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midday10-11-99's MIDDAY UPDATE

October 11, 1999

Market Data as of 10/11/99, 1:08 PM ET:

o Dow Jones Industrial Average: 10,647.86 down 1.90, -0.02%

o Nasdaq Composite Index: 2,900.09 up 13.52, 0.47%

o S&P 500: 1,333.94 down 2.08, -0.16%

o TSC Internet: 737.27 up 4.48, 0.61%

o Russell 2000: 429.12 up 1.41, 0.33%

o 30-Year Treasury: 99 00/32 unchanged , yield 6.189%

In Today's Bulletin:

o Midday Musings: Bereft of Bond Influence, Stocks Drift
o Herb on TheStreet: Is Bell Atlantic's Deal With Metromedia Fiber Really Worth Another $2 Billion in Market Value? Community

On today's boards, Cramer wonders why Abercrombie & Fitch continues to get hammered despite the backing of a dozen brokerages, Jim Seymour and Adam Lashinsky continue looking at Webvan and readers share their thoughts on the week ahead.

The Market According to James J. Cramer

Scroll to Continue

TheStreet Recommends

Webvan Stakes Its Claim in Net Groceries Business

The Coming Week: Fed-Obsessed Market Will Turn Its Gaze to Earnings

And, make sure to chat with John J. Edwards III on AOL's MarketTalk at 3:30 p.m. EDT. MarketTalk is hosted by Sage Online. (Keyword: PF Live)

Also on

Wrong! Dispatches from the Front: A Different Kind of Opportunity

Take a look at what's happening with Abbott Labs today. After witnessing the action, Cramer's got a new strategy for reacting to those nasty FDA letters.

Internet: Excite@Home Investors Worry Merger Worked Better in Theory Than in Practice

Big shareholders in Excite@Home are questioning if the marriage to @Home has blurred the portal's focus. And in the hypercompetitive Internet, focus is the name of the game.

Telecom: Global Crossing Keeps Spending, Much to Analysts' Delight

The stock was off 6%, but analysts said the company remains on the right track.

Dear Dagen: Dear Dagen: Lucent's Odd-Lot Buyback Offer No Big Deal for Many Internet Traders

But most Lucent shareholders with fewer than 100 shares appear not to have brokerage accounts.

Midday Musings: Bereft of Bond Influence, Stocks Drift


Thomas Lepri

Staff Reporter

10/11/99 1:16 PM ET

No distracting economic data. The buzz-killing bond market home for the holiday. An unnoteworthy

speech by



Alan Greenspan


All things considered, it's not the worst of days to kick off earnings season.

The market has been hearing for some time about how good third-quarter earnings are going to be: Analysts are estimating profits to come in about 19.4% higher than this time last year, according to

First Call/Thomson Financial

. This week we'll finally get to test those estimates, and see if the market is in any mood to care.

With earnings heating up later this week, today's action has been relatively muted, highlighted by

Abbott Laboratories'


in-line report and



negative preannouncement.

But the market's tone seems good, especially in tech. At midday, while the other major proxies were moving to and fro within their respective ranges, the tech-injected

Nasdaq Composite Index

was hovering in record territory, up 16 to 2903.



was moving up 1 3/4, or 2.3%, to 77 1/2 ahead of its third-quarter earnings report tomorrow.


Dow Jones Industrial Average

was up 15 to 10,665, while the

S&P 500

was down a scant fraction to 1336.

The Internet Sector

index was up 6 to 739, and the small-cap

Russell 2000

was up 2 to 429.

Peter Cardillo, chief strategist at

Westfalia Investments

, sees stocks rallying well for the next couple of sessions on strong earnings reports, then easing off when the week's economic data -- Thursday's

retail sales

report and Friday's

Producer Price Index

-- come into view. "With bond yields close to 6.25%, any disappointment could give the market a bit of a hiccup," he said.

Mind you, just a hiccup, said Cardillo, who's not overly worried about the narrowness of many of the market's recent rallies: "The bottom line is that earnings are good. Inflation, even though higher, is still very much under control. And there's scant evidence that the economy is slowing. Until there are clear signs that the economy has slowed, that the bond market won't go much lower and that yields won't go much higher, than we'll have these hiccups along the way."

