HOMESIDE INC. (NYSE: HSL) jumped $2 1/2 to $26 3/4 on agreeing to be acquired by NATIONAL AUSTRALIA BANK (NYSE: NAB) for $27.82 per share in cash, or 13 times February 1999 EPS estimates of $2.12 . HomeSide is a major producer and servicer of mortgages in the U.S., servicing $97 billion of in-trust mortgages. At 2.2 times book values for a company that generates an annualized return on assets of 2.9%, National Australia Bank is getting a nice-looking deal. In addition, this isn't one of those tepid sorts of deals where a foreign bank is establishing a joint venture to "get its feet wet" here, this is a full-fledged acquisition that establishes a great beachhead for National Australia in the U.S.
Connecticut savings bank holding company EAGLE FINANCIAL (Nasdaq: EGFC) gained $4 1/2 to $47 1/2 after agreeing to be acquired by WEBSTER FINANCIAL CORP. (Nasdaq: WBST) in a stock swap valuing each Eagle share at 0.84 shares of Webster. As of last night, that valued Eagle at $55.44 per share, or a 29% premium to its previous close. Webster dropped $7 1/4 to $58 3/4 even though the bank said the deal will be accretive to per-share earnings in 1998. Like Wells Fargo and NationsBank, Eagle Financial has picked up the supermarket branch model. That can be a low-cost model if a company can find the right products to sell and service through the bank branch or if the demographics of the market and neighborhoods it serves are right. Whether or not the combined companies can increase the profitability of those branches and take market share, they should expect non-interest expense savings for a merger of this size of about 25%.
QUICK TAKES: TELE DANMARK (NYSE: TLD), Denmark's premiere telephone utility, rose $2 1/4 to $29 after regional bell operating company AMERITECH CORP. (NYSE: AIT) announced that it will invest $3.2 billion in the company, acquiring 45 million shares for a 34.4% stake... New Hampshire and Massachusetts bank CFX CORP. (AMEX: CFX) gained $1 15/16 to $24 5/8 on agreeing to merge with PEOPLES HERITAGE FINANCIAL GROUP (Nasdaq: PHBK) in a stock swap valuing CFX at $28.76 per share as of last night's close.
Health maintenance organization OXFORD HEALTH PLANS (Nasdaq: OXHP) fell gravely ill today, its pulse slowing $42 7/8 to $25 7/8. The company announced that it expects a Q3 loss of between $0.83 to $0.88 per share (versus expectations of $0.47), the direct result of taking a massive charge to bulk up its reserves against medical claims. The company earned a lofty valuation with respect to its peers largely due to its ability to consistently meet the Street's expectations by growing its enrollment top-line and building a strong brand. Adding to Oxford's woes, the company also stated that revenues will be about $111 million below previous expectations. Following Oxford to the hospital were WELLPOINT HEALTH NETWORKS (NYSE: WLP), down $8 3/8 to $47 1/2; HUMANA INC. (NYSE: HUM) fell $1 11/16 to $20 15/16; PACIFICARE HEALTH SYSTEMS (Nasdaq: PHSYA) dropped $5 1/4 to $62 1/2; and UNITED HEALTHCARE CORP. (NYSE: UNH) was crunched $8 9/16 to $43 1/16.
VIMPEL COMMUNICATIONS (NYSE: VIP) fell $3 1/2 to $35 1/4 and TEMPLETON RUSSIA FUND (NYSE: TRF) lost $7 3/16 to $41 3/4 as speculators and holders of Russian stocks wonder if the Russian government hasn't had just a bit of a hand in the performance of the ruble over the last couple years, considering how that currency stabilized two years ago and has kept up pretty well with the strong dollar over the last year.
QUICK CUTS: Argentinean bank (no, not Hong Kong bank) BANCO FRANCES DEL RIO (NYSE: BFR) fell $5 1/8 to $24 3/8 after reporting reporting Q1 EPS of $0.48, missing the First Call mean estimate of $0.52, and receiving a downgrade from Goldman Sachs to "market underperform" from "market outperform"... TELECOM ARGENTINA (NYSE: TEO) slid $4 3/4 to $24 5/8 as Latin American stocks felt some pain today as well... The Brazil Bovespa Stock Index was down 14.97% with TELECOMUNICACOES BRASILEIRAS (NYSE: TBR) contributing to the decline, falling $28 7/8 to $96 1/2... Canadian telecom company TELEGLOBE INC. (NYSE: TGO) dropped $3 3/16 to $32 1/4 on announcing last Friday that it has filed to sell 5.2 million shares, 1.7 million from the company and the rest from a corporate holder... Aircraft manufacturer BOEING CO. (NYSE: BA) descended $5 7/16 to $43 as rumors circulated that its Q4 write-off related to its McDonnell Douglas Corp. unit could be as much as $1 billion.
