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daily09-07-99's DAILY BULLETIN

September 8, 1999


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Market Data as of Close, 9/7/99:

o Dow Jones Industrial Average: 11,034.13 down 44.32, -0.40%

o Nasdaq Composite Index: 2,837.26 down 5.85, -0.21%

o S&P 500: 1,350.45 down 6.79, -0.50%

o TSC Internet: 601.61 up 5.79, 0.97%

o Russell 2000: 438.24 up 2.27, 0.52%

o 30-Year Treasury: 100 21/32 down 25/32, yield 6.067%

Companies in Today's Bulletin:

Viacom (VIA:NYSE)


Scroll to Continue

TheStreet Recommends

Covance (CVD:NYSE)

Sabre Holdings (TSG:NYSE)

In Today's Bulletin:

o Media/Entertainment: Karmazin Steals the Show as CBS and Viacom Create Media Powerhouse
o Wrong! Rear Echelon Revelations: Tuesday's Child Is Random and Wild
o Evening Update: Covance Issues Warning, Cuts Jobs; After-Hours Trading Update
o Bond Focus: With Monday Off, Bonds Make It a Blue Tuesday Instead

Also on

Media/Entertainment: The Merged Beast of Viacom and CBS Slouches Toward Dominance

The new company will be the business equal of Time Warner and its influence will extend over a huge swath of media culture, challenging even Disney's power.

Mutual Funds: OpenFund Offers Customers a Peek at Fund Manager's Day

The fund is offering real-time disclosure of its trades and holdings on its Web site. But critics wonder if market-timers might crash the party.

Asia/Pacific: Malaysian Malaise Keeps Foreign Investors Away

Most foreign stock investors see few rewards to investing in the still-struggling country.

Tech Savvy: Thursday We're Gonna Party Like It's 9999

Seymour expects this case of Y2K-inspired hype to have little effect on anything. Plus, more on the countdown.

Media/Entertainment: Karmazin Steals the Show as CBS and Viacom Create Media Powerhouse


Alex Berenson

Senior Writer

9/7/99 9:47 PM ET

Funny, he doesn't look like a god.

But on the day that


(VIA) - Get Via Renewables Inc. Report



(CBS) - Get CBS Corporation Class B Report

announced the largest entertainment merger in history, investor reverence for CBS Chief Executive Mel Karmazin reached all the way to heaven, or at least the 20th floor of New York's

St. Regis Hotel


The recent history of big entertainment deals has been iffy at best:

Time Warner


stagnated for five years after it was glued together in 1990, and


(DIS) - Get The Walt Disney Company Report

still has heartburn from its $19 billion takeover of

Capital Cities/ABC

in 1996. But Wall Street is betting that Karmazin, who has revitalized the Tiffany Network in his short stint as that company's chief, can do the same on a global scale at the new Viacom.

That optimism pushed up shares in both companies after the $35 billion deal was announced Tuesday morning. CBS shares closed up 3.6%, while Viacom gained 5.8%, both in heavy trading.

"These guys have made me a lot of money as an investor," says Mark Greenberg, manager of the

Invesco Strategic Leisure

fund, a longtime Karmazin fan who owns shares in both Viacom and CBS. "And that's what it comes down to."

Under the agreement, billed as a merger of equals even though the new company will be called Viacom and have 10 board members from the old Viacom board and just eight from the CBS board, each share of Viacom stock will be exchanged for 1.085 shares of CBS. Sumner Redstone, Viacom's 76-year-old current chairman and chief executive, will keep those positions at the new company, while Karmazin will become president and chief operating officer.

At a packed press conference discussing the deal in the rooftop ballroom of the St. Regis, Karmazin and Redstone joked like old friends, though their marriage has been in the making only a few weeks. The courtship began simply, when Karmazin approached Redstone about a swap of television stations owned by their companies after the

Federal Communications Commission

relaxed station ownership rules in August. But Karmazin "seduced us," Redstone joked. "He talked about a bigger deal. ... He began to turn me on."

"I did approach Sumner," Karmazin said. "This was the deal that I wanted to make."

By any measure, the new company will be an entertainment giant, defining pop culture for couch potatoes around the world. (See

sidebar for details.)

