Investment Opinion
FOOL PLATE SPECIAL
Supreme Victory for Savings & Loans
In a 7-to-2 decision announced this morning, the Supreme Court ruled that the federal government broke a contract with savings and loan institutions (S&Ls) in the early '80s. This story goes all the way back to the beginning of the so-called savings and loan crisis, when a number of poorly-run and under-capitalized institutions got into serious trouble, prompting the alarmed attention of federal regulators. The government's first response to the problem was to encourage healthy S&Ls to swallow up their weaker competitors by treating the "goodwill" generated from such acquisitions under beneficial accounting standards.
"Goodwill", sometimes called "water", is the difference between the actual value of an asset acquired and the price paid for it. If you buy a S&L for $100 million when it only has $50 million shareholder's equity and assets, then you would book $50 million in goodwill. Goodwill is normally taken off of the balance sheet of a company over a fixed period of time using an accounting convention called depreciation. In the S&L situation, however, the government said that S&Ls that acquired weaker competitors could count the goodwill that they took on as capital, allowing them to make more loans without violating any legal restrictions.
However, in 1989 Congress passed a law called FIRREA that essentially abrogated this decision. GLENDALE FEDERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLN)") else Response.Write("(NYSE: GLN)") end if %> immediately sued the government for breaking its contract, and was joined in the suit by a number of other S&Ls that had acquired weaker competitors but suddenly lost all the benefit of their acquisitions. Roughly 100 cases have been filed for the 2,000-some S&Ls in existence, as an S&L had to have acquired a weaker competitor to be able to claim any damages. The government's liability in this matter? Estimates are as high as $18 billion by some third-party sources. After its victory today, Glendale has announced that it will accelerate the settlement process by holding talks with the government later this month.
Glendale was up $1 7/8 to $20 on its victory, boosting valuations across the board in the savings and loan universe. CALIFORNIA FEDERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CALGZ)") else Response.Write("(NASDAQ: CALGZ)") end if %> was up $2 7/8 to $11 5/8, COAST SAVINGS BANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSA)") else Response.Write("(NYSE: CSA)") end if %> rose $1 1/4 to $34 and LONG ISLAND BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LISB)") else Response.Write("(NASDAQ: LISB)") end if %> surged $1 13/16 to $32 3/8 on the news.
Buchan Parket Asset Management and Emerald Partners both said they liked FIRST MISSISSIPPI <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRM)") else Response.Write("(NYSE: FRM)") end if %> in this weekend's Barron's, possibly accounting for the $1 3/8 to $23 5/8 rise this morning.
Computer graphics concern LANDMARK GRAPHICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LMRK)") else Response.Write("(NASDAQ: LMRK)") end if %> surged $9 3/4 to $29 after oil services and equipment giant HALLIBURTON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAL)") else Response.Write("(NYSE: HAL)") end if %> offered 0.574 of its own stock in a takeover valued at more than $557 million.
Even as BROOKTREE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BTRE)") else Response.Write("(NASDAQ: BTRE)") end if %> announced that ROCKWELL INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ROK)") else Response.Write("(NYSE: ROK)") end if %> was buying it out at $15 a share, it reported that its third quarter would have seen an operating loss on lower-than-expected revenues and on an inventory write-down. Pay attention now -- Rockwell acquired this semiconductor company at a significant premium *despite* the fact that its business was actually worse than what was publicly known. Brooktree surged $3 5/8 to $14 1/8.
Wall Street continues to show its complete inability to grasp the dynamics of the Internet access business, bidding shares of MINDSPRING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSPG)") else Response.Write("(NASDAQ: MSPG)") end if %> up $1 3/8 to $12 today after it bought PSINet's Internet subscriber base for $23 million. Mindspring, which has to raise this money by offering more stock, now gets a low-profit commodity consumer business while PSINet focuses on its high-margin enterprise clients.
INTERNEURON PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IPIC)") else Response.Write("(NASDAQ: IPIC)") end if %> rose $4 3/4 to $34 3/4 as more investors hoping to profit off the company's anti-obesity medication piled into the stock.
RESPIRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RESP)") else Response.Write("(NASDAQ: RESP)") end if %> surged $2 1/4 to $20 3/4 after the company received Food & Drug Administration (FDA) approval to market its Maestro clinical remote control.
The best-named brokerage in the known universe is at it again! Punk Ziegel lifted shares of NETWORK GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NETG)") else Response.Write("(NASDAQ: NETG)") end if %> $2 7/8 to $24 3/8 after raising its rating on the stock to "aggressive buy" from a normal, run-of-mill "buy".
MOSCOM CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSCM)") else Response.Write("(NASDAQ: MSCM)") end if %> announced it would be spinning off its speech recognition Votan Corp. subsidiary and initiating a $0.02 semi-annual dividend today, pushing the stock up $1/2 to $15 7/8.
PLANET HOLLYWOOD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PHII)") else Response.Write("(NASDAQ: PHII)") end if %> continues to levitate today, up $1 3/8 to $28 3/8, after its CEO made an appearance on CNBC's Squawk Box.
PENEDERM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DERM)") else Response.Write("(NASDAQ: DERM)") end if %> got smashed today for $4 7/8 to $12 1/8 after receiving a "non-approvability" letter from the FDA regarding new drug applications for its Avita compound.
The ever-volatile GREENWICH AIR SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GASIB)") else Response.Write("(NASDAQ: GASIB)") end if %>, scion of the Cabot Market Letter and Louis Navillier's MPT Review, dropped $2 3/4 to $16 3/4 on no news.
PERFORMANCE FOODS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PFGC)") else Response.Write("(NASDAQ: PFGC)") end if %>, the primary supplier of food and goodies to CRACKER BARREL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CBRL)") else Response.Write("(NASDAQ: CBRL)") end if %>, got hit for $3 1/4 to $22 3/4 after it was informed by Cracker Barrel that it would seek outside bids.
Another player in the anti-obesity drug universe, NEUROGEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NRGN)") else Response.Write("(NASDAQ: NRGN)") end if %>, dropped $3 1/2 to $22 1/4 even as competitor Interneuron was up (see Ups). A long piece in Barron's on the whole anti-fat craze might explain both of these moves.
CAMBRIDGE TECHNOLOGY PARTNERS (CATP) pulled back $3 3/4 to $26 3/4 today after last week's gains that followed a Robertson Stephens comment that the company was a "terrific value".
ZYGO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZIGO)") else Response.Write("(NASDAQ: ZIGO)") end if %> slumped $4 to $39 3/4 today despite the announcement that it had acquired privately-held Technical Instruments for $14.5 million.
Search-engine developer EXCALIBUR TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EXCA)") else Response.Write("(NASDAQ: EXCA)") end if %>, a smaller competitor to industry giants like VERITY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VRTY)") else Response.Write("(NASDAQ: VRTY)") end if %> and FULCRUM TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:FULCF)") else Response.Write("(NASDAQ:FULCF)") end if %>, gave back $1 1/2 to $21 after a huge surge on Friday.
OPTICAL COATING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OCLI)") else Response.Write("(NASDAQ: OCLI)") end if %> dropped $1 1/4 to $16 3/4 today after describing shipment delays that originated from a delay in some manufacturing capacity coming on line. The company is buying Optical Corp. for 1.9 million shares.
KEMET CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KMET)") else Response.Write("(NASDAQ: KMET)") end if %> fell $1 1/4 to $18 3/4 after reporting that it is adopting a shareholder rights plan, citing strong prospects as an independent concern, and effectively spurning potential suitor VISHAY INTERTECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VSH)") else Response.Write("(NYSE: VSH)") end if %>.
NATIONAL RE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NRE)") else Response.Write("(NYSE: NRE)") end if %> was held in early morning trading when it was announced that reinsurance competitor GENERAL RE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRN)") else Response.Write("(NYSE: GRN)") end if %> was entering into a definitive pact to buy the company for $53 a share, or $940 million.