FOOL PLATE SPECIAL
An Investment Opinion
by Brian Graney

Acquisitive Abbott Labs

Abbott Laboratories (NYSE: ABT) is at it again. Less than three weeks after agreeing to shell out $7.1 billion in stock for drug developer and delivery systems innovator Alza Corp. (NYSE: AZA), the diversified Abbott Park, Illinois-based healthcare products company last night said it will trade $680 million of its own stock for cardiovascular surgical products company Perclose (Nasdaq: PERC). The purchase price works out to $55.64 per Perclose share, a nifty 41% premium to the firm's closing price of $39 1/2 per share yesterday. The news boosted Perclose's stock $10 3/8 to $49 7/8 this morning.

Just in case any investors missed the message built into the Alza deal a few weeks ago, Abbott's new management team is serious about using acquisitions to jump-start growth in all of its business areas. The company's main aim is staying competitive with the other healthcare giants of the world, such as Johnson & Johnson (NYSE: JNJ) and Switzerland's Novartis. To do that, Abbott needs to strengthen its four, equally-weighted revenue generating areas of pharmaceuticals, over-the-counter nutritional products, hospital products, and diagnostic products. While pharmaceuticals is the highest margin business and has received most of the attention from management of late, the other product categories are in no way slouches, as evidenced by Abbott's quite healthy fiscal 1998 overall operating margin of 25%. There is always room for improvement, however.

With Perclose, Abbott is in a sense running an end-around on the prosperous and growing business of providing the goods for minimally invasive cardiovascular procedures such as angioplasty, angiography, and stenting. Rather than making the stents, catheters, and balloons used in the increasingly popular procedures, Perclose's Techstar and Prostar closure systems offer vascular surgeons an effective means of resealing the femoral artery once a procedure is completed. Under this strategy, Perclose can benefit from the estimated 40% compounded annual growth rate for the cardiovascular device market while staying out of the market share slugfest for stents involving bigger players such as J&J's Cordis unit, Medtronic (NYSE: MDT), Guidant (NYSE: GDT), and Boston Scientific (NYSE: BSX).

Perclose's products should fit right in with Abbott's well-established hospital product franchises, which include I.V. solutions and systems, the inhaled anesthetic isoflurane, and programmable electronic drug delivery (EDD) systems. These products are providing much of Abbott's current growth, with sales growing 18.8% in Q2 and 15.9% in the first half, according to the company's just released Q2 earnings announcement. As with the Alza deal, Abbott is looking to capitalize on its large sales force and reputation with hospital purchasing officers to increase the availability and brand recognition of Perclose's closure systems. Look for those same advantages to show up again as the rationale for acquisitions in other product areas by Abbott in the future.

Related article: An Abbott Update

UPS

Office imaging equipment supplier Danka Business Systems PLC (Nasdaq: DANKY) advanced $27/32 to $7 31/32 after saying the company expects fiscal Q1 earnings per American depositary share to be "substantially in excess" of last year's $0.09. Four analysts surveyed by First Call were looking for a $0.16 per share loss. For fiscal Q4, Danka looks to report a loss of $0.22, $0.03 worse than First Call's three-analyst consensus. The company also earned tentative approval of an extension of its credit agreement through the end of next July.

Life, health, and accident insurance company American Heritage Life Investment Corp. (NYSE: AHL) moved up $4 3/16 to $31 1/8 after Allstate (NYSE: ALL) agreed to buy the company for $1.1 billion. American Heritage shareholders will get $32.25 per share in stock or cash, about a 20% premium to yesterday's closing price. Allstate said it would repurchase a number of shares on the open market equal to those issued in the acquisition, on top of its current buyback program.

Online reference services provider Infonautics Inc. (Nasdaq: INFO) rose $1 1/2 to $7 1/2 after saying it will combine its K-12 business, Electric Library, with Bell & Howell Co.'s (NYSE: BHW) ProQuest K-12 Internet business, creating a new company majority owned by Bell & Howell. Financial terms of the deal weren't disclosed.

Automated call center products designer Periphonics Corp. (Nasdaq: PERI) dialed up gains of $1 15/16 to $18 7/8 after turning in fiscal Q4 EPS of $0.36, up from $0.08 a year ago and beating First Call's three-analyst $0.24 estimate. "The strong order flow that we saw in the fourth quarter is continuing in our current first quarter," said Chairman Peter Cohen.

In-transition networking products maker Cabletron Systems (NYSE: CS) snagged $3/4 to $13 13/16 after Business Week magazine's "Inside Wall Street" column said "takeover buzz is running high." An SG Cowen Securities analyst told the column the company's breakup value is worth at least $20 per share. The column also gave shares of online advertising services firm 24/7 Media (Nasdaq: TFSM) a boost of $4 3/8 to $45 11/16 with talk of interest from DoubleClick (Nasdaq: DCLK).

Shares of Qualcomm (Nasdaq: QCOM) jumped $6 7/8 to $149 1/8 after Standard & Poor's announced it will add the wireless communications company to the S&P 500 Index, replacing Transamerica Corp. (NYSE: TA), which is being acquired by Aegon NV, a Dutch company. Compass Bancshares (Nasdaq: CBSS) will take Qualcomm's spot in the S&P MidCap 400 Index; the stock advanced $1 1/2 to $27 5/8 this morning.

