Wednesday, March 4, 1998
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Level 3 Leaps

Things are cooking at Kiewit Plaza in Omaha, Nebraska. Not only is the more famous tenant of the plaza, Berkshire Hathaway (NYSE: BRK.A and BRK.B), set to release its annual letter to shareholders sometime in the next week, but the class D shares of Peter Kiewit Sons (OTC: KIWT) have advanced more than 50% in the last month. The shares represent ownership of a Kiewit subsidiary, Kiewit Diversified Group. That company has now changed its name to Level 3 Communications, where the main story is that it's building out a 20,000 route mile national fiberoptic network. In view of the valuation accorded companies such as Qwest Communications (Nasdaq: QWST), which is building fiberoptic networks and selling extra capacity to lower the net cost of that buildout (a strategy that Level 3 will follow), IXC Communications (Nasdaq: IIXC), and other fiberoptic network builders, investors have been busy pricing the class D shares of Kiewit.

The heritage of Level 3 is rich. Peter Kiewit Sons built MFS Communications, which acquired Internet service provider (ISP) UUNet. MFS was then acquired by WorldCom (Nasdaq: WCOM), which is now set to merge with another telecom pioneer, MCI Communications (Nasdaq: MCIC). Level 3 Communications is not only building an Internet protocol-optimized fiberoptic network, but it also has a 48.5% interest in cable TV operator Cable Michigan (Nasdaq: CABL), Pennsylvania telecom company Commonwealth Telephone Enterprises (Nasdaq: CTCO), and Internet access, cable TV, and local and long-distance telecommunications service provider RCN Corp. (Nasdaq: RCNC). RCN agreed in late January to acquire Internet service provider Erols, one of the nation's largest ISPs. Level 3's stakes in these three companies is worth, together, over $1 billion. The company also recently sold its 30% interest in utility CalEnergy Co. (NYSE: CE) for $1.2 billion, pre-tax.

With the run-up of Level 3 shares, the company's equity capitalization stands at $8 billion. Netting out the publicly traded holdings mentioned above and about $850 million in net proceeds from the CalEnergy sale minus $377 million in long-term debt, the enterprise value stands at approximately $6.4 billion. That's in the same neighborhood as Qwest, but Level 3's network will be about 20% larger. In addition, Level 3's management includes people who have proven track records of building value for shareholders in this specific business. Right now, the company's filings are a bit of a mess, as this isn't an IPO but a spin-off that doesn't necessitate a full registration statement. Just to let investors know -- this company is out there and will probably be a landmark on the growth stock landscape for some time.


Sub-prime home-equity lender The Money Store (NYSE: MON) jumped $4 3/8 to $31 7/8 after announcing that it has agreed to be acquired by First Union Corp. (NYSE: FTU) for $2.1 billion. The Charlotte-based bank will pay $34 per share in First Union common stock for each Money Store share. The Money Store will keep its 31-year-old name as well as its management, and operate within the First Union Consumer Group.

Computer Associates International (NYSE: CA) gained $15/16 to $47 1/16 after the business software company's CEO Charles Wang told The Washington Post that he might withdraw the $9.8 billion hostile bid for Computer Sciences Corp. (NYSE: CSC) if a Nevada judge does not remove certain "poison pill" provisions from CSC's bylaws. CSC recently amended its bylaws, beefing up salary and bonus packages for its top executives in the event of a hostile takeover -- real golden parachutes.

Refractory products manufacturer A.P. Green Industries (NYSE: APK) surged $4 to $21 11/16 after announcing that it has agreed to be acquired by industrial products maker Global Industrial Technologies (NYSE: GIX) in an all-cash deal valued at around $218 million. A.P. Green shareholders will receive $22 for each share they own.

Australian mining and oil exploration giant Broken Hill Proprietary (NYSE: BHP) soared $1 3/8 to $21 1/16 after announcing the resignation of its CEO and plans to tighten the use of capital, reduce its gearing, cut costs throughout the company, and dispose of lackluster-performing assets. The senior management of Broken Hill has faced heavy criticism over the past few years for its business strategies, especially the purchase two years ago of Magma Copper right before the slump in world copper prices.