The new Viacom will immediately vie with Disney and Time Warner for supremacy in almost every part of the U.S. entertainment business, from movies to television broadcasting to cable networks to theme parks. The CBS television network had more viewers than any other last season, while Viacom's




cable networks dominate the competition for kids and teenage viewers.

"It's phenomenal. It's just a great combination and a very fair price," says

Merrill Lynch

analyst Jessica Reif. "If I think about this company, it not only has all of the assets that we think a company needs to be successful in the current media environment ...

but Karmazin is one of the best operators in the business."

The two jewels of the new company will be Viacom's cable networks and CBS's radio stations and billboards, Reif says. Both should provide about one-third of the combined company's cash flow, which should be around $5 billion in fiscal 2000, and both are growing at more than 15% per year. (Analysts commonly use cash flow, or earnings before interest, taxes, depreciation and amortization, as a way to measure the performance of entertainment companies. The measure allows them to compare the performance of companies with different capital structures, as well as obscure the fact that many entertainment companies don't generate much in the way of bottom-line profits.)

The rest of Viacom isn't growing as fast, but Reif expects the new Viacom will shave as much as $250 million from its expenses, a number in line with the company's expectations. As a result, she thinks Viacom can grow its cash flow by 15% to 20% for the next three years, an impressive figure considering the company's size.

"They will have the fastest growth rate of any company in the industry," Reif says. (Reif rates CBS a strong buy and Viacom a buy; Merrill Lynch underwrote a recent offering for

Infinity Broadcasting

(INF) - Get Brookfield Global Listed Infrastructure Income Fund Inc. Report

, a CBS subsidiary.)

The deal's

effects, large and small, will ripple through the entertainment industry. The merger is likely to accelerate the consolidation of television station ownership, because although FCC rules now allow one company to own a "duopoly" of two broadcast stations in many large cities, they limit the number of duopolies allowed in a market. Since the merger will create duopolies for Viacom in several major markets, other big broadcasters, like




(FOX) - Get Fox Corporation Report

, must race to buy their own secondary station groups or risk being cut out of further consolidation.

In addition,



, which owns half of the struggling


network, soared Tuesday on speculation that the new Viacom's next move would be to restructure its Chris-Craft partnership, perhaps by buying Chris-Craft, if FCC rules allow that move. (


took a look at Chris-Craft in March.) Restructuring the Chris-Craft deal is "such an obvious second step for this company," Reif says. Chris-Craft stock rose 5 9/16, or 11%, today, to 57. (Merrill hasn't performed recent underwriting for Chris-Craft.)

But the questions of FCC approval and UPN weren't on investors' minds Tuesday, as the deal -- and Master Mel -- racked up near-unanimous approval.

"The combination is fantastic. The assets fit together like a glove. ... In Mel Karmazin, the new Viacom will have one of the most dynamic media executives around today running one what is without argument the highest growth, lowest capital intensity package of media assets available to large-cap growth investors," says John Schreiber, analyst for


, which owns both Viacom and CBS stock.

Wrong! Rear Echelon Revelations: Tuesday's Child Is Random and Wild


James J. Cramer

9/7/99 7:45 PM ET

We like our days to be neater than Tuesday's session. We want stocks to trade together, not separate. We are uncomfortable with


(INTC) - Get Intel Corporation Report



(MSFT) - Get Microsoft Corporation Report

trading down when




Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

are roaring ahead. (I know Gateway splits, and I don't think that was the driver Tuesday.)

Similarly, we thought that


(PG) - Get Procter & Gamble Company (The) Report



(CL) - Get Colgate-Palmolive Company Report

would go down when


(AVP) - Get Avon Products, Inc. Report

"called around" -- Street slang for letting analysts know that business isn't as robust was we thought. We blew out of P&G when we heard the Avon call, and that turned out to be too hasty, as the stock kept flying.

Why do we care? Because at all times we want to try to find patterns that we can take to the bank. We want things to trade together that are from the same cohort. We get thrown off when half the semis are up and the other half are down. It confuses us.

Most groups sow no confusion. The banks were simply awful as is so often the case. So were the airlines. The drugs traded down uniformly. Those become clear bets to avoid. But we went home thinking, "heck, what's the matter with Intel that it didn't rally?" We will now sweat the night out in fear of a downgrade or some piece of information that indicates the quarter is strong, but not as strong as we thought.

