Publish date:

midday06-14-99's MIDDAY UPDATE

June 14, 1999

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Market Data as of 6/14/99, 12:55 PM ET:

o Dow Jones Industrial Average: 10,577.89 up 87.38, 0.83%

o Nasdaq Composite Index: 2,427.56 down 20.32, -0.83%

o S&P 500: 1,297.70 up 4.06, 0.31%

o TSC Internet: 524.04 down 26.20, -4.76%

o Russell 2000: 435.37 down 2.64, -0.60%

o 30-Year Treasury: 88 15/32 up 26/32, yield 6.089%

In Today's Bulletin:

o Midday Musings: Blue-Chips Pop Higher on Bond Rebound but Techs Drift Lower
o When Appearances Discount

Also on

Wrong! Dispatches from the Front: Paper vs. Rock

Cramer wants you to realize the bond market's power, even if it means using a children's game to illustrate his point.

Networking: 'Convergence' Remains a Pipe Dream as Convergent's IPO Approaches

The networker's IPO is set for the week of June 28, but voice-and-data convergence is far from a reality.

Power Lines: Dynegy and Illinova Get Hitched

But the lack of a merger premium may disappoint some shareholders.

Biotech/Pharmaceuticals: Warner Smacks Its Lips as Pfizer Readies to Pay Up for Lipitor

Under a 1996 co-marketing deal, Pfizer must now come up with its share of the bargain. Exactly what Warner will receive isn't known.

Dear Dagen: Dear Dagen: Readers Brush Off Cautions on Stock Investing

Some accuse Dagen of underestimating them or shilling for the fund industry. But others agree that it's harder than it looks.

Midday Musings: Blue-Chips Pop Higher on Bond Rebound but Techs Drift Lower


Aaron L. Task

Senior Writer

A recovery in the bond market plus a rash of merger news has given stocks a thin veneer of respectability, but bulls might not be so eager to bring the underlying action home to mom.

Thanks to the

Bank of Japan's

purchase of dollars to stem the yen's recent rise, the cessation (for now at least) of worries about hedge funds selling bonds, and the prospect of war with Russia (however remote), the price of the 30-year Treasury bond was up 25/32 to 88 14/32. Its yield eased to 6.10%. (For more on the fixed-income market, see today's early

Bond Focus.)

That, in turn, helped the

Dow Jones Industrial Average

rise 75 to 10,565 after climbing as high as 10,588.97. Similarly, the

S&P 500

was up 2 to 1296.

Both averages were aided by cyclical stocks such as


(DD) - Get DuPont de Nemours, Inc. Report


United Technologies

(UTX) - Get United Technologies Corporation Report


International Paper

(IP) - Get International Paper Company (IP) Report

, as well as

General Electric

(GE) - Get General Electric Company (GE) Report


MCI WorldCom




(MSFT) - Get Microsoft Corporation (MSFT) Report

were also giving the S&P 500 a lift, but the remainder of tech bellwethers could not get on track while the majority of stocks struggled.


Nasdaq Composite Index

was down 22 to 2426 and Internet Sector

index was off 25 to 525, while the

Russell 2000

was down 3 to 435.


New York Stock Exchange

trading, declining stocks were nipping advancers 1,502 to 1,343 on 343 million shares. In

Nasdaq Stock Market

activity, losers were leading 2,059 to 1,412 on 450 million shares. New 52-week lows were outpacing new highs 108 to 35 on the Big Board, while new highs had the edge 46 to 42 on the Nasdaq.

Qwest Communications


was exerting the biggest drag on the Nasdaq, down 20.8% after offering $55 billion cash and stock in a bid to acquire

U S West




(FRO) - Get Frontline Ltd. Report

. Qwest's hostile bid tops by about $7 billion separate friendly deals between U S West, up 5.8%, and Frontier, higher by 5.5%, to merge with

Global Crossing


, which was down 4.1%.

Among DOT components,


TheStreet Recommends



(AMZN) - Get, Inc. Report

were leading a broad downturn. Elsewhere,



was down 12.2% on word it will acquire

Abacus Direct


for $1 billion. Abacus was up 2.3%.