Today's strength wasn't exactly broad-based, though breadth has certainly been worse lately. In

Nasdaq Stock Market

action, decliners were narrowly beating advancers 1,803 to 1,740, with 102 new highs and 47 new lows. Advancers were trailing decliners 1,239 to 1,483 on the

New York Stock Exchange

, where there were 32 new 52-week highs against 72 new lows.

Of course, everyone loves tech leadership when it's in front of a rally.

"I don't have a problem with it as long as you start seeing better action from other areas as well, and we haven't seen that yet," said Brian Belski, chief investment strategist at

George K. Baum

in Kansas City, Mo. "We saw it last fall, when tech and Net stocks led the comeback, but we also had a nice rebound in retail and drug stocks. You can have a tech-led rally, but the market's at its strongest when you see some other areas run as well, as we did earlier this year."

Some other areas were in fact running this morning. Investors were finding oil and oil service stocks cheap after their recent selloff, with the

Philadelphia Stock Exchange Oil Service Index

was up about 2.3%.

Baker Hughes





were each up about 4.3%. Crude futures were lately quoted at $20.84 a barrel, down 6 cents from Friday's New York close.

Drug stocks continued the rally they began in late September, the

American Stock Exchange Pharmaceutical Index

up about 0.8%.

Stock dealer



third-quarter profit warning (see below) was weighing on the brokers this morning. The

American Stock Exchange Broker/Dealer Index

was down about 3.3%.


Dow Jones Transportation Average

was solidly lower, lately down about 1.9%.

Among Net stocks,

Ask Jeeves


was up about 23.4% on an expanded deal with



personal online support site.



, meanwhile, was down 4.1%, letting off some steam from last week's earnings-inspired gains.

Belski thinks the market's at a relatively critical point, a point where one of two things can happen: "You saw the consequences of a narrowly led market prevail in August, when the Nasdaq was leading the way but the broker market was kind of shoddy. The broader market sucked those big stocks down. I think we're beginning to hit the same inflection point. Tech needs to lead the broader market higher, or the broader market needs to suck tech stocks down with it."

Suck away. Indefatigable



, whose remarkable run-up this year makes it an exemplar for top-heavy tech strength, was lately up another 6 3/4, or 3.2%, to 220 3/4.

Columbus Day was keeping volume light. On the NYSE, 371 million shares had traded, while 507 million shares changed hands on the Nasdaq Stock Market.

The bond and foreign exchange markets are effectively closed for Columbus Day.

Monday's Midday Watchlist

By Tara Murphy
Staff Reporter


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




was soaring 3 5/16, or 37%, to 12 5/16 after



announced plans to buy the unprofitable software maker for $433 million in stock. Vantive warned investors that it expects to post a third-quarter loss of 16 cents to 18 cents a share, greatly missing the eight-analyst break-even estimate.

Separately, PeopleSoft said it expects to report third-quarter results between break-even and a 2-cent profit, in the range of the 21-analyst estimate of a 1-cent profit.

Mergers, acquisitions and joint ventures

Ask Jeeves, a provider of natural-language, question-answering services on the Web, was soaring up 11 7/8, or 23.4%, to 62 1/2 after it said



will expand its use of Ask Jeeves' "Corporate Question Answering Service" on Microsoft's personal online support site. Shares of Microsoft were skidding 5/16 to 94 5/8.


reported on the

deal in a story this morning.



was climbing 1/2 to 72 5/16 after it said it plans to make more than 20 acquisitions, spending up to $10 billion in cash and stock. President John Chambers said the company would buy various businesses in Europe, dealing with data, voice and video integration and software applications.

Deutsche Telekom's


was declining 5/8 to 44 15/16 after its CEO told


, a German magazine, that Deutsche Telekom is pondering selling its 25% stake in

Global One


France Telecom


, according to a


report. Shares of France Telecom were slipping 2 3/4 to 91 3/4.