Information technology services provider MAXIMUS Inc. (NYSE: MMS) rose $1 1/2 to $24 1/2 after announcing that it will acquire privately held information technology company Spectrum Consulting Group of San Antonio, Texas, in a pooling of interests transaction valued at about $19.3 million.

Kmart Corp. (NYSE: KM) rang up $7/8 to $14 5/16 after reporting fourth quarter earnings from continuing operations of $0.50 per share, compared with $0.45 for the year-earlier period and the First Call consensus mean estimate of $0.46. BT Alex. Brown raised its rating of the discount retailer to "strong buy" from "market perform."

Medical device company Eclipse Surgical Technologies (Nasdaq: ESTI) got a shot in the arm this morning, gaining $3 1/8 to $10 1/16 after announcing that an independent Data and Safety Monitoring Committee has concluded that no more patients need to be enrolled in the company's clinical trial of Transmyocardial Revascularization (TMR) performed in conjunction with coronary artery bypass graft surgery. The clinical data showed eight times fewer early deaths in the TMR plus bypass group when compared with conventional bypass surgery alone.

Software Spectrum (Nasdaq: SSPE) vaulted $3 3/16 to $21 15/16 after the computer software company reported late yesterday that earnings for the quarter ended January 31 came in at $0.45 per share versus $0.19 for the prior-year period. That romped the First Call estimate of $0.30 by two analysts.

Biopharmaceutical firm Geron Corp. (Nasdaq: GERN) rallied $1 3/8 to $12 5/8 after announcing the issuance of 8 new U.S. patents, the allowance of 11 U.S. patent applications, and the filing of 10 U.S., 6 foreign national, and 2 international patent applications relating to its proprietary programs for diagnosing and treating diseases.

Microelectronic devices maker HEI Inc. (Nasdaq: HEII) was buoyed $5/8 to $7 after Fant Industries Inc., an acquisition vehicle of Anthony J. Fant, announced a cash tender offer for 468,000 shares, or 11.5%, of HEI common stock at a price of $8.00 per share. Fant began accumulating HEI shares on December 1. Completion of the tender offer would boost Fant's stake in HEI to almost 30%.

Teltrend Inc. (Nasdaq: TLTN), which makes a range of local loop provisioning products used by telephone companies to provide voice and data services, connected for $15/16 to $13 3/16 after announcing a plan to repurchase up to $8 million worth of the company's shares. Teltrend said this action reflects its belief that the stock is undervalued.

Microsoft Corp. (Nasdaq: MSFT) announced that it has made a minority investment in General Magic Inc. (Nasdaq: GMGC), launching the integrated voice and data applications maker up 149% to $5 19/32 this morning. The deal involved an equity investment, the licensing of certain General Magic technologies, and a payment of $6 million from Microsoft. General Magic is developing a virtual assistant for mobile professionals that integrates e-mail, faxes, an address book, calendar, news, and stock quotes, all accessible via a telephone or Web browser.

Computer networking giant 3Com Corp. (Nasdaq: COMS) jumped $2 3/16 to $37 7/16 after Donaldson, Lufkin & Jenrette raised its rating of the company to "buy" from "market perform." According to Reuters, DLJ said 3Com's channel inventory problems appear to have passed and investors should now start to value 3Com based on its strong new products.

Drilling services company Patterson Energy (Nasdaq: PTEN) shot up $3/4 to $11 1/8 after yesterday announcing fourth quarter earnings of $0.27 per share compared with $0.10 for Q4 1996. The First Call mean estimate was $0.24.

Chrysler Corp. (NYSE: C) motored ahead $1 5/16 to $40 11/16 after announcing late yesterday that its U.S. sales for February increased 3% to 200,068 vehicles from 193,983 sold in the same prior-year period. The company's ratio of trucks to cars improved to 2.10 in the period from 1.73 last year, indicating that better margins may be forthcoming. This was the second-best February in the company's history.


Entertainment giant Walt Disney Co. (NYSE: DIS) dropped $4 3/8 to $105 5/8 after both Goldman Sachs and Schroder & Co. both lowered their fiscal Q2 earnings expectations to $0.51 per share from $0.55 per share. Schroder said the reduction was due to recent "bad movies" from the company's studios, including Deep Rising, Kundun, and Krippendorf's Tribe.

