FOOL PLATE
SPECIAL
An Investment Opinion by MF Nexus
6
Compuserve "In Play"?
Despite staid denials on both sides, rumors of a takeover bid fueled the sharp ascent of the two largest online service providers yesterday. Shares of AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> ended the day $3 1/4 higher (up 7.6%) at $45 3/4, while shares of COMPUSERVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSRV)") else Response.Write("(Nasdaq: CSRV)") end if %> rose $1 1/8 (up 12%) to close at $11. The smoking gun that prompted the run-up was a technology report issued by Wall Street Strategies that stated that America Online “will make a play” for CompuServe.
CompuServe, a majority owned (80.1%) subsidiary of H&R BLOCK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRB)") else Response.Write("(NYSE: HRB)") end if %>, has been plagued by a lack of marketing focus that has hampered subscriber retention rates. On November 21, 1996, the company announced a shift in its marketing emphasis away from its family oriented WOW! online service to focus on its more profitable small-business professional and technical market sectors (taking a $4.9 million after tax charge for the switch). Due to the implementation of a new pricing structure coupled with a sequential drop in retention rates, CompuServe reported that revenues-per-subscriber would be lower in 1997 compared with the previous year. The company’s stock has languished since its April 1996 IPO at $33 a stub, trading near its all-time low before yesterday’s surge.
CompuServe’s primary appeal to America Online is its existing subscriber base of 2.9 million members and its POP (Point of Presence) infrastructure. CompuServe’s subscribers combined with America Online's consumer service membership of 8 million customers would rocket America Online past its critical mass goal of 10 million members. The question becomes, does it make sense for America Online to have a specialty, premium business service as well as a mass consumer service? If not, how can CompuServe’s existing service be ensconced in America Online's present offerings?
Despite CompuServe’s relatively cheap enterprise value of $699.3 million, a cash acquisition would be impossible considering America Online's $111 million cash on hand, leaving the choice of financing avenues to debt and equity. If America Online's past strategies are any indication of its future plans, an equity swap would be the most likely of the two. In the short term, America Online's negative earnings per share numbers would be favorably impacted, as its losses would be spread out over a larger share base. However, if the company holds out any hope of getting in the black, comparisons would be made more difficult for the same reason. Still, the allure of removing its second largest rival from the action and consolidating its already enormous lead in the online service arena may be too much for America Online to pass up.
UPS
Computer telephony company PREMIERE TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTEK)") else Response.Write("(Nasdaq: PTEK)") end if %> gained $3 9/16 to $23 3/16 after announcing an agreement to acquire Voice-Tel Enterprises, a similar enterprise which will double its revenues. The deal is valued at approximately $185 million, or about half Premiere's current market cap, and will be structured as a pooling of interests.
STEEL OF WEST VIRGINIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SWVA)") else Response.Write("(Nasdaq: SWVA)") end if %> rose $1 to $9 after the structural steel company said yesterday that a hostile $9 per share offer from CPT Holdings is inadequate. The company also said Q1 ordering activity is strong.
Computer projection systems company IN FOCUS SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INFS)") else Response.Write("(Nasdaq: INFS)") end if %> gained $2 to $18 3/4 after saying that it will report Q1 earnings per share (EPS) of $0.36 to $0.38, making the low end of estimates but missing the average because of production bottlenecks.
PENSKE MOTORSPORTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPWY)") else Response.Write("(Nasdaq: SPWY)") end if %> rose $1 1/4 to $29 after announcing that it has proposed a merger with North Carolina Motor Speedway, a NASCAR track with 46,000 seats and 33 luxury boxes.
Pool, garden, and pet supplies company CENTRAL GARDEN & PET CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CENT)") else Response.Write("(Nasdaq: CENT)") end if %> grew $1 to $17 1/4 after Alex. Brown raised its rating to "strong buy" from "buy."
Computer aided design/manufacturing (CAD/CAM) software company PARAMETRIC TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMTC)") else Response.Write("(Nasdaq: PMTC)") end if %> added $1 3/4 to $43 1/4 as the company will join the S&P 500 Index at the close of trading today when PACIFIC TELESIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAC)") else Response.Write("(Nasdaq: PAC)") end if %> leaves the index as an independent entity due to its merger with SBC COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBC)") else Response.Write("(NYSE: SBC)") end if %>.
SITEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWW)") else Response.Write("(NYSE: SWW)") end if %> jumped $7/8 to $12 5/8 after the teleservices outsourcer reported Q3 EPS of $0.09, up 50% from last year and right in line with estimates.
