DJIA 9930.47 -28.30 (-0.28%) S&P 500 1306.36 -0.90 (-0.07%) Nasdaq 2439.27 +7.83 (+0.32%) Russell 2000 399.17 -1.67 (-0.42%) 30-Year Bond 96 21/32 +17/32 5.48 Yield
Personal finance, search, commerce, and game website Go2Net <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNET)") else Response.Write("(Nasdaq: GNET)") end if %> gained another $12 5/8 to $126 today -- marking about a 45% gain since Friday's close -- on yesterday's news that the company will get a nifty cash infusion from Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> co-founder and Portland Trail Blazers (hey, they're in season) owner Paul Allen's Vulcan Ventures. Allen, through Vulcan, could end up with 54% of Go2Net's outstanding shares in exchange for his impressive $750 potential outlay. What Allen is getting, besides control of a company, is 1.5 million daily users that could be very easily pointed toward his array of e-commerce companies -- his portfolio includes stakes in Egghead.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGGS)") else Response.Write("(Nasdaq: EGGS)") end if %>, Priceline.com, Beyond.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BYND)") else Response.Write("(Nasdaq: BYND)") end if %>, and ValueAmerica -- to create the "Wired World" he touts in his press clippings. For an extended Foolish take on the deal, click here.
Telephone and Internet travel reservations company 800 Travel Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFLY)") else Response.Write("(Nasdaq: IFLY)") end if %> flew up $2 1/2 to $7 11/16 in heavy trading after reporting fourth-quarter earnings of $0.04 per share, twice the estimate one analyst gave First Call. "We are very pleased that our business model has begun to bear fruit in the form of earnings," said CEO Mark Mastrini, noting the company's second profitable quarter in two periods of public operation. "It is the same model that we are bringing to our unique Internet reservation system." Internet travel planning certainly does appear to be a marketable concept, as Preview Travel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTVL)") else Response.Write("(Nasdaq: PTVL)") end if %> parlayed its own model into 133% revenue growth in 1998, compared with 38% for 800 Travel, which launched its online reservation system in January, grabbing one million hits in its first month of operation. Another player expected to make a splash in the industry is Priceline.com, the highly publicized online bidding operation that allows users to name their price, which has many investors salivating over the prospects of its future IPO.
QUICK TAKES: Internet access and business services provider FlashNet Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FLAS)") else Response.Write("(Nasdaq: FLAS)") end if %> flashed up $26 5/8 to $43 5/8 in the company's first day of trading. The company sold 3 million shares for $17 each... Utility software developer Symantec <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYMC)") else Response.Write("(Nasdaq: SYMC)") end if %> worked its way up $1 9/32 to $15 3/4 after it said 3 corporations will use its anti-virus software in their networks, adding 40,000 desktops and 1,000 servers to the company's customer base... Internet venture capitalist Safeguard Scientifics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFE)") else Response.Write("(NYSE: SFE)") end if %>, over which TMF Gump swoons, swelled $11 5/16 to $59 1/2 today after CEO Warren Musser told CNBC that the company expects strong growth this year at its five or six companies currently "poised to go public."
Airplane maker Boeing Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> rose $1 9/16 to $36 1/4 after the company launched a post-delivery modification and engineering services division to help offset flagging jet sales... Semiconductor fabrication process equipment company Etec Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ETEC)") else Response.Write("(Nasdaq: ETEC)") end if %> moved ahead $3 15/16 to $48 15/16 after Morgan Stanley Dean Witter upgraded the stock to "strong buy" from "outperform"... Semiconductor assembly equipment firm Kulicke & Soffa <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLIC)") else Response.Write("(Nasdaq: KLIC)") end if %> rose $1 7/16 to $24 7/8 after reporting a $4 million order for wire bonders and dicing systems... Food processor and distributor Michael Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIKL)") else Response.Write("(Nasdaq: MIKL)") end if %> spread $1 5/8 to $18 5/16 after agreeing to buy HP Hood Inc.'s Newington, Conn., dairy mix plant. Prudential Securities raised Michael to a "strong buy" from an "accumulate" rating.
Financial market data provider PC Quote <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PQT)") else Response.Write("(AMEX: PQT)") end if %> took on $13/16 to $6 5/16 after its PCQuote.com division formed an advertising alliance with Internet advertising company DoubleClick <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DCLK)") else Response.Write("(Nasdaq: DCLK)") end if %>... Online computer products retailer Cyberian Outpost <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COOL)") else Response.Write("(Nasdaq: COOL)") end if %> heated up $2 7/8 to $21 3/8 after announcing the launch of a new online auction site, OutpostAuctions.com... Detention facilities operator Cornell Corrections <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRN)") else Response.Write("(NYSE: CRN)") end if %> locked up $1 15/16 to $16 after announcing plans to boost its total offender capacity by 316, about a 3% boost... Living tissue surgical glue maker CryoLife Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRY)") else Response.Write("(NYSE: CRY)") end if %> stuck up $13/16 to $11 7/8 after announcing that it earned product certification from the European Union for its BioGlue surgical adhesive.