DIGITAL EQUIPMENT CORP. (NYSE: DEC) fell $5 5/16 to $45 1/4 as the computer, chip, and technology company announced that it sold its "Alpha" chip making business to INTEL CORP. (Nasdaq: INTC) for $700 million... Pharmaceutical firm MERCK & CO. (NYSE: MRK) dropped $8 3/8 to $85 after the company was downgraded to "neutral" from "outperform" by Smith Barney over competitive concerns in its leading drug markets... Household products company PROCTER & GAMBLE CO. (NYSE: PG) lost $5 to $65 11/16 after it announced that its bid for Korean paper company Ssangyong Paper was mired in Korean anti-trust legislation... Drug delivery systems company R.P. SCHERER (NYSE: SHR) lost $7 to $55 3/4 on reporting Q2 EPS was $0.56, which was $0.02 shy of estimates... Deep water driller READING & BATES (NYSE: RB) was cut $5 11/16 to $39 after the company announced that it was delaying its shareholder meeting to approve its merger with FALCON DRILLING CO. (NYSE: FLC), which dropped $4 3/4 to $33 1/8, because of ongoing talks with the SEC regarding the tax treatment of the pending merger.
Specialty chemicals company SOLUTIA INC. (NYSE: SOI) slipped $1 3/4 to $22 1/4 after it was downgraded to "outperform" from "strong buy" by Morgan Stanley Dean Witter Discover... Financial services software company PHOENIX INTERNATIONAL (Nasdaq: PHXX) crashed $9 15/16 to $14 1/16 after announcing that it expects to record Q3 EPS below last year's $0.14 per share and at least 33% below the First Call mean estimate of $0.21... RACING CHAMPIONS CORP. (Nasdaq: RACN) skidded $2 15/16 to $6 15/16 after the maker of die-cast models of NASCAR race cars reported flattish Q3 revenues and earnings per share (on a pro-forma basis) of $0.26, in line with estimates... Electronic commerce software firm OPEN MARKET (Nasdaq: OMKT) slid another $1 5/8 to $11 7/8 following last Thursday's earnings report... Flash memory manufacturer SANDISK CORP. (Nasdaq: SNDK) tumbled $4 to $23 1/2 on announcing that it intends to issue and sell from 3.0 to 4.5 million shares of common stock.
Wireless equipment maker DIGITAL MICROWAVE (Nasdaq: DMIC) fell $7 1/4 to $36 1/2 as the company downgraded by Jackson Partners to "hold" from "attractive"... Satellite company ECHOSTAR COMMUNICATIONS CORP. (Nasdaq: DISH) dropped out of orbit $2 to $21 after an unfavorable U.S. Copyright Office ruling that the amount satellite companies would have to pay to broadcast network television would quadruple... Pancake purveyor IHOP CORP. (Nasdaq: IHOP) was burned $2 7/8 to $34 1/8 after it was downgraded by BT Alex. Brown to "market perform" from "buy"... Radio station operator JACOR COMMUNICATIONS (Nasdaq: JCOR) lost $3 1/4 to $42 7/8 after it announced that it will buy 17 radio stations from Nationwide Mutual Insurance for $620 million... Fearing weakness in its auto parts unit, electronic components maker METHODE ELECTRONICS (Nasdaq: METHA) was dumped $5 1/8 to $21 as Merrill Lynch cut the company from "near-term neutral" to "near-term buy"... Semiconductor equipment maker PRI AUTOMATION (Nasdaq: PRIA) continued its fall, dropping $3 1/4 to $33 1/2 amid fears surrounding its acquisition of Equipe Technologies for $172 million.
Latin American stocks took a pretty bad spill today. Mexican stocks took things especially hard as currency outflow drove the peso down 7% against the dollar. TELEFONOS DE MEXICO (NYSE: TMX) lost $7 to $39 9/16 while lesser-known names such as consumer products and electronics retailer GRUPO ELEKTRA (NYSE: EKT) took even bigger hits. Grupo Elektra lost $6 5/8 to $24 1/2 on the day. Mexican broadcasters were also attenuated by selling, with GRUPO RADIO CENTRO (NYSE: RC) falling $2 9/16 to $13 1/16 and GRUPO TELEVISA (NYSE: TV) losing $5 3/8 to $29 7/8.
