Ups and Downs Plus Top News (QuickNews) November 15, 1999

Motley Fool QuickNews

Monday 11/15/99

Closing Market Numbers

DJIA           10760.75   -8.57    (-0.08%)
S&P 500         1394.39   -1.65    (-0.12%)
Nasdaq          3219.54   -1.61    (-0.05%)
Russell 2000     452.97   +3.28    (+0.73%)
30-Year Bond  101 11/32   +4/32  6.03 Yield

Today's Market Movers:


Digital video technologies specialist Optibase (Nasdaq: OBAS) jumped $7 3/4 to $14 7/8 after agreeing to supply its MPEG MovieMaker 200 digital video encoding solutions to networking equipment supplier Cisco Systems (Nasdaq: CSCO), which will integrate the technologies with its IP/TV solutions.

Fiber optic network builder Global Crossing (Nasdaq: GBLX) gained $4 5/16 to $42 13/16 after forming a $1.2 billion 50/50 joint venture with Hong Kong's Hutchison Whampoa to provide fixed-line telecom and Internet-related services to Hong Kong and eventually mainland China. Global Crossing also said it is considering selling shares of its Web-hosting business to the public.

Pan-Asian Internet content, community, and commerce provider (Nasdaq: CHINA) surged $43 3/16 to $101 3/16 on news that the U.S. and China have brokered a deal that will allow China to become a member in the World Trade Organization. In connection with admittance, China has agreed to drop restrictions on foreign investment in Internet companies.

Custom CDs and online downloadable music company (Nasdaq: HITS) danced $2 31/32 higher to $9 25/32 after software giant Microsoft (Nasdaq: MSFT) gave the firm a big endorsement. By year-end, musicmaker will make 100,000 licensed songs available on Microsoft's Windows Media Format in return for promotion on Microsoft Windows Media websites.

Localized Web content and online entertainment tickets provider Ticketmaster Online-CitySearch (Nasdaq: TMCS) moved up $8 1/16 to $30 5/16 after launching an online store that will allow ticket buyers to also purchase event-related CDs, videos, and apparel items. Robertson Stephens analyst Michael Graham raised his rating on the company to "strong buy" from "buy," calling the stock "undervalued."


Bread and baked goods supplier Earthgrains Co. (NYSE: EGR) went stale for a $1 9/16 loss to $19 3/8 after agreeing to acquire regional baking company Metz Baking from privately held Specialty Foods Corp. for $625 million in cash. Earthgrains said the deal will be dilutive to earnings in the first year and accretive thereafter.

Cancer drug developer IDEC Pharmaceuticals (Nasdaq: IDPH) was decked $3 1/4 to $115 3/8 after an analyst told Forbes' "Streetwalker" column that the stock is overvalued.

Pharmaceutical company United Therapeutics Corp. (Nasdaq: UTHR) slid $3 3/4 to $36 5/8 after announcing late Friday that Deutsche Banc Alex. Brown, which was the lead underwriter for the firm's June initial public offering, will release 25% of the shares currently held by insiders from pre-IPO "lock-up" agreements.

Polymer-based, non-absorbed pharmaceuticals developer GelTex Pharmaceuticals (Nasdaq: GELX) slumped $1 1/2 to $12 13/16 as the firm signed a letter of intent granting Sankyo Pharma the exclusive marketing rights for its Cholestagel treatment for hypercholesterolmia. SG Cowen analyst J. William Tanner cut his rating on the firm to "buy" from "strong buy."

Today's Top Stories:

Schwab, TD Waterhouse, Ameritrade Bank on the 'Net
By Dave Marino-Nachison (TMF Braden)

Leading online brokerages Charles Schwab & Co. (NYSE: SCH), TD Waterhouse (NYSE: TWE) and Ameritrade Holding Corp. (NYSE: AMTD) today announced a deal to create a new online investment bank beginning early next year.

The as-yet-unnamed bank will be owned by the three aforementioned brokerages, its management and venture capital firms Kleiner Perkins Caufield & Byers, Trident Capital and Benchmark Capital, which are partners in the new business.