French life sciences company Rhone-Poulenc's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RP)") else Response.Write("(NYSE: RP)") end if %> American depositary receipts added $2 7/16 to $47 5/8 today following news that the company plans to accelerate its merger with Hoechst <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HOE)") else Response.Write("(NYSE: HOE)") end if %>. The firms believe the deal can be closed this year rather than 2001 as originally thought... Women's fashion apparel maker Liz Claiborne <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LIZ)") else Response.Write("(NYSE: LIZ)") end if %> sewed up a gain of $1 11/16 to $34 1/8 following an upgrade to "strong buy" from "buy" at Credit Suisse First Boston... Italian restaurant operator Il Fornaio <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ILFO)") else Response.Write("(Nasdaq: ILFO)") end if %> boiled up $1 1/8 to $10 after announcing the hiring of Evercore Partners as a financial advisor to look at strategic alternatives, possibly including a sale, management buyout, or acquisitions.
Therapeutic and diagnostic medical systems developer Sabratek Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBTK)") else Response.Write("(Nasdaq: SBTK)") end if %> improved $2 1/8 to $17 1/2 after the company reported a pre-item Q4 profit of $0.10 per share, down from a $0.22 per share profit last year but only a penny below estimates... Electrically operated light control devices developer Research Frontiers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REFR)") else Response.Write("(Nasdaq: REFR)") end if %> brightened $3/4 to $8 after the company late yesterday afternoon announced the successful test of the coatability of the company's SPD light-controlling film... Online computer training services provider Computer Literacy <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMPL)") else Response.Write("(Nasdaq: CMPL)") end if %> scored a gain of $13/16 to $16 1/4 after US Bancorp Piper Jaffray upgraded the stock to "strong buy" from "buy."
Singapore-based Internet services provider Pacific Internet Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCNTF)") else Response.Write("(Nasdaq: PCNTF)") end if %> rose $9 1/8 to $49 3/16 after Lehman Brothers started coverage of the stock with a "buy" rating... Machine tools maker Bridgeport Machines <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BPTM)") else Response.Write("(Nasdaq: BPTM)") end if %> nailed a gain of $3 7/16 to $8 1/8 following an offer from High Technology Holding Corp. to buy 2.5 million shares at $10 1/8 per share, a 116% premium over yesterday's closing price... Automated equity trading services company Investment Technology Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITGI)") else Response.Write("(Nasdaq: ITGI)") end if %>, started at "strong buy" by CIBC Oppenheimer today, added $9 to $55 1/2.
Midwest milk and dairy products distributor Broughton Foods Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MILK)") else Response.Write("(Nasdaq: MILK)") end if %> spoiled $4 9/16 to $12 1/2 after saying that the Justice Department intends to launch a civil antitrust lawsuit to stop Broughton's proposed merger with fellow dairy products company Suiza Foods Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SZA)") else Response.Write("(NYSE: SZA)") end if %>. The central issue of the Feds' complaint, which the companies believe is "unwarranted," is that the merger will result in higher milk prices for some school districts in Kentucky, since there would be one less bidder for school lunch program supplier contracts. Suiza fell $2 13/16 to $35 1/2, as an antitrust suit could throw a wrench in the firm's aggressive expansion plans. Suiza would surely like to get its hands on Broughton's stable of value-added specialty products, such as its ultra-high temperature (UHT) treated creamer and cultured dairy products businesses. The larger question for Suiza now, though, is whether to jeopardize its national roll-up strategy by fighting the Feds for a dairy that will only boost its annual revenues by about 10%.
Audio, data, and videoconferencing products maker Polycom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLCM)") else Response.Write("(Nasdaq: PLCM)") end if %> slid $1 3/8 to $13 7/8 after withdrawing a counter-suit in California against rival VTEL Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VTEL)") else Response.Write("(Nasdaq: VTEL)") end if %>, which is currently suing Polycom and its ViaVideo unit in a Texas court for $100 million in damages in a breach of contract/trade secret misappropriation suit. However, Polycom called the withdrawal a "tactical move" and said it is now considering new counterclaims against VTEL after taking issue with the way VTEL explained the development in a press release today. Lost amid the legal mud slinging is the fact that the two companies seem to be headed in completely opposite directions. Since VTEL initially filed suit in September of 1997, its shares have been more than cut in half as Polycom's share price has doubled. While Polycom said it will "vigorously" defend itself in the Texas courts, it seems an eventual judgment in this case will mean more to VTEL than to its rival.