MICRO WAREHOUSE (Nasdaq: MWHS) crumpled for a $8 3/4 loss to $11 15/16 after the catalog retailer of PCs pre-announced Q3 EPS of $0.16 (before a charge), higher than the First Call mean estimate but below the more optimistic estimates of the analysts following the company. The company also announced the resignation of its CEO. Apparently, the company's CEO had a different strategic vision than the board. Today's drop represents a round-trip for Micro Warehouse, which came back when the company reported earnings following a big loss that came about from the restatement of earnings through inventory mis-valuations. What perplexes some investors is that valuations on this company are higher than those of PC box manufacturers, whose earnings are not as volatile as PC retailers and whose business models don't carry the operating leverage that retailers, with tiny operating margins, do.
A number of companies were dealt an awful bruising in today's "sell off," making dramatic movements on a lack of fundamental information except some vague and not so vague associations with customers in Asia. Some of these firms include laser sensors and sensor systems company CYBEROPTICS CORP. (Nasdaq: CYBE), which fell $6 1/2 to $25 1/2, Internet search engine firm LYCOS INC. (Nasdaq: LCOS) lost $6 15/16 to $21 3/8; contract electronics manufacturer SMART MODULAR TECHNOLOGIES (Nasdaq: SMOD) got crunched by $11 to $41; and firewall software company RAPTOR SYSTEMS (Nasdaq: RAPT) was cut $3 3/4 to $12 1/2.
FOOL ON THE HILL
An Investment Opinion by Randy Befumo
Exogenous Events
One of the earliest popular examples of a dynamic new science called chaos theory illustrates how tiny events can lead to catastrophe. A butterfly beats its wings in a Brazilian jungle. The wind from the butterfly's wings swirls into the atmosphere, transformed by global atmospheric forces to become a tsunami smashing into the coast of Japan. Like a fractal, the small gust from a colorful insect is amplified by resonant forces in the atmosphere until it becomes a destructive force, rending the coastline like some dark apocalypse.
Mathematicians, scientists, and economists now study complex systems like the one described above under a new rubric -- complexity theory. The inheritor of the intellectual energies of chaos theory, the headquarters for the study of complex, adaptive systems is centered in Santa Fe, New Mexico at the Santa Fe Institute. One of the earliest subjects of this intense, interdisciplinary effort was the 1987 market crash, a poster child for how a series of complex, interrelated events ended in one catastrophic crescendo. Today's 554.26 point drop in the Dow gives these academics another tasty implosion to chew on.
When the historians approach the October 27, 1997 decline in stocks, what will be used to explain the 7.18% one-day decline? Currency devaluations in Malaysia, Thailand, and the Philippines destabilized one of the fastest growing regions in the world throughout the summer and fall. The stock exchanges of all three countries had posted 40%-plus year-to-date declines going into today. A number of key Korean conglomerates reported terrible losses in a variety of operations from steel to semiconductors. The Japanese economy failed for the fifth year running to show much in the way of signs of life.
Finally, last week Hong Kong became a bloodbath as its currency was assaulted by concerns about a potential devaluation. Hong Kong authorities ratcheted up short-term interest rates to control the decline, but a flight to quality drove U.S. 30-year government debt up 0.2% on the week to 6.24%. Although North American markets shrugged off the Hong Kong flu for a few days, today they succumbed as fear-mongering about an Asian recession resulted in panic selling of U.S. equities across the board. Computer, semiconductor, and networking-related companies bore the brunt of the selling pressure given that more than a few sell a good bit of product into that troubled region of the world.
With economic growth in the U.S. stable, inflation low, and yields on long-term debt near twenty-five year lows, what was required to shake stock valuations from their near all-time highs was an exogenous event. Some outside calamity, or series of calamities, was required to shatter the consensus opinion. Will Southeast Asia spin into a recession? This has yet to be determined. However, the possibility of this has already begun to be discounted into shares of dozens of companies -- many only peripherally related. In some instances, declines of 20% to 30% on no news occurred in some stocks due to large-scale selling.
