Fool Portfolio Report
Wednesday, February 26, 1997
by Jeff Fischer (MF BudFox)
ALEXANDRIA, VA., (Feb. 26, 1997) --- First the big news. Just as I readied my fingers to burn through another nightly recap, I heard MF Templar shout in the background, "YES!"
I turned from my desk. MF Raleigh and Templar stood staring at Raleigh's computer screen. "What is it?" I asked.
"3Com and Robot," Templar managed to share. Long story short: the two networking leaders are merging. $6.6 billion merger. 3COM (Nasdaq: COMS) and US ROBOTICS (Nasdaq: USRX) are two companies with a similar vision, complementary but very different products, and strong sales channels. Extra plus for 3Com: Robot has a greater consumer presence and wider retail distribution channels than 3Com. Or used to. Suddenly 3Com shares these positives with Robot.
Ironically, one of the stocks I suggested to Tom and David for the Fool portfolio was U.S. Robotics. Already owning 3Com, it was decided that buying Robot would be "networking redundant," though each company supplied different networking needs. Now, in the best way possible, we own both. The fit between the two firms is tight.
As was often written here, 3Com leads the networking market in lower-end products, such as perhipheral cards (40% of the market), but the company needed to focus on more high-end, higher-margin products to keep revenues steadily increasing and fight price-cutting on the low-end by competitors such as INTEL (Nasdaq: INTC). U.S. Robotics is the leading PC modem company in the world, and is also a leader in remote access devices. Remote access devices are high-cost, high-margin digital modems, costing thousands of dollars and used to by Internet service providers , telephone companies, and the corporate world. The devices allow users to dial into and connect to their computer networks.
Together, 3Com and U.S. Robotics offer complete networking needs for local area networks (LANs) and wide area networks (WANs), from start to finish, with the fastest network connection speeds possible.
Robot, before the news, had a market cap of $5.4 billion on $2.26 billion in trailing sales, and 3Com about $6.8 billion on $2.8 billion sales. Each outstanding share of Robot will be exchanged for 1.75 shares of 3Com, meaning Robot, which closed at $61, will probably trade around $68 tomorrow. 3Com's stock may not be influenced immediately either way, depending upon how positively the market sees this merger for our baby. Any negatives are difficult to find, while the positives are numerous:
--two leading networkers with respected names and technology
--two impressive sales distribution channels, instantly merged
--suddenly, a complete product line for many networking needs
--momentum of installed customers "merged"
--sharpened focus of both firms on remote access and the LAN/ATM switching business (both higher margin businesses)
--combining of two experienced and wide-spread salesforces
--lower costs expected through economy of scales
--combined cash of $700 million
--combined current assets of over $2 billion
--combined revenues over $5 billion
The merger could be accretive to earnings in fiscal 1998, the companies are projecting. 3Com's CEO will remain CEO of the new company, and together 3Com and Robot will be called "3Robot."
I'm kidding. Luckily, the name will remain 3Com, so we (namely David) can still call it Trois Com. Good news for Trois Com! Meanwhile, welcome to the Fool Port, U.S. Robotics. The merger is expected to settle this summer.
The conference call replay can be heard by calling: 1-800-633-8284 (code 2531747). The Fool will offer more coverage this week, and ongoing coverage, of course.
Onto the rest of the day.
In Wise fashion, the S&P and Nasdaq fell after Mr. Greenspan expressed confidence in the economy, but suggested investors be cautious with stocks and bonds. Greenspan is greatly admired, though lately perhaps too admired. When he speaks, markets move dramatically. Suggesting investors be cautious with stocks, though, Greenspan is essentially advising passive market-timing, a topic which he shouldn't touch. It isn't his job, and it's also poor reasoning to hint that stocks in general might be dangerous.
The companies that most improve our lives are publicly traded. These companies are obsessed with progress, and progress is a creature of momentum -- momentum which can't be stopped. (Slowed, derailed for a time, but never stopped). Stocks in general will outperform all other investments in the coming decades, as they have for the past century. Yes, you can quote me on that. Stocks are a study of life and human progress as much as anything else, and we've not yet seen human progress reverse (except when Tammy Faye Baker was remarried).
The Fool outperformed today's dippy market by a healthy margin, rising 1.42%. AMERICA ONLINE (NYSE: AOL) continued to rise. The company announced it expects subscriber numbers this quarter to remain around 8 million -- meaning membership "churn" is dropping significantly. (The company is smartly not parading around for new members until it can handle the ones it has).
ATC COMMUNICATIONS (Nasdaq: ATCT) jumped 20% -- no news. Bounce. Boing! Keep in mind, ATCT stated in early February it expects to announce a merger or acquisition this quarter, too.
LUCENT TECH (NYSE: LU) fell $3 after a Smith Barney analyst said the company's accounting practices were aggressive. Very quickly Lucent issued a statement saying it felt its accounting practices were conservative, but conceeded, "each is allowed their own opinion." Kind of a Foolish press release.
Hey, is that a winged chariot chasing me? The chariot of time? Okay, okay.
3M (NYSE: MMM) continued to soar to new highs, up again $3 today. Monday I wrote about the main tech stocks in the port, Friday I'd like to talk quickly about the Foolish Four stocks.
Then, as long as I'm suggesting to you fun things to do, go make some hot chocolate, or fill a tall glass with Coke and ice cubes; make some popcorn, play a board game, or play cards. Hey, go bug your kids, if you have them. Embarrass them. Kid them. Be peaceful. Be happy with steady progress. In two words: Be Foolish.
(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.
Stock Change Bid -------------------- AOL +2 1/2 39.13 T - 1/2 40.75 ATCT +1 1/16 6.50 CHV -1 67.00 GM - 7/8 58.75 IOM - 1/8 16.00 KLAC - 1/8 44.00 LU -3 5/8 55.13 MMM +3 93.00 NCR - 1/2 35.00 COMS - 1/8 39.00
Day Month Year History FOOL +1.42% -7.59% -5.78% 151.44% S&P: -0.66% 2.48% 8.77% 75.76% NASDAQ: -0.53% -2.85% 3.84% 86.14% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 16.00 535.18% 8/5/94 680 AmOnline 7.27 39.13 437.96% 8/12/96 110 Minn M&M 65.68 93.00 41.60% 8/11/95 125 Chevron 50.28 67.00 33.24% 10/1/96 42 LucentTech 47.62 55.13 15.77% 8/12/96 280 Gen'l Moto 51.97 58.75 13.04% 1/2/97 8 NCR 33.63 35.00 4.09% 8/12/96 130 AT&T 39.58 40.75 2.96% 8/24/95 130 KLA Instrm 44.71 44.00 -1.59% 8/13/96 250 3Com Corp. 46.86 39.00 -16.77% 10/22/96 600 ATC Comm. 22.94 6.50 -71.66% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 32160.00 $27096.87 8/5/94 680 AmOnline 4945.56 26605.00 $21659.44 8/12/96 110 Minn M&M 7224.44 10230.00 $3005.56 8/11/95 125 Chevron 6285.61 8375.00 $2089.39 8/12/96 280 Gen'l Moto 14552.49 16450.00 $1897.51 10/1/96 42 LucentTech 1999.88 2315.25 $315.37 8/12/96 130 AT&T 5145.11 5297.50 $152.39 1/2/97 8 NCR 269.00 280.00 $11.00 8/24/95 130 KLA Instrm 5812.49 5720.00 -$92.49 8/13/96 250 3Com Corp. 11714.99 9750.00 -$1964.99 10/22/96 600 ATC Comm. 13761.50 3900.00 -$9861.50 CASH $4639.01 TOTAL $125721.76