FOOL PLATE
SPECIAL
An Investment Opinion by
Randy Befumo
When a Huge Settlement is Welcome
Shares of tobacco-related companies are rising today after the Wall Street Journal reported on talks of a possible settlement. Speculation places the chief executives of the two largest purveyors of tobacco products in the world at the table with the Attorneys General of Mississippi, Arizona, Florida and Washington discussing a legislated solution to the liability suits. PHILIP MORRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> rose $3 to $42 while RJR NABISCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %> jumped $2 1/2 to $32 3/4 both on news of the discussions and a strong earnings report from Philip Morris.
The terms? Philip Morris and RJR Nabisco would fork over as much as $300 billion over the next twenty-five years to a fund that would settle the claims of individual smokers, as well as accepting strict curbs on advertising and regulation by the Food & Drug Administration. The liability fund would be constructed in a similar manner to the liability fund that currently deals with individual breast implant claims. Deputy White House Counsel Bruce Lindsey and Senate Majority Leader Trent Lott have also been briefed on the talks. A Congressionally mandated settlement would end once and for all the litigation worry that currently hangs over the tobacco companies, auguring a price-to-earnings multiple expansion that might counteract any earnings that are depressed by the cost of a settlement.
How would the industry pay the $300 billion? With annual revenues of $45 billion, the tobacco industry would need to fork over $12 billion a year to build $300 billion over 25 years. A recent 4% price increase by RJR Nabisco is an example of the way that the industry will generate the extra cash -- the tobacco companies have tremendous pricing power. Why would the tobacco companies be willing to accept strict curbs on advertising and FDA regulation? Once a settlement frees up the industry from any potential liability, the high returns on capital in the tobacco business would potentially attract well-heeled competitors. By setting up significant roadblocks to new competition, the tobacco companies would enshrine their current market share and make it almost impossible for anyone else to enter the business.
UPS
SYLVAN LEARNING SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLVN)") else Response.Write("(Nasdaq: SLVN)") end if %> gained $2 1/2 to $31 5/8 after Harcourt Brace & Co. owner HARCOURT GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: H)") else Response.Write("(NYSE: H)") end if %> launched a $19.50 per share cash tender offer for NATIONAL EDUCATION CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NEC)") else Response.Write("(NYSE: NEC)") end if %>, with which Sylvan had entered into a merger agreement last month. National Education jumped $4 1/4 to $19 1/4 on the offer.
Internet service provider NETCOM ON-LINE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NETC)") else Response.Write("(Nasdaq: NETC)") end if %> dialed up a $1 1/8 gain to $11 3/8 after Smith Barney upgraded its rating to "buy" from "underperform."
BIOGEN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BGEN)") else Response.Write("(Nasdaq: BGEN)") end if %> gained $2 to $32 after the biopharm company announced the commencement of Phase II trials on a treatment for congestive heart failure.
Cigarette companies are in secret talks to cover "virtually all the industry's liability for smoking..." according to Dow Jones. RJR NABISCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %> added $2 1/4 to $32 1/2, and LOEWS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LTR)") else Response.Write("(NYSE: LTR)") end if %> rose $3 to $89 3/8.
Fault-tolerant computer systems company TANDEM COMPUTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TDM)") else Response.Write("(NYSE: TDM)") end if %> gained $1 1/2 to $13 1/8 after signing a research agreement with L.M. ERICSSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %> and receiving an upgrade to "strong buy" from "underperform" from Cowen & Co.
STUDENT LOAN MARKETING ASSOCIATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLM)") else Response.Write("(NYSE: SLM)") end if %>, or Sallie Mae, gained $4 1/4 to $112 as a proxy fight is brewing regarding the strategic direction of the company.
DOWNS
Help-desk and sales automation software company CLARIFY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLFY)") else Response.Write("(Nasdaq: CLFY)") end if %> exploded for a $9 7/8 loss to $6 7/8 after announcing in its earnings release that it expects "...little, if any, revenue growth rate for the second quarter over the first quarter in 1997." Industry cohorts also fell sharply, including SCOPUS TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCOP)") else Response.Write("(Nasdaq: SCOP)") end if %>, down $6 to $22 1/8, and THE VANTIVE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VNTV)") else Response.Write("(Nasdaq: VNTV)") end if %>, down $2 1/8 at $15.
