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midday09-22-99's MIDDAY UPDATE

September 22, 1999

Market Data as of 9/22/99, 1:27 PM ET:

o Dow Jones Industrial Average: 10,583.91 down 14.56, -0.14%

o Nasdaq Composite Index: 2,837.09 up 15.99, 0.57%

o S&P 500: 1,310.89 up 3.31, 0.25%

o TSC Internet: 630.90 up 13.16, 2.13%

o Russell 2000: 426.50 unchanged 0.00, 0.00%

o 30-Year Treasury: 100 12/32 down 1/32, yield 6.088%

In Today's Bulletin:

o Midday Musings: Tech Pushes Higher Against Mixed Trading Backdrop
o Herb on TheStreet: Are the Strangest of Bedfellows -- Blockbuster and Hollywood -- Thinking Marriage? Community

You know's the place for great market commentary, but did you know it's also the place for intelligent investing discussion? Check out these great boards fueled by the commentary of two of TSC's favorites:

Adam Lashinsky: Chemdex May Well Be the Next Big Thing, but How Big?

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Also, more fund manager euphemisms and the customer-service debate continues.

Midday Musings: Tech Pushes Higher Against Mixed Trading Backdrop


Eileen Kinsella

Staff Reporter

9/22/99 1:29 PM ET

The market was battling vertigo after heavy morning selling compounded yesterday's plunge, sending major proxies tumbling through key support levels before a recent bounce-back. Still, it was enough to give traders and other market watchers an early-autumn chill.


Dow Jones Industrial Average

was down 20 to 10,579, not a very pretty sight for longs on the heels of

yesterday's 225-point drop, and making last month's 11,326 record look like a distant, very fond memory. The

S&P 500

was up 3 to 1311. For a few not-so-brief moments, both the Dow and the S&P ducked under their key support levels of 10,500 and 1300 respectively.

"We are dealing with two big negatives: the weak dollar and perceived negative earnings warnings," said Frank La Salla, CEO of

BHF Securities

. "It looks like there is obviously still a lot of concern. Everyone is focusing on the weakness in the dollar. The fact that Japan sold off last night just confirms" how much concern there is over the

Bank of Japan's

refusal to loosen its monetary policy to stem the rise of the yen.

So, stuck at the crossroads of a weak dollar and negative earnings, the market is scratching its head as it tries to figure out its next move. "I think the buyers and sellers are still feeling each other out," said Bill Schneider, head of U.S. equity block trading at

Warburg Dillon Read

. "Today is going to be a pivotal day, as the market decides if its going to bounce off a support level or signify a downward channel." Schneider feels the market is oversold in the short term but added that today will likely set the tone for the next couple of weeks, heading into the earnings season.

Looking forward to the next couple of weeks, La Salla said he expects the market to trade sideways ahead of earnings reports. "Valuations right now are at such a high level," he said. "Earnings growth is going to have to do a lot of heavy lifting to get this market higher."

Tobacco stocks were taking a beating as the

Justice Department

filed a civil lawsuit against major tobacco companies, seeking billions of dollars in related health-care expenses and alleging that they engaged in consumer fraud by conspiring to hide the risks of cigarette smoking. The

American Stock Exchange Tobacco Index

was down 4%.

Philip Morris


was down 4.4%, while

RJ Reynolds


was off 5.3%.

Technology stocks were mixed, though Internet bellwethers




America Online


, both up 3%, were helping to lift Internet Sector

index 13, or 2.1%, to 631. Meanwhile the

Nasdaq Composite Index

was up 16 to 2837. The small-cap

Russell 2000

was down half a point to 426.

On the

New York Stock Exchange

, decliners were beating advancers 1,659 to 1,163 on 508 million shares, while on the

Nasdaq Stock Market

laggards were beating leaders 1,910 to 1,651 on 635 million shares. New 52-week lows were trouncing new highs 194 to 16 on the Big Board, while on the Nasdaq new lows led new highs 92 to 42.

