Publish date:

daily11-30-99's DAILY BULLETIN

December 1, 1999

Market Data as of Close, 11/30/99:

o Dow Jones Industrial Average: 10,877.81 down 70.11, -0.64%

o Nasdaq Composite Index: 3,336.16 down 85.21, -2.49%

o S&P 500: 1,389.07 down 18.76, -1.33%

o TSC Internet: 930.21 down 39.19, -4.04%

o Russell 2000: 454.08 down 2.87, -0.63%

o 30-Year Treasury: 97 24/32 up 7/32, yield 6.281%

Companies in Today's Bulletin:

Yahoo! (YHOO:Nasdaq)

Conseco (CNC:NYSE)

S3 (SIII:Nasdaq)

Warner-Lambert (WLA:NYSE)

Pfizer (PFE:NYSE)

In Today's Bulletin:

o Banking: Conseco Moves to Shore Up Cash Position, but Terms Are Steep
o Wrong! Rear Echelon Revelations: It Was Time for a Shakeout
o Evening Update: S&P to Include Yahoo! in S&P 500 Index, Bumping Laidlaw
o Bond Focus: Bonds Manage a Slight Recovery

Also on

Biotech/Pharmaceuticals: Pfizer-Warner Battle Threatens to Derail Lipitor's Runaway Growth

A fight over the blockbuster cholesterol drug could end up sabotaging its prospects.

The Invisible Mouth: Getting Out of Denial About This Economy

Interest rates will eventually end up mattering. They always do.

Semiconductors: S3's Spinoff Plans Could Give Investors Peace of Mind

The graphics-chip maker has suffered since losing its market lead in 1996 and is hoping its spinoff plans give a clearer picture of its business.

View From the North: Canadian Tribe Aims for the Ultimate Tax Loophole

If Kahnawake Mohawk Nation leaders have their way, their community will be transformed into a snowy version of Antigua.

Banking: Conseco Moves to Shore Up Cash Position, but Terms Are Steep


Peter Eavis

Senior Writer

11/30/99 8:07 PM ET


(CNC) - Get Report

plans to raise money to make payments on its debt have some investors asking one question: Is this enough?

Two investors who have long had doubts about Conseco's cash flow think the cash boost from the actions, disclosed Tuesday, will be fleeting, meaning the company could run low on cash as early as the first quarter.

Conseco: Join the discussion on our

message boards. Conseco, an insurance and subprime lender, has almost certainly secured one benefit: a ratings upgrade from

Moody's Investors Service

. Moody's said Tuesday that it had put the debt of Conseco and its subsidiaries, currently rated Ba1, on review for a possible upgrade.

It was this notice from Moody's that helped drive Conseco's stock up 1 11/16, or 9.1%, to close at 20 1/4 Tuesday on heavier-than-average volume.

The company didn't respond to requests for comment.

Getting Bold Things Done

So what has Conseco, whose liquidity problems


examined, actually done?

First, it has agreed to sell $500 million of convertible preferred shares to

Thomas H. Lee

, the Boston-based buyout company.

Second, it plans to cut its quarterly dividend to 5 cents a share from 15 cents, starting in April 2000, which will save around $120 million a year. And the company says it's going to slow lending by its subprime finance unit

Green Tree

. With the reduced revenue from Green Tree and the implied dilution from the convertible issue, Conseco now says it will likely earn $2.80 per share in 2000, down from its previous forecast of nearly $3.

The proceeds from these moves are going to be "used to pay down debt at the corporate level," Stephen Hilbert, Conseco's chairman, said during the company's conference call Tuesday. By "corporate level," Hilbert means Conseco's parent company, where most of the company's borrowings are made.

Hilbert conceded that cutting the dividend was "a difficult decision to make." But he added that the company has "a capital structure that is self-sustaining going forward." Hilbert said that parent company's cash inflows had more or less equaled its outflows, but with the changes, it would be taking in twice as much as it spends by the beginning of next year.

Conseco doesn't provide parent company cash-flow data. In the third quarter, the company said its consolidated cash flow was $459 million, up 178% from the year-earlier period.

The Lemon Song

But two investors think Conseco still faces a liquidity squeeze.

"Finally, the company has admitted that it has a liquidity problem," says a New York fund manager who requested anonymity. Tuesday's initiatives "will only buy them a quarter. They'll have to do some sort of other transaction early next year," he says. (The fund manager has sold Conseco shares short, a position that would allow him to profit if the shares declined.)

"Conseco's thrown in the towel," says another fund manager who requested anonymity and declined to say what position, if any, he has in Conseco. The money Conseco aims to raise "will hardly make life any easier for the company."

Both fund managers think Tuesday's announcements support their contention that the parent company has no spare cash. In particular, the terms of the convertibles sold to Thomas H. Lee were very tough on Conseco, suggesting Conseco was backed into a corner, they say.

