Publish date:

TheStreet.com's DAILY BULLETIN

November 10, 1999


Market Data as of Close, 11/9/99:

o Dow Jones Industrial Average: 10,617.32 down 101.53, -0.95%

o Nasdaq Composite Index: 3,125.04 down 18.93, -0.60%

o S&P 500: 1,365.28 down 11.73, -0.85%

o TSC Internet: 839.01 down 1.89, -0.22%

o Russell 2000: 446.28 up 1.21, 0.27%

o 30-Year Treasury: 100 22/32 down 7/32, yield 6.063%

Companies in Today's Bulletin:

Seagram (VO:NYSE)

United Parcel Service (UPS:NYSE)

Gillette (G:NYSE)

Procter & Gamble (PG:NYSE)

and Colgate-Palmolive (CL:NYSE)

In Today's Bulletin:

o Media/Entertainment: Off the Record: Universal's Day in the Internet Sun
o Silicon Babylon: AEA Conference: The Day's Hottest Stock and a Poll Winner
o Bond Focus: Bonds Get Through Five-Year Auction, Look to PPI
o Evening Update: UPS' 109.4 Million-Share IPO Priced Above-Range at $50

Also on TheStreet.com:

Europe: The Anglo File: Misys Hopes to Insure Its Future on the Net

Its stock price sagging, Misys perks up investors with details about its insurance services portal for the UK.


Consumer Products: Rebounding Gillette Could Make a Nice Catch for Big Rivals

Colgate and P&G could be interested in the maker of Mach 3 and Duracell, say analysts.


The TaskMaster: SelectNet Slowdown Affects Investors Big and Small

Recent sluggishness during peak periods in Nasdaq trading is not only irritating -- it's costing you money, some say.


Brokerages/Wall Street: Brown Sugar: The Free-for-All for a Piece of UPS

The widely watched deal, priced above-range at 50, is said to be more than 10 times oversubscribed.


Media/Entertainment: Off the Record: Universal's Day in the Internet Sun


Alex Berenson

Senior Writer

11/9/99 9:16 PM ET

At first glance,


(VO) - Get Report

promise that it would announce "a major Internet music venture" Tuesday looked like just more record industry hype.

The press conference to unveil the deal, held at a midtown Manhattan music studio, started late, with a crackly blast of bass from amplifiers cranked to the point of distortion. Dozens of marketing types from


, Seagram's music division, filled the room, offering free T-shirts and hats to any reporters foolish enough to come near them. And Universal's top execs, Doug Morris and Jimmy Iovine, did their best to live up to the cartoonish stereotype of the music biz, with Morris resplendent in a dark suit and black shirt and Iovine wearing a half-zipped sweatshirt over a white T-shirt.

But when the bass died down and Seagram Chairman Edgar Bronfman stood up to talk, it turned out the hype wasn't just hype after all. Because the plan Bronfman spun at the conference represents nothing less than the first real effort by a traditional media company to make the Internet work for it rather than against it -- as well as a full-on assault on new media competitors like



, which on the heels of the announcement saw its stock drop 12%.

Down on the Farm

Universal's new venture,

Jimmy and Doug's Farm Club

, is nothing more, and nothing less, than an Internet record label. Bands will be able to send Farm Club demos and albums that will be posted on the Net at


for fans to hear and discuss. In that sense, Farm Club is no different than other Web sites, notably MP3.com, which also offer bands the chance to put their music online.

But Farm Club offers bands advantages that MP3 doesn't match. The label will have its own A&R professionals, or talent scouts, to review music. Bands that prove popular will be offered the chance to play on a weekly show on

USA Network

(which not coincidentally is owned by

USA Networks

(USAI) - Get Report

, a Seagram partner). Finally, there's the biggest carrot of all -- a record deal from Farm Club and Universal, the world's biggest record company. The Farm Club slogan is as simple as it is alluring: "Someone's gonna get a record deal." One can almost hear the response of would-be divas from Buenos Aires to Boston:

Why not me?

"I think it has the potential to really be big, and the main reason is for the first time you have some major media outlets that can put some major eyeballs and earballs in front of the bands, and that's what's really been missing from this equation," says Steve Wonsiewicz, music editor at

R&R Online

, which covers the record industry.

Star Search

The new label also gives Universal an easier way to find new talent. With hundreds of thousands of bands worldwide competing for the attention of a relative handful of record executives in New York and Los Angeles, the industry has always had problems finding new acts efficiently, depending on word-of-mouth from a network of producers, promoters and hangers-on. Farm Club "finally eliminates the middleman. It allows talent to be mainlined to the record company," Iovine says.