Separately, German newspaper

Welt am Sonntag

said Deutsche Telekom is in talks with

SBC Communications


. However, the article didn't state whether the talks were regarding an alliance or a merger,


reported. Shares of SBC Communications were unchanged at 52.



was stumbling 7/16 to 28 1/8 after it said it has forged a $1.9 billion agreement to purchase turbines from



through 2004. GE shares were falling 3/4 to 124.

Global Crossing


was tumbling 1 13/16 to 34 3/4 after it confirmed it's buying

Racal Electronics'

Racal Telecom

for roughly $1.65 billion. The news was reported in today's

Wall Street Journal


Financial Times

. Racal shares were 14 7/8.



and Norwegian oil service company

Hitec ASA

announced early Monday a definitive merger agreement valued around $125 million. Each Hitec share will be exchanged for 0.21259 of a National-Oilwell share plus 50 cents. Hitec, which supplies automation and remote control technologies for offshore oil and gas drilling and production, expects to sell its non-drilling related business to a new holding company effective with the acquisition.

National-Oilwell's offer, expected to be approved by the Hitec board, represents a 25% premium based on the last 20 trading days, the companies said. National-Oilwell was up 3/16 to 12 11/16.



was climbing 3/8 to 99 7/8 after it said it will begin cooperation with



, which was advancing 1 3/4 to 115 3/16, in promoting and building mobile Net solutions.



was stumbling 3/4 to 42 15/16 after it announced a multimillion-dollar agreement with

Dow Jones


, publisher of the


, as part of a redesign initiative for the editorial and pagination processes. Shares of Dow Jones were mounting 1 1/16 to 57 9/16 amid a generally strong newspaper sector.

XL Capital


sliding 1 to 47 15/16 after it said it upped its bid for

Capital Re


to $13 per shares from its previous offer of $12.50 a share. XL said that it has extended a merger agreement with Capital Re, which includes paying a $25 million termination fee to



, severing Ace and Capital Re's existing merger pact. In addition, XL said it would supply Capital Re with $50 million in stand-by capital if they forge a deal to merge. Shares of Capital Re were falling 3/16 to 12 13/16.

Warnaco Group


was up 15/16, or 5.3%, to 18 3/8 after it said it has offered to buy

Authentic Fitness


for $20.50 a share in cash, a 16.7% premium over Authentic Fitness' closing price Friday. Shares of Authentic Fitness were jumping 2 3/16, or 12.4%, to 19 3/4.

Earnings/revenue reports and previews

Abbott Laboratories was climbing 1 5/16 to 42 1/8 after it posted third-quarter earnings of 38 cents a share, in line with the 15-analyst estimate.

Datastream Systems


was falling 3 15/16, or 30%, to 8 13/16 after it said it sees third-quarter earnings of between a 1-cent profit, or a 1-cent loss, well below the four-analyst estimate of 16 cents a share.



was plummeting 6, or 12.6%, to 41 11/16 after it reported third-quarter earnings of 45 cents a share, a penny shy of the six-analyst estimate of 46 cents a share, but up from a year-ago 37 cents.



was advancing 3/4 to 71 3/4 after reporting third-quarter earnings of 74 cents a share, beating both the 13-analyst estimate of 71 cents and the year-ago 62 cents a share.



was sinking 4 3/4, or 16%, to 25 3/16 after it warned that it sees third-quarter earnings of 17 cents to 19 cents a share, citing slower trading. The 10-analyst estimate currently calls for earnings of 30 cents a share.

Merrill Lynch

cut the stock's rating to near-term neutral from accumulate and lowered its fiscal 1999 and 2000 estimates to $1.20 from $1.50 and $1.40 from $1.80, respectively.


James Cramer

had his

say on the preannouncement this morning.

New Era of Networks


was popping 2 1/8, or 9.6%, to 24 1/4 after it said it see third-quarter revenue to be about $30 million to $32 million, a record for quarterly earnings. The company said it expects to report a net loss, about in line with estimates. The 10-analyst estimate calls for a loss of 18 cents a share in the third quarter.

Private Business


was skidding 1 5/16, or 27.2%, to 3 5/8 after it said it expected third-quarter and annual earnings to fall below analyst estimates. The company said it sees third-quarter earnings between 4 cents and 5 cents a share, and fourth-quarter EPS between 4 cents and 6 cents. The two-analyst estimate calls for 7 cents and 11 cents, respectively.

