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BREAKFAST WITH THE FOOL

Monday, September 13, 1999

"I never gamble..."
-- J. P. Morgan

Motorola Talks Merger with General Instrument

By Richard McCaffery (TMF Gibson)

Wireless communications and electronics giant Motorola (NYSE: MOT) is in talks to buy General Instrument (NYSE: GIC), the number one maker of cable set-top boxes in the United States, in a stock deal worth about $10 billion, The Wall Street Journal reported this morning.

The alignment would give Schaumberg, Illinois-based Motorola a foothold in the fast-developing world of broadband communications since General Instrument is focused on building set-top boxes and wireless communications systems that enable networks to carry voice, video, and data traffic over a single line. The area of so-called convergence technology is the hottest sector in the communications industry right now, and promises to remain so until the dream of fast, cheap, and simple communications over a single line is realized.

After a dreadful 1998, you can bet Motorola doesn't want to be stuck in the broadband scrum without leverage. Part of the company's problems last year were related to its failure to quickly offer digital cellular telephone products once the move away from analog began. As a result, Motorola lost its position as the world's top maker of cellular phones and is now battling Nokia (NYSE: NOK) for supremacy.

Since 1998, when Motorola's sales dropped 1% to $29.4 billion and the company reported a net loss (including special charges) of $962 million, or $1.61 per share, the company has moved aggressively to right the ship. Last summer officials kicked off a restructuring plan that included across-the-board consolidation and cost reductions.

The moves seem to be paying off for investors. Motorola's stock is up 57% this year to $98 3/4. That says a lot considering the black eye Motorola suffered as the leading investor in Iridium (Nasdaq: IRIQE), the satellite phone company that filed for bankruptcy protection under Chapter 11 last month. General Instrument closed Friday at $52 1/2.

News to Go

IBM (NYSE: IBM) announced the launch of a new line of UNIX server products that it said "will vault the company ahead of Sun Microsystems (Nasdaq: SUNW) as the leader in UNIX technology and performance." The line includes three different servers, a storage subsystem, and system management applications. IBM said the new servers will be able to run most Linux applications by the first half of next year via free open-source download.

Data networking firm 3Com Corp. (Nasdaq: COMS) said it plans to spin off its Palm Computing subsidiary "early next year." The handheld division had fiscal 1999 sales of about $570 million, approximately a tenth of the company's total revenues for the year.

Drug developer Synaptic Pharmaceutical Corp. (Nasdaq: SNAP) said Merck & Co. (NYSE: MRK) is stopping oral development efforts for their joint benign prostatic hyperplasia (prostate gland enlargement) treatment product because of "limited oral bioavailability and the potential for drug interactions" despite clinical evidence that the compound may have fewer side effects than current treatments.

Telecom equipment maker PairGain Technologies (Nasdaq: PAIR) said it expects Q3 revenues and operating earnings to come in "well below" the market's current projected $0.02 per share profit. The revenue shortfall is expected to come from the company's T1 access and subscriber carrier product lines.

Television network Paxson Communications Corp. (AMEX: PAX) said Co-President James Bocock retired. The announcement comes shortly after reports hit the market that Paxson was negotiating to sell about a one-third stake in its business to General Electric's (NYSE: GE) NBC network; click here for a Foolish take on that story. The New York Times, meanwhile, said today that GE is considering a spinoff of NBC, perhaps by the end of 2000.

Alan Abelson's "Up and Down Wall Street" column in this week's Barron's magazine features the thinking of America Online (NYSE: AOL) short Doug Kass, who runs the Seabreeze Partners hedge fund. Kass -- or, as Alan calls him, Doug -- tells the column AOL has lost pricing power and may fall victim to free online access offerings from the likes of Microsoft (NYSE: AOL) or troubles connected with the additional cost of high-speed Internet access. "In the fullness of time," wrote Abelson, "Doug expects the price of America Online stock to be cut in half."

European oil company Elf Aquitaine (NYSE: ELF) agreed to sell out to competitor Total Fina after the company agreed to boost its offer price from the 4-for-3 hostile bid the company made in early July. Elf came up with a counterbid but has decided not to follow through after Total Fina agreed to pay 19-for-13 instead. The French government has give the deal it's seal of approval.

More Foolishness

Check out David Gardner's recap of the visit of several Fools to the house that Trump built... Fools are dueling over the prospects of Limited and talking with bigwigs at Net2Phone... Read our "Hot Stack Tips" feature to find out what execs are reading these days.


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