Drip
Portfolio Report
Wednesday, April 22, 1998
by Dale Wettlaufter
([email protected])
ALEXANDRIA, VA (April 22, 1998) -- Before we get on to other stuff today, someone asked yesterday if I would quit whipping a dead horse and get on with looking at specific companies. I herewith solicit your input on the matter, then. Should we get on with looking at specific companies, mixing it in with the more theoretical side of things, or should we do that only after we've finished with the theoretical? Send me an email on the matter at [email protected] if you have an opinion.
The reason why I'm personally not in a hurry is because we're looking at companies to buy inside a DRIP. If a stock pops $20 per share next week, the vast majority of people aren't going to make a substantial amount of money on such action. The psychological effect of having your company bought out might be satisfying, but it's really sort of a hassle if you've bought a company in a DRIP program only to have it acquired soon after. When we do the actual company selections, I will make note of the ones that I think may be taken over, because some combinations are pretty easy to see because of underperformance, combination of business lines, or geographies. I am not really concerned with what you might do with the information because I'll tell you exactly what I own so there is no hidden conflict.
You might have heard about the hostile offer in the banking industry today. From the Evening News piece I wrote tonight:
Pittsburgh-based Mellon Bank (NYSE: MEL) popped up $8 1/8 to $78 today after Bank of New York (NYSE: BK) put a stock swap merger offer on the table that values Mellon at $90 per share, or 1.4 shares of Bank of New York for each Mellon share. BONY and Mellon have discussed a merger in the past, as Mellon's Dreyfus Funds unit would fit quite nicely with Bank of New York's securities administration, trust and custody, and transfer lines of business. Last year, securities processing, administration, and capital markets activities made up over 50% of BONY's revenues while asset management and trust comprised 34% of Mellon's 1997 revenue.
Today's move by Bank of New York takes the appeal of merging the two banks straight to investors, which is exactly what Mellon Bank did last year after CoreStates Financial (NYSE: CFL) repeatedly rebuffed Mellon's offers to merge. CoreStates, of course, soon after agreed to merge with First Union (NYSE: FTU), and Mellon has been seen as vulnerable to offers ever since. One potential white knight for Mellon might be fellow securities and asset management specialist State Street Corp. (NYSE: STT), which BONY has also pursued for over a year. Under the "your enemy is my friend" rule of thumb, State Street and Mellon could generate back-office cost savings, consolidate market share in certain lines, and become a much more difficult company for Bank of New York to try and acquire.
Have a good Wednesday night and send me your thoughts on whether we should go practical or stay with the theoretical for a while longer.
Dale
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