Saks Holdings (NYSE: SKS), which operates the Saks Fifth Avenue luxury department stores, lost $1 5/16 to $24 11/16 after reporting Q4 EPS of $0.58 versus $0.42 for the same period last year, which was below the I/B/E/S mean estimate of $0.61. The company also said its same-store sales figures for February slid 3.3% from their levels a year ago.

Elastic yarn and fabric producer Worldtex Inc. (NYSE: WTX) slipped $3/8 to $7 11/16 after the company reported Q4 EPS of $0.11 (excluding charges) versus $0.17 a year ago. The results were lower than the $0.15 expected by analysts surveyed by Zacks. The company attributed the earnings shortfall to higher corporate tax rates in France as well as foreign currency exchange losses.

Fine Host Corp. (Nasdaq: FINE) tumbled $3/8 to $3 1/4 after plunging nearly 75% yesterday as the food and beverage services provider resumed trading for the first time since mid-December. The stock had been halted after accounting problems were discovered at the company, prompting a federal investigation and the termination of two high-level executives as well as a restatement of earnings back to 1994.

Silicon wafer and computer disk inspection systems supplier ADE Corp. (Nasdaq: ADEX) dropped $2 to $15 7/8 after reporting fiscal Q3 EPS of $0.38 versus $0.43 a year ago, missing the First Call mean estimate by three cents. The company said it is experiencing lower demand for its products due to the Asian financial turmoil.

Metal halide lighting products maker Advanced Lighting Technologies (Nasdaq: ADLT) was scorched for a $1 1/2 loss to $23 1/2 after announcing yesterday that it will take a $16 million charge to fiscal Q3 earnings to account for in-process R&D at Deposition Sciences, Inc., and an $8-$11 million charge to write-down certain intangibles and fixed assets at Ruud Lighting, Inc. Both companies were acquired by Advanced Lighting in January. Also, the company is considering strategic alternatives for its Microsun residential lighting subsidiary, including a possible sale of the unit.

Gold mining firm Crystallex International Corp. (NYSE: KRY) was hammered for a $1 loss to $6 1/4 after investment advisors Asensio & Co. said the company "does not and has never had any direct or indirect ownership interest" in concessions related to Venezuela's Las Cristinas gold mine. Asensio started coverage of the company with not one but two ratings: "strong sell" and "sell short."

Drug delivery company Bergen Brunswig Corp. (NYSE: BBC) fell $2 5/16 to $40 3/8 after the Federal Trade Commission (FTC) moved to block the company's proposed merger with Cardinal Health (NYSE: CAH). Cardinal also lost $1 3/8 to $77 5/8. The FTC also said it will nix the proposed merger between two other drug companies, McKesson Corp. (NYSE: MCK) and AmeriSource Health Corp. (NYSE: AAS), which were both down slightly on the news.

Medical practice management software developer InfoCure Corp. (AMEX: INC) lost another $3/4 to $14 after the implosion yesterday of fellow medical software firm Physician Computer Network (Nasdaq: PCNI) overshadowed InfoCure's announcement that it had closed its merger with Medical Software Integrators.

Community Financial Holding Corp. (Nasdaq: CMFH), the holding company for Community National Bank of New Jersey, lost $2 to $24 after agreeing to be acquired by Hudson United Bank holding company HUBCO Inc. (Nasdaq: HUBC) in a stock swap. Under the deal, each Community Financial share will be exchanged for 0.695 of a share of HUBCO stock.

Cracker Barrel Old Country Store (Nasdaq: CBRL) dropped $2 7/8 to $39 7/8 after Bear Stearns downgraded the restaurant operator to "neutral" from "buy."

Integrated circuit manufacturer Atmel Corp. (Nasdaq: ATML) slipped $25/32 to $15 3/4 on completing the purchase of the integrated circuit unit of Germany's Temic Telefunken from Vishay Intertechnology (NYSE: VSH). According to Vishay, Atmel will pay $140 million for the division.


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