In the bond market, the benchmark 30-year Treasury was down 2/32 to 100 13/32, its yield at 6.10%. (For more on the fixed-income market, see today's early

Bond Focus.)

Wednesday's Midday Watchlist

By Tara Murphy
Staff Reporter

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


Mergers, acquisitions and joint ventures

AK Steel


was off 1 5/16, or 7.1%, to 17 1/16 after it said that it upped the number of shares that



stockholders would receive in their planned merger. The share increase boosts AK Steel's stock value to $7.50 per share of Armco. Armco was up 1 15/16, or 9.4%, to 22 3/8.



was off 1/16 to 71 1/16 after it said that it has inked an agreement to purchase privately held Internet software maker

WebLine Communications

in a stock deal valued at $325 million.

City National


was off 1/2 to 30 3/16 after it announced its plans to acquire

Pacific Bank


in a deal valued at $153 million. Pacific was jumping 4 7/16, or 21.5%, to 25 1/16.



was up 7/16 to 39 15/16 after it said that its Energy Services division forged a $1 billion deal with

Owens Corning


to supply energy to 20 fiberglass production facilities. According to the 10-year agreement, Enron would support all of Owens's electricity, natural gas and develop and finance energy infrastructure projects. In addition, Enron would create hedging plans to protect Owens from price volatility associated with energy markets.



was climbing 2 1/4 to 104 1/2 after it said it has forged a $440 million stock deal to acquire

U.S. Bioscience


in an effort to boost its cancer-drug product line. According to the terms, MedImmune would exchange 0.15 of a share for each share of U.S. Bioscience's 29.8 million outstanding shares. U.S. Biosciences was advancing 2 7/16, or 21.2%, to 13 15/16.



was unchanged at 42 after it announced its plans to acquire



Color Printing and Imaging Division for $950 million. Merrill Lynch downgraded shares of Tektronix to a buy from a neutral. Despite the downgrade, Tektronix was up 1/8 to 35.

Earnings/revenue reports and previews



was up 2 1/4 to 55 after it reported first-quarter earnings of 38 cents a share, in line with the 11-analyst estimate and up from the year-ago 33 cents.

Dean Foods


was up 5/8 to 39 7/8 after it reported first-quarter earnings of 70 cents a share, beating both the 10-analyst estimate of 63 cents and the year-ago 52 cents.

Morgan Stanley Dean Witter


was off 1 9/16 to 87 1/4 despite reporting third-quarter earnings of $1.65 a share, beating both the 14-analyst estimate of $1.63 and the year-ago $1.01.

National Discount Brokers


was off 5/16 to 26 7/16 after it reported first-quarter earnings of 2 cents a share, beating the two-analyst estimate of break-even results and the year-ago loss of 4 cents.

National Service Industry


was down 1/8 to 31 1/4 posted fourth-quarter earnings of $1.07 a share, beating the four-analyst estimate of 83 cents and the year-ago 72 cents.



was up 3/16 to 9 5/16 after it posted third-quarter earnings of 23 cents a share, beating the four-analyst estimate of 22 cents and the year-ago 17 cents.



after the close was up 1 7/8, or 6.8%, to 29 1/2 after it posted first-quarter earnings of 33 cents a share, well ahead of the 26-analyst estimate of 24 cents and above the year-ago 24 cents.

Worthington Industries


was up 13/16, or 5.6%, to 15 3/16 after it posted first-quarter earnings of 27 cents a share, beating the five-analyst estimate of 22 cents and the year-ago 9 cents.

Offerings and stock actions

Morgan Stanley Dean Witter


Devon Energy's


9.9 million-share offering at $40.50 a share. Devon was up 5/16 to 40 13/16.

Credit Suisse First Boston




4.15 million-share IPO top-range at $16 a share. Shares of E.piphany were soaring 28 11/16, or 179.3%, to 44 11/16.

Goldman Sachs


Kana Communications'


3.3 million-share IPO top-range at $15 a share. Kana was jumping 36 3/8, or 242%, to 51 9/16.