The new investment bank plans to focus on handling equity offerings for information technology and Internet companies; research offerings are also planned and private placement and strategic advisory services will probably be added in time as well. The effort will be headed by Scott Ryles, named CEO after quitting just weeks ago as managing director and head of technology investment banking at Merrill Lynch (NYSE: MER).

Investors in one of the three aforementioned online brokerages should probably applaud today's news, as the move stands to provide handy additional revenue streams to balance out the ups and downs associated with the metrics of the brokerage industry: Schwab was the only one of the three companies not to post a double-digit stock price gain today, perhaps because of its announcement that October asset growth slowed from September's figures.

But trading volumes at Schwab and online brokerages at large appear to be rallying after a disappointing Q3, the first for which sequential numbers moved backward.

The three brokerages hope their combined 4.5 million active accounts and approximately $750 billion in customer assets will help draw corporate underwriting business to their new bank; it's this lucrative business that makes financial services companies' customers and stockholders salivate because of the fees they can charge -- generally a percentage of the offering size -- and the stock gains reaped from distributions from the offerings.

Companies can also draw in new customers by making shares of high-profile offerings available to them at the offer price, in the case of initial public offerings (IPOs) often a source of eye-popping short-term gains (or, more accurately, the fantasy of such -- click here for a classic Fool on the Hill column discussing just that).

Wit Capital (Nasdaq: WITC) and E*Trade (Nasdaq: EGRP) are among those already involved in online investment banking. Ryles and his compatriots hope their new company's large asset and customer base will help steer business away from those companies -- as well as traditional firms like Goldman Sachs (NYSE: GS), Morgan Stanley Dean Witter (NYSE: MWD), and Merrill Lynch -- and into their coffers.

To do so, setting up that research component will be imperative since the distribution of research -- though underwriter "research" is something frequently derided here -- to investors and the media is seen as key with such investment bank/corporate relationships frequently much cozier than might best serve individuals looking for unbiased advice from their brokers.

That said, the increased availability of IPOs to individual investors, while not a surefire ticket to wealth, is still a welcome development as it does, as brokerage executives like to say, further "level the playing field" in terms of opportunity.

In related news, Schwab today said it plans to make Internet "road shows," the sessions during which prospective investment banking clients lay out their business to financial institutions, available to select retail customers who meet "certain trading experience or asset thresholds."

Related Links:
Fool on the Hill, 11/19/97: "Detecting Distressed IPOs"
Schwab Message Board

Ford and Priceline Partner in Florida
By Richard McCaffery (TMF Gibson)

Can the Internet take the haggling out of buying a car?

Probably not, but it's helping to bring new efficiencies to a capital intensive industry, and is helping to educate a generation of consumers.

Ford Motor
Co. (NYSE: F) and online retail firm (Nasdaq: PCLN) announced a partnership this morning that will allow consumers to name their own price for cars and trucks in Florida.

Under the agreement, consumer bids will be transmitted to local car dealerships via the Priceline network, starting with the dealer closest to the buyer. Local dealers will either accept the bids or make counter offers depending upon the bid and availability of products. Ford will start testing the concept tomorrow.

According to Ford and Priceline, it's the first time that prices named by customers and accepted by an automaker will be honored by local dealers. Once the test is concluded the companies will decide if, when, and where to expand the service.

Ford has moved quickly in recent months to build an online presence. On September 15, it hired Brian Kelley, a former General Electric (NYSE: GE) executive, to head its Consumer-Connect business, a unit in charge of handling Ford's direct relationships with customers.

A few days later Ford announced a partnership with Microsoft's (Nasdaq: MSFT) CarPoint Web site that will allow consumers to custom build cars and trucks online. The Priceline deal seems like the next logical step.

The advantage for Ford, of course, is that online initiatives should help streamline the sales process and give the company direct information about the buying habits of customers. Since taking over at Ford earlier this year, Chief Executive Jacques Nasser has put a premium on finding out what customers want.