Customer relationship software company Clarify Inc. (Nasdaq: CLFY), a recent StockTalk subject, moved up $1 3/4 to $48 3/4 on news that it will replace Whittaker Corp. (NYSE: WKR) in the S&P SmallCap 600 Index after the close of trading next Tuesday. Whittaker is being acquired by U.K.-based Meggit PLC. Among other companies rising on news of pending inclusion in the index, staffing services firm StaffMark Inc. (Nasdaq: STAF) gained $1 7/16 to $11 1/2 and food distributor Performance Food Group (Nasdaq: PFGC) ascended $1 3/32 to $27 15/32.

DNA sequencing system and gene analysis kit maker Visible Genetics (Nasdaq: VGIN) rose $3 5/16 to $13 3/4 on news that private equity investment firm E.M. Warburg, Pincus & Co. agreed to invest $30 million in the company. The firm will get preferred stock convertible at $11.00 per share and 1.1 million warrants exercisable for a four-year period at $12.60 per share as well as a seat on the company's board.

Natural gas company KN Energy (NYSE: KNE) jumped up $5 3/4 to $17 15/16 after announcing plans to buy Kinder Morgan, which will cancel a planned IPO. KN will issue approximately 41.5 million shares in connection with the deal, putting the price at about $511 million based on yesterday's closing price. The acquisition is expected to be immediately accretive to earnings.

Fiber optic network operator Level 3 Communications (Nasdaq: LVLT) claimed $2 1/16 to $67 1/2 after Morgan Stanley started coverage of the company with an "outperform" rating.

Helix Technology Corp. (Nasdaq: HELX), which develops cryogenic and vacuum technologies used in semiconductor manufacturing, added $3 9/16 to $26 7/16 after CIBC World Markets started coverage of the stock with a "strong buy" rating.

DOWNS

Casino operator Trump Hotels & Casinos Resorts (NYSE: DJT) lost $5/8 to $6 this morning. Today's issue of The Wall Street Journal said the company plans to close its World's Fair casino in Atlantic City, N.J., on Oct. 1 and seek a partner to build a $750 million replacement on the same site, expanded by several land buys.

Biopharmaceutical company Biogen Inc. (Nasdaq: BGEN) posted second-quarter earnings of $0.34 a share before charges, up from $0.20 a year ago and beating the analysts' mean estimate of $0.32. Revenues rose 47% to $188.9 million. Including a non-cash charge of about $15.3 million to write down certain publicly traded securities tied to collaborations with smaller biotechnology companies, earnings came in at $0.28 a share. The stock fell $1 9/16 to $65 1/8; head back to this morning's Breakfast With the Fool for more.

Business diagramming and technical drawing software maker Visio Corp. (Nasdaq: VSIO) lost $8 15/16 to $30 after saying last night it expects to disappoint investors in both Q3 and Q4. Q3 EPS is seen coming in at $0.29 or $0.30, while Wall Street was looking for $0.35; Q4 revenues are expected to be at the low end of analyst estimates at $61 million or $62 million.

Property and casualty insurance claims administration firm INSpire Insurance Solutions (Nasdaq: NSPR) shed $1 7/16 to $10 9/16 on news that it expects Q2 EPS of between $0.13 and $0.15, short of Wall Street's six-analyst $0.17 mean projection. Sagging sales that also hurt installation services revenue were tabbed as the culprit.

Snackmaker Lance Inc. (Nasdaq: LNCE) crumbled $1/4 to $14 5/8 on news that it expects Q2 EPS of $0.23 or $0.24. Two analysts gave First Call a $0.27 consensus. Results were hurt by weaker-than-expected branded and private label sales and approximately $1.5 million in unplanned, pre-tax costs related to information systems work.

Paper machine clothing and high performance doors maker Albany International (NYSE: AIN) was slammed for a loss of $1 3/4 to $21 1/4 following the announcement that Q2 earnings are seen at about $0.30 per share, $0.04 below last year's mark and missing First Call's six-analyst consensus of $0.39.

Telecommunications software firm Catapult Communications (Nasdaq: CATT) gave back $2 1/4 to $23 7/16 after grabbing $8 1/16 yesterday on news that it will provide voice over Internet protocol testing products to Cisco Systems (Nasdaq: CSCO).

E-business network services company Digital Island (Nasdaq: ISLD) lost $3 1/16 to $26 15/16 this morning. The company announced the opening of a new, expanded San Francisco headquarters building.

Digital broadcast satellite (DBS) television system operator EchoStar Communications Corp. (Nasdaq: DISH) dropped $6 5/8 to $152 1/8 as Morgan Stanley Dean Witter lowered its rating on the company to "outperform" from "strong buy."

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Contributing Writers Brian Graney (TMF Panic), a Fool David Marino-Nachison (TMF Braden), a new Fool Editing Brian Bauer (TMF Hoops), another Fool Bob Bobala (TMF Bobala), a Fool's Fool Jennifer Silber (TMF Amused), Fool at last