Boring Portfolio holding BORDERS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BGP)") else Response.Write("(NYSE: BGP)") end if %> gained $1 1/8 to $19 7/8 after Merrill Lynch named the bookseller its "Focus One" stock of the week.
THERMOLASE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TLZ)") else Response.Write("(AMEX: TLZ)") end if %> added $1 1/4 to $12 5/8 on saying that it has entered into an agreement with another company that will market its hair removal and skin resurfacing laser equipment.
DOWNS
Enterprise management software firm PROJECT SOFTWARE & DEVELOPMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSDI)") else Response.Write("(Nasdaq: PSDI)") end if %> crashed $15 1/2 to $15 3/4 after the company pre-announced Q2 EPS of $0.15, missing estimates of $0.34, on revenues of $22 million, up from last year's level of $16 million.
TRITEAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TEAL)") else Response.Write("(Nasdaq: TEAL)") end if %> was tackled for a $3 7/8 loss to $6 after the application integration software company said it expects to report, at best, a 29% increase in Q4 revenues. It also expects to report Q4 losses of $0.09 to $0.12 per share, missing the First Call mean estimate of $0.09.
Document management software company FILENET CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FILE)") else Response.Write("(Nasdaq: FILE)") end if %> slumped $4 3/4 to $11 1/8 after the company pre-announced a Q1 loss of $0.60 per share on revenues of $47 million, down from $66.7 million last year.
PROTOCOL SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCOL)") else Response.Write("(Nasdaq: PCOL)") end if %> fell $1 1/4 to $7 1/2 after the patient monitoring systems company said first quarter revenues will be $2.5 million lighter than expected. Earnings are expected to be "significantly below expectations" of $0.12 per share.
Agricultural biotech company EPITOPE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EPTO)") else Response.Write("(Nasdaq: EPTO)") end if %> lost $1 1/4 to $8 7/8 after its Andrew and Williamson subsidiary announced the recall of frozen strawberries shipped to six states because they are possibly carrying Hepatitis A.
HMT TECHNOLOGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMTT)") else Response.Write("(Nasdaq: HMTT)") end if %> lost $1/2 to $11 1/8 after the disk drive media company said it will report a year-over-year decline in Q4 revenues and that gross margin has contracted.
Used car finance company FIRST MERCHANTS ACCEPTANCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FMAC)") else Response.Write("(Nasdaq: FMAC)") end if %> slid $1 1/8 to $7 3/4 after Oppenheimer started coverage of the company with an "underperform" rating.
ALLIN COMMUNICATIONS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALLN)") else Response.Write("(Nasdaq: ALLN)") end if %> lost $1 1/2 to $8 after the interactive TV services company reported Q4 losses for the quarter (ending Dec. 31, 1996) of $0.91 per share.
Physician practice management firm PHYSICIANS RESOURCES GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRG)") else Response.Write("(NYSE: PRG)") end if %> lost $7/8 to $12 1/8 after Alex. Brown lowered its rating on the company to "neutral" from "buy" a day after the company announced a buyback of up to four million shares.
Pharmaceutical company NEUROGEN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NRGN)") else Response.Write("(Nasdaq: NRGN)") end if %> lost $2 5/8 to $15 3/8 after reporting on progress in its Phase I research into treatments for schizophrenia.
CONFERENCE CALLS
CASCADE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCC)") else Response.Write("(Nasdaq: CSCC)") end if %>
ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>
To discuss merger announcement
(800) 475-6701 (code: 336788)
ASTORIA FINANCIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASFC)") else Response.Write("(Nasdaq: ASFC)") end if %> and
THE GREATER NEW YORK SAVINGS BANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRTR)") else Response.Write("(Nasdaq: GRTR)") end if %>
call regarding Astoria's acquisition
(800) 839-3308 -- replay available through 4/2
US DIAGNOSTIC INC.<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USDL)") else Response.Write("(Nasdaq: USDL)") end if %>
Replay available after 3:00 PM EST through 4/8
(303) 267-1074
THIS WEEK'S CONFERENCE CALL SYNOPSES
SHIVA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHVA)") else Response.Write("(Nasdaq: SHVA)") end if %> Q1
Pre-Announcement
PAYCHEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAYX)") else Response.Write("(Nasdaq: PAYX)") end if %> Q3 Conference
Call
COLUMBIA/HCA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> Conference Call To Discuss Investigation
FOOL PORTFOLIO STOCKS
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Randy Befumo (MF Templar), a Fool
Fool Plate SpecialDale Wettlaufer (MF Raleigh), another Fool
Ups & DownsBrian Bauer (MF Hoops), and yet another Fool
Editing