Monday, June 14, 1999
DJIA 10565.23 +74.72 (+0.71%) S&P 500 1298.98 +5.34 (+0.41%) Nasdaq 2432.59 -15.29 (-0.62%) Russell 2000 435.68 -2.33 (+0.41%) 30-Year Bond 88 9/32 +12/32 6.11 Yield

An Investment Opinion
by Warren Gump

DoubleClick Picks Abacus

Online advertising firm DoubleClick Inc. (Nasdaq: DCLK) this morning announced that it has agreed to buy direct marketing researcher and information provider Abacus Direct Corp. (Nasdaq: ABDR) in an all stock transaction. The deal calls for each Abacus share to morph into 1.05 DoubleClick shares, which represents a 25% premium for Abacus shareholders based on each stock's Friday's close. Trading this morning has been somewhat frenetic. After opening down only slightly, DoubleClick stock has now plunged $9 9/16 to $79 1/4 in midday trading. Abacus has settled into a modest $2 7/16 gain at $77.

This deal seems to make quite a bit of sense for DoubleClick, although as a consumer it makes me even more concerned about the loss of privacy. The company runs a cooperative alliance into which over 1,100 direct marketers contribute customer purchasing history. Data from all of these different companies are combined into a single repository, in the same way that your credit history is combined at a credit bureau.

Using these historical buying patterns and statistical models, Abacus helps its member firms determine who is most likely to respond to a particular mail campaign. DoubleClick hopes to transfer Abacus' customer buying data and algorithms onto the Internet to help it develop a much stronger target marketing program. If successful, DoubleClick would be able to significantly reduce the amount spent on wasted 'Net advertising, a rising problem as Internet usage proliferates. The Wall Street Journal noted this morning that the "click-through" rate on ads has fallen to 0.5% from 2.0% several years ago.

From a financial perspective, the merger should certainly enhance DoubleClick's income statement in the near-term as Abacus is a profitable company. First Call's 1999 consensus estimate for Abacus is $1.51 per share, up 35% from last year. In the tradition of Internet stocks, DoubleClick currently is expected to have a loss of $0.45 per share this year. We'll have to wait and see if DoubleClick can transfer Abacus' technologies and information to the Web to determine whether this merger makes sense. We might also need to start lobbying Congress for stronger privacy laws.


Motel operator Supertel Hospitality (Nasdaq: SPPR) checked in $2 9/16 to $12 1/16 after fellow real estate investment trust operator (REIT) Humphrey Hospitality (Nasdaq: HUMP) said it plans to buy Supertel in a stock swap whereby Humphrey will exchange 1.3 shares of its stock for each Supertel stub. The deal represents a nearly 15% premium on Supertel's Friday closing price of $9 1/2 per share.

Disposable specialty medical products maker Maxxim Medical (NYSE: MAM) won $3 5/8 to $23 1/2 after a management group led by Chairman and CEO Kenneth Davidson agreed to buy out the company for $26 per share in cash, a nearly 31% premium to Friday's closing price. Financing for the deal was provided by Fox Paine & Co.

Motorcoach service provider Coach USA (NYSE: CUI) rode up $2 3/4 to $41 3/8 after agreeing to be bought by Stagecoach Holdings for about $1.8 billion in cash and assumed debt. The $42 per share offer means a 8.7% premium on Friday's close for Coach stockholders. Coach moved quickly to close the deal after reporting talks with an unnamed party on Thursday.

Disease monitoring technology developer Chromatics Color Sciences International (Nasdaq: CCSI), which began mass manufacturing of its Colormate TLc-BiliTest System in connection with a contract with Datex-Ohmeda, advanced $13/16 to $8 9/16. The capital needed to begin the manufacturing, as well as to defray other costs, was provided via an equity investment in Chromatics by Lehman Brothers (NYSE: LEH) worth up to $8 million.

Waste services company Superior Services (Nasdaq: SUPR) bagged $2 3/4 to $26 1/2 after France's Vivendi agreed to buy the company for about $1 billion. The cash offer values Superior at $27 per share, a 14% premium to Friday's closing price.

High-speed Internet access provider SpeedUs.com (Nasdaq: SPDE) sped up $1 13/16 to $7 1/8 after telecommunications services provider NextLink Communications (Nasdaq: NXLK) agreed to buy 2 million shares of SpeedUs.com for $10 each, a nifty 88% premium to Friday's close.


Fiber optic network operator Qwest Communications (Nasdaq: QWST) dumped $8 13/16 to $36 1/16 after making a $55 billion cash and stock bid to acquire telecom and cable operator US WEST (NYSE: USW) and Rochester, New York-based local and long-distance phone company Frontier Corp. (NYSE: FRO). The deal could open the doors for a bidding war with Global Crossing (Nasdaq: GBLX), which already agreed to buy both companies. US WEST won $3 1/2 to $58 3/8, while Frontier took on $3 5/16 to $58 3/4. Global Crossing stepped back $2 1/2 to $48 1/4.

Brokerage and Internet hotshot Charles Schwab (NYSE: SCH) lost $6 1/16 to $88 3/16 after announcing that the average number of daily fee-bearing trades fell 28% last month to 150,000. Among other online brokerages, E*Trade (Nasdaq: EGRP) gave up $2 7/8 to $34 7/8, Ameritrade (Nasdaq: AMTD) retreated $5 1/2 to $73 1/4, and National Discount Brokers (NYSE: NDB) put back $1 7/16 to $38 3/8.

"There was an unscheduled downtime for system maintenance early today," reads the note posted at online auctioneer eBay (Nasdaq: EBAY). Shares of the company fell $15 5/32 to $150 23/32 this morning, as technical issues have dogged the virtual swap meet in recent days.

Online toy retailer eToys (Nasdaq: ETYS) put away $6 13/16 to $43 this morning despite earning positive ratings from four brokerages. "We believe the company has emerged as eTailing's first true category killer, addressing at least a $50 billion market opportunity," said two BancBoston Robertson Stephens analysts in a statement reporting their new "buy" rating.

Disposable and reusable protective work clothing maker Lakeland Industries (Nasdaq: LAKE) lost $5/8 to $6 on news of fiscal Q1 EPS of $0.19, down from last year's $0.30. Gross margins narrowed to 16.8% from 19.8% a year ago, which Executive Vice President of Finance Christopher Ryan chalked up to changes in the product mix and lower overall unit sales.

Concentrix Network Corp. (Nasdaq: CNCX) unplugged $1 1/2 to $27 11/16 after BancBoston Robertson Stephens lowered its full-year 1999 and 2000 EPS estimates for the provider of Internet protocol and Web hosting services because of expected increases in costs to deploy services.

Drugmaker Pfizer (NYSE: PFE) slipped $2 1/8 to $95 3/8. Its Trovan drug is in further hot water, as European regulators are recommending to the European Commission that the continental licenses for the oral and intravenous formulations of the drug be suspended for 12 months. Domestic authorities have been eyeing Trovan as well, as the antibiotic has been linked to potentially fatal liver problems.

Internet venture capital firm CMGI (Nasdaq: CMGI) shed $5 9/16 to $84 3/16 today, adding to Friday's loss of $11 3/4 fueled by the company's posting fiscal Q3 losses of $0.30 per share, well off IBES' six-analyst projection of an $0.11 per share loss.

Phone.com (Nasdaq: PHCM), which delivers Internet-based services to wireless telephones, lost $3 3/16 to $36 15/16 in its second day of trading. The stock raced ahead $24 1/8 on Friday as the company sold 4 million shares to the public for $16 each in its IPO.


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