To back Farm Club, Seagram has assembled some impressive partners, including

America Online


, which will promote the label on its service and Web site in return for exclusive content from Farm Club and a minority stake in the venture. In addition,


(VIA) - Get Report



will promote a link to farmclub.com from its Web sites and offer some coverage of bands signed by the label on its flagship cable channel.

Farm Club "is a defining new type of venture," MTV President Tom Freston said Tuesday. "We think it's terrific for the business, terrific for our business."

The Power of Scale

But not so terrific for MP3, at least in investors' eyes. Stock in the company, which provides free downloads of songs over the Internet, fell 7 3/8 Tuesday to close at 53 7/8. Still, with a market cap of almost $4 billion and revenue that totaled $6.5 million during 1999's first nine months, MP3 clearly isn't cheap, especially given the competitive threat that Seagram and Universal are posing.

"The kind of announcement that was made this morning demonstrates the power of scale, so Universal is able in one step to basically leapfrog and achieve a competitive position with some of the Net incumbents," says


analyst Chris Dixon. (Dixon rates Seagram a buy, with a price target in the mid-50s; PaineWebber has underwritten recent Seagram offerings.) "They sent a very early warning signal to many of the

Internet incumbents and IPO wannabes that the world of music and the Internet is going to be highly competitive, and the big labels are gonna be there."

An MP3 spokesman didn't return calls seeking comment.

After running up more than 30% in the last three weeks, Seagram stock gave back some of its gains Tuesday, falling just over 4% to 46 5/16. It's unclear how Farm Club will affect Seagram's bottom line in the short term, since Bronfman refused to disclose how much the company planned to invest in the label, but he said that sponsorships from companies like


(KO) - Get Report

mean that the label will quickly start generating revenue.

Also unclear is whether bands that get popular on Farm Club will be contractually obligated to sign with the label, and what the terms will be. (Probably not particularly generous, if the history of the record business is any indication.) Bronfman dodged those questions at the conference, saying he didn't want to give his competitors any tips.

Silicon Babylon: AEA Conference: The Day's Hottest Stock and a Poll Winner


Cory Johnson


11/9/99 6:20 PM ETSAN DIEGO -- Every time

Visual Networks


speaks, the stock gets a little pop. It's not that CEO Scott Stoffer tells a slick story, it's just an impressive story to tell. But at this year's

American Electronics Association Classic

, the stock may have finally attracted the momentum its institutional holders have been waiting for.

At last year's meeting, I was well impressed with the story of Visual Networks, a Rockville, Md.-based company that sells software that acts as a sort of traffic cop on the nodes of networks. There was a buzz in the hallways about this one, and the story seemed solid. I've kept an eye on the company, watching it execute on its business plan, manage a conservative balance sheet and still beat its numbers every quarter.

When I wrote about it at

last year's AEA Classic, the stock was at 28 1/4. When I saw these guys at the February

Montgomery Securities Technology Conference

(or whatever they called that firm back then), the stock had risen to 35.

The stock has been strangely volatile. As of last Friday, it had nudged up 71% since the last AEA show. "Our institutional investors buy the stock and hold," says Stoffer. "If you look at our down days, they've been on really light volume. So I think one seller can sometimes knock our stock down pretty hard." The thing that stuck out about this company was that it laid out a simple plan for growth and then executed.

But the whole story changed a few months ago. Visual Networks acquired

Inverse Network Technology

for $192 million in stock. The acquisition was not in the frame relay market but rather a software company focused on ATM and Internet Protocol networks. Overnight, Visual Networks went from having a handful of telcos for customers to adding

America Online













and every other ISP.

"Nobody else even comes close to this," says Stoffer. "And with the Inverse acquisition, we acquired an asset -- customers -- that is much harder to get than any other product. It makes it an almost impenetrable barrier to entry."

Visual also notes that a new wrinkle to its story will be frequent acquisitions. The company has added a team dedicated to mergers and acquisitions in order to bolster its dominance of the network services software management market. Investors seem to like the new story, and with a 26% rise since Monday, it looks like Visual could be the big winner from this conference.

Readers Choice Award: a Tale of Pervasive Software

As you might expect, a lot of the presentations here are chipper and upbeat. CEOs boast of massive market opportunities, CFOs put up charts where all the lines go up to the right. Even the money managers chatter about great picks and undiscovered gems.