Of course, these are random movements we are assessing. Intel may truly have been down because someone thought it was going to preannounce a better than expected quarter and it didn't. Maybe Colgate and Procter were going higher because there have been persistent buyers of them, regardless of the worries of Avon.

So we scratch our heads and hope that the divergences within groups get explained away by the fundamentals. If not, these divergences serve to remind us that this is a hard game with more of the random and the luck behind it than we ever care to admit.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Intel, Microsoft, Gateway and Texas Instruments. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

Evening Update: Covance Issues Warning, Cuts Jobs; After-Hours Trading Update


Eileen Kinsella

Staff Reporter

9/7/99 8:29 PM ET

Hurricane warnings aren't the only thing making people tense these days. Third-quarter earnings warnings seem to be gathering force, as a number of companies step forward and admit to seeing storm clouds on the profit horizon. Today it was



, which said it expects third-quarter earnings of 21 cents a share before a charge, lower than the 12-analyst

First Call

estimate of 26 cents a share. Covance also said it expects to miss the 1999 estimate of $1 a share. The company also said it would cut about 150 jobs to save cash. The company said the decline in its earnings target was due to revenue shortfalls in its clinical trials for drugmakers, as well as the loss of a major contract.

Sabre Holdings

(TSG) - Get Stars Group Inc Report

President and CEO Michael Durham said travel was no longer his bag and resigned. Sabre said it hired executive search firm

Heidrick & Struggles

to help find a successor. In the interim, the company appointed Donald Carty, chairman of both Sabre and

American Airlines



(AMR) - Get Alpha Metallurgical Resources Inc. Report

, as temporary CEO. The company said Durham was leaving for personal reasons. Durham said in a statement, "For me it's simply the right time to do something different."

Last Trades on Island ECN (Times EDT)

ORCL: 43 7/8 at 4:56 p.m.

AMZN: 62 15/16 at 5:10 p.m.

MSFT: 94 7/16 at 5:04 p.m.

MarketXT, formerly Eclipse Trading, offers after-hours trading to retail clients of Morgan Stanley Dean Witter'sundefinedDiscover Brokerage and Mellon Bank'sundefinedDreyfus Brokerage Services. Clients can trade 200 of the most actively traded New York Stock Exchange and Nasdaq Stock Market issues, 6 p.m. to 8 p.m. EDT Monday through Thursday. Island ECN offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 5:15 p.m. EDT.

updates the most active issues on both MarketXT and Island ECN in Got a Minute? and in the Evening Update.


also reports how MarketXT's three most active Nasdaq-listed issues finished the Island ECN session.


Eric Gillin

In other postclose news (earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews

Greif Brothers


reported third-quarter earnings of 38 cents a share, for its Class A shares, better than the lone-analyst estimate of 35 cents and up from a year-ago loss of 13 cents a share.

IMR Global


said it expects third-quarter profits to fall below expectations due to a longer sales cycle and delays in starting up large projects. The company said it plans to report earnings of 12 cents to 16 cents a share, as compared with 18 cents a year ago. The six-analyst estimate called for earnings of 25 cents a share.

RCM Technologies

(RCMT) - Get RCM Technologies Inc. Report

reported third-quarter earnings of 36 cents a share, in line with the five-analyst estimate and up from 26 cents a year ago.

Clothing company


(VFC) - Get V.F. Corporation Report

said it expects third-quarter earnings to drop 10% to 15% from year-ago levels, due to continuing weakness in mid-tier department store and international jeans sales. The eight-analyst estimate calls for earnings of $1.01 a share in the third quarter.

Mergers, acquisitions and joint ventures

Cyprus Amax




(AR) - Get Antero Resources Corporation Report

once again urged shareholders to approve their proposed merger and reject a hostile bid from

Phelps Dodge

(PD) - Get PagerDuty Inc. Report

. A shareholder vote is scheduled for Sept. 30. The companies repeated a plan to make a special cash payment of $5 a share to shareholders immediately after the merger.


