Tuesday, March 16, 1999
DJIA 9956.55 -2.22 (-0.02%) S&P 500 1307.25 -0.01 (-0.00%) Nasdaq 2444.98 +13.54 (+0.56%) Russell 2000 400.23 -0.61 (-0.15%) 30-Year Bond 96 13/32 +9/32 5.50 Yield

An Investment Opinion
by Alex Schay

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Personal finance, search, commerce, and game website Go2Net (Nasdaq: GNET) gained another $15 1/8 to $128 1/2 this morning after the "portal" slash "network" announced on Monday that it would receive a sizable cash investment from Paul G. Allen through his investment vehicle Vulcan Ventures, Inc. Here's a brief recap of the news from yesterday:

Vulcan announced its purchase of $165 million in new preferred stock in Go2Net yesterday, and will grab another $135 million in preferred stock if shareholders approve. Assuming Vulcan gets its hands on all the preferred shares, the ultimate conversion would represent 26% of Go2Net's common stock. That's not the end of the story though, Vulcan also agreed to a deal where it would offer a maximum of $90 per share for 1.4 million common shares of Go2Net owned by its executives and directors ($126 million). To top it off, Vulcan will present a tender offer to get as much as 3.6 million more shares at the same price ($324 million).

The total potential investment comes to a whopping $750 million, and assuming all goes as planned, Paul Allen and Vulcan will own 54% of Go2Net's outstanding shares. So the huge "cash investment" that a lot of traditional media companies are making such a big deal about is, in essence, Paul Allen investing in what he hopes will eventually become his own company (a consolidated subsidiary of Vulcan). The strategic benefits of the acquisition concern Go2Net's hoped for contribution to the value that will be created in a broadband world. Meanwhile, Vulcan is purchasing a player that continues to meet with much success in the narrowband world, garnering 1.5 million unique users per day spread across its varied offerings.

How do the pieces fit together? When dealing with the vaunted issue of "convergence" (that's the TV/PC convergence) the knee-jerk reaction from consumers is -- why the heck do I want to "surf" and watch TV at the same time? However, when the marketing slogan asserts, "We think you're gonna' want to do a lot more with your remote than watch TV," it shifts the perceptual framework -- especially noting that WebTV has cracked the top ten list of ISPs in the nation with 700,000 plus users. You're no longer just surfing (you only do that as a newbie), you're already a sophisticated user with defined online preferences who may push a single button to order a DVD or to request an email response giving you more information about something you've seen on TV. So Vulcan has spent $300 million over the last two years to amass some ecommerce holdings, and Go2Net has a nice and growing base of users, as well as offerings, that will help bring this vision of the future together... now.


Chemicals maker Union Carbide (NYSE: UK) bubbled up $1 7/16 to $44 15/16 after it announced that it expects first-quarter earnings to be within a few cents of the highest published Wall Street estimate of $0.47 a share. That would be significantly better than the current mean estimate of $0.34 -- the forecasts range from $0.15 to $0.47 a share.

Inktomi Corp. (Nasdaq: INKT), a developer of scalable software for the Internet, rose $3 1/4 to $80 today. The company said 15 portals and more than 300 merchants signed on to work with Inktomi on the development of its online shopping platform and also reported the launch of is professional services platform to help Internet service and hosting providers rapidly establish network services.

Online computer products retailer Cyberian Outpost (Nasdaq: COOL) heated up $6 13/16 to $25 5/16 after announcing the launch of a new online auction site, OutpostAuctions.com. The company hopes the new site will attract a new customer base to its offerings, as well as grow its existing base.

The world's largest drug maker Merck (NYSE: MRK) won $1 5/8 to $85 7/8 after announcing that it won approval from the Food and Drug Administration to market its cholesterol-lowering medicine Mevacor as a drug that reduces the risk of a first heart attack. This means that the drug will become available to millions of generally healthy Americans previously ineligible for the therapy because their total cholesterol levels were considered average. For more on this development, head to today's Breakfast With the Fool.

E-commerce payment technologies developer CyberCash (Nasdaq: CYCH) bagged gains of $2 5/8 to $16 7/8 after Internet service provider EarthLink (Nasdaq: ELNK) chose CyberCash to provide payment services for TotalCommerce, its new electronic commerce offering for business users.

Online software retailer Egghead.com (Nasdaq: EGGS) picked up $1 to $16 3/16 after announcing late yesterday afternoon that it begun a year-long program of live TV and Web "convergence advertising," which combines television and real-time information from its auction site. The program started yesterday on Ziff-Davis' (NYSE: ZD) ZDTV program "Internet Tonight."

