Monday, April 5, 1999
DJIA 9962.66 +130.15 (+1.32%) S&P 500 1310.98 +17.26 (+1.33%) Nasdaq 2535.51 +47.26 (+1.90%) Russell 2000 401.10 +2.36 (+0.59%) 30-Year Bond 94 27/32 -6/32 5.61 Yield

An Investment Opinion
by Warren Gump

Landry's Not In Negotiations

Landry's Seafood Restaurants (Nasdaq: LDRY), operator of Joe's Crab Shack, Landry's Seafood House, and Crab House restaurants, gave back gains from Thursday afternoon after stating that it was not currently in negotiations to be sold. The stock moved up last week after a 10-K filing noted that "the company has engaged in discussions with certain parties who have expressed interests in acquiring significant amounts of and/or all common shares outstanding." Speculators took those comments to mean the company was currently in talks. CEO Tilman Fertitta clarified the situation after trading in the stock was halted Thursday by telling Bloomberg that "There is nothing to it... it was back in October when somebody looked at us."

Hope that someone would come in to shore up Landry's is understandable. The stock has fallen to $6 3/4 a share from $28 1/2 last March when the company completed a large secondary stock offering. During 1998, earnings excluding charges fell to $0.97 per share from $1.03. First Call estimates for 1999 show the company suffering even more, with earnings being clipped to $0.59 per share. That figure may prove to be somewhat optimistic since the Q1 estimate is still for $0.10 per share and the company has indicated it sees earnings in the $0.07-$0.10 range. Falling same-store sales due to expansion in existing markets and high store-level management turnover have been blamed for the earnings declines. To address these issues, the company increased manager pay and lowered menu prices, a strategy that will likely hurt margins.

Landry's appeared to have found itself a new leader last month in the form of Consolidated Restaurants CEO E. Gene Street. Landry's was going to acquire privately held Consolidated, which operates the El Chico, Spaghetti Warehouse, and Cool River chains, and Street was going to be named Landry's new CEO. The companies decided to back away from the transaction when Landry's stock fell from almost $7 to under $5 on the news. Investors were leery of someone tackling Landry's problems while overseeing even more chains. The big question now is what will Landry's do next. For shareholders, the best answer would be to find a strong, focused restaurant operator to come in and lead its existing chains to better performance.


Australian media and publishing powerhouse News Corp. (NYSE: NWS) rose $2 9/16 to $33 1/8 on various reports that the company will buy Liberty Media's (NYSE: LMG.A) 50% ownership interest in the Fox/Sports Networks cable TV channel partnership to consolidate its sports interests in the U.S. In exchange, Liberty Media will reportedly receive a 5% stake in News Corp. valued at about $1.4 billion. Liberty Media, which is a unit of AT&T (NYSE: T), gained $1 3/4 to $56 1/2.

Elsewhere, Liberty Media agreed to buy 10 million shares of set-top box maker General Instrument Corp. (NYSE: GIC) from private investment firm Forstmann Little for $280 million, sending that company's shares up $1 11/16 to $33 1/8. Liberty will become the largest shareholder in General Instrument, owning 18% of its outstanding shares. Forstmann Little also agreed to sell 5.3 million General Instrument shares back to the company for $148.4 million.

Paging company SkyTel Communications (Nasdaq: SKYT) jumped $3 7/8 to $19 after Business Week's "Inside Wall Street" column speculated that telecommunications giant MCI WorldCom (Nasdaq: WCOM) may be interested in acquiring the company.

Customer service support software provider Mosaix (Nasdaq: MOSX) moved up $2 1/8 to $10 1/2 after telecommunications equipment maker Lucent Technologies (NYSE: LU) agreed to acquire the company for about $145 million in stock, or $10.77 per Mosaix share. The deal, which enhances Lucent's ability to support multivendor, multimedia call centers for its clients, is expected to be neutral to earnings this year and "slightly accretive" next year.

Web portal Yahoo! (Nasdaq: YHOO) picked up $26 1/16 this morning to $205 13/16 on lingering positive sentiment following its announcement last week that it will acquire streaming media company broadcast.com (Nasdaq: BCST) for $5.7 billion in stock. Broadcast.com rose $18 to $148.

Online discount brokers got a boost this morning after a Credit Suisse First Boston analyst said in a report that online transactions grew by 30% to 35% in the first quarter. Charles Schwab (NYSE: SCH) rose $5 13/16 to $100 1/16, recent Daily Double National Discount Brokers (NYSE: NDB) gained $3 1/8 to $30 9/16, E*Trade Group (Nasdaq: EGRP) added $8 3/8 to $69 1/4, Siebert Financial (Nasdaq: SIEB) climbed $2 15/16 to $26 3/8, and Ameritrade (Nasdaq: AMTD) advanced $14 5/16 to $76 7/8.

Small business Internet services firm Netopia (Nasdaq: NTPA) picked up $11/16 to $11 1/4 after agreeing to create and manage a digital subscriber line (DSL) education center for GeoCities (Nasdaq: GCTY). Netopia will also be the exclusive small business DSL partner for GeoCities' "Pages that Pay" e-commerce affiliate program. GeoCities gained $17 7/8 to $135.

Electronics manufacturing services (EMS) provider Jabil Circuit (NYSE: JBL) climbed $3 5/16 to $44 after Morgan Stanley Dean Witter started coverage of the company with an "outperform" rating and a 12-month price target of $50 per share.

Office-furniture maker Steelcase (NYSE: SCS) forged a $1 13/16 gain to $16 9/16 after receiving a positive write-up in the latest edition of Barron's. Computer printer maker Lexmark International (NYSE: LXK), which was also cast in a favorable light by the magazine, moved up $4 9/16 to $113 11/16.


Consumer products giant Gillette (NYSE: G), subject of a recent Foolish Duel, was shaved for a $1/2 loss to $58 3/4 on news that buyout firm Kohlberg Kravis Roberts & Co. plans to sell up to 29.5 million shares in the company in a proposed secondary offering to provide liquidity for other investments. Henry Kravis is expected to remain on the company's board. The sale, currently valued at as much as $1.75 billion, would reduce KKR's stake in Gillette to roughly 2% from 4.6%.

EarthWeb (Nasdaq: EWBX), which provides online information and services to computer programmers, developers, and technicians, gave up $6 7/16 to $65 7/16 after announcing a partnership with Internet search and retrieval software provider Verity Inc. (Nasdaq: VRTY). EarthWeb is using Verity's information retrieval technology at its website and the companies are looking for ways to use Verity products to package EarthWeb's information technology content for corporate networks, according to a statement. Verity shares rose $1 9/16 to $34 1/2.

Component and supply management software company Aspect Development (Nasdaq: ASDV) dumped $14 11/32 to $8 1/16 this morning after several brokerages downgraded the stock. The company said on Friday afternoon that it expects Q1 EPS "significantly below" Wall Street's $0.12 estimate with net income seen between breakeven and $1 million, including a $3 million one-time gain. Several large prospective contracts slipped beyond the end of the quarter, the company said.

Business computer security services firm Axent Technologies (Nasdaq: AXNT), which announced preliminary a Q1 loss of between $0.05 and $0.10 per share before merger-related charges, fell $11 7/16 to $8 9/16. "We have experienced unanticipated delays with a number of enterprise orders for a variety of reasons including the shifting of customer budgets and spending to year 2000," said CEO John Becker. The First Call consensus EPS estimate is $0.18.

Aspen Technology (Nasdaq: AZPN), a maker of simulation and automation software, lost $2 7/8 to $10 3/8 after it said it expects a "significant" operating loss in fiscal Q3, missing First Call's $0.18 profit projection. The company, like many software companies, blames "the continuing economic difficulties faced by many of its customers in the refining sector, coupled with broad industry re-structurings that have delayed decision-making processes."

Enterprise systems software company Software AG Systems (NYSE: AGS) dropped $2 5/16 to $5 1/16 after it said it expects Q1 EPS of between $0.16 and $0.18 per share, missing Wall Street's $0.21 consensus estimate.

Nuclear aircraft carrier and submarine builder and refueler Newport News Shipbuilding (NYSE: NNS) lost $5/8 to $30 5/8 after thousands of steelworkers -- about half of the company's workforce -- went on strike early this morning. Head back to this morning's Breakfast With the Fool for more information.

Dallas-based home-equity lender Amresco (Nasdaq: AMMB) gave away $1/2 to $7 1/4 after it said it hired Goldman Sachs to advise on "various strategic alternatives," including raising capital. The company's board met last week to discuss several proposals for "significant transactions" involving Amresco, deciding not to move forward with any of them as currently structured.

Blood pressure monitoring devices maker Medwave Inc. (Nasdaq: MDWV) shed $5 1/8 to $9 after the company said a six-month "standstill" during which an interested party had exclusive rights to review the company's hand-held blood pressure monitor expired without any further agreement. Discussions may continue, and Medwave will examine other strategic opportunities as well.

Healthcare information technology firm QuadraMed (Nasdaq: QMDC) fell $2 1/16 to $4 15/16 this morning. Bear, Stearns & Co. lowered the stock to "attractive" from "buy," while Warburg, Dillon, Read & Co. cut its rating on the shares to "hold" from "buy."

Asynchronous transfer mode (ATM) switches supplier Network Equipment Technologies (NYSE: NWK) slid $7/8 to $8 1/16 after it said Thursday evening that it expects fiscal Q4 losses of between $0.55 and $0.60 per share including restructuring charges. Five analysts surveyed by First Call had a breakeven projection. The company began a CEO search, restructured with a 10% workforce cut, and changed order lead-time policies during the quarter.


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