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The American depositary shares of Astra AB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: A)") else Response.Write("(NYSE: A)") end if %> rose $1 5/8 to $21 9/16 after drug giant Merck & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> confirmed that it is in discussions with the Swedish pharmaceuticals firm regarding the restructuring of the companies' U.S. joint venture, Astra Merck Inc. Reportedly, Astra is prepared to offer upwards of $16 billion to buy out Merck's 50% stake in the venture. If Astra can pull off the transaction, Merck will lose its right of first refusal to sell Astra's drugs in the U.S. This would include Astra's Losec ulcer drug (called Prilosec in the U.S.), the world's top selling prescription medication. Breaking up with Merck would also free up Astra for a possible merger. Earlier this year, Astra indicated it was interested in combining with a similar-sized firm, such as Germany's Bayer AG or Britain's Zeneca Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZEN)") else Response.Write("(NYSE: ZEN)") end if %>.
Trash hauler Browning-Ferris Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BFI)") else Response.Write("(NYSE: BFI)") end if %> climbed $1 13/16 to $36 1/16 after The Wall Street Journal reported that bold smaller rival Allied Waste Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AWIN)") else Response.Write("(Nasdaq: AWIN)") end if %> approached the company with a merger bid valued at $7 billion. For folks who have been keeping an eye on the consolidating waste business lately, the offer appears to be a virtual carbon copy of the nearly $22 billion all-stock bid USA Waste Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UW)") else Response.Write("(NYSE: UW)") end if %> made for the much larger Waste Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMX)") else Response.Write("(NYSE: WMX)") end if %> only three months ago. Once completed, that combination will produce a firm controlling about 20% of the solid waste management market. In comparison, a united Browning-Ferris/Allied Waste would claim a market share of around 10%.
Another day, another telecommunications equipment merger. Today, Telco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TELC)") else Response.Write("(Nasdaq: TELC)") end if %>, a provider of telecommunications asynchronous fiber optic systems, jumped $3 9/32 to $14 1/2 after agreeing to walk down the merger aisle with telecommunications switching and access products maker World Access <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WAXS)") else Response.Write("(Nasdaq: WAXS)") end if %> in a stock swap valued at roughly $187 million. World Access fell $1 11/16 to $27 9/16 on the news. Elsewhere, France's Alcatel Alsthom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %>, which announced it would tie the knot with DSC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIGI)") else Response.Write("(Nasdaq: DIGI)") end if %> yesterday, gained $2 7/16 to $41 9/16. DSC climbed $2 to $29 1/2. Earlier in the week, Tellabs <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLAB)") else Response.Write("(Nasdaq: TLAB)") end if %> said it will acquire fiber-optic equipment maker Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %>.
Apple South <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APSO)") else Response.Write("(Nasdaq: APSO)") end if %> headed north today, rising $1 5/8 to $14 1/8 after announcing that it expects earnings to grow roughly 30% a year over the next few years. The former Applebee's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APPB)") else Response.Write("(Nasdaq: APPB)") end if %> franchisee expects 1998 operating income for its 4 major restaurant chains to be 66% higher than last year's operating income of $27.1 million. In addition, Apple South stated that it expects revenue growth in the neighborhood of 25% to 30% and overall unit expansion growth on the order of 25%. The company also announced a shift in focus toward an organic growth strategy -- limiting its merger and acquisition activity in order to build out its core concepts, which include Canyon Cafe, Don Pablo's Mexican Kitchen, Hops Restaurant Bar & Brewery, and McCormick & Schmick's.
QUICK TAKES: Food processor Archer Daniels Midland Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADM)") else Response.Write("(NYSE: ADM)") end if %> rose $3 3/8 to $22 on market rumors that it is close to a merger with life sciences company DuPont Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %>. DuPont closed up $2 7/8 to $79 5/8.... Entertainment giant Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> advanced $5 to $114 9/16 on a J.P. Morgan upgrade to "strong buy" from "outperform"... Network software developer Novell <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOVL)") else Response.Write("(Nasdaq: NOVL)") end if %> picked up $11/16 to $11 1/8 after saying it will buy back up to 35 million shares, or 10% of its outstanding shares, over the next 12 months... Athletic shoe maker Reebok International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RBK)") else Response.Write("(NYSE: RBK)") end if %> sprinted ahead $2 1/8 to $30 11/16 after an analyst told Business Week that the company would be a bargain at a price of $40 per share in a buyout.