So the mood in the

Pervasive Software


presentation was striking. CEO Ron Harris was glum and shaky. CFO James Offerdahl was despairing. The corners of his mouth turned down as he told the Pervasive story to an audience of just two investors and a reporter.

Harris tried to sound upbeat, but the attempt was halting. "We have an excellent track record of execution and accomplishment," he said. "And we're getting a lot of recognition -- uh, especially in the last 30 days." In the last 30 days, of course, shares of Pervasive Software nose-dived 75% from 36 1/8 to as low as 8 7/8.

On Oct. 22, the Austin, Texas-based company announced solid earnings. But in a conference call shortly thereafter, Harris told analysts that domestic sales of Pervasive's database client server software, called Pervasive.SQL, were slumping badly. The company had a host of excuses -- problems with a third-party distributor that left $500 million worth of product on the shelf, a recent move of its sales staff and a shortage of shrink-wrapped product. But Wall Street punished the shares.

The concern is that the company, which

Robertson Stephens

just brought public in the fall of 1997, peaked about six months ago. Indeed, Harris practically admits that. "The client server space is growing at a slow pace, just 12%," says Harris. "We're growing much faster than that, but in a slow-growing space. That's why we're repositioning ourselves into a market that's growing faster. Web software will be growing at 98% a year, at the same time we're making R&D investments in mobile and wireless, which will be growing at 50% a year."

But as it stands now, Pervasive sits solely in a dead market. The wireless products, Harris says, may produce revenue as soon as the first half of next year. Seventy percent of its current revenue comes from database software. And short of hiring more marketing people, the company doesn't seem to have much of a plan to save that product. "It's not dying," says Harris. "But I think in a macroeconomic level, client-server software has probably peaked."

The stock rallied in early trading today (perhaps


readers hoping I'd write a nice piece? Fat chance), but not everyone at AEA was convinced by the story. "I don't know how they're going to get their main database business working again," says one fund manager, who attended the presentation Monday. She has no position in the stock and asked not to be named. "And management isn't really exuding much confidence."

Harris is trying. "I think internal issues have been our biggest inhibitor. Getting our sales force deployed and to get them productive is in progress," he says. "We've had to jump a few big hurdles. A lot of our domestic performance has a lot to do with our internal issues, not the macro issues of client server."

Investors seem to agree with that tautologous irony; the problems with Pervasive are pervasive indeed.


Cory Johnson files weekly from TheStreet.com's San Francisco Bureau. In keeping with TSC's editorial policy, he neither owns nor shorts individual stocks, although he owns shares of TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Johnson welcomes your feedback at


For more columns by Cory Johnson, visit his column


Bond Focus: Bonds Get Through Five-Year Auction, Look to PPI


David A. Gaffen

Staff Reporter

11/9/99 4:58 PM ET

The bond market took a cautious route today, selling off slightly while trying to absorb $15 billion in five-year Treasury notes. The important

Producer Price Index

is due out tomorrow, so the market wasn't aggressive today, waiting nervously for this figure.

Traders deemed the auction -- the first part of the Treasury's two-part quarterly refunding, which concludes tomorrow -- as mildly disappointing. The fair-to-middling results indicate to some that, this recent rally may be taking a breather, though traders remain optimistic about the market looking toward the end of the year. The 30-year Treasury bond was down 16/32 around when the auction results were released, but recovered, and was lately off by 6/32 to 100 23/32, tacking on 2 basis points to its yield, which rose to 6.07%.

"It's amazing to notice that the market has not given anything back in the face of supply," said Dennis Hynes, chief investment strategist at

R.W. Pressprich


It's obvious traders weren't falling over each other to bid for these notes, because the Treasury auction garnered just a bid-to-cover ratio of only 1.85. The bid-to-cover ratio compares the volume of securities bid for to the volume offered for sale. A figure over 2 is considered a decent auction, but that hasn't happened with a five-year auction since June 1998, when it was still a monthly sale.

Join the discussion on


Message Boards. "The market definitely would have preferred, all things being equal, to take things down at much cheaper levels, which we were at two weeks ago," said Maryann Hurley, vice president in trading at

D.A. Davidson

in Seattle. "We're definitely at the high end of the trading range."

Three sources said a greater display of interest at this auction would have indicated that there is still strong buying interest in the market. For the next week, it seems to have dissipated, what with tomorrow's auction and the uncertain outcome of next Tuesday's


meeting putting a lid on the market's bullishness. But Hynes said the post-auction recovery is evidence of the market's resilience. "The message we've sent to clients is that they should look to buy markets," he said.