Analyst actions

Merrill Lynch analyst Candace Browning slashed her estimates on a host of airline stocks, citing Hurricane Floyd and slow revenues. September quarter and fiscal 1999 earnings estimates on



were sliced to $1.70 from $2 and $4.50 from $4.80, respectively, while



were cut to $1.45 from $1.70 and $4.90 from $5.40, respectively.



September quarter and fiscal 1999 earnings estimates were lowered to $1.90 from $2.10 and $6.65 from $6.75 respectively, while

US Airways'


estimates for the same periods were cut to a loss of 50 cents a share from a 20 cent-loss and to a profit of $1.85 per share from a $2.30.

Browning also sliced her fiscal 1999 estimate on



to $3.30 from $3.45 and lowered both full-year and Sept-quarter estimates on



to $9.60 from $10 and $3.60 from $3.75 respectively.

AMR was off 15/16 to 53 13/16 and was down 1 1/8 to 33 7/16, while Delta was sliding 1 to 47 3/4. US Airways was up 1 to 25 9/16 and Northwest was declining 1/8 to 24, while United was up 1/4 to 66 3/4 despite the estimate cut.

Merrill Lynch started coverage of



with intermediate accumulate, long-term buy ratings and

Microchip Technology


with intermediate and long-term accumulate ratings. Shares of Amtel were up 1 to 38 1/8, while Microchip was down 1 3/8 to 54 7/8.

Credit Suisse First Boston upped its rating on



to a buy from a hold. Shares of Apache were up 1 3/4 to 41 3/4.

Deutsche Banc Alex. Brown

cut its rating on

B/E Aerospace


to market perform from buy. B/E Aerospace shares were down 1 9/16 to 13 5/16.

J.P. Morgan

began coverage of



with a buy rating. Blockbuster was up 7/16 to 13 1/2.

Deutsche Banc Alex. Brown upgraded shares of



to a strong buy from a buy. Broadcom shares were hopping 8 3/8 to 112 11/16.





to attractive from neutral. Chevron was up 1/2 to 90 3/16.

Goldman Sachs added

Eli Lilly





to its recommended list. Shares of Eli Lilly were up 11/16 to 66 5/16, while Merck was climbing 1 5/16 to 70 1/8.

SG Cowen hammered its rating on

Maxwell Technologies


to a neutral from a strong buy. Shares of Maxwell were sinking 6 7/16, or 33.2%, to 13.

Goldman Sachs began coverage of




Pharmacia & Upjohn


, and

American Home Products


with market outperformer ratings. Pfizer was advancing 1 to 37 1/16 and Pharmacia & Upjohn shares were increasing 1 1/8 to 48 7/8, while AHP was down 7/16 to 44 15/16.

Goldman Sachs initiated coverage of



, and

Bristol-Myers Squibb


with market performer ratings. Schering-Plough was off 1 13/16 to 48 1/8, while Bristol Myers shares were declining 1 1/16 to 70 7/8.

Goldman Sachs sliced its rating on

Sinclair Broadcast Group


to market performer from its recommended list. Merrill Lynch and Morgan Stanley have also downgraded the stock. Shares of Sinclair were falling 4 3/8, or 29%, to 10 1/2.





Columbia House

have chosen Scott Flanders as to act as chairman and CEO after their planned merger is completed. The merger is a joint venture between




Time Warner



Phelps Dodge


has upped its bid for




Cyprus Amax Minerals


to nearly $2.8 billion in cash and stock, confirming a report in

The Wall Street Journal

. Shares of Phelps Dodge were up 1 9/16 to 58 3/4.

Herb on TheStreet: Are the Strangest of Bedfellows -- Blockbuster and Hollywood -- Thinking Marriage?


Herb Greenberg

Senior Columnist

9/22/99 6:30 AM ET




spun off



via an IPO several months ago, word from inside was that it would use some of the $465 million it had raised to go directly after its scrappy rival

Hollywood Entertainment


. Now I hear from two reliable and well-informed sources that these once-bitter competitors are seriously discussing, in the very least, the possible sale of Hollywood's

unit to Blockbuster and even a potential merger of the two companies.