Amoco Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AN)") else Response.Write("(NYSE: AN)") end if %> rose $1 13/16 to $43 3/16, Atlantic Richfield Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARC)") else Response.Write("(NYSE: ARC)") end if %> climbed $1 13/16 to $81 1/16, and Unocal Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCL)") else Response.Write("(NYSE: UCL)") end if %> added $1 13/16 to $38 1/4 after Bear Stearns raised its ratings on the three oil exploration and production companies to "attractive" from "neutral"... Quintiles Transnational Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QTRN)") else Response.Write("(Nasdaq: QTRN)") end if %> advanced $2 to $52 after Piper Jaffray started coverage of the contract pharmaceuticals research firm with a "buy" rating... Casualwear retailer Gap Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> tacked on $2 7/8 to $59 1/8 after reporting a 24% jump in May same-store sales yesterday... Medical products maker Minntech Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MNTX)") else Response.Write("(Nasdaq: MNTX)") end if %> moved up $5/8 to $14 1/4 after the FDA approved the firm's device for reducing fluid volume in children undergoing heart surgery. PaineWebber upgraded the firm to "attractive" from "neutral."
French luxury goods maker LVMH Moet Hennessy Louis Vuitton <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LVMHY)") else Response.Write("(Nasdaq: LVMHY)") end if %> picked up $2 to $45 3/4 after Lehman Brothers raised its rating on the company to "buy" from "underperform"... Life sciences company Monsanto Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %> rose $1 1/2 to $58 1/16 after Schroder & Co. raised its rating on the firm to "outperform significantly" from "outperform"... Impotence therapy developer Vivus <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VVUS)") else Response.Write("(Nasdaq: VVUS)") end if %> gained $1 5/8 to $7 15/16 after the company defended the efficacy of its MUSE product, saying that only 9% of patients in a recent disappointing study received the highest 1000 microgram dose of MUSE. The company said it will release additional clinical data on the product at an American Diabetes Association meeting later this month.
SCI Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCI)") else Response.Write("(NYSE: SCI)") end if %> gained $3 1/4 to $34 5/16 after Lehman Brothers upgraded the diversified electronics manufacturer to "buy" from "outperform"... Contract electronics manufacturer Jabil Circuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JBL)") else Response.Write("(NYSE: JBL)") end if %> hitched a ride $3 1/16 upward to $35 9/16 on SCI's upgrade... Candle and home fragrance products maker Blyth Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTH)") else Response.Write("(NYSE: BTH)") end if %> gained $3 3/16 to $34 1/2 after reporting fiscal Q1 EPS of $0.30, beating the Street estimate by a penny. The firm also denied rumors that British personal care products retailer Body Shop International was preparing a bid for the company... Oil refiner and natural gas transmission company Coastal Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CGP)") else Response.Write("(NYSE: CGP)") end if %> moved up $2 11/16 to $70 9/16 after agreeing to process 65,000 barrels per day of crude oil supplied by Norway's Statoil Group at Coastal's Westville, N.J. refinery... Outdoor advertising firm Lamar Advertising Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LAMR)") else Response.Write("(Nasdaq: LAMR)") end if %> climbed $3 1/8 to $33 after selling 6.375 million shares in a secondary offering at a price of $29 per share.
MCI Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCIC)") else Response.Write("(Nasdaq: MCIC)") end if %> lost $13/16 to $51 9/16 after the European Union's competition commissioner Karel Van Miert said that the company's sale (announced last week) of a number of vertebrae in its Internet backbone to Cable & Wireless <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CWP)") else Response.Write("(NYSE: CWP)") end if %> is not enough to satisfy regulators who must approve MCI's proposed merger with WorldCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %>. Van Miert also said time is running out and MCI and WorldCom will have to propose further divestitures soon before the European Commission decides its position next Wednesday. Van Miert would like to see the elimination of any overlap in MCI and WorldCom's Internet businesses. Apparently, selling WorldCom's UUnet Technologies unit would be enough for the regulators. WorldCom likely will do whatever is necessary to comply. If it fails to win regulatory approval to acquire MCI, it'll have to cough up $1.6 billion to MCI and another $250 million to 20% owner of MCI, British Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTY)") else Response.Write("(NYSE: BTY)") end if %>.