In addition, it could be another step towards giving Ford -- and other auto makers that focus on direct relationships with customers -- better control over its business. Consider Dell Computer (Nasdaq: DELL), the box maker that changed an entire industry by skipping the sales channel and selling directly to consumers and businesses. By doing so, Dell not only developed super efficient manufacturing processes but kept inventory levels low because it didn't build machines faster than customers bought them.

Because auto makers traditionally are far removed from customers, they don't have first hand information of customer demand. This makes it difficult to control inventory because the company has to guess how many cars to build. Teaming with Microsoft and Priceline gets Ford that much closer to its customers -- without alienating its retail dealerships -- and could lead to sharper inventory management.

For Priceline, the deal adds to its growing stable of name-your-own-price services. The Stamford, Connecticut company has three major product categories: travel (airline tickets and hotel rooms), personal finance (home mortgages, refinancing, and home equity loans), and automotive (new cars in nine states).

From a consumer's point of view, the advantage of the Priceline/Ford agreement is obvious -- better prices. But Priceline and Ford aren't simply handing buyers better deals. Instead, the deal encourages buyers to do their own research and submit a reasonable offer in exchange for products and services.

That's the power of the Internet, and that's what Foolishness is all about.

More of Today's Best:

Red Hat and Cygnus Form Linux Link Up
By Brian Graney (TMF Panic)
-- Putting its high-flying stock to use for the first time, Linux operating system and services provider Red Hat (Nasdaq: RHAT) announced today that it will acquire fellow open source software specialist Cygnus Solutions for $674 million in stock, or over 6.6 million shares. The news sent Red Hat's shares up about 7% this morning, adding to the cumulative 650% market value surge the company has experienced since coming public three months ago. With the value accorded to those shares, Red Hat was able to nearly double its size in one easy pull of the stock swap trigger, adding privately held Cygnus' 181 employees to its own worldwide crew of 235.

FOOL ON THE HILL An Investment Opinion
Not All UPS Employees Are Created Equal
By Yi-Hsin Chang (TMF Puck)
-- It's easy to get excited about an IPO -- especially one that raises $5.47 billion in one night. United Parcel Service (NYSE: UPS), whose initial public offering price was $50, finished its first week of trading at $70 1/2 last Friday -- that's a 41% gain in just three days. Shareholders should be happy, and that means employees of UPS, right? After all, they own 90% of the multibillion-dollar company. Well, the problem is that not all UPS employees are created equal. Clearly, there's a divide between the company's management and the rest of its employees. As of July, about 125,000 employees owned stock through the company's employee stock purchase program, meaning that around 38% of UPS's 327,000 employees held shares in the company and "got rich" from the IPO. That left roughly 62% of UPS employees on the sidelines.

Corning Scooping up Oak Industries
By Richard McCaffery (TMF Gibson)
-- Telecommunications equipment and advanced materials manufacturer Corning (NYSE: GLW) reached agreement yesterday to buy network communications component maker Oak Industries (NYSE: OAK) for about $1.8 billion in stock, a 51% premium over Oak's closing price of $49.75 on Friday. The deal, expected to close in the first quarter of next year, expands Corning's suite of fiber optic and photonic products, especially through the addition of Oak's Lasertron subsidiary, which manufacturers vital optical amplifier components. The acquisition is part of a push by Corning, one of the world's leading fiber optic cable manufacturers, to offer telecommunications companies a full line of optical communications products, including fiber, cable, and hardware.

Aviron's FluMist Coughs
By Dave Marino-Nachison (TMF Braden)
-- Further delays for a much-awaited developmental product meant further damage to the balances of investors in Aviron (Nasdaq: AVIR), the company's stock down more than 20% in morning trading. Shares of Aviron have been hot in 1999 on optimism about the potential of FluMist, a nasal-spray flu vaccine expected to be the company's first product. Although several companies are developing flu-prevention products that could compete with FluMist, Aviron's product differs in that it is an actual vaccine, and the potential for such a product that could simply be spritzed up the nose rather than injected is obvious. But highly publicized setbacks in the company's filing of a biologics license application (BLA) with the FDA for FluMist have reversed much of those gains.