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FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer
Cendant -- The New AAA
Cendant Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CD)") else Response.Write("(NYSE: CD)") end if %> is again on the acquisition trail. The company announced on Friday that it will acquire the Royal Automobile Club's (RAC) Motoring Services business in Great Britain, a business that provides roadside assistance and driving instruction services. Along with the recent acquisition of National Parking Corp., which brought along with it Green Flag, a roadside assistance company in the U.K., Cendant will become the AAA of Great Britain, with 9.1 million members. Considering there are only approximately 60 million residents in the entire U.K., having a direct line to approximately 30% of households (treating household size as two citizens) is big win for Cendant.
On its own, a membership-based marketing service such as AAA or these U.K. businesses can be very lucrative if run correctly. Even if such businesses run at breakeven or at only a marginal profit on paper, the "float' they generate can act as a low-cost or zero-cost source of funds for the larger holding company. In this case, that's Cendant. These types of businesses get to hold a member's cash for a while before actually having to pay out that cash in the form of reimbursement for towing, unlocking a car, or providing a jump-start. If on average, the company has on hand $500 million from the constant flow of membership fees into the business and the delay between a claim being made and the company actually paying out for that claim, on average the company will save about $40 million (pre-tax) in interest expenses that it would otherwise have to pay with other sources of funding (such as a line of credit).
So, even if there were not opportunities to market complementary Cendant services, such as its fleet management, fuel card, and insurance claims management services from its PPH unit, or services at its National Parking unit or services such as credit insurance or timeshare condos from its RCI unit, the company already has a win under it belt by acquiring another company generating a healthy bit of float. Cendant says the deal will be immediately accretive to per-share earnings, which means that the company earns its keep even before considering its other economic benefits to Cendant. With this deal, Chairman Henry Silverman says he will slow down, according to Reuters. ``We have completed or will have completed $7 billion in transactions in 1998. I think it is time to take a breath and manage what we have." That's like NationsBank CEO Hugh McColl saying he'll slow down, though. Expect to see Cendant back in the market for other interesting acquisitions later this year.
Biotechnology company EntreMed Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENMD)") else Response.Write("(Nasdaq: ENMD)") end if %> shot up $36 11/16 to $48 3/4 from Friday's close of $12 1/16 after going as high as $85 earlier today on optimism over its two new drugs, angiostatin and endostatin, which together have made tumors disappear in mice by cutting off blood flow. The New York Times reported that the National Cancer Institute has called the drugs the "single most exciting thing on the horizon."
Union Texas Petroleum <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UTH)") else Response.Write("(NYSE: UTH)") end if %> surged $8 1/16 to $28 9/16 after announcing that it has agreed to be acquired by ARCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARC)") else Response.Write("(NYSE: ARC)") end if %> in a deal valued at about $3.3 billion, including debt and Union Texas preferred stock. ARCO will buy Union Texas common shares for $29 per share in cash.
Pfizer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> rose $1 5/8 to $114 after The Wall Street Journal reported a deal with R.P. Scherer Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHR)") else Response.Write("(NYSE: SHR)") end if %> to develop a faster-acting version of Pfizer's new impotence drug Viagra. The pharmaceutical company is studying Scherer's wafer-thin Zydis delivery system that may allow patients to take Viagra only a few minutes before sex instead of an hour. Scherer was up $6 1/16 to $79 5/8.
Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> gained $1 1/8 to $29 1/8 after Bear Stearns raised its rating on "the Mac" to "buy" from "attractive." Analyst Andrew Neff said new products -- notebook computers and low-cost computers -- will boost the company's revenue. He increased his 1999 earnings estimate to $1.80 per share from $1.60.
Lycos Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> was lifted $4 7/8 to $68 1/4 after announcing a three-year agreement with AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> to develop and offer new Internet-based consumer communications services. The companies plan to offer Lycos users multi-media Internet applications that will combine Web-based technology with traditional communications services. In addition, the companies will offer services on each other's websites. AT&T was up $2 1/4 to $63.
Automotive parts maker Echlin Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %> gained $4 15/16 to $52 1/2 after announcing it has agreed to be acquired by auto aftermarket parts company Dana Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DCN)") else Response.Write("(NYSE: DCN)") end if %> in a stock-for-stock transaction valued at around $55 per Echlin share. Echlin shareholders will receive 0.9293 Dana shares for each Echlin share they own. The transaction is expected to be accretive to earnings during the first full year of operations after the merger. Meanwhile, SPX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SPW)") else Response.Write("(NYSE: SPW)") end if %>, whose merger bid has been rejected by Echlin, said it was "evaluating the situation and looking at all of our options."