The United Arab Emirates vowed to ban all


(DIS) - Get The Walt Disney Company Report

products from being sold in the Arab state if a controversial exhibit likely to depict Jerusalem as Israel's capital goes ahead. Shiekh Abdullah bin Zaid al-Nahayan, the information minister, and son of the country's president, said the UAE has called on all other Arab and Islamic nations to join the boycott if Disney permits the display, which is part of a millennial exhibit in Florida. Sheikh Abdullah said he sent a letter to Disney asking that Islamic and Arab groups be allowed to visit the exhibit, to inspect the Israeli portion before it opens this month.

Owens Corning


said it would invest $13 million in Concord, N.C., for a fabrication plant that would help to consolidate production of two current operations in the area. The company said the move would result in the elimination of about 90 jobs.

Sunoco MidAmerica

(SUN) - Get Sunoco LP representing limited partner interests Report

said it shut down one of its 70,000 barrel-per-day crude plants in Toledo, Ohio for a week's repairs following a pump fire this morning. Sunoco said it is taking measures to minimize the impact and meet its supply agreements.

Wind River Systems


named Tom St. Dennis as CEO. St. Dennis is currently a business unit president and group vice president at

Applied Materials

(AMAT) - Get Applied Materials Inc. Report

who will assume the job on Sept. 20. St. Dennis replaces Ron Abelmann, who resigned earlier this year.

Bond Focus: With Monday Off, Bonds Make It a Blue Tuesday Instead


David A. Gaffen

Staff Reporter

9/7/99 4:56 PM ET

A steady rally in commodity prices and persistent worries over an expected onslaught of corporate supply had bonds crying the blues today. The Treasury market was bound to give back some of

Friday's gain that dropped the 30-year bond yield 11 basis points to 6.02%, but the market didn't surrender the entire rally.

Of late, the 30-year Treasury bond was down 26/32 to trade at 100 20/32. The yield rose 6 basis points to 6.08%.


Bridge/Commodity Research Bureau Index

, an average of the prices of 17 different commodities, rose to 202.39 today, its highest closing level since November 1998. The CRB, mired around the 190 level for several months, first surpassed 200 briefly on Sept. 1. "This is the first sustained move above 200 in a long time," said John Blough, investment strategist at

Fahnestock & Co.

in Philadelphia.

The rise in commodity prices, which earlier this year was essentially restricted to crude oil, indicates that demand for raw goods is recovering, in part because other world economies are regaining lost strength. It doesn't bode well for U.S. producers, who would be forced to raise prices for finished products if rising commodity prices cannot be offset by gains in productivity.

The market will get its best read on wholesale inflation with the Friday release of the August

Producer Price Index

. According to


consensus estimates, the PPI is expected to rise 0.3%, while the core PPI, which excludes volatile food and energy prices, is forecast to rise a tame 0.1%. The PPI is currently rising at a 1.5% year-over-year rate.

"There's some talk that the PPI number might be higher than expected," said Bill Hornbarger, fixed income strategist at

A.G. Edwards

. "There's some feeling that some crude and intermediate prices have been edging up and we might see that in the final number."

Future considerations are the dominant theme in today's market, such as the PPI number. Or the crushing weight of upcoming corporate supply, even though nothing of significance was sold today. September is expected to be the last busy month for corporate issuance before investors and corporate treasurers alike go into hibernation as Y2K concerns heat up, so the market's dealing with a scare number somewhere around $60 billion.

Among the names listed on one dealer's corporate calendar, however, are



, expected to sell $1.5 billion in securities this week, and

Williams Communications

, bringing $1.3 billion later in the month. Other large companies expected to sell debt later this month are


(C) - Get Citigroup Inc. Report


J.P. Morgan

(JPM) - Get JP Morgan Chase & Co. Report



(KR) - Get Kroger Company (The) Report

. Federal agency

Freddie Mac


announced last week that it would sell $4 billion on Monday.

No doubt, there will be some clamoring about

Alan Greenspan's

scheduled speech tomorrow in Grand Rapids, Mich. The topic isn't monetary policy -- his address is part of a commemoration of the 25th anniversary of former President

Gerald Ford's

inauguration (no word on whether the


chief plans to fall down the stairs on the way to the podium). It sounds like a non-event, but with Greenspan, one never knows.

There are other Fed governors on the circuit, however, and they won't be waxing poetically about the 38th president (although they're free to do so).

Laurence Meyer

addresses the

Philadelphia Council of Business Economists

Wednesday, while

Roger Ferguson

speaks to the

National Economists Club



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