QUICK CUTS: Online direct marketing company Xoom.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XMCM)") else Response.Write("(Nasdaq: XMCM)") end if %> stalled $5 7/8 to $63 3/4 after filing a registration statement with the Securities and Exchange Commission to sell a total of 4 million common shares in a public offering, including 2 million shares held by existing stockholders... Restaurants and self-service kiosks touchscreen technology developer MicroTouch Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTSI)") else Response.Write("(Nasdaq: MTSI)") end if %> was slapped with a $3 1/4 loss to $12 7/8 after saying lower revenues and margins from its European business and an adverse legal ruling will result in Q1 earnings below the current Zacks mean estimate of $0.34 per share... HMT Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMTT)") else Response.Write("(Nasdaq: HMTT)") end if %>, which makes thin film disks for computer disk drives, was spun for a $1 5/8 loss to $4 3/8 following a BT Alex. Brown downgrade to "market perform" from "buy."
Industrial cleaning and facilities support services provider MPW Industrial Services Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MPWG)") else Response.Write("(Nasdaq: MPWG)") end if %> was smoked for a $1 3/8 loss to $10 after saying that a recent fire at one of its facilities and a business slowdown will result in fiscal Q3 (ending March 31) EPS between $0.07 and $0.08, missing the First Call mean estimate of $0.12... Biotechnology firm Boston Life Sciences <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BLSI)") else Response.Write("(Nasdaq: BLSI)") end if %> slid $2 1/16 to $7 1/2 despite trying to dispel fears that it attributed to a "confusing television report" by reiterating that it is the exclusive license owner of a patent for the anti-angiogenic protein Troponin I... Floorcoverings retailer Maxim Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MXG)") else Response.Write("(NYSE: MXG)") end if %> was waxed for a $1 5/8 loss to $11 following downgrades from NationsBanc Montgomery Securities, First Union Capital Markets, and SunTrust Equitable Securities.
Laser vision correction systems designer VISX Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VISX)") else Response.Write("(Nasdaq: VISX)") end if %> was blindsided for a $7 5/16 loss to $99 /16 by a PaineWebber downgrade to "neutral" from "attractive" today... Online retailer Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> lost $5 1/8 to $133 13/16, possibly on dilution fears, as the company said in a federal filing that it wants to increase its number of authorized common shares to 1.5 billion from 300 million to fund acquisitions and defend itself against a possible hostile takeover offer... Lincoln National Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LNC)") else Response.Write("(NYSE: LNC)") end if %>, which provides insurance and investment services to wealthy individuals, fell $2 1/2 to $95 1/2 after Merrill Lynch lowered its intermediate-term opinion to "neutral" from "accumulate," citing a recent share price run-up tied to unfounded takeover speculation.
FOOL
ON THE HILL
An Investment Opinion
by
Warren Gump
DuPont's Tracking Stock
Last week, Dow Jones Industrial Average member DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> announced plans to issue a "tracking stock" for its life sciences business. Fools who haven't spent a lot of time around the stock market (and many of those who have) may wonder what exactly a tracking stock is. This type of security is a new class of common stock issued by a company to represent the financial performance of a specific division. Most often, tracking stocks are issued by companies that have sexy divisions expected to achieve high valuations in the market.
To gain some insight, let's look at what DuPont plans to do. Assuming its plan comes to fruition, sometime next year the company will issue a dividend of tracking stock to its current shareholders. DuPont owners will continue to hold their original DuPont shares, but they will also own newly issued "tracking" shares of DuPont Life Sciences (DLS). This stock will represent the earnings of the DLS businesses, such as the company's pharmaceutical, crop protection, and nutrition and health divisions.
Despite having separately traded stock, DLS is not a separate company from DuPont. From a legal standpoint, DuPont will still be one company with one board of directors. It will, however, report three income statements and balance sheets in its government filings. The first set of financial statements will reflect all of DuPont, including DLS and all of DuPont's other businesses. The second and third sets of financial statements will reflect DuPont's operations excluding DLS and those of just DLS, respectively.
Although this setup may sound confusing, in reality the situation is not terribly complicated. Think of Mary Jane, a woman with $15,000 in savings. She wants to enjoy life and take advantage of her savings, yet she also is trying to buy a house. She decides to allocate two-thirds of her savings to her house savings account. The remainder is free and available for her to spend on vacations and other big-ticket items. At the time she makes this decision, she creates two accounts to track her savings. The first account, her house savings account, has $10,000. The other account, her discretionary savings account, has $5,000.