Certainly, the 1980s and the 1990s so far are the two best decades of equity performance in the past 200 years. A 10% decline occasionally is not only possible, it is reasonable given the sustained upward moves we have enjoyed. When speculative options activity masquerading as Wisdom is promoted by ex-real estate charlatans and short-term trading is promoted on radio as a new way for anyone with a personal computer to make a living, there is a lot of money buying businesses that doesn't know why it is there and which is ready to run at the first sign of trouble. How many people who have made 30% to 40% so far this year selling "safe" covered calls saw all of their gains for the last year or two wiped out in a few bloody hours today?
Here is a refrain to ponder. Making money short-term with stocks is a risky gamble. Certainly some will prove themselves nearly clairvoyant, making money at the expense of the many who are not. The majority of investors are going to make money owning the shares of quality companies purchased at attractive valuations over long periods of time. Many of those investors will initiate positions on days like tomorrow, when shares of many market-leading firms trade at valuations that assume they will only muster 5% to 10% earnings growth over the next few years. Now, there may not be bargains galore, but the near indiscriminate selling has made many companies more attractive on a valuation basis for the first time in months since the markets went parabolic after April. Long-term investors take heart -- in ten years today's dip will look as spicy in retrospect as the market drop complexity theorists are still studying from 1987.
PC DOCS GROUP INTL (Nasdaq: DOCSF)
(416) 695-5800 (code: 723627) -- replay
WILD OATS MARKETS, INC. (Nasdaq: OATS)
(800) 633-8284 (reservation # 3247180) -- replay through 10/27 @ 7:00 pm EST
RAPTOR SYSTEMS, INC. (Nasdaq: RAPT)
(402) 220-4216 -- replay through 10/27
FORTE SOFTWARE (Nasdaq: FRTE)
(402) 280-9000 -- replay through 10/27
INSIGNIA FINANCIAL GROUP (NYSE: IFS)
(888) 689-6811 -- replay through 10/28 @ noon EST
SEAGRAM COMPANY and HSN, INC.
Regarding combination of television assets
(800) 558-5253 (password: 330 9589) -- replay through 10/28
(416) 626-4151 (password: 330 9589) -- replay for international callers
APERTUS (Nasdaq: APTS)
(800) 633-8284 (reservation # 3280075) -- replay through 10/29 @ 1:00 pm EST
CYBERCASH INC. (Nasdaq: CYCH)
(888) 566-0175 -- replay through 10/29
AVID TECHNOLOGY (Nasdaq: AVID)
(402) 220-0105 -- replay through 10/29
BJ SERVICES CO (NYSE: BJS)
(402) 220-9379 -- replay through 10/30
GENZYME (Nasdaq: GENZ) and GENZYME TRANSGENICS (Nasdaq: GZTC)
(800) 633-8284 (code: 3265950) -- replay through 10/30
(303) 248-1201 (code: 3265950) -- replay number for international callers
FORCENERGY (NYSE: FEN)
(800) 411-5828 (code: 362389) -- replay through 11/3
(612) 321-9419 (code: 362389) -- replay for international callers
10/28/97 (Tuesday)
ACCEPTANCE INSURANCE COMPANIES (NYSE: AIF)
10:30 am EST
(212) 271-4747 -- live
(800) 633-8284 (code 3217598) -- replay from 12:30 pm EST through 10/28 @ 6:00 pm EST
10/28/97 (Tuesday)
OLSTEN CORP (NYSE: OLS)
1-800-475-6701 (code: 361620) -- replay from 2:00 p.m. ET through 10/29
(320) 365-3844 (code: 361620) -- replay for international callers
10/28/97 (Tuesday)
MORROW SNOWBOARDS (Nasdaq: MRRW)
(402) 220-4249 -- replay available until 11/4
10/29/97 (Wednesday)
BANCO FRANCES DEL RIO (NYSE: BFR)
3:00 pm EST
(719) 448-2082 -- live (code: 394466)
THIS WEEK'S CONFERENCE CALL SYNOPSES
RAINFOREST CAFE (Nasdaq: RAIN) Call
TIDEWATER (NYSE: TDW) Call
IOMEGA (NYSE: IOM) Call
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Every day, News writers Dale Wettlaufer and Randy Befumo engage in an impromptu discussion about the stories they find most compelling from the day's news, adding color, fresh commentary and the occasional wisecrack for your listening enjoyment. Check it all out in the Motley Fool's Evening Report on RealAudio Produced by partner AudioNet.
Randy Befumo (TMF Templr), Fool
One
Dale Wettlaufer (TMF Ralegh), Fool
Two
Alex Schay (TMF Nexus6), Fool
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