Unlike most convertible deals, in which the conversion price is usually set around 20% to 25% higher than the stock price on the issue date, Thomas H. Lee's conversion price ($19.25) was a mere 3.7% above Monday's closing price. And at Tuesday's close of 20 1/4, if Thomas H. Lee converted, it would make an immediate 5% profit.

"Thomas Lee really stuck it to them," says an analyst at a Wall Street investment bank who wished to remain unidentified. Hilbert disputes that assessment. These are "not onerous terms at all," he said on the conference call. Thomas H. Lee declined to comment.

The investors point to another announcement Tuesday to support their claim that Conseco was lacking cash. During the conference call, the company said it was extending the maturity of a $90 million loan from

Warburg Dillon Read

to June 2000 from Dec. 15.

Debt levels are still too high, says the fund manager who declines to discuss his position in Conseco. By changing how it calculates its debt burden, Conseco upped its parent company debt-to-equity number to 43% in its Tuesday press release from 19% in its third-quarter earnings release. But the latest figure still doesn't reflect the true extent of Conseco's debt, this fund manager says.

In its 43% figure, Conseco is failing to include $1.54 billion of parent company debt that has been lent on to Green Tree, Conseco's lending arm, he says. With that extra parent company debt, the Conseco parent really has a debt-to-equity ratio of 58%, he calculates.

Onward and Upward

But Moody's insurance analyst Patrick Finnegan says it's wrong to attribute that debt to the parent company. "We think the company is moving in the right direction now," he says. Finnegan says he thinks the parent company is capable of achieving Hilbert's early-2000 goal of taking in twice as much cash as it spends.

Other observers see Thomas H. Lee's investment as a positive development, particularly as Lee's President David Harkins is going to join Conseco's board. Lee has made successful investments, including one in credit card company




But Lee has also made questionable outlays recently. Shares in

Wyndham International


have dived nearly 90% since Lee took a stake in the company in March.

"Lee isn't infallible," says the fund manager who wouldn't disclose his Conseco position.

Wrong! Rear Echelon Revelations: It Was Time for a Shakeout


James J. Cramer

11/30/99 5:02 PM ET

Our old friends the

Red Hots really gave up the ghost today, getting shellacked for a 6% loss. These stocks have been coining money for their holders, so I think the selloff is


the beginning of anything major.

Join the discussion on

Cramer's Latest or go to the

Red Hots Forum


Why aren't I more worried? Frankly, that's how these stocks trade. They have giant runs and then have these sudden massive pullbacks.

We call them "shakeouts," and they are a time-honored tradition. They occur when you least expect them, and they have no "fundamental" underpinnings -- save fear and greed. No Red Hot "blew up." No Red Hot signalled a slowdown. It was just time to ring the register.

These selloffs, when they come out of the blue like this one, tend to last for more than a day. I think we'll stay close on this one. I was right this morning when I said I was taking it off the table. I don't want to press my bet right now and call a Red Hot bottom.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Ariba, Brocade Communications, Conexant, Exodus Communications, JDS Uniphase and VeriSign. 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: S&P to Include Yahoo! in S&P 500 Index, Bumping Laidlaw


Eileen Kinsella

Staff Reporter

11/30/99 7:58 PM ET

Standard & Poor's

said it will add



to the

TheStreet Recommends

S&P 500

index at the close of trading on Tuesday, Dec. 7, reflecting the growing influence of Internet companies. Yahoo!, with a weighty market capitalization of $56 billion, will bump Canadian school bus company



which Standard & Poor's said was being removed.

In after-hours trading on

Island ECN

, shares of Yahoo! jumped 21 1/16 to 234. Inclusion in the influential S&P 500 usually translates into strong demand for a stock, because index funds must buy the stock to match the returns of the index.

In other postclose news (

Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified.


Earnings/revenue reports and previews

Cable Design Technologies


posted first-quarter earnings of 45 cents a share, beating the six-analyst estimate of 42 cents and the year-ago 41 cents a share. The company said it sees second-quarter revenue in the range of $170 million to $178 million and second-quarter earnings per share in the low-to-mid 30 cents a share range. The current three-analyst estimate calls for earnings of 36 cents a share in the second quarter.

Comverse Technology


reported third-quarter earnings of 56 cents a share, beating the 15-analyst estimate of 53 cents and the year-ago 41 cents a share.


World Wrestling Federation


posted second-quarter earnings of 24 cents a share excluding charges, beating the two-analyst estimate of 22 cents and the year-ago 22 cents a share.

Mergers, acquisitions and joint ventures

Carey Diversified

(CDC) - Get Report

said it will merge with its adviser,

WP Carey

, a private real estate investment firm. Carey would buy W.P. Carey for 8 million shares of the newly formed company. Carey Diversified said it expects the deal to add to per-share funds from operations in the first year and said the merger could increase assets to $2.5 billion from $750 million.