Given the phalanx of critical events this week -- including the maneuverings ahead of Friday's triple-witching session and Thursday's testimony by

Federal Reserve


Alan Greenspan

-- its difficult to draw much conclusion from the action thus far today, save to say market players are anxious for Wednesday's



"It's just abysmal. Nobody is doing anything. People are afraid to go long and afraid to go short," said Sam Ginzburg, managing director of equity trading at


. "Wednesday is going to be the big day. Everything means something, but I think Wednesday sets the tone. Either way, I hope Wednesday gets this thing going. It's like watching paint dry. Unless there's news on a stock, nobody wants to make a bet. It's not only boring, it's so illiquid if you have a position you want to get out of, you can't."

If the CPI figure is benign, "you could have a great end of the week," Ginzburg said, foreseeing a "strong, nuclear move on Wednesday" continuing through Friday's triple witch. "I guarantee you people are itching to buy."

But if CPI comes in stronger than expected and stocks fade, the trader said he'll still be happy. "I just want to hear some action on the desk. From a trader's perspective, the hardest thing to do is nothing."

The Times, They Are A-Changin'

As the market attempts to shirk the memory of last week's bond-inspired losses and its early reticence today, one prominent market watcher is looking for a short-term bounce, reversing his multimonth-long negative stance.

"The source of this bounce would probably come from hopes that the rest of the world is about to easily bounce out of that death bed that threatened it only three months ago," Don Hays, director of investment strategy at

Wheat First Union

, wrote in report published today. "We think, much like the very obvious fraudulent GDP report from Japan last week, that these hopes will prove to be wishful thinking, but they should help to generate enough bullishness to excite the herd for a week or two."

Hays' short-term optimism is further fueled by a belief "the sharp move in bond yields slightly above the 6% level during the last two weeks is making a final peak in yields that will prove to have been a tremendous buying opportunity."

But the veteran strategist -- whose "speeches and articles from 1982 to 1997 were heralding this opportunity of a lifetime, and how low inflation, high productivity, low interest rates and the end of Communism were presenting an unusual and unprecedented investment opportunity" -- remains cautious about the longer-term outlook.

"We see many of the leading stocks of the last three years reached peak momentum in the last three months, and have already had substantial declines since April," he wrote. "We suspect that the next couple of months might be spent trying to analyze the world's condition to see if today's bounce is real or just a head fake. There could be one more try at a new high, but by August, as worries about Y2K and a slowing U.S. economy begin to seep in, we would expect a more significant decline -- especially in those leading stocks of the last three years."

Monday's Midday Movers

By Heather Moore
Staff Reporter

As noted above, Qwest Communications was sinking 9 5/16, or 20.8%, to 35 5/8 after

yesterday announcing a $55 billion counteroffer for both U S West and Frontier. Global Crossing agreed to a $37 billion merger with U S West in May and a $11 billion deal with Frontier in March. Qwest said it would pay U S West shareholders up to $80 a share in Qwest stock, while Frontier shareholders would receive up to $75 a share, including $20 in cash and up to $55 a share in Qwest stock. Global Crossing was down 2 1/16 to 48 13/16. U S West was up 3 3/16, or 5.8%, to 58 1/16. Frontier was up 3 1/16, or 5.5%, to 58 1/2.

In other news:

Coach USA

(CUI) - Get CUI Global, Inc. Report

was up 2 3/4, or 7.1%, to 41 3/8 after U.K. transport company

Stagecoach Holdings

said it would buy the company for $1.2 billion.

DoubleClick was down 10 7/8, or 12.2%, to 78 on word it's acquiring Abacus for $1 billion. According to the deal, DoubleClick will issue 1.05 shares for each share of Abacus stock. Abacus was up 1 11/16 to 76 5/16.



was down 1 5/16, or 7%, to 17 3/8 and



was flat at 25 5/16 after the companies announced plans to combine. The energy services companies said they would form a new parent company to acquire all of each company's shares for a combination of stock and cash. Dynegy shareholders will receive 60% of consideration for their shares in stock of the new company and 40% in cash. Shareholders of Dynegy can exchange each share for 0.69 of a share of the new company or get $16.50 a share in cash. Illinova shareholders will exchange their shares on a share-for-share basis.

