FOOL PLATE
SPECIAL
An Investment Opinion by Dale
Wettlaufer
Barnett Banks On the Block
BARNETT BANKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBI)") else Response.Write("(NYSE: BBI)") end if %>, one of the nation's 25 largest banking
companies, looks like it's on the block today, and the market is marveling
at potential acquisition prices for the company. If the company were to do
a deal at a 15% premium to yesterday's closing price, the price on the deal
would be a pretty fat 5 times tangible book value. Without backing out goodwill
on the balance sheet, the price/book multiple looks a little more "reasonable"
at 3.5 times book value. Some are saying these multiples are too high, while
others counter that banks are so different today as corporations that a rule
of thumb on valuation from the 1950s really shouldn't apply.
When in a quandary about looking at book value -- which gets pushed around
by all sorts of Generally Accepted Accounting Principles and SEC rulings
and can sometimes understate the economic net asset value of the business
-- an investor can go to the assets side of the balance sheet and look at
possible multiples to asset values. In this case, an acquisition or merger
at 28.5% of tangible asset value would be very much in line with recent
acquisitions in the banking industry. In contrast, some of the most well-regarded
banks in the country are selling at good premiums to that multiple. FIFTH
THIRD BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FITB)") else Response.Write("(Nasdaq: FITB)") end if %>, a Cincinnati-based bank that has been a
star in the banking group, is selling at 44% of assets. That's because Fifth
Third generates a return on those assets (ROA) of about 1.7% to 1.8% per
year, which is superior. In addition to its high ROA, investors give Fifth
Third high multiples because of its commercial banking presence and the low-cost
deposits that go along with commercial banking, as well as its great operating
profit margins, or efficiency ratio (non interest
expenses divided by net interest income before loan loss reserves and non
interest income), of 56%.
On the other hand, you've got BANKBOSTON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKB)") else Response.Write("(NYSE: BKB)") end if %>, which was formed
through the merger of Bank of Boston and BayBanks and has been a successful
combination of a commercial bank and a strong regional consumer banking presence,
selling at 18.6% of assets. The company doesn't really generate an extraordinary
return on those assets, in the 1.2% to 1.3% range, but it is still a lean
operator with an efficiency ratio of 61.5%. CENTRAL FIDELITY BANKS
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CFBS)") else Response.Write("(Nasdaq: CFBS)") end if %>, the Virginia bank that is merging with WACHOVIA
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WB)") else Response.Write("(NYSE: WB)") end if %>, is priced in lockstep with Wachovia at 21% of assets. While
Virginia is an attractive growth region, Central Fidelity is very much a
straight consumer bank and should thus be less richly priced.
Bottom line, the acquisition prices on all of these companies depend on what
the equity valuations of the potential acquirers and what the acquirer can
do with the properties. The banking universe is trading at valuations not
seen, or seen very rarely, in the professional careers of the executives
doing these deals. Considering that Barnett is the nation's 12th-largest
consumer lending bank, has Florida's largest deposit base, and a presents
a great opportunity to build the trust business of any acquiring bank, the
valuations on Barnett aren't totally on Mars here. Build in some cost cutting
for duplication of operations, and there are quite a few large banks that
could do a sensible deal and would love a crack at the company in the $62
a share range.
UPS
VOCALTEC COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VOCLF)") else Response.Write("(Nasdaq: VOCLF)") end if %> jumped another $3 1/4 to $23
1/8 after yesterday's news that DEUTSCHE TELEKOM AG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DT)") else Response.Write("(NYSE: DT)") end if %> will
take a 20% stake in the company and market VocalTec's Internet telephony
software. An appearance by a company officer on CNBC's Squawk Box this
morning didn't hurt either.
OUTLOOK GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OUTL)") else Response.Write("(Nasdaq: OUTL)") end if %> gained $1 5/16 to $7 5/16 after the graphic
services and packing company agreed to be acquired by a private investment
firm for $8.25 per share in cash.
Rubber components and plastics manufacturer VERSA TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRSA)") else Response.Write("(Nasdaq: VRSA)") end if %> rose $3 1/4 to $23 1/2 on announcing that it is considering a deal
to be acquired by diversified manufacturer APPLIED POWER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APW)") else Response.Write("(NYSE: APW)") end if %> for $24.62 per share in cash.
QUALITY SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QUAL)") else Response.Write("(Nasdaq: QUAL)") end if %> added $1 5/8 to $15 after Donaldson,
Lufkin & Jenrette started coverage of the specialty semiconductor company
with a "buy" rating.
Oil and gas exploration company EDGE PETROLEUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EPEX)") else Response.Write("(Nasdaq: EPEX)") end if %>
picked up $1 1/4 to $16 on announcing that it has taken a 10% equity stake
in Frontera Resources Corp., which is developing energy properties in places
such as Bolivia and Azerbaijan.