Dental products manufacturer Dentsply International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XRAY)") else Response.Write("(Nasdaq: XRAY)") end if %> plummeted $8 3/16 to $25 in very heavy trading after announcing that it anticipates lower-than-expected second quarter earnings of $0.35 to $0.37 a share (before charges), which would be slightly higher than last year's $0.33 but short of analysts' estimates of $0.40. A drop in the company's German laboratory business due to a reduction in government reimbursement levels is the main culprit affecting earnings. As a result, Dentsply plans to close a German tooth-making facility with 250 employees and move production to North and South America, taking a Q2 pre-tax restructuring charge of $27-$29 million. Other factors are also hurting the company's earnings, including economic problems in Asia and Latin America, inventory reductions by U.S. distributors as that industry undergoes consolidation, and continuing losses at its New Image unit, which the company expects will stay unprofitable for the remainder of the year. Dentsply now forecasts earnings for the year of $1.50 to $1.52 per share, compared with analysts' mean estimate of $1.60.
QUICK CUTS: Pharmaceutical giant Warner-Lambert <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLA)") else Response.Write("(NYSE: WLA)") end if %> sank $1 3/4 to $62 1/4 after its Parke-Davis division announced that the National Institutes of Health has decided to discontinue the troglitazone treatment arm of the Diabetes Prevention Program. The decision resulted from one case of liver failure leading to transplantation in a troglitazone-treated individual who subsequently died, apparently due to complications unrelated to the medication... Internet content aggregator Lycos Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> fell $1 3/8 to $50 1/8 after pricing its secondary offering of 2.25 million shares at $50 per share... Casualwear designer Tommy Hilfiger Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOM)") else Response.Write("(NYSE: TOM)") end if %> was cut $4 1/16 to $64 1/4 after reporting Q4 EPS of $0.73 compared with $0.59 for the year-earlier period.
AgriBioTech <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABTX)") else Response.Write("(Nasdaq: ABTX)") end if %> lost $11/16 to $23 1/16 today after rising sharply yesterday on speculation that the seed company could become an acquisition target... Contract electronics manufacturer Dii Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIIG)") else Response.Write("(Nasdaq: DIIG)") end if %> dropped $2 13/16 to $15 after announcing it expects Q2 and Q3 results to be below analysts' expectations due to soft industry conditions and delayed orders from several major printed circuit board customers. The company anticipates Q2 EPS to be between $0.23 and $0.25 and Q3 EPS to improve modestly from Q2... Enterprise retail software developer JDA Software Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JDAS)") else Response.Write("(Nasdaq: JDAS)") end if %> slid $3 3/16 to $41 7/8 after announcing it has acquired the Arthur Retail Business Unit from Comshare Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSRE)") else Response.Write("(Nasdaq: CSRE)") end if %> for $44 million in cash. Arthur Retail, which specializes in strategic merchandise management software applications, will now operate as JDA Arthur, a division of JDA Software.
Bay View Capital <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BVCC)") else Response.Write("(Nasdaq: BVCC)") end if %> shed $1 5/8 to $32 1/4 after the company issued a statement saying it is not currently in discussions with any organization regarding being acquired but that it is in talks concerning a possible acquisition of a non-bank organization... Mechanical systems and components distributor Applied Industrial Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APZ)") else Response.Write("(NYSE: APZ)") end if %> tumbled $1 3/4 to $21 3/4 after warning it expects Q4 (ending June 30) revenues and earnings will be below analysts' expectations... Biotechnology company Anesta Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSTA)") else Response.Write("(Nasdaq: NSTA)") end if %> fell $1 7/8 to $15 1/2 after announcing it will stop stating that its test drug Actiq has been shown to be "safe and effective" in the treatment of cancer patient breakthrough pain, as requested by the Food and Drug Administration... Vencor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VC)") else Response.Write("(NYSE: VC)") end if %> slipped $5/16 to $8 5/8 after The Wall Street Journal reported that the healthcare provider is the target of mounting government scrutiny for alleged problems with patient care and billing.
