FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer

The Info Keiretsu

Shares of Internet securities brokerage E*Trade Group (Nasdaq: EGRP) rocketed $5 3/8 higher to $29 7/8 this morning after Japanese software distributor and holding company SOFTBANK announced late Friday that it will take a 27.2% stake in the company for $400 million. Although the companies agreed to price the deal at a premium a little under 5% to Friday's close of $24 1/2, enthusiastic investors are bidding up the shares of E*Trade, expecting the company to benefit from being included in SOFTBANK's information keiretsu.

SOFTBANK is also the owner of nearly one-third of Yahoo! (Nasdaq: YHOO) and more than two-thirds of Ziff-Davis (NYSE: ZD), the publisher of PC Magazine and the ZDnet website. E*Trade will use the cash for advertising and marketing, to make acquisitions, and to "accelerate infrastructure development." Depending upon the biases of the observer, there are a couple different ways to look at this investment. The info keiretsu theory would hold that the relationships E*Trade will enjoy will increase its exposure to new customers, increasing cash flows and thus increasing the value of the company. The press release says as much. However, it's hard to imagine Yahoo! cutting E*Trade some sweet 50% off deal for a monopoly on brokerage advertising on its service. Online brokers are among the most vociferous consumers of online advertising. If E*Trade wants a place on Yahoo, it's going to have to pay, same as any other company, related or not. In ZDNet, there is probably more room for a great deal for E*Trade, but ZDNet shareholders have the right to expect that their ad inventory is being sold at a fair value in arms-length transactions. They don't share in any synergies between the companies.

The other theory would posit that SOFTBANK is just a darned good investor that is showing the herd the way in Internet space. Having made some well-timed investments in Yahoo! and Ziff Davis, as well as in Web portal GeoCities, investors are following the leader just as breathlessly as they followed such gurus as George Soros earlier in the decade. At this moment, the sale of 15.6 million shares expands the share base of E*Trade by approximately 38%. So, with today's bidding, investors are according E*Trade another $300 million in equity value on top of what SOFTBANK has bid. E*Trade has come a long way since being the first online broker to really pour on the gas in gathering customers through aggressive marketing. While "brand name" is an oft-repeated investing mantra that means little when a company can't offer anything that adds value above and beyond similar commodity-like products, E*Trade has come along in offering unique services on top of the standard brokerage account offerings. The extra cash in hand will allow it to continue to add value and truly build its brand. Whichever theory is right, there's little denying that the market likes the deal, at least today, and thinks it may hurt competitor Ameritrade (Nasdaq: AMTD), which dropped $2 11/16 to $36 1/4 this morning.

UPS

Several computer-related stocks moved higher as we move into the heart of earnings reporting season. Intel (Nasdaq: INTC), which reports tomorrow, gained $2 3/16 to $81 15/16 as Piper Jaffray raised its second quarter earnings estimate to $0.70 a share from $0.62, compared with the First Call mean estimate of $0.68. Meanwhile, Microsoft (Nasdaq: MSFT) was up $3 1/2 to $116 11/16; Dell Computer (Nasdaq: DELL) picked up $2 13/16 to $103 5/8; and comeback kid Apple Computer (Nasdaq: AAPL) rose $1 1/2 to $33 9/16.

International media company Tele-Communications International (Nasdaq: TINTA) added $2 1/4 to $24 1/8 after announcing that Liberty Media Group (Nasdaq: LBTYA), the programming arm of Tele-Communications Inc. (Nasdaq: TCOMA), has offered to buy all remaining shares of TINTA not owned by TCI Ventures Group (Nasdaq: TCIVA). TINTA shareholders would receive 0.58 share of Series A Liberty Media group common stock for each share of TINTA Class A stock. As of Friday's close, that values TINTA at $24.11 a share, a 10% premium to TINTA's last close at $21 7/8.

Egghead.com (Nasdaq: EGGS) shot up another $5 1/4 to $26 11/16 on continuing optimism on the PC reseller's earnings prospects.

Digital wireless communications systems maker Qualcomm Inc. (Nasdaq: QCOM) gained $1 1/8 to $57 5/8 after announcing it has won a contract to supply Pegaso PCS S.A., a subsidiary of Pegaso Telecomunicaciones S.A., with approximately $650 million of infrastructure equipment and deployment services in Mexico over the next three years. More than $200 million in orders have already been placed.

Internet data broadcaster Wavephore Inc. (Nasdaq: WAVO) advanced another $3/4 to $15 9/16 in the wake of reports that Microsoft may increase its 3.5% stake in the company.

BioTime Inc. (Nasdaq: BTIM) gained $1 5/16 to $9 5/16 in anticipation of the synthetic blood-plasma extender speaking at an investor conference for the first time in several years.

Landair Services (Nasdaq: LAND) was lifted $2 1/8 to $30 1/2 after announcing plans to split the company into two publicly traded entities, a truckload carrier business and a forward air business. The truckload operations will operate under the name Landair Corp., while the other business will go by Forward Air Corp.

