CONFERENCE CALLS
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FOOL PLATE SPECIAL
Huge Office Superstore Merger
Office superstores got a jolt today when the Big Three competitors became the Big Two. OFFICE DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %> and STAPLES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPLS)") else Response.Write("(NASDAQ: SPLS)") end if %> stunned the market after they announced a $3.4 billion merger of equals, leaving only ex-Kmart subsidiary OFFICEMAX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OMX)") else Response.Write("(NYSE: OMX)") end if %> to directly compete with them. Shareholders of Office Depot will receive 1.14 shares of Staples in the deal, roughly a 40% premium over the closing price yesterday but still well below the prior 52-week high. The combined company will be known as "Staples the Office Depot," an uninspired combination of the two marquee names.
Office superstores have seen tough times in the past few months as more specialized business supply companies and regional office supply centers have begun to give them a run for their money. Whether you are talking about companies like VIKING OFFICE PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VKNG)") else Response.Write("(NASDAQ: VKNG)") end if %> that target small- and medium-sized businesses through direct mail or U.S. OFFICE PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OFIS)") else Response.Write("(NASDAQ: OFIS)") end if %>, which strategically acquires regional office supply brands and integrates them into a nationwide inventory system, traditional office superstores have been getting a lot of competition lately. Continued and ruthless rounds of price-cutting between the giants of the industry and the incursion of discount retailers into their office supply purview have not helped the situation at all.
A decade ago when the office superstore was young, there was a lot of market share to take from the established local office supply companies which were serving their markets inefficiently. Could many of these inefficiencies have been corrected over the past ten years, leaving a number of strong retailers fighting for a limited and relatively slow-growth market? One only has to glance at the performance over the past few years of many full-service restaurant chains to see what happens when you have too much capacity and not enough differentiation in a retail format.
Today's merger combines two chains of roughly equal size and will result in about $500 million worth of charges when it is consummated. Investors need to evaluate whether the price stabilization, the potential for leveraging off of fixed costs, and the closure of units that are operating in the same basic area will create the opportunity for the 30%-to-40% profit growth in the next two years that management is optimistically targeting today. Office Depot opened up $4 1/8 to $20 while Staples dropped $1/2 to $19, in keeping with the stock price of most large acquirers in the past few weeks. Shares of OfficeMax were heavily traded as well on the news, moving down $1/2 to $13 1/4.
UPS
AMERICAN EAGLE OUTFITTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AEOS)") else Response.Write("(NASDAQ: AEOS)") end if %> surged $3 1/2 to $24 3/4 after reporting profits of $0.04 EPS in the fourth quarter. Close to bankruptcy during the cyclical downturn in 1994, the company has sprung back beyond analyst expectations.
An unsolicited merge offer from PARK-OHIO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PKOH)") else Response.Write("(NASDAQ: PKOH)") end if %> has shares of SUDBURY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUDS)") else Response.Write("(NASDAQ: SUDS)") end if %> burbling $2 1/4 higher to $12 7/8 today. Park-Ohio made an $11 cash offer for all of the outstanding shares of the industrial products manufacturer.
MILLER INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MLR)") else Response.Write("(NYSE: MLR)") end if %> jumped $2 3/8 to $36 5/8 after the towing and recovery equipment concern announced a two-for-one stock split. Although not exactly the most high-tech company going, the shares have almost quadrupled in the past year.
Shareholders of YOUTH SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: YSII)") else Response.Write("(NASDAQ: YSII)") end if %> shocked by yesterday's news that it would not make fourth quarter estimates have apparently been pacified, as the shares recovered $3 1/4 to $17 5/8 today.
PHYSICIAN'S SALES & SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PSSI)") else Response.Write("(NASDAQ: PSSI)") end if %> popped up $7/8 to $18 3/8 after it purchased privately-held Diagnostic Systems for $19.2 million in stock and debt assumption. Diagnostic had $58 million in sales over the last year. The deal is expected to be non-dilutive to earnings this year and slightly accretive to earnings in fiscal 1998.
Alex. Brown stepped in to help COACH USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TOUR)") else Response.Write("(NASDAQ: TOUR)") end if %> this morning when it upgraded the shares to "strong buy" from "buy," sending shares up $1 1/2 to $25 1/2. Coach USA is a charter bus operator.
DOWNS
GREENFIELD INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GFII)") else Response.Write("(NASDAQ: GFII)") end if %> plunged $5 to $23 1/2 after reporting late yesterday that the manufacturer of cutting tools will only make $0.28 EPS to $0.33 EPS in its fiscal third quarter, well below consensus estimates of $0.59 EPS.
CATALYST INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLYS)") else Response.Write("(NYSE: CLYS)") end if %> dropped $1 5/8 to $4 5/8 after the company warned that its third quarter would fall "significantly below analyst estimates." Consensus estimates had called for the software concern to net nine cents a share.
Shares of plastic products stalwart RUBBERMAID <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RBD)") else Response.Write("(NYSE: RBD)") end if %> continue to drag, slipping $2 1/4 to $24 1/4 today after the company informed the Street that its earnings for the fiscal third quarter would be flat when compared with a year ago.
INTUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTU)") else Response.Write("(NASDAQ: INTU)") end if %> got whacked in the head this morning when Morgan Stanley slashed its fiscal 1997 estimate by a full twenty-six cents to $0.79 EPS. Shares tumbled $2 1/4 to $34. Simultaneously, fourteen banks using Intuit's BankNOW back-end are now offering online banking on AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> in the Banking Center.
After announcing that it was ending the development of a product to treat basal cell carcinoma, MATRIX PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MATX)") else Response.Write("(NASDAQ: MATX)") end if %> dropped $3 3/4 to $7 5/8.
RICHEY ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RCHY)") else Response.Write("(NASDAQ: RCHY)") end if %> slumped $1 3/4 to $8 1/4 this morning after the electronics distributor announced that it was "unlikely to meet expectations" in the upcoming fiscal third quarter.
Printed circuit board-maker ALTRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALRN)") else Response.Write("(NASDAQ: ALRN)") end if %> made comments to analysts yesterday about a slowdown at a number of key customers, dropping an additional $1 1/2 to $13 1/2 today after a similar drop yesterday.
FOOL PROTFOLIO STOCKS
Randy Befumo (MF Templar),
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