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Friday, October 2, 1998
"If you want to shoot rare, fast moving elephants, you should always carry a gun" -- Warren Buffett
DaimlerChrysler Snubbed by S&P
It appears newlyweds-to-be Chrysler <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> and Daimler-Benz <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAI)") else Response.Write("(NYSE: DAI)") end if %> won't be getting a wedding gift from the folks at Standard & Poor's after all. As expected, the guardians of the vaunted S&P 500 Index will not add the once and future DaimlerChrysler to its premier stock list when the firms' estimated $34 billion merger is completed sometime in November. At that point, Chrysler will be replaced in the index by an unspecified new company due to the fact that the new DaimlerChrysler will be based outside the U.S.
The snub underscores two points. First, it makes little sense for S&P to place a moratorium on adding foreign companies to its index during a time when the internationalization of business is only becoming more pronounced. More than ever, foreign companies are looking to access needed capital via the U.S. markets. The latest example of this trend came yesterday when Germany's fourth largest bank, Dresdner Bank, indicated that it is considering a listing on the New York Stock Exchange in the not-too-distant future. Besides, the S&P 500 already has an international flair. Royal Dutch Petroleum <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RD)") else Response.Write("(NYSE: RD)") end if %> and Unilever N.V. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UN)") else Response.Write("(NYSE: UN)") end if %> are among the largest of the ten foreign firms that joined the index before S&P decided to close its doors to non-U.S. companies in 1994.
Second, the negative effect that the inclusion decision is expected to have on Chrysler's share price illustrates the hegemony the S&P 500 and the Dow Jones Industrial Average have assumed in the world of stock market barometers. Given the popularity of index funds with investors (a trend which suits Fools just fine, by the way), S&P and Dow Jones are now having an outsized impact on short-term share price movements whenever they add or drop a specific stock from one of their lists. While the two firms no doubt derive a great sense of Wise pride knowing that they can adjust market valuations on a whim, Fools understand that a firm's inclusion on anyone's list has absolutely no impact whatsoever on that firm's actual underlying intrinsic value.
News to Go
AlliedSignal <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALD)") else Response.Write("(NYSE: ALD)") end if %> said last night that it will dump its hostile cash bid for Harrisburg, Pennsylvania-based electronics connectors maker AMP Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMP)") else Response.Write("(NYSE: AMP)") end if %> if the Keystone State's legislature passes laws to block the merger. However, AlliedSignal Chairman Lawrence Bossidy told The Wall Street Journal that he would consider making another bid for AMP next year even if the current offer is blocked.
Investment bank and brokerage firm Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> disclosed that its total exposure to hedge funds is $2.1 billion, with all but $84 million of that amount collateralized by U.S. Treasury and agency securities and cash. The figure includes a $1.4 billion, fully collateralizied exposure to hedge fund problem child Long-Term Capital Management.
Business information company Dow Jones & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJ)") else Response.Write("(NYSE: DJ)") end if %> warned last night that its fiscal Q3 earnings will come in between $0.35 and $0.37 per share (excluding charges), short of the Street's mean estimate of $0.39 per share, due to weak advertising results.
Coffeehouse operator Starbucks Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBUX)") else Response.Write("(Nasdaq: SBUX)") end if %> reported a 4% year-over-year increase in September same-store sales late yesterday, a pickup from the 3% rise reported in August and the 2% gain posted in July. Consolidated net revenues rose 38% in September to $149 million from a year ago.
Broadband access products and set-top boxes maker General Instrument Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GIC)") else Response.Write("(NYSE: GIC)") end if %> said strong sales gains will result in fiscal Q3 EPS between $0.21 and $0.22, beating the First Call mean estimate of $0.19. Meanwhile, rival Scientific-Atlanta <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFA)") else Response.Write("(NYSE: SFA)") end if %> indicated that weakness in international markets will result in fiscal Q1 EPS between $0.02 and $0.05, missing the $0.22 estimate.
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Brian Graney (TMF Panic), Writer
Jennifer Silber (TMF Amused), Editor
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