Looking out at the next couple of months, traders voiced optimism due to nascent signs of slowing consumer spending and slowing housing activity. It has some thinking that the economy is finally slowing a bit. In addition, some traders don't even care whether the Fed raises rates or not.

"Whether they go or not, I think the bond market is going to do better by the end of December," said Tom Ruff, vice president in proprietary trading at

Daiwa Securities

. He said he thinks the Fed is going to hold off at this meeting, and right now, the fed funds futures contract listed on the

Chicago Board of Trade

was lately pricing in a 47% probability of a


rate hike.

The bulls' scenario goes something like this: if the Fed hikes, it's, at worst, the last hike until February and, at best, until much later in 2000. If they don't hike, the tightening threat is removed until at least February, because Y2K concerns should keep the Fed on hold at the Dec. 21 meeting.

The October PPI, the market's best clue about wholesale inflation -- and one of the important indicators leading up to the meeting -- is expected to rise 0.1%, according to


consensus estimates. The core PPI, which excludes food and energy prices, is also expected to rise 0.1%. The PPI rose 1.1% in September due to hefty increases in energy, tobacco and auto prices.

"We've removed three to four key ingredients for why we had an outsized gain last month," said Kevin Flanagan, money market economist at

Morgan Stanley Dean Witter


Tomorrow's $10 billion, 10-year Treasury auction will be a reopening of the 6% note sold at the August refunding. Reopening, or selling more of an existing issue, enhances liquidity in the markets.

Evening Update: UPS' 109.4 Million-Share IPO Priced Above-Range at $50


Tara Murphy

Staff Reporter

11/9/99 8:36 PM ET

Morgan Stanley Dean Witter

priced a 109.4 million-share initial public offering for

United Parcel Services

(UPS) - Get Report

above its expected $47 to $49 price range at $50, making it the largest IPO ever. Through its offering, the package delivery service will raise $5.5 billion, with 10% of the company now up for grabs. According to

First Call/Thomson Financial

, UPS stole the IPO heavyweight title away from



, which brought in $4.4 billion internationally and over $3.9 billion domestically through its IPO in October 1998. As a delivery service, UPS could serve as a major player in the e-commerce explosion, making it even more appealing to investors. UPS is set to begin trading tomorrow on the

New York Stock Exchange

. TheStreet.com/nytimes joint newsroom previewed UPS's initial public offering plans in

a story this morning.

Compaq Net Announcement Drawing Attention

Things have been relatively quiet at



ever since CEO Michael Capellas took over the reins of this bucking Houston-based PC and server company back in July. But Compaq's stock may receive a boost Wednesday morning when the company's top brass invade New York City to unveil new commercial Internet products and services.

What makes this announcement a bit unusual, and maybe even a little exciting for beleaguered shareholders, is that



CEO David Wetherell and Rick Beluzzo -- now a vice president of


(MSFT) - Get Report

and former CEO of



-- will also be in attendance.

Wetherell's presence makes sense because his company just bought


from Compaq, which still retains a minority stake in the portal. But Belluzzo, who now runs Mister Softee's Internet operations, including




, is another story. His presence could mean Compaq may be rolling out an Internet strategy (finally) that includes Microsoft's content on a new line of commercial desktops. It's a good bet that AltaVista's portal will be very easy to access on these new boxes. Now if Compaq can lure a top CFO candidate to Houston, it might really get some momentum going in its stock.


Eric Moskowitz

FlashPoint Wins Big Backers

A group of companies including

America Online






Wind River Systems


are investing a combined $27.5 million in

FlashPoint Technology

. FlashPoint is pushing for its digital-photo software to become the dominant standard on devices such as digital cameras and photo printers.

After-Hours Trading

The Big News:


(CSCO) - Get Report

just released first-quarter earnings of 24 cents a share, which beat a 23 cent

First Call/Thomson Financial

estimate. This latest good news comes on the heels of Cisco's announcement that it was purchasing rival



in a $799 million stock swap.

As a result, Cisco was trading well past its day-session 52-week high of 76 1/2, which it reached earlier today. It was the most-active name on

Island ECN



, dominating all other issues.

The Little News:

Be Incorporated


gained 9 1/8 during the day session and was still trading heavily on news that the company would support

Sun Microsystems'

(SUNW) - Get Report

Java language in its new cross-platform operating system. That news, coupled with the recent weaknesses in


(MSFT) - Get Report

has made the company a very popular issue.