Dental device manufacturer Milestone Scientific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MS)") else Response.Write("(NYSE: MS)") end if %> plunged $1 11/16 to $8 13/16 after confirming an analyst's report saying that the company's largest customer has reduced orders for its top product by $1.2 million... Specialty chemical company Witco Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WIT)") else Response.Write("(NYSE: WIT)") end if %> lost $1 3/16 to $35 1/16 after warning that it expects Q2 and full-year EPS to fall below analysts' estimates. Slower-than-expected sales in April and May likely will lead to a 6% to 8% decline in Q2 sales from the year-ago period... Chemical producer H.B. Fuller Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FULL)") else Response.Write("(Nasdaq: FULL)") end if %> was trimmed $1 1/16 to $59 1/2 after announcing it expects Q2 EPS from continuing operations to be below last year's $0.78. The shortfall is due to a sales slowdown in some markets as well as the impact of interest expenses and amortization of goodwill derived from two recently announced acquisitions in the U.K.
FOOL
ON THE HILL
An Investment Opinion
by
Dale Wettlaufer
Motorola Restructures
Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> ended the day down slightly, losing $9/16 to $50 15/16 after announcing a major restructuring that will include the reduction of its workforce by 15,000, or about 10%. The manufacturer of semiconductors and voice and data communications hardware and software has gone virtually nowhere since the end of 1994, generating a total annual return to shareholders of barely 2% while growing earnings by 14.8% annually over that time.
The company said it will take a charge of $1.95 billion -- close to one-sixth of its owners' equity -- for asset write-downs, facilities consolidation, and employment downsizing, which it hopes will result in annual cost savings of $750 million. Of all the investments Motorola could make, this divestment costing nearly $2 billion is probably the smartest move it could make, as the cost savings represent a 39% return on divestment. Although the company did not want to lay out everything in great detail because of the effects this will have on its workforce, a large part of the restructuring will involve the consolidation of semiconductor fabrication and assembly facilities. That suggests the company will further streamline its semiconductor portfolio and cut out commodity parts that it can buy on the open market at a price that is just as cheap as it would take to manufacture them for itself.
In general, the semiconductor business is a dirty, expensive business. The returns on investment go to those that can win the key battles of time-to-market or can offer devices with a good deal of unique intellectual property content. A dynamic random access memory (DRAM) chip has perhaps billions of dollars of intellectual property content in it, but it's not a unique device, so the value that one firm can add to it versus another is minimal. That's why Motorola got out of the DRAM business, and that's why it plans on concentrating on digital signal processors and devices such as its MCORE and PowerPC RISC processors.
On its conference call today, Motorola CEO Christopher B. Galvin and chief operating officer Robert L. Growney emphasized that the company will concentrate on rationalization across its investment portfolio. Its decision to partner up with Teledesic to build out its next-generation Celestri LEO (low earth orbit) gigahertz band "Internet-in-the-sky" satellite system rather than going it entirely alone hopefully will typify the thinking of Galvin in future capital allocation decisions. The more intelligent executive would rather see a satisfactory risk-adjusted return than occasionally high, occasionally low, occasionally awful returns on capital.
The investor today has to worry that the company won't cut out enough of its commodity semiconductor lines and try instead to squeeze returns out of such products in brand-new facilities. The opportunity to generate super-normal returns on capital in such lines was the province of the old Motorola, not the new. Investors didn't give the company the sort of boost IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> got the month it announced a $7 billion restructuring in the summer of 1993 because there was not enough detail to today's plan to really get a handle on where the company is heading. Motorola's executives did say they are targeting a 15% growth rate and a return to pre-tax margins of 13-15%. This isn't Lou Gerstner saying that, though.
With Chris Galvin, the market is very much in a show-me mode. Until the cash flows start to kick in on various projects and the downsizing of the balance sheet shows positive returns (analysts have to give it a while before the reserves have been drawn down and have soaked up some overflow expenses), it will be tough to convince some investors, no matter how promising the general idea of today's restructuring sounds.
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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