DJIA 9091.77 +66.51 (+0.74%) S&P 500 1157.32 +10.90 (+0.95%) Nasdaq 1909.43 +15.43 (+0.81%) Value Line ndx 960.73 +4.11 (+0.43%) 30-Year Bond 107 30/32 +13/32 5.57% Yield
The announcement of a two-for-one stock split by Internet content aggregator and portal company Lycos Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> sparked a trading frenzy in several Internet-related stocks, sending their share prices skyward like a July 4th fireworks display. Lycos rose $20 1/2 to $99 9/16, Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> picked up $8 1/16 to $107, Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> tacked on $26 3/8 to $199 1/4, NetGravity <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NETG)") else Response.Write("(Nasdaq: NETG)") end if %> gained $7 7/8 to $27, USWeb Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USWB)") else Response.Write("(Nasdaq: USWB)") end if %> moved up $4 1/8 to $29 1/4, and Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> marched ahead $15 1/2 to $139 1/2. Wall Street goo-roos gave various explanations for the continuing run-up, including short squeezes, too many retail brokerage houses chasing a limited supply of shares, and merger speculation following the recent investments in CNET Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNWK)") else Response.Write("(Nasdaq: CNWK)") end if %> and Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> by General Electric's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> NBC unit and Walt Disney Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>, respectively. Regardless of what is causing the rally, valuing the companies is becoming more challenging in the eyes of some analysts.
Zapata Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZAP)") else Response.Write("(NYSE: ZAP)") end if %> surged $11 5/8 to $21 1/2 after saying it will split into two publicly traded companies. The new Zapata Corp. will include the company's marine protein and food packaging businesses, while ZAP Corp. will operate the firm's Internet operations. In connection with the split, ZAP will acquire or invest in 21 Internet content and e-commerce sites and bundle them together in a "portal." (Sadly, The Motley Fool was left off the wish list) The move follows a failed $72 per share bid for portal company Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> on May 21, which was widely dismissed as a publicity stunt. Interestingly, Zapata's plan to produce the actual content on its portal site runs counter to Excite's strategy. In a recent interview, Excite co-founder Joe Kraus emphasized the company's role as a content distributor, rather than as a content provider.
QUICK TAKES: Home improvement products retailer Home Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %> added $3 1/4 to $46 3/16 following its two-for-one stock split Thursday and positive comments by a money manager in the latest edition of Barron's... Bookseller Barnes & Noble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKS)") else Response.Write("(NYSE: BKS)") end if %> rose $7/8 to $45 3/8 as the company declined to respond to a request from the New York Stock Exchange to explain its stock's recent volatility... Number two U.S. automaker Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> added $1 7/8 to $59 3/4 after saying its domestic truck sales rose 18.1% in June compared to a year ago. Domestic car sales were up 2.8% during the month... Coffeehouse operator and recent Fool Port addition Starbucks Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBUX)") else Response.Write("(Nasdaq: SBUX)") end if %> perked $1 7/8 higher to $59 3/4 after The New York Times reported that privately held Kinko's Inc. is talking with the firm about opening coffee shops next door to Kinko's copy centers.
Managed care provider Oxford Health Plans <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %> gained $3/4 to $15 11/16 on speculation by some analysts that the firm may be a buyout candidate based on its low valuation levels and strong name brand... Mortgage lender FirstPlus Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FP)") else Response.Write("(NYSE: FP)") end if %> climbed $1 3/4 to $38 1/16 after saying its fiscal Q2 results will not include any charges for loan prepayments, as the firm has "managed to avoid the widespread negative trends" in the mortgage finance sector... PC and computer products reseller Egghead.com Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGGS)") else Response.Write("(Nasdaq: EGGS)") end if %> added $5 13/16 to $14 13/16 after saying revenues from its Internet auction site rose more than 95% sequentially in the fiscal quarter ended June 27 to $13.7 million.