Mary Jane has basically segregated her assets into two accounts the same way that DuPont will segregate itself into two different segments. If Mary Jane calculates her liquid net worth, it's $15,000. Internally, however, she has allocated $10,000 of that to her house savings account and $5,000 to discretionary savings. Likewise, DuPont will still be the same huge company, but its assets will be allocated between DuPont (original stock) and the DLS tracking stock. The income, expenses, and cash flow of those two entities will also be segregated.
Several advantages were cited by DuPont for its decision to issue a tracking stock, most of which could be also be accomplished by spinning off the life sciences business entirely. The company expects that the tracking stock for its fast-growing life sciences group will trade at a higher multiple than its slower-growing chemicals business. Assuming this occurs (which is likely), the company can use the higher-valued tracking stock as currency in acquisitions and strategic alliances. The importance of having this currency as the company expands was demonstrated by the potential dilution from DuPont's proposed merger with Pioneer Hi-Bred <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHB)") else Response.Write("(NYSE: PHB)") end if %>. Using DuPont stock and cash, DuPont faces earnings dilution of up to $0.25 per share next year. If DuPont had a more highly valued stock, this dilution could have been reduced substantially.
Other advantages noted by DuPont are the ability to allow shareholders to invest separately in its divisions and better alignment of the company's incentive stock options for employees. Many life sciences investors may shy away from investing in the company because right now they have to buy all of DuPont's other businesses along with life sciences. When the tracking stock is issued, those investors are much more likely to evaluate DLS as an investment option.
Employees of DLS will be able to participate more directly in the success (and failures) of that business. You may not think that is terribly important, but in reality it is. For example, if you were a scientist working at DuPont and were being wooed by a competitor like Monsanto <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %> or Amgen <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMGN)") else Response.Write("(Nasdaq: AMGN)") end if %>, those competitors could throw out stock options that reflect the high growth of their businesses. With DuPont, however, the value of your stock options would be hampered by the slower growing and cyclical chemicals business. Having a tracking stock will give DuPont the ability to better compete for top-notch employees.
Of course, all of the advantages just listed could be achieved if DuPont were to spin-off its life sciences business into a separately traded company. So what is the advantage of having a tracking stock over a spin-off? In a word, cash. The life sciences segment of DuPont is investing lots of cash to grow its business. At the same time, the other businesses of DuPont generate significant cash flow. By maintaining one corporate structure for both businesses, life sciences has a ready provider of debt and equity capital when needed. The added financial flexibility of a strong capital partner could become a crucial competitive advantage for DLS.
The biggest drawbacks of a tracking stock are the lack of a separate board of directors to oversee life sciences and the limited voice that tracking stock shareholders have over the business. DuPont will continue to have only one board of directors responsible for both the core business and DLS. Based on the history of other tracking stocks, DLS shareholders will not have a significant voice in their selection (since the old DuPont will be much larger, it's shareholders will have a larger voice in the election). Any situation where directors are not held directly responsible for their actions via shareholder votes is a reason for concern. Nonetheless, since DuPont has indicated that life sciences will be its primary focus for growth, my guess is that directors will be cognizant of the needs of DLS.
Historically speaking, tracking stocks tend to perform just about as well as the company's underlying business. Many tracking stocks, such as GM Hughes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GMH)") else Response.Write("(NYSE: GMH)") end if %>, Circuit City-Carmax <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMX)") else Response.Write("(NYSE: KMX)") end if %>, and USX-Marathon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRO)") else Response.Write("(NYSE: MRO)") end if %>, have been pretty lousy investments since their issuance. This poor performance is more related to turbulent business situations for each company rather than the issuance of tracking stocks. I'm not sure any of these businesses would have fared better as independent entities. Demonstrating that tracking stocks can work (at least for a while) is U.S. West Media Group. This tracking stock was issued in late 1995 and performed well before a recent decision to completely spin off the company into MediaOne Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UMG)") else Response.Write("(NYSE: UMG)") end if %>.
My take on tracking stocks is they will perform just about as well as the division they're tracking. A complete spin-off of non-core operations is often preferable to the issuance of a tracking stock because it allows for a clean break and extremely focused management. However, a tracking stock can be a more appealing option under certain circumstances, such as when a strong balance sheet provides a competitive advantage. Will the DLS tracking stock be a success? That answer depends on how well Dupont Life Sciences executes its strategy.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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Contributing Writers Brian Graney (TMF Panic), a Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |