Motley Fool QuickNews

Thursday 9/09/99

Closing Market Numbers

DJIA           11079.40    +43.06    (+0.39%) 
S&P 500         1347.66     +3.51    (+0.26%)
Nasdaq          2852.02    +43.28    (+1.54%)
Russell 2000     437.77     +1.87    (+0.43%)
30-Year Bond  100 14/32    -11/32  6.09 Yield

Today's Market Movers:

UPS

Computer products distributor Ingram Micro (NYSE: IM) rebounded $2 1/16 to $15 3/8 after slipping yesterday to a 52-week low on a dire earnings warning. The sell-off sent the stock within range of its book value.

Hong Kong-based telecommunications and engineering service provider Cable & Wireless HKT (NYSE: HKT) jumped $2 15/16 to $24 3/4 after forming a partnership with Cisco Systems (Nasdaq: CSCO) to provide broadband products and services in Hong Kong.

Recruitment services firm Korn/Ferry (NYSE: KFY) popped $1 7/8 to $19 3/8 after its Futurestep subsidiary formed a partnership with Excite@Home (Nasdaq: ATHM) to offer career management services online at Excite's Career Channel.

Integrated circuit design software maker Avant! (Nasdaq: AVNT) swept $9 1/16 to $23 13/16 after a U.S. District Court judge barred Cadence Design (NYSE: CDN) from using its trade secret claim against Avant! in an upcoming copyright infringement trial. As a result, Cadence can't receive punitive damages even if it wins in court, Avant! officials said.

Website and e-mail newsletter operator internet.com (Nasdaq: INTM) skipped $4 3/16 to $18 7/16 after Red Herring named two of its businesses among the 50 most promising start-ups on the East Coast. MDLinx.com offers a network of medical websites and Tutor.com is a portal for instructional services.

Internet marketing firm The Cobalt Group (Nasdaq: CBLT), which helps car dealerships build a Web presence, strode $2 3/16 to $12 3/16 after analysts Jordan Hymowitz and Keith Benjamin of BancBoston Robertson Stephens started coverage on the company with a "buy" rating and a $50 price target.

DOWNS

Online flower delivery company 1-800-Flowers.com (Nasdaq: FLWS) sagged $2 1/2 to $17 1/8 after the company reported a fiscal fourth quarter net loss of $0.08 per diluted share, compared to income of $0.05 per diluted share a year ago.

Drug developer Atrix Laboratories (Nasdaq: ATRX) tumbled $1 7/16 to $7 11/16 after announcing it has hired Lehman Brothers to explore strategic options. The company believes its share price is undervalued.

Semiconductor component maker American Xtal (Nasdaq: AXTI) sputtered $3 9/16 to $24 7/16 after it said it will stop shipment of germanium chips to Hughes Electronics (NYSE: GMH) because of weak demand in the satellite industry.

Touch screen computer maker Javelin Systems (Nasdaq: JVLN) tanked $1 9/32 to $9 5/8 after posting solid gains for its fiscal year but disclosing that it expects lower net income in the first quarter due to seasonal business trends in Europe.

Drugmaker IDEC Pharmaceuticals (Nasdaq: IDPH) dropped $12 29/32 to $123 25/32 after the company said some Q3 sales estimates for its cancer-fighting drug Rituxan were too high.

Internet services firm U.S. Interactive (Nasdaq: USIT) lost $2 1/2 to $22 after posting a second quarter net loss (excluding a nonrecurring charge) of $1.2 million, or $0.19 per share. The company went public in August.

Chemistry research and development firm Albany Molecular (Nasdaq: AMRI) slipped $3 to $27 after announcing plans to acquire EnzyMed, an Iowa-based research services company, for $20.6 million.

Today's Top Stories:

NBC To Pack Up Paxson?
By Dave Marino-Nachison (TMF Braden)

Shares of upstart television network operator Paxson Communications (NYSE: PAX) moved back a bit today despite reports that General Electric's (NYSE: GE) NBC network was close to buying a 32% stake in Paxson in a move widely considered a first step to an outright purchase. (Disclaimer: I own shares of GE.)

News stories pegged NBC's offer at around $400 million; based on yesterday's closing price for Paxson shares, 32% of the company is worth about $326 million, so NBC's purported price represents about a 23% premium.

The rest of the company will have to wait. According to Bloomberg, Paxson Chairman Bud Paxson said last month that new FCC rules allow networks to buy as much as 32% of a broadcaster before bumping up against FCC rules that limit the amount of reach station owners can have into one market.