SI Technologies (Nasdaq: SISI), which designs systems that enhance the processing, handling, and transportation of goods and materials, jumped $1 1/2 to $7 1/8 after announcing two acquisitions. The company is acquiring Allegany Technology Inc., a maker of force enforcement equipment with $6 million in annual revenues, for an undisclosed amount of cash and stock. It is also buying Revere Transducers Inc. from Harnischfeger Industries (NYSE: HPH) for around $10.4 million in cash. With $21 million in annual revenues, Revere makes electronic weighing load cells and sensors.

Interactive messaging systems company First Virtual Holdings (Nasdaq: FVHI) surged $1 3/4, or 37.8%, to $6 3/8 after announcing it has signed a nonbinding letter of intent to acquire Email Publishing Inc. in a stock swap exchanging about 6 million First Virtual shares for all outstanding Email Publishing shares.

Digital audio and video tools provider Avid Technology (Nasdaq: AVID) tacked on $1 3/8 to $29 5/8 after announcing that starting this summer the CNN News Group, including CNN/U.S., CNNfn, CNN International, and Headline News, will upgrade more than 1,300 existing newsroom workstations to the AvidNews Newsroom Computer System.

Digital loop systems manufacturer Advanced Fibre Communications (Nasdaq: AFCI) rang up $2 7/8 to $22 7/8 after Hambrecht & Quist reiterated a "buy" rating after visiting the company. H&Q said the company's fundamentals remain strong.

Mutual funds invested in Russia got a boost from news that the Russian government and the International Monetary Fund have finally agreed on the terms of a loan that would bolster confidence in the market and in the ruble. Templeton Russia Fund (NYSE: TRF) added $1 3/4 to $25 3/4 while the Morgan Stanley Russia & New Europe Fund (NYSE: RNE) rose $1 3/8 to $18 3/8.

DOWNS

Number one automaker General Motors (NYSE: GM) dropped $1 5/8 to $69 9/16 after talks with the United Auto Workers regarding strikes at two Flint, Michigan plants broke down this weekend. Speculation that the two sides were close to a settlement dissipated after a key GM negotiator decided to end face-to-face talks with his UAW counterpart.

Shaving products and battery maker Gillette Co. (NYSE: G) was nicked $1 5/16 to $61 1/4 after Barron's made some negative comments about the stock's valuation, the company's exposure to foreign currency fluctuations, and the possibility that its new Mach3 razor will ultimately fail in the marketplace.

Sneaker maker Fila Holdings (NYSE: FLH) stumbled $1 7/8 to $11 7/8 after warning on Friday that it will report a fiscal Q2 loss between $1.48 and $1.62 per American depositary share due to "unusually" soft sales. The Street had been expecting a $0.46 per share loss in the period.

Semiconductor wafer fabrication equipment maker Applied Materials (Nasdaq: AMAT) slid $17/32 to $28 31/32 after saying late Friday that delayed client orders and reduced spending on wafer fabrication products will result in fiscal Q3 and Q4 new orders "significantly lower" than the $1.03 billion booked in Q2. Earnings in Q3 are forecasted to be between $0.15 and $0.18 per share, below the Street estimate of $0.21 per share.

Networking hardware and software maker Digi International (Nasdaq: DGII) fell $3 11/16 to $21 3/8 after saying its fiscal Q4 earnings will not "be in the same range" as its fiscal Q3 results due to write-offs related to acquisitions, a restructuring charge, higher costs, and expected changes in its product mix. The company sees its fiscal Q3 EPS from operations coming in between $0.37 and $0.39, which is better than the Street estimate of $0.35.

Home healthcare products supplier Lincare Holdings (Nasdaq: LNCR) sank $5 5/8 to $37 after the U.S. Attorney in Sacramento, California subpoenaed documents from the company about its home oxygen therapy business for beneficiaries of federal healthcare programs in 1995 and 1996. The company denies any wrongdoing and said it is cooperating with the investigation.

Offshore and land drilling company Rowan Companies (NYSE: RDC) fell $1 1/4 to $17 1/2 after reporting fiscal Q2 EPS of $0.50, missing the Street estimate of $0.55. The company said unstable oil and gas prices are challenging its financial goals for fiscal 1998. Other drillers and oil services firms fell as well on continued concern that some oil exporting countries won't stick to agreed-upon production cuts. Ensco International (NYSE: ESV) slid $1 to $15 1/2, EVI Weatherford (NYSE: EVI) slipped $7/8 to $32 15/16, Diamond Offshore Drilling (NYSE: DO) lost $1 7/8 to $33 3/4, and Global Marine (NYSE: GLM) dropped $3/4 to $16 7/8.

Sirrom Capital Corp. (NYSE: SIR) lost another $1 1/2 to $14 3/4 after the small business lender said on Friday that it will take a larger-than-expected write-down in fiscal Q2. Today, Wheat First Union downgraded the stock to "hold" from "buy."

Semiconductor automated fabrication systems developer PRI Automation (Nasdaq: PRIA) fell $13/16 to $15 1/4 after saying it will cut 15% of its workforce and take a $5 to $7 million charge in fiscal Q3 to restructure and bring its costs in line with "current business levels." The company also sees a 15% to 20% sequential drop in Q3 revenues and a loss (before charges) between $0.12 and $0.16, missing the Street's expectations of a $0.05 profit.

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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 Editing Brian Bauer (TMF Hoops), another Fool Jennifer Silber (TMF Amused), Fool at last