announced the new senior management for their new combined company in advance of shareholder votes on the proposed deal this Friday. Qwest also said it has received all federal approvals for the proposed merger... Medical device manufacturer Guidant Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDT)") else Response.Write("(NYSE: GDT)") end if %> slid $15/16 to $63 1/2 after Barron's "Up & Down Wall Street" column quoted fund manager David Tice as saying the company could drop to $50 because of increasing competition in the market for stents.
Union Pacific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNP)") else Response.Write("(NYSE: UNP)") end if %> lost another $2 to $46 3/8 as the railroad company's executive vice president of finance L. White Matthews resigned to "pursue personal interests" in the aftermath of the company's earnings warning last Thursday... @Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATEN)") else Response.Write("(Nasdaq: ATEN)") end if %> skidded for $3 5/16 to $13 11/16 after announcing it has terminated its letter of intent with Telewizyna Korporacja Partycypacyjna, the parent company of Canal+Polska, to bring together @Entertainment's Wizja TV programming service and the CANAL+ Polska premium pay-TV channel and jointly develop and operate a digital direct-to-home TV service for the Polish market... Harnischfeger Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HPH)") else Response.Write("(NYSE: HPH)") end if %> was drilled for $13/16 to $30 11/16 after the mining and pulp and papermaking equipment manufacturer reported first half earnings of $0.32 a share (before unusual items), down from $1.34 in the same year-ago period. The company announced it is considering separating its two principal business units by spinning off one of the units.
FOOL
ON THE HILL
An Investment Opinion
by
Alex Schay
American Home Gets Seedy
In a bid to ultimately offer corn that will alleviate all manner of body-aches, pharmaceutical giant American Home Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %> announced that it will engage in a $34.4 billion stock swap with ag-biotech and pharmaceutical company Monsanto <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %>, in which Monsanto holders will receive 1.15 new shares for each Monsanto stub. The deal values Monsanto at $55.64 per share based on American Home's close today at $49 1/4, and brought Monsanto down $7/8 to $54 1/2. Investors shouldn't hold their breath for a rival bid, however, as the deal is a firm merger of equals with an eye toward the long term, uniting a cash-flow rich pharmaceutical with a pipeline-rich global life sciences company.
At first blush, despite the lack of a premium, the deal looks curious. After the merger closes at the end of the year, it is expected to be dilutive to the combined entity by roughly 15% -- while year 2000 will see somewhat lesser dilution, with accretion on into the new century. The combined entity expects to affect $1.5 billion in annual savings within three years of closing, but that isn't the primary rationale for the merger.
Monsanto announced last month that it would purchase the remaining shares of seed company DeKalb Genetics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DKB)") else Response.Write("(NYSE: DKB)") end if %> that it didn't already own, as well as cotton-seed company Delta & Pine Land Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLP)") else Response.Write("(NYSE: DLP)") end if %>. This move solidified Monsanto's ability to be a successful player in the agricultural biotechnology and nutrition segment by itself. The firm stated at the time that it would only consider mergers -- responding in part to speculation that it was pondering a hook-up with DuPont -- to develop its pharmaceuticals business. Enter American Home Products, and the first tacit acknowledgement (in the marketplace) that agricultural biotech and more traditional pharmaceutical firms have complementary interests.
For many years the ag-biotech stocks were notable for their failure from an investment standpoint, with the seed companies taking all the glory. However, as more and more observers and analysts from the biotech arena began to make the leap across the great divide to ag-biotech, valuations began to change. The notorious "price-to-hope" multiples in biotech began to emerge in ag-biotech, and now the frenzied grab made for seed companies has shored up the valuations of these new, combined entities.
Understanding the seed company frenzy requires an insight into what might be at stake for these companies. The U.S. seed market is dominated by Des Moines, Iowa-based Pioneer Hi-Bred <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHB)") else Response.Write("(NYSE: PHB)") end if %>, which owns roughly 45% of the market. Where Pioneer may be selling corn for about $25-30 plus an acre now, a reasonable forecast considering all the favorable genetic traits that it will be able to put in down the road has analysts modeling $50-$60 per acre price targets only 5-7 years from now. A profit difference of $15-20 per acre, as opposed to $7-8 per acre, understandably affects the valuation analysis process.
Why are farmers buying these products? Bt corn (DeKalb seed), a genetically engineered seed that resists the European corn borer, is now available. Even a light infestation destroying 5% of a farmer's corn yield amounts to an $18-$20 loss per acre. The farmer can buy Bt corn seed at a $7-$10 premium per acre as insurance against the potential $18-$20 per acre loss (or more if a bad infestation occurs). This is protection that most farmers will pay for, and the same can be said of Monsanto's Roundup Ready soybean product. An acre of Roundup Ready soybeans requires only $18 per acre of herbicides compared to $25-$28 per acre for traditional soybeans. The reason for the growing interest in Monsanto's products is the inherent pricing power they can deliver. Ag-biotech now has its sights set on the $400 billion U.S. food market, which by some estimates will generate $20 billion in annual sales of genetically engineered seed by 2010.
Monsanto was looking to agricultural biotech products (genetically engineered seeds) for its future growth, and now, so is American Home Products. However, this does not downplay the important pharmaceutical synergies available in the merger. While Monsanto's business complements the Cyanamid unit of American Home Products, which makes herbicides and other crop protection products, the two firms are both working on arthritis drugs as well. As well, Monsanto is expected to be the first company to file for FDA approval for a new type of painkiller known as a Cox-2 inhibitor.
Those that can remember the scuttled American Home merger with SmithKline Beecham will probably also remember the 800 lawsuits that American Home still faces over its role as the maker of diet drug Pondimin (which some studies have shown that in combination with another drug might cause heart valve damage). Monsanto claims that it did sufficient due diligence in the matter not to be concerned about the litigation, which should provide some solace for American Home Products investors as they face a new world of growth opportunities.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool
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