Sunrise Assisted Living <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNRZ)") else Response.Write("(Nasdaq: SNRZ)") end if %> rose $1 13/16 to $38 1/16 after Prudential Securities upgraded its rating on the elderly assisted living facilities operator to "buy" from "hold."
Computer security software developer Check Point Software Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHKPF)") else Response.Write("(Nasdaq: CHKPF)") end if %> jumped $3 15/16 to $32 3/8 after Prudential Securities raised its rating on the company to "buy" from "attractive."
Pharmaceutical company SuperGen Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUPG)") else Response.Write("(Nasdaq: SUPG)") end if %> leapt $3 to $15 7/8 after announcing that the Food and Drug Administration has approved its application to market mitomycin for injection. The cancer drug has been approved to treat adenocarcinoma of the stomach and pancreas together with other chemotherapeutics. The drug, which was originally developed and marketed by Bristol-Myers Squibb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMY)") else Response.Write("(NYSE: BMY)") end if %>, is expected to go on sale by June. Bristol-Myers moved up $3 1/8 to $109 1/8.
Generic and branded pharmaceutical developer Ivax Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: IVX)") else Response.Write("(AMEX: IVX)") end if %> lost $15/16 to $9 13/16 after reporting a Q1 loss of $0.03 per share compared to a loss of $0.07 per share year ago, which was in line with the loss forecasted by the sole analyst surveyed by First Call. Net revenues in the quarter fell 12% to $149.1 million compared to a year ago.
Contract nonclinical pharmaceutical testing firm BioReliance Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BREL)") else Response.Write("(Nasdaq: BREL)") end if %> fell $1 1/8 to $14 after reporting Q1 EPS of $0.12, flat from a year ago and a penny below the First Call mean estimate. Revenues increased 1.6% in the quarter to $11.97 million compared to the same period last year.
Grocery and drug store operator Albertson's Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABS)") else Response.Write("(NYSE: ABS)") end if %> slid $1 13/16 to $48 15/16 after reporting that comparable store sales increased by 0.1% in April while total sales increased 7%. For the first quarter, the company said total sales were up 6.7% but comparable store sales were down 0.3% compared to the same period a year ago.
Boston-based bank Fleet Financial Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLT)") else Response.Write("(NYSE: FLT)") end if %> lost $1 5/8 to $88 1/16 this morning. The Wall Street Journal reported that the firm is considering partnerships with Mellon Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEL)") else Response.Write("(NYSE: MEL)") end if %>, PNC Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PNC)") else Response.Write("(NYSE: PNC)") end if %>, Bank of New York <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BNY)") else Response.Write("(NYSE: BNY)") end if %>, and KeyCorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KEY)") else Response.Write("(NYSE: KEY)") end if %> after merger talks with BankBoston <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKB)") else Response.Write("(NYSE: BKB)") end if %> fell apart last week.
Oil tanker, barge, and tugboat operator Maritrans Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TUG)") else Response.Write("(NYSE: TUG)") end if %> ran aground this morning, falling $1 3/16 to $8 7/8 after reporting Q1 EPS of $0.06 versus $0.16 a year ago, missing the Street estimate by $0.02. The company blamed the shortfall on "severe weather patterns" in the period, but added that it still expects to increase fiscal 1998 revenues by 10% from a year ago.
Vitamin and nutritional supplement provider 4Health Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HHHH)") else Response.Write("(Nasdaq: HHHH)") end if %> slid $9/16 to $6 1/4 after the company told the Wall Street Journal that rumors regarding a takeover offer from Twinlab Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TWLB)") else Response.Write("(Nasdaq: TWLB)") end if %>, a marketing agreement with America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>, and interest from investment gooroo George Soros in the company are all unfounded.
Titan International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWI)") else Response.Write("(NYSE: TWI)") end if %>, which makes tires and wheels for earthmovers and other vehicles, was dumped $1/2 to $18 1/2 after union workers at its Titan Tire Corp. facility in Des Moines, Iowa went on strike on Friday. The company said supervisors and salaried workers will continue production at the plant despite the strike.
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool
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