Internet software developer Inktomi Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INKT)") else Response.Write("(Nasdaq: INKT)") end if %> climbed $25 5/8 to $73 5/8 after Goldman Sachs started coverage with a "market outperform" rating and Hambrecht & Quist assigned the firm a "buy" rating. Both brokerage firms were underwriters for Inktomi's June 10 initial public offering... Enterprise document management products maker Documentum <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DCTM)") else Response.Write("(Nasdaq: DCTM)") end if %> gained $3 27/32 to $51 19/32 after announcing that drug maker Merck & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> will license a Documentum system for enabling secure access to shared documents... First Virtual Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FVCX)") else Response.Write("(Nasdaq: FVCX)") end if %> climbed $2 1/8 to $14 after Hambrecht & Quist upgraded the video networking company to "strong buy" from "buy"... Computer equipment direct marketer Creative Computers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MALL)") else Response.Write("(Nasdaq: MALL)") end if %> moved up $4 1/2 to $11 7/8 after filing a registration statement to sell a 20% stake in its uBid online auction business in an initial public offering, likely in 1999...
Baan Co. NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAANF)") else Response.Write("(Nasdaq: BAANF)") end if %> rose $4 1/16 to $41 1/16 after the Dutch maker of enterprise application software said it will simplify its organizational structure and reshuffle responsibilities among some of its top-tier managers... Theragenics Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: THRX)") else Response.Write("(Nasdaq: THRX)") end if %> bounced back $2 1/2 to $17 5/16 after the maker of implantable radiation devices for treating prostate cancer fell 55% Thursday on concerns over rising competition... S3 Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SIII)") else Response.Write("(Nasdaq: SIII)") end if %> advanced $11/32 to $5 3/8 after Diamond Multimedia <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIMD)") else Response.Write("(Nasdaq: DIMD)") end if %> said it will use the company's Savage 3D graphics accelerator technology for a new high-performance graphics add-in card to be available by Christmas 1998... Blood type identification systems maker Immucor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BLUD)") else Response.Write("(Nasdaq: BLUD)") end if %> gained $1 7/8 to $10 3/8 after the Food and Drug Administration approved the company's ABS2000 product, which is a fully automated device designed for blood banks.
Enterprise decision support systems (DSS) software developer MicroStrategy Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSTR)") else Response.Write("(Nasdaq: MSTR)") end if %> moved up $2 to $28 1/4 after Friedman, Billings, Ramsey started coverage with a "buy" rating and Merrill Lynch assigned the company a "near-term accumulate" rating. Both investment banks were underwriters for MicroStrategy's initial public offering on June 11... Unit Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UNII)") else Response.Write("(Nasdaq: UNII)") end if %>, which makes gas flow control devices for the semiconductor industry, gained $1 3/4 to $10 3/4 after agreeing to merge with a subsidiary of U.S. Filter Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USF)") else Response.Write("(NYSE: USF)") end if %>. Last week, Unit Instruments hinted to investors that it was discussing a merger with an unspecified firm... Williams Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMB)") else Response.Write("(NYSE: WMB)") end if %> gained $1 5/16 to $35 1/8 after Credit Suisse First Boston named the natural gas pipeline and fiber optic network operator its "featured stock of the week" and placed it on the CSFB "focus list."
Birmingham, Alabama-based regional department store company Proffitt's Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFT)") else Response.Write("(NYSE: PFT)") end if %> lost $4 to $36 11/16 after announcing it will acquire Saks Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKS)") else Response.Write("(NYSE: SKS)") end if %> in a stock swap valued at around $2.1 billion. Saks gained slightly, adding $7/16 to $29 7/16. The deal values Saks at $33.36 per share, a 15% premium to its closing price of $29 on Thursday. After the merger, Saks Fifth Avenue will become a subsidiary of Proffitt's Inc., whose corporate name will be changed to Saks Inc. Proffitt's has been expanding rapidly through acquisitions. Earlier this year, it bought Milwaukee-based Carson Pirie Scott & Co., which made Proffitt's the nation's fourth-largest department store chain (it had been the seventh largest). Bagging Saks is an even bigger move for Proffitt's, as it will get one of two key players in high-end retailing -- the other being Neiman-Marcus Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NMG)") else Response.Write("(NYSE: NMG)") end if %>. What worries some investors about the deal is that the price tag on Saks is much richer than what Proffitt's paid for its recent bargain-basement acquisitions, plus it will take longer for Saks to really contribute to earnings than Proffitt's other purchases. Click here for more about the merger.