FIRST PALM BEACH BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FFPB)") else Response.Write("(Nasdaq: FFPB)") end if %> rose $2 11/16 to $35 1/4 as
the banking consolidation spotlight turned to Florida this morning with the
Barnett Banks story.
Medical products manufacturer POLYMEDICA INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PM)") else Response.Write("(AMEX: PM)") end if %> climbed
$2 1/16 to $12 5/8 on a favorable mention in today's Investor's Business
Daily New America feature.
DOWNS
INTUIT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %> slipped back $1 3/8 to $26 5/8 after Montgomery
Securities yesterday popped up the shares with an initial "buy" rating.
LVMH MOET HENNESSY LOUIS VUITTON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LVMHY)") else Response.Write("(Nasdaq: LVMHY)") end if %> lost $2 5/16 to $42
5/16 after UBS Securities in France lowered its rating on the maker of Moet
& Chandon and Dom Perignon champagnes, Hennessey Cognac, Louis Vuitton
leather goods, and other haute couture items to "neutral" from "buy."
Asia/Pacific closed-end mutual funds are being hit by the currency and capital
markets turmoil in that region. TAIWAN FUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWN)") else Response.Write("(NYSE: TWN)") end if %> fell $1 5/16
to $25 3/4 and GREATER CHINA FUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GCH)") else Response.Write("(NYSE: GCH)") end if %> lost $1 1/2 to $20
1/2.
WISCONSIN CENTRAL TRANSPORTATION CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCLX)") else Response.Write("(Nasdaq: WCLX)") end if %> lost $1 1/2
to $31 1/8 after Donaldson, Lufkin & Jenrette lowered its rating on the
railroad company and international railroad developer to "market perform"
from "buy." Since July 7, DLJ has lowered, raised, and then lowered again
its rating on the company.
Tool company BLACK & DECKER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDK)") else Response.Write("(NYSE: BDK)") end if %> slid $2 5/16 to
$38 13/16 on a Smith Barney rating downgrade to "outperform" from "buy."
TELE DANMARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLD)") else Response.Write("(NYSE: TLD)") end if %> lost $1 5/8 to $26 5/8 despite reporting
a 19% increase in operating earnings in the first half of the year.
CONFERENCE CALLS
METROWERKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTWKF)") else Response.Write("(Nasdaq: MTWKF)") end if %>
(402) 220-4219 -- replay through 8/29 @ 8:00 pm EDT
OSICOM TECHNOLOGIES, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FIBR)") else Response.Write("(Nasdaq: FIBR)") end if %>
(800) 475-6701 (Access code 352514) -- replay through 9/2
(320) 365-3844 -- replay for International callers
09/03/97 (Wednesday)
ETEC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ETEC)") else Response.Write("(Nasdaq: ETEC)") end if %>
(800) 633-8284 (code: 3030112) -- replay from 7:00 pm EDT for 24 hours
FOOL PORTFOLIO BORING PORTFOLIO ATCT unch. at $4 7/16 ATLS up $1/16 at $27 11/16 AOL up $1/2 at $64 3/4 BGP down $1/16 at $23 9/16 CHV down $15/16 at $78 1/8 CSL down $5/8 at $42 1/16 COMS up $1 3/4 at $49 1/16 CSCO up $15/16 at $75 15/16 DJT up $1/8 at $10 7/8 GNT down $7/16 at $43 9/16 GM down $5/16 at $63 7/16 ORCL up $3/4 at $37 1/16 INVX down $1/4 at $34 1/8 OXHP down $3/4 at $72 5/8 IOM down $3/16 at $25 11/16 PMSI up $1 3/8 at $13 1/2 KLAC down $3/16 at $72 TDW up $3/16 at $52 3/4 LU down $7/16 at $78 1/2 MMM down $1/16 at $90 7/8 T down $5/16 at $38 15/16WE DELIVER - Get The Lunchtime News delivered
to your e-mailbox every afternoon!
MORE FOOLISHNESS
Track Your Portfolio Foolishly!Looking for a way to track the returns of your portfolio? Hoping to see your own work graphed against the S&P 500, the Dow, the Nasdaq and the Fool's own portfolio? Wish there was some method of bringing your AOL Quotes right into your own portfolio so that you can regularly update your stocks? It's here! Developed by Tom Christiansen (TMF Sargon), the Foolish Portfolio Tracker (PortTrak) is designed to meet all of your portfolio tracking needs. If you want to track your portfolio performance Foolishly (including commissions and costs), then you need the Foolish Portfolio Tracker. Please note, however, that you must have Excel 5.0 or higher, for either Mac or PC systems, in order to use it. Additionally, although the Tracker is handy for anyone, the automatic quote update feature will only work for AOL subscribers. The Foolish Portfolio Tracker is available for just $25.00, and will be delivered to your AOL address within three business days.
Dale Wettlaufer (TMF Ralegh), a Fool
Fool Plate Special and Ups & DownsBrian Bauer (TMF Hoops), another Fool
Editing