NBC would pick up access to Paxson's network of television stations. As of August 16, the company owned, operated, or was affiliated with more than 123 stations; it owned or had an economic interest in 72 of those stations.

At the end of last year, NBC owned and operated 13 VHF and UHF television stations located in Birmingham, Ala., Los Angeles, San Diego, Hartford, Miami, Chicago, Columbus, Ohio, New York, Raleigh-Durham, N.C., Philadelphia, Providence, Dallas, and Washington, D.C. It also has equity interests in several well-known cable channels, including Bravo and A&E.

Paxson, historically acquisitive, would add exposure in Boston, Atlanta, Houston, Cleveland, Sacramento, Orlando, Nashville, Kansas City, New Orleans, Memphis, West Palm Beach, Fla., and Greensboro, N.C. (There would also be considerable crossover in some markets.)

With last month's federal decision allowing companies to own multiple stations in the same major U.S. markets, networks will probably be looking for station purchases with gusto in coming months. So there's good reason for NBC to consider the purchase very seriously as it would have more avenues through which to distribute programs, and give it better national clout with advertisers.

Expanding reach becomes ever more crucial as cable creeps into an increasing number of households with frequently better and more sharply focused programming and ramped-up marketing. Certainly with the price of premium programming -- like NFL football, which the network lost in 1998, and the top dramas and sitcoms -- skyrocketing, every ad dollar helps.

Of course, Paxson has also posted deep losses for years now and is probably best known as the current home of the coveted "Likes To Watch 'Highway to Heaven' And 'Dave's World' Reruns" demographic. Ahem.

And that's one area where Paxson could certainly benefit from a deal with the National Broadcasting Company, since it would presumably get access to NBC's advertising sales department and other connections.

What the acquisition of Paxson wouldn't address is something GE investors have been hearing more these days than it would probably like: the network's lack of affiliation with a production studio. With the recent elimination of federal regulations prohibiting a network from owning its own programming, many companies have moved to join the production fray. The Disney (NYSE: DIS) linkup with ABC started the ball rolling in this department; but things hit a feverish pitch this week when Viacom (NYSE: VIA) agreed to buy CBS Corp. (NYSE: CBS) for $34 billion in the biggest media merger ever.

The kind of synergies made possible by linkups like these are impressive, ranging from retail to crossover marketing to placements of products, personalities, and creative advertising arrangements -- not to mention the obvious cost savings and improved profitability companies can reap when they create, rather than contract for, their content.

So while investors certainly have reason to be excited about today's news -- it should, however, be noted that similar talk has hit the market before -- many are still probably waiting for more from the land of the peacock.


Hasbro Tries Some Practical Magic
By Dave Marino-Nachison (TMF Braden)

Toymaker Hasbro (NYSE: HAS) added a few interesting cards to its deck today, announcing plans to buy privately held fantasy games and literature company Wizards of the Coast for $325 million.

Renton, Washington-based Wizards of the Coast -- founded in 1990 by a systems analyst who grew tired of analyzing systems -- is probably best known for its Magic: The Gathering card game. It has grown from a grassroots phenomenon into a worldwide business empire.

The success of Magic spurred founder and CEO Peter Adkison to branch out. The company now has several other enviable lines of business, including the "Gotta Catch 'em All" Pokémon card game and TSR Inc.'s famous "Dungeons & Dragons" franchise, bought in 1997. Wisely, Hasbro plans to keep Adkison and his management team on board and in Renton.

"Wizards of the Coast will enable us to significantly expand in the fast-growing games arena, which is a cornerstone of our growth strategy for the new millennium," said Hasbro CEO and Chairman Alan Hassenfeld. "This acquisition brings us not only incredibly popular content and exciting future gaming initiatives, but also a visionary senior management team and creative talent, expanded distribution channels and an opportunity to participate in location-based entertainment."

That latter element is the bricks-and-mortar embodiment of the move to the Internet many game manufacturers believe will be the industry's driving growth force into the next century. Wizards of the Coast is planning a national store buildout that will incorporate not only retail but a social and gaming environment for users of card, board, and computer games.

Investors have probably already noted a few connections with the companies that were already extant: One of Hasbro's subsidiaries is MicroProse, which makes several Magic games -- some of which allow long-distance Internet battles as well as clashes against the computer. Hasbro also makes a ton of Pokémon stuff.

"There is no end to the opportunities we see from cross-fertilization of our respective game portfolios, including the fast-growing areas of interactive software and online gaming," Hassenfeld continued. "Plus, the year-round nature of these businesses will help to balance the seasonality of our diversified portfolio."

What's perhaps more important for investors to realize, though, is that the nature of gaming in this country is changing faster than you can say "Pikachu." While video and computer gaming has been big business for many years, other forms of fantasy-based competitive pursuits have traditionally been the province of, to put it bluntly, prepubescents and the physics club -- physics club.

Thanks in large part to the kind of cross-pollination Hassenfeld spoke of -- as well as crossover media efforts like Acclaim Entertainment's (Nasdaq: AKLM) Turok game/comic book, Nintendo's Pokémon multimedia megalith, and Squaresoft's Final Fantasy game franchise that has rated an upcoming feature film -- fantasy gaming has gained considerable mainstream mindshare in recent years.

Many might recall a recent Magic advertising campaign, which in softly toned television spots marketed the game essentially as an alternative to Pictionary rather than a niche-targeting escapist lark. Whether it convinced me is something else -- but even I can't deny that 10 years ago TSR would never have attempted such a campaign, and I consider that a telling sign.

Aided by improvements in technology that have allowed for more vivid images and environments and a blurring of new and traditional entertainment media, what might have been considered fringe at one time is sliding into the collective conscious at a rapid pace. To wit: Companies like Wizards of the Coast hold worldwide Magic tournaments with big-money payouts and airtime on ESPN2.

Having a strong foothold in this new entertainment business will likely prove immensely profitable -- Hasbro expects this deal to boost earnings next year -- in coming years, and investors should keep the big picture in mind when looking at players in this industry.

More of Today's Best:

BREAKFAST WITH THE FOOL
Dell Makes Data Storage Deal
By Brian Graney (TMF Panic)
-- Forgoing the internal growth route for the first time in its history, direct PC marketer Dell Computer (Nasdaq: DELL) announced late yesterday an acquisition, of all things. The target company is privately held ConvergeNet Technologies, a two-year-old maker of data storage technologies. Dell agreed to pay 6.9 million shares, or roughly $340 million, for the company and plans to take a $0.05 to $0.07 per share charge for in-process R&D once the deal closes.
FULL STORY >>

FOOL PLATE SPECIAL An Investment Opinion
Lying Van Kampen Mutual Fund Busted by SEC
By Louis Corrigan (TMF Seymor)
-- Hurrah for the Feds! The Securities and Exchange Commission (SEC) yesterday busted the Chicago-based Van Kampen Investment Advisory Corp. and its former chief investment officer Alan Sachtleben for lying to investors about how its then newly created Growth Fund managed its sizzling 62% return in 1996, walloping the market's 23% gain. This case highlights how the mutual fund industry often manipulates early performance results for its "incubator" funds so they can be aggressively marketed to the public. The case also appears to be part of a broader effort by the SEC to address the inadequate and often misleading performance disclosure by mutual funds both in marketing materials and in regulatory filings.
FULL STORY >>

FOOL ON THE HILL An Investment Opinion
Quintiles Transnational: Priced Right?
By Dale Wettlaufer (TMF Ralegh)
-- Would you pay $4 billion for a company encompassing 1) The world's leading pharmaceuticals and biotech contract research company; 2) the world's leading contract sales organization for such industries; and 3) one of the top two healthcare electronic data interchange (EDI) and informatics companies? That's the question facing investors looking at Quintiles Transnational (Nasdaq: QTRN) right now.
FULL STORY >>

Quicksilver Nails Third Quarter Wave
By Richard McCaffery (TMF Gibson)
-- Surf and snowboard clothing outfitter Quiksilver (NYSE: ZQK) announced that fiscal third quarter earnings increased 38% to $5.6 million, or $0.24 per diluted share, beating Zacks mean estimate of $0.23. Net income growth actually outpaced sales, which jumped 34% to $105.2 million, up from fiscal Q3 sales of $78.3 million. Analysts expect fiscal 1999 earnings per share (EPS) of $1.11, up 35% from last year, as well as 25% EPS appreciation over the next five years. That kind of growth looks better than a big wave.
FULL STORY >>

Superior TeleCom's Inferior Earnings
By Brian Graney (TMF Panic)
-- Providing the wiring that makes our electrically connected world go 'round might not sound like the sexiest business to be in, but somebody has to do it. The demand to "plug in" has been generally pretty good to wire and cable supplier Superior TeleCom (NYSE: SUT), whose shares nearly tripled from when the company first went public in late 1996 up to this time last year. Since then, though, shareholders have watched the firm's growth story unravel as pricing pressures and reduced demand in key product areas have dropped the stock 30% over the last year. More bad news came last night, when the New York City-based company warned that Q3 and fiscal 1999 earnings will fall short of estimates.
FULL STORY >>