Whether an actual deal linking the two video giants will occur is uncertain. Both sources say the most obvious obstacle -- aside from price and organization -- is whether such an industry-dominating merger could win government approval. Hollywood's estimated 9% of the U.S. video market combined with Blockbuster's 27% could clearly raise antitrust concerns.

Blockbuster and Hollywood, however, apparently are prepared to fight such worries with the same argument broadcasters recently used to win the government's blessing to own more than one television station in an individual market: that thanks to new distractions like the Internet, competition isn't what it used to be. Specifically, in the video-rental biz, both companies have warned in recent

Securities and Exchange Commission

filings, consumer acceptance of direct broadcast satellite and/or digital cable TV could have a material adverse effect on their operations. Blockbuster, in fact, cited those two venues as "our most significant competitive risk" from non-videocassette competitors.

Given that scenario, the sources said, Blockbuster and Hollywood could be better off working together rather than as adversaries. What's more, without a deal, Hollywood faces a well-capitalized company that, in its recent prospectus, stated it intends to boost its market share to 40% within three years. Buying is generally cheaper than building, and one Wall Street source who has done considerable research on Hollywood and Blockbuster estimates that a merger could result in cost savings in excess of $75 million by eliminating overlapping logistics, distribution and general and administrative costs.

A deal, if struck, could help put an end to costly litigation against Hollywood by




Fox Entertainment


on charges of various accounting improprieties. (Fox owns a small stake in


, which publishes this Web site.) Hollywood recently told analysts that it has spent considerably more than it had expected defending itself.

Blockbuster's interest in Hollywood is believed to have started with Blockbuster's interest in Hollywood's unit (much the way Viacom's interest in



started with talks concerning the purchases of individual stations)., which sells videos over the Internet, was bought by Hollywood last October. It has since been a cash drain and a source of mounting losses. Hollywood said in its second-quarter earnings release last month that it is negotiating "several strategic transactions ... to realize the value of for our shareholders."

Blockbuster has its own online retail site, as well as a substantial database of customers, but when it comes to the Internet, is believed to have developed more substantial relationships.

Adding to the likelihood of a deal: Hollywood Chairman and CEO Mark Wattles, 38, no longer lives full-time near the company's Portland, Ore., headquarters. Several months ago, he bought a house in Las Vegas where he spends much of his time. And despite competitive battles with past Blockbuster managements, Wattles, who owns 25% of Hollywood, is said to get along extremely well with Blockbuster CEO John Antioco, who joined Blockbuster two years ago from

Taco Bell


Blockbuster officials couldn't be reached. Hollywood CFO David Martin declined comment, other than to say the company's priority right now is to line up financing for


Superior Evasion:

You've got to go back and

re-read my piece from February on

Superior Consultant Holdings


, a health care technology services company. Not because it turned out to be on the money (Superior was 43 at the time), but because it is a classic example of how far companies will go in an effort


to give a straight answer to a simple question about whether the biz will be affected by Y2K spending.

On Monday, after the market closed, the company said its results this year would be hurt by, among other things, a change in spending because of Y2K concerns. Its stock dropped 9 15/16 to close at 11 1/16.

Trampled, Cont'd:

And yesterday,

Just For Feet


disclosed that it would delay filing its 10-Q with the SEC yet again. That comes after an earlier delay,

noted in this column last week, that was supposed to have been resolved with a new financing pact by Monday. Now it appears the company is still trying to line up financing.

This from the same company that just last May was the target of an item

here in which an anonymous short-seller was quoted as saying that Feet could be forced to dump its excess merchandise in future quarters, "and that would be catastrophic because they'd be selling everything at below cost." To which then-CEO Harold Ruttenberg replied: "Anonymous sources don't deserve a response. Anybody who is anonymous is not worth commenting on." When pressed about the short's contentions, Ruttenberg added, "it's not true."

That's what they all say.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.

Copyright 1999,