Lockheed Martin

(LMT) - Get Report

said it would sell its


subsidiary, a

U.S. Department of Energy

environmental management contractor, to


. Terms were not disclosed, though Lockheed said today's sale is the first in a series of possible divestitures aimed at sharpening Lockheed's focus on its core business.

Offerings and stock actions



said its stockholders approved a 1-for-2 reverse stock split.



said its board approved a 3-for-2 stock split.


Fresh Del Monte

(FDP) - Get Report

said it set up a distribution and sales network in Korea, giving it the capability to directly market all of its products to the Korean market. The company also said it signed leasing agreements for four major shipping ports in Japan.

Nissan North America


said it will restructure and consolidate some of its U.S. operations and cut about 1,000 jobs by March 31, 2001, as part of its effort to boost efficiency and profitability.


(R) - Get Report

said it will realign and refocus its organization on customer solutions. The company said it will combine its transport and logistics units and create a finance subsidiary. Ryder also said it would cut 200 of 30,000 jobs over six months due to the reorganization.

United Technologies

said it named Sanford Weill, chairman and co-chief executive officer of


(C) - Get Report

to its board of directors.

Bond Focus: Bonds Manage a Slight Recovery


David A. Gaffen

Staff Reporter

11/30/99 4:35 PM ET

Somebody had to buy bonds sooner or later. Treasuries bounced off their recent lows today, buoyed by month-end index buying, after steadily declining since the


raised rates Nov. 16. The market initially weakened on strong economic news, specifically the

Chicago Purchasing Managers' Index

, but recovered as investors came into the market.

Lately the 30-year Treasury bond was up 8/32 to 97 25/32, dropping the yield 2 basis points to 6.29%.

Since today is the last day of a month in which there was a Treasury refunding, there's a significant change to bond indices, which are reconfigured at the end of the month to add in the new securities. Money managers who attempt to mimic the performance of indices, therefore, were buying today.

"There was a technically oversold condition first and foremost, which meant that coming into this morning there was a likely underlying bid for the market," said John Canavan, Treasury market analyst at

Stone & McCarthy Research

in Princeton, N.J. "And we did find support from index buying."

Canavan said today's bounce was largely technical, however, and the strength in economic data means the market will still lean to the negative. But for the day, the market wasn't torn asunder by economic data.

The Chicago PMI, a survey of manufacturing sentiment in the Midwest region of the U.S., retreated slightly, to 56.8 in November from 58.8 in October. A reading above 50 indicates expansion in the manufacturing sector; below 50 indicates contraction. However, the prices paid index, which measures what producers are paying for materials, rose sharply, to 70.9 from 65.4.

Deutsche Bank

economist Ed Yardeni wrote that the recent rise in oil prices was a probable cause for the rise in the prices paid component. Just the same, the increase causes similar worries in the bond market that a rise in the

Producer Price Index

does: that rising production costs will soon be passed on to consumers in the form of price inflation.

Energy prices, meanwhile, today retreated from their recent highs, contributing to the bond market rally. The January crude oil contract, traded on the

New York Mercantile Exchange

, closed down $1.37 today to $24.59. That's off almost $2.50 from the Nov. 22 $27.07 close, which was the highest in nine years.

"There's been a washing out of energy price pressures that were a negative for Treasuries," said Bill Sullivan, chief money market economist at

Morgan Stanley Dean Witter

. The selling "reflected an overbought environment and the prospects that Iraqis are starting to pump again."

Iraq, which suspended a

United Nations

oil-for-food arrangement earlier this month, accepted a six-month extension Saturday.


Conference Board's Consumer Confidence Index

rose to 135.8 in November, up from 130.5 in October, but the market had little reaction to this release.

The market faces more potentially unfriendly economic data later this week. The

National Association of Purchasing Management's

manufacturing index is released tomorrow at 10 a.m. EST, and November's

employment report

is due out Friday.

Economists polled by


expect the NAPM to fall to 56.3 in November from 56.6 in October. Meanwhile, the


poll shows economists are forecasting a 226,000 increase in

nonfarm payrolls

, compared with a 310,000 increase in October and a 0.3% increase in

average hourly earnings


These economic releases aren't immediately going to be cast as harbingers of an imminent interest-rate increase -- most expect the Fed to remain on hold at the Dec. 21 meeting, seeing as how it's so close to the Y2K date change. Whether there's going to be more up days for the bond market in coming weeks will depend on these reports, however.

"Where we finish December will be shaped by the tenor of these upcoming reports," Sullivan said. "If you get strength, the feeling is that you'll test the high-yield watermarks this week."


Copyright 1999,