Cymer Inc. (Nasdaq: CYMI), which makes excimer lasers for deep ultraviolet (DUV) photolithography systems, gained $1 1/2 to $25 1/8 after Morgan Stanley Dean Witter upgraded the stock to "strong buy" from "outperform." The company presented information on the development of its extreme ultraviolet (EUV) light generation program, a next-generation lithography approach, at a conference yesterday.

Communications and computing components manufacturer Rogers Corp. (AMEX: ROG) advanced $2 1/16 to $26 3/8 on news that the company expects record sales and earnings for Q1 ending April 4. Product lines are strong across all markets except the computer market, characterized as "flat to soft."

Vitamin firm Rexall Sundown (Nasdaq: RXSD) popped up $3 1/4 to $20 3/8 after U.S. Bancorp Piper Jaffray upgraded the stock to "buy" from "neutral," setting a 12-month price target of $22 per share. Yesterday, the company confirmed talks with nutraceutical developer Scottsdale Scientific, an OTC issue.

Semiconductor wafer stepper maker ASM Lithography (Nasdaq: ASML) moved ahead $2 to $44 7/16 as Morgan Stanley Dean Witter upgraded the stock to "strong buy" from an "outperform" rating.

Musculoskeletal and orthopedic medical products maker Biomet Inc. (Nasdaq: BMET) added $2 5/16 to $42 1/2 after Hambrecht & Quist upgraded the stock to "buy" from "hold." Warburg, Dillon, Read & Co. reiterated a "buy" rating on the shares; the brokerage's target price is $48 per share.


Midwest milk and dairy products distributor Broughton Foods Co. (Nasdaq: MILK) spoiled $4 3/8 to $12 11/16 after saying that the Justice Department intends to launch a civil antitrust lawsuit to stop the company's proposed merger with fellow dairy products company Suiza Foods Corp. (NYSE: SZA). The central issue of the Feds' complaint, which the companies believe is "unwarranted," is that the merger will result in higher milk prices for school districts in Kentucky. Suiza fell $2 11/16 to $35 5/8.

Automated assembly equipment, specialized compressors, and food display case products maker Dover Corp. (NYSE: DOV) dove $1 9/16 to $33 3/4 after saying softness in its circuit board assembly and test operations will result in Q1 earnings exceeding $0.30 per share but less than the First Call mean estimate of $0.38 per share. On the bright side, the company said it will repurchase 7 million of its shares in the quarter and sees its business "doing much better" in the second half of the year.

Online direct marketing company Xoom.com (Nasdaq: XMCM) stalled $3 3/16 to $66 7/16 after filing a registration statement with the Securities and Exchange Commission to sell a total of 4 million common shares in a public offering, including 2 million shares held by existing stockholders.

Audio, data, and videoconferencing products maker Polycom (Nasdaq: PLCM) slid $2 1/4 to $13 after California's Superior Court dismissed its counter-suit against rival VTEL Corp. (Nasdaq: VTEL), which is currently suing Polycom and others in Texas state district court for $100 million in damages in a breach of contract suit.

Restaurants and self-service kiosks touchscreen technology developer MicroTouch Systems (Nasdaq: MTSI) was slapped with a $2 7/8 loss to $13 1/4 after saying lower revenues and margins from its European business will result in Q1 earnings below the current Zacks mean estimate of $0.34 per share. Also impacting the Q1 results is a jury award of $2 million in punitive damages to a former employee who had filed suit against the company. MicroTouch called the size of the punitive damages "unwarranted" and said it will "vigorously contest" the judgment.

Real estate lender Amresco Inc. (Nasdaq: AMMB) dropped $1 1/4 to $8 3/4 after Morgan Stanley Dean Witter cut its rating on the company to "neutral" from "outperform." Last night, Amresco said it would buy three commercial mortgage loan-servicing pools with a total of 1,029 loans from subsidiaries of Nomura Holding America for undisclosed terms.

Multimedia entertainment superstore retailer Hastings Entertainment (Nasdaq: HAST) slipped $23/32 to $9 5/8 after reporting Q4 EPS of $0.57 (excluding charges), which was in line with the Zacks mean estimate but down from the $0.67 posted last year. Same-store sales in the quarter were up 2.3% compared to an 11% gain during the same period a year ago.

Industrial cleaning and facilities support services provider MPW Industrial Services Group (Nasdaq: MPWG) was smoked for a $1 3/8 loss to $10 after saying that a recent fire at an equipment cleaning facility in Texas and a slowdown in its industrial cleaning business will result in fiscal Q3 (ending March 31) EPS between $0.07 and $0.08, missing the First Call mean estimate of $0.12.

HMT Technology Corp. (Nasdaq: HMTT), which makes thin film disks for computer disk drives, was spun for a $1 5/16 loss to $4 11/16 following a BT Alex. Brown downgrade to "market perform" from "buy."


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