Maxxim Medical


was up 4, or 20.1%, to 23 7/8 after saying a management group led by its president and CEO agreed to buy the company in a deal valued at more than $800 million, including equity and debt.

Earnings/revenue movers

Becton Dickinson

(BDX) - Get Becton, Dickinson and Company Report

was down 8 7/8, or 22.7%, to 30 3/16 after saying its third-quarter, fourth-quarter and full-year results will fall short of analyst estimates. A 19-analyst outlook called for third-quarter earnings of 42 cents a share and an 18-analyst view called for 46 cents in the fourth quarter. Becton said results may miss estimates by about 4 cents for both those quarters.


(EBAY) - Get eBay Inc. Report

was down 21 7/16, or 13%, to 144 5/8 after saying its second-quarter revenue will be $3 million to $5 million lighter because of the nearly 22-hour outage on its Web site late last week.

No Herb on TheStreet today. Herb Greenberg will return tomorrow. When Appearances Discount


Adam Lashinsky

Silicon Valley Columnist

Say one thing for William Larson, the CEO of network-security software maker

Network Associates


: If he's bothered by criticism of his knack for making money while his company's fortune's are souring, he's not letting it show.

In the latest installment of the Larson saga, the Network Associates CEO sold stock for a pretax profit of more than $2.2 million just a week after the company announced it would spend up to $100 million to repurchase its own shares over the next two years.

As stock prices typically rally when a company promises a repurchase plan, Larson's sale gives the appearance of his having benefited from an increase in the share price. The Santa Clara, Calif.-based company's shares closed at 12 1/4 on May 10, before it announced the buyback program. The stock jumped to 13 1/2 the next day and continued rising. Larson sold 300,000 shares at prices ranging from 13 1/2 to 14.222 on May 18 and 19, according to a filing with the

Securities and Exchange Commission

. To acquire the shares, he exercised options with a strike price of 6.4691.

The hard-charging chief executive has transformed Network Associates from shareware pioneer

McAfee Associates

into a budding enterprise software contender. But he was also stung when the company's sales sputtered after his repeatedly enthusiastic promises of continued growth failed to materialize. Numerous plaintiff lawyers have filed class-action lawsuits against Network Associates, and even major shareholders are miffed by the messages Larson is sending.

"Speaking as a shareholder, and probably the largest individual shareholder, Bill is incredibly insensitive to these matters," says Harry Saal, a former Network Associates board member and former CEO and founder of

Network General

, which merged in late 1997 with McAfee to form Network Associates. "He's not setting a good example by his actions."

Larson typically sells his company shares quickly. Despite having the right to acquire 1.8 million shares at the end of 1998, he held only 655 shares, according the company's annual proxy statement. The mid-May sales by Larson equaled his total option grant in 1998.

A Networks Associates spokeswoman notes that Larson typically sells 300,000 shares every quarter and that he made these sales in an effort to be consistent with that pattern. He was prevented from selling before the share repurchase announcement, she says, adding that that the window for selling opened two days later.

Although shareholders have suffered as shares of Network Associates have fallen from a 52-week high of 67 11/16 to Friday's close of 14 7/16, Larson has hedged his bets. As previously

noted, he is a major investor in a privately held free-PC company called


, in which Network Associates has invested more than $8.5 million. He also holds lucrative stock options in

, the company's portal subsidiary, which it hopes to take public later this year.

Criticising the share buyback or the stock sales is problematic. On the one hand, the buyback is a statement by management that it believes its shares are undervalued. It's also a way to counteract the dilution suffered from employees exercising their stock options. And with $445 million in cash and marketable securities, Network Associates can afford the shares.

Similarly, insider sales don't always tell a conclusive story. "People probably read way too much into the timing of the sales," says compensation specialist Matt Ward of

WestWard Pay Strategies

in San Francisco.

Taken together, however, the moves paint a picture of a CEO who doesn't much care how his actions look. The irony is that the company's products are among the most visible antidotes to the nasty viruses that spread around the Internet last week. Network Associates ought to be enjoying the attention it deserves for providing mission-critical software, not for the heightened scrutiny of its CEO's finances.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a monthly column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at


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