Following last week's stumble in the share price of competitor Parametric Technology's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMTC)") else Response.Write("(Nasdaq: PMTC)") end if %> stock, mechanical design automation and product data management software company Structural Dynamics Research Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SDRC)") else Response.Write("(Nasdaq: SDRC)") end if %> plummeted $5 15/16 to $15 7/16 after warning that it expects second quarter earnings will be roughly $0.14 per share, short of analysts' expectations of $0.35. The company's European revenue is expected to be up 35% from the year-ago period and continues to lead overall growth. The company's Asian revenue, though anticipated to increase 10%, will be "significantly below" company expectations. The company estimates North American revenue will be down 10% as a result of a delay in a major order for its Metaphase software. Meanwhile, the rebuilding of its North American sales force has yet to materialize, and Structural Dynamics now expects those efforts to pay off in the fourth quarter. The recent developments have made the company "more cautious" in its business outlook for the rest of the year. To listen to a replay of today's conference call, which will be available until 9:00 a.m. ET on Tuesday, July 7, call (800) 839-2314.
QUICK CUTS: IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> slipped $1 1/2 to $113 11/16 after the computing giant said it will no longer make computer engineering deals with Latin American governments. The company has faced allegations of bribery and fraud in Argentina and Mexico... Healthcare products maker Johnson & Johnson (NYSE JNJ) fell $1 7/16 to $72 1/4 on concern about sales of its Propulsid heartburn medicine. Prudential Securities lowered its rating on the company to "hold" from "buy"... San Francisco-based investment bank Hambrecht & Quist <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HQ)") else Response.Write("(NYSE: HQ)") end if %> yo-yoed down $1 1/4 to $36 1/2 amid speculation over whether the company will be acquired by a larger entity such as Credit Suisse First Boston or Deutsche Bank Securities... Tenet HealthCare <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: THC)") else Response.Write("(NYSE: THC)") end if %> was cut $1 3/16 to $28 15/16 in the wake of being downgraded by Oppenheimer & Co. to a "hold" from "buy." Oppenheimer lowered its 1999 EPS estimate for the acute-care hospital operator to $1.92 from $2.
Oil-related companies declined today, tracking the drop in crude oil prices. Oil services company Rowan Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDC)") else Response.Write("(NYSE: RDC)") end if %> was down $1 3/8 to $19 1/8, Ensco International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ESV)") else Response.Write("(NYSE: ESV)") end if %> fell $1 1/8 to $17 3/16, BJ Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BJS)") else Response.Write("(NYSE: BJS)") end if %> shed $1 7/16 to $28 3/8, and Cliffs Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDG)") else Response.Write("(NYSE: CDG)") end if %> was cut $1 9/16 to $31 11/16. Drilling equipment maker Varco International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VRC)") else Response.Write("(NYSE: VRC)") end if %> tumbled $1 3/16 to $19 7/8, while independent energy company Ocean Energy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OEI)") else Response.Write("(NYSE: OEI)") end if %> pulled back $1 5/16 to $18 5/8. Oil and gas services company EVI Weatherford <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EVI)") else Response.Write("(NYSE: EVI)") end if %> also lost $3 to $36 5/8 after announcing that privately held Hydril Co. was in the process of selling around 410,000 EVI shares pursuant to a previously filed shelf registration.
Consumer and commercial finance company ContiFinancial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CFN)") else Response.Write("(NYSE: CFN)") end if %> plunged $6 to $19 1/4 after announcing it expects Q1 EPS of around $0.13, compared with last year's $0.59 and the analysts' mean estimate of $0.60... Lubricant producer WD-40 Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WDFC)") else Response.Write("(Nasdaq: WDFC)") end if %> slid down $1 1/8 to $26 3/4 after reporting Q3 EPS of $0.26, down from $0.33 in the year-ago period and short of analysts' mean estimate of $0.37... Power company Illinova Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ILN)") else Response.Write("(NYSE: ILN)") end if %> lost $2 1/8 to $28 1/4 on news it expects a significant loss for the first half of the year and "little in the way of earnings for 1998," Reuters reported. The company attributed the loss to higher purchase prices for replacement power and greater than previously projected spending for recovery efforts at its Clinton nuclear power station.