Other companies hit by the Clarify news include REMEDY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RMDY)") else Response.Write("(Nasdaq: RMDY)") end if %>; down $6 7/16 to $34; AURUM SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AURM)") else Response.Write("(Nasdaq: AURM)") end if %> falling $2 15/16 to $11 1/4; and SIEBEL SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEBL)") else Response.Write("(Nasdaq: SEBL)") end if %> off $3 1/4 to $14 1/8. Business planning software company ARBOR SOFTWARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARSW)") else Response.Write("(Nasdaq: ARSW)") end if %> slid $3 to $24 1/2.
CAPSTONE PHARMACY SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DOSE)") else Response.Write("(Nasdaq: DOSE)") end if %> lost $2 3/8 to $9 3/8 after the institutional pharmacy company announced a merger with the Pharmacy Corp. of America division of nursing home company BEVERLY ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEV)") else Response.Write("(NYSE: BEV)") end if %>, which says it will spin off the combined company.
Computer telephony products company BROOKTROUT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRKT)") else Response.Write("(Nasdaq: BRKT)") end if %> lost $2 3/8 to $10 1/2 after reporting Q1 EPS of $0.14, hitting the low end of estimates but missing the mean estimate of $0.16 per share.
LAM RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LRCX)") else Response.Write("(Nasdaq: LRCX)") end if %> slipped another $2 3/8 to $24 1/2 after reporting yesterday a larger-than-expected loss in its third quarter. Merger partner, semiconductor manufacturing equipment company ONTRAK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONTK)") else Response.Write("(Nasdaq: ONTK)") end if %>, also fell $2 3/8 to $19 1/4.
VIDEOSERVER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VSVR)") else Response.Write("(Nasdaq: VSVR)") end if %> fell $2 1/4 to $17 1/4 after the videoconferencing software and hardware company's customer, PICTURETEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCTL)") else Response.Write("(Nasdaq: PCTL)") end if %>, announced an agreement to acquire MultiLink, Inc., a multipoint audioconferencing systems company, which will put Videoserver and Picturetel into competition.
Office equipment company IKON OFFICE SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IKN)") else Response.Write("(NYSE: IKN)") end if %> fell another $2 1/4 to $24 1/8 after the company reported Q2 EPS from continuing operations of $0.37, which missed the mean estimate of $0.41. Weak U.K. revenues hurt results.
CADENCE DESIGN SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDN)") else Response.Write("(NYSE: CDN)") end if %> fell $2 1/8 to $28 3/8 after the semiconductor design software company yesterday reported Q1 EPS of $0.37, which beat estimates. However, both Hambrecht & Quist and Needham and Co. downgraded the shares to "buy" from "strong buy."
SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> lost $1 7/8 to $27 1/2 on reporting Q3 revenues of $2.12 billion and operating EPS of $0.51, which met the high-end of estimates. SoundView Financial thought the revenue growth was a little light, though, and Hambrecht and Quist downgraded the shares to "buy."
Money center bank CHASE MANHATTAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> fell $3 3/4 to $88 7/8 after reporting Q1 operating EPS of $2.01 on revenues of $4.15 billion, which the company says were a little light. Merrill Lynch downgraded its rating on the company the "near-term accumulate" from "buy."
CONFERENCE CALLS
ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>
(800) 475-6701 (code: 336995) -- replay through 4/18 (North America) (320)
365-3844 (code: 336995) -- replay through 4/18 (International)
INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>
(402) 280-9021 -- replay through 4/18
360 COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XO)") else Response.Write("(NYSE: XO)") end if %>
(402) 220-3014 -- replay through 4/22
SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>
1-800-633-8284 (reservation # 2584848) -- replay avail through 4/22
APPLIED DIGITAL ACCESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADAX)") else Response.Write("(Nasdaq: ADAX)") end if %>
(402) 220-6032 -- replay through 4/22
FREDDIE MAC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRE)") else Response.Write("(NYSE: FRE)") end if %>
1-800-938-0928 -- replay from 8:00 a.m. EDT on 4/16 through 4:00 p.m. EDT
on 4/18
FORD MOTOR CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %>
(703) 736-7228 -- replay at 2:00 PM EDT on 4/17
APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %>
(816) 650-0613 (password: Apple Conference Call) -- Replays on 4/16 at 7:00
PM EDT and 9:00 PM EDT, and 4/17 at 7:30 AM EDT and 12:00 noon EDT
THIS WEEK'S CONFERENCE CALL SYNOPSES
NIKE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> Q3 Conference Call
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