Island ECN, owned by Datek Online, offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 8 p.m. EST.


MarketXT, formerly Eclipse Trading, offers after-hours trading to retail clients of Morgan Stanley Dean Witter's (MWD) Morgan Stanley Dean Witter Online and Mellon Bank's (MEL) Dreyfus Brokerage Services. Clients can trade 200 of the most actively traded New York Stock Exchange and Nasdaq Stock Market issues, 4:30 p.m. to 8 p.m. EST Monday through Thursday.



explains how the rules change when the sun goes down in Investing Basics: Night Owl, a section devoted to after-hours trading.


Eric Gillin

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

Mergers, acquisitions and joint ventures


World Bank

offical said that

Royal Dutch/Shell Group


Elf Acquitaine

have decided to pull their 60% stake in a $3 billion oil extraction and pipeline project in Chad. The World Bank and


(XON) - Get Report

, which are spearheading the project, hope plans will continue to proceed.

Earnings/revenue reports and previews

Abercrombie & Fitch

(ANF) - Get Report

posted third-quarter earnings of 36 cents a share, beating the 24-analyst estimate of 31 cents a share and up from the year-ago 24 cents a share.

Separately, CFO Seth Johnson said that the company was sufficiently insured to assume any possible settlements which may occur after legal proceedings were brought against the retailer, claiming that the company violated securities laws. In October, the lawsuits were filed after rumors circulated that Abercrombie's same-store sales would fall below expectations, which cause a sharp decline in the stock's price.


(DOX) - Get Report

reported fourth-quarter earnings of 15 cents a share, edging out the 14-analyst estimate by a penny and up from the year-ago 6 cents, which included a charge.

Century Business


posted third-quarter pro forma earnings of 16 cents a share, in line with the six-analyst estimate and up from the year-ago 12 cents, also reported on a pro forma basis.

Cisco Systems

(CSCO) - Get Report

posted first-quarter earnings of 24 cents a share, beating the 32-analyst estimate by a penny and up from the year-ago 17 cents. Tonight,


joint newsroom covered Cisco's

third-quarter earnings report .



posted third-quarter earnings of 12 cents a share, missing the six-analyst estimate by a penny and down from the year-ago 21-cent profit.



posted a fourth-quarter loss of 16 cents a share, narrower than both the three-analyst estimate of a 17-cent loss and the year-ago $2.82 loss.



reported a third-quarter loss of $2.50 a share, narrower than the 11-analyst estimate of a $3.28 loss and the year-ago $2.98 loss.



reported a third-quarter loss of $2.66 a share, narrower than the 11-analyst estimate of a $2.69 loss but wider than the year-ago $1.49 loss.

U.S. Concrete


posted third-quarter earnings of 30 cents a share, in line with the three-analyst estimate but down from the year-ago 75 cents.

U.S. Steel

(X) - Get Report

adjusted its third-quarter loss to 37 cents a share. On Oct. 21, the company initially reported a third-quarter loss of 32 cents a share. The company said the wider loss includes additional legal accruals to reflect a judicial decision after Oct. 21.

Waste Management


reported third-quarter earnings of 44 cents a share, missing the 10-analyst estimate of 47 cents and down from the year-ago 49 cent-profit. Tonight,


joint newsroom covered Waste Management's

third-quarter earnings report .

Offerings and stock actions

Merrill Lynch

said that

Centerprise Advisors

has decided to ax its IPO plans, citing unfavorable market conditions. Merrill Lynch was expected to price Centerprise Advisors' 10.5 million-share IPO on Wednesday, in a price range of $11.50 to $13.50 a share.

Goldman Sachs

priced a 5.2 million-share IPO for


(EXPE) - Get Report

above its expected $10 to $12 price range at $14.


International Flavors & Fragrances

(IFF) - Get Report

said it is seeking a replacement for its CEO Eugene Grisanti. The company said it would designate a successor before Grisanti leaves his post, which he has held for 15 years.



said that it has upped its prices for its highest volume hard disk drive product lines due to great demand and inadequate supply at key capacity points. In addition, the company also said it has increased prices at certain original equipment makers for the past four weeks.



Street Sightings

Dave Kansas and Herb Greenberg will be speaking Wednesday, Nov. 10 at the TJFR Conference on Media Convergence at 3 World Trade Center, New York, N.Y.

Copyright 1999, TheStreet.com