Diversified instrument and equipment manufacturer Thermo Electron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TMO)") else Response.Write("(NYSE: TMO)") end if %> tumbled $2 9/16 to $32 3/4 after announcing that it anticipates total gains from the issuance of stock by its subsidiaries for the quarter ended July 4 will be about $10-$15 million, below its expectations of $25 million... Nam Tai Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTAIF)") else Response.Write("(Nasdaq: NTAIF)") end if %>, whose China-based manufacturing operations serve original equipment manufacturers, shed $2 1/8 to $12 5/8 after announcing that it expects that the "Asian Flu" will negatively impact the company's business. The company anticipates a 15% to 25% drop in revenues for the year, compared with previously expected double-digit growth... Japanese electronics giant Hitachi Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HIT)") else Response.Write("(NYSE: HIT)") end if %> was hit for a loss of $2 11/16 to $64 after Standard & Poor's lowered the long-term debt ratings of the company to double-"A" from triple-"A" and removed the ratings from CreditWatch, where they had been placed on June 15.
Robotic and computerized surgical systems maker Computer Motion <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RBOT)") else Response.Write("(Nasdaq: RBOT)") end if %> sank $2 1/8 to $10 7/8 after warning that Q2 revenues will be about $2.3 million, short of analysts' estimates of $2.6-$2.8 million... Semiconductor manufacturer Semtech Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTC)") else Response.Write("(Nasdaq: SMTC)") end if %> plunged $3 3/8 to $14 3/8 after NationsBanc Montgomery Securities lowered its Q2 EPS estimate for the company to $0.27 from $0.30 but reiterated a "buy" rating. NationsBanc Montgomery said it reduced estimates in anticipation of a weak earnings season for all semiconductor companies.
FOOL
ON THE HILL
An Investment Opinion
by
Alex Schay
Merger Synergies
The key to success for department stores was aptly summarized by Louis Lowenstein in his prescient indictment of the excessively leveraged balance sheets seen in broadline retail during the 1980s. (He managed to call the Federated Department Stores bankruptcy.) "In a mature but competitive business, such as department stores, a business with no tail wind to help, execution and implementation are everything. Management needs to devote its energies to merchandising and to stores and to people." Unless, of course, the company in question eschews organic growth in favor of the external variety. Today, regional department store company Proffitt's Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFT)") else Response.Write("(NYSE: PFT)") end if %> lost $4 to $36 11/16 after announcing that it will acquire Saks Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKS)") else Response.Write("(NYSE: SKS)") end if %> in a stock swap valued at around $2.1 billion.
Proceeding from the basic assumption that value creation in any merger is dependent on the present value of all the "synergies" being greater than the premium that is paid, it becomes important to reflect on what exactly those synergies might be. The following will provide a checklist of sorts for identifying the synergies available in any merger transaction, while simultaneously taking a look at today's department store merger... but first:
syn*er*gism (noun)
[New Latin synergismus, from Greek synergos]
First appeared 1910
: interaction of discrete agencies (as industrial firms), agents (as drugs), or conditions such that the total effect is greater than the sum of the individual effects
Synergy. The word conjures up images of management "gooroos" droning on about how two minds are better than one. But in the case of two companies coming together it refers to the benefits that accrue to the combined firm that each on its own wouldn't be able to experience (1 + 1 = 2.2). Now that's New Age.
The most tangible operating benefits usually begin with cost savings, or operating margin expansion. In this scenario, the merger allows for economies of scale in raw materials gathering, manufacturing, distribution, or even marketing and advertising. In some instances whole units that are redundant can be axed, such as accounting, legal, and sundry other administrative departments. However, the Big Bertha of synergies is usually sales growth. That is, sales expansion opportunities that each company on its own wouldn't be able to capitalize on, which usually mean exploiting the other company's distribution channels to maximum effect. Sales growth could also be accomplished through expanded geographic scope or a broadened product offering. In some instances, skill transfer occurs, where, say the acquiring company has research and development experience that can be applied to the products of the target company.
Another potential operating benefit can stem from increasing the combined company's capital efficiency, or in other words, making it run as well as the more efficient of the two when they operated alone. The way companies within an industry manage their balance sheets and squeeze profits out of their assets can vary pretty substantially. The combination of two companies can often lead to a re-deployment of assets based on what the combined company can bring to bear. In the area of working capital management, common measurements include:
Proffitt's Saks Ind Avg
Inventory Turnover 3.07 2.84 4.2
Days Sales Outstanding 11.14 11.39 45
Days Payable Outstanding 33.31 30.09 34.2
Days Working Capital Neg. Neg. 74.6
Cash Conversion Efficiency 2% 7.0% 4.1%
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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