Analyst actions



was mounting 1 9/16 to 86 15/16 after

Morgan Stanley Dean Witter

upgraded the shares to outperform from neutral.



was unchanged at 18 7/8 after

Banc of America

upped its rating on the shares to buy from Market performer.

Lehman Brothers

upgraded its investment opinion to outperform from neutral and raised its 2000 and 2001 earnings estimates for offshore drillers




Global Marine



Noble Drilling


, and

Rowan Companies



Lehman raised its 2000 estimate for Ensco to a profit of 15 cents a share from a loss of 10 cents and its 2001 estimate to an 85-cent profit from 55 cents. Global Marine's 2000 estimate was increased to 45 cents from 30 cents, and its 2001 estimate to 90 cents from 75 cents. Noble Drilling's 2000 estimate was raised to 85 cents from 75 cents, and its 2001 estimate to $1.20 from $1.10. Rowan's 2000 estimate was raised to a 20-cent profit from a projected loss of 10 cents, and its 2001 estimate was upped to 90 cents from 60 cents. All four stocks were up in early trading.



was slipping 2 1/4, or 7.7%, to 26 7/8 after Morgan Stanley lowered its opinion on the shares to neutral from strong buy.

Glaxo Wellcome


was adding 2 7/8, or 5.9%, to 59 3/8 after Merrill Lynch upgraded the shares to intermediate-term accumulate from neutral.

MCG Communications


was bouncing 1 1/2, or 5.9%, to 26 13/16 after

Goldman Sachs

started coverage of the stock with a market outperformer rating.

MGM Grand


was climbing 2 11/16, or 5.9%, to 48 1/4 after

Credit Suisse First Boston

raised its rating to buy from a hold.

Norfolk Southern


was declining 13/16 to 21 11/16

J.P. Morgan

after downgraded the stock to long-term buy from buy.



was gaining 1 3/8, or 11.9%, to 12 7/8 despite

Lehman Brothers

slicing its fiscal 2000 estimates to $1.36 from $1.53 a share.



was jumping 1 1/4, or 16.1%, to 9 after

Banc of America Securities

upped its rating on the shares to strong buy from buy.

Rexall Sundown


was sliding 1/4 to 11 1/4 after Banc of America cut its rating on the stock to buy from strong buy.



was jumping 4 1/16, or 7.5%, to 57 9/16 after

Deutsche Banc Alex. Brown

raised the stock's rating to strong buy from buy.



was up 11/16 to 61 1/2 after Morgan Stanley upgraded cut the shares outperform from neutral.

Zebra Technologies


was bouncing 1 5/16 to 49 1/8 after

ING Barings

rolled out coverage of the stock with a buy rating and a price target of 50.


British Airways


was falling 1 1/4 to 54 1/2 after it said it would buy 12

Airbus Industries

A318 planes for $471.4 million, and had options for an additional 12. The deal comes as a blow to



, which had hoped to sell its own 100-seater, the 717. Boeing shares were climbing 3/8 to 42 3/8.



was mounting 1 5/16 to 74 7/16 after it said it will invest $27.5 billion in Germany over the next three years. The money earmarked for Germany is part of a $47.7 billion worldwide investment package announced earlier this year. Staff reporter

Mavis Scanlon

contributed to this story.

Staff reporter

Mavis Scanlon

contributed to this story.

Herb on TheStreet: Is Bell Atlantic's Deal With Metromedia Fiber Really Worth Another $2 Billion in Market Value?


Herb Greenberg

Senior Columnist

10/11/99 6:30 AM ET

Judging by the way Wall Street has embraced

Metromedia Fiber Network's


deal with

Bell Atlantic


last week, you'd think such a deal


expected. And you'd think investors knew how revenue from the deal would be recognized.

That's right: how revenue from the deal will be recognized.

Revenue recognition, in the case of Metromedia, should be a crucial piece of how anybody views the company.

To recap the news: Bell Atlantic agreed to buy 9.9% of Metromedia, which operates a telecommunications fiber network, for $28 per share. The purchase coincides with Bell Atlantic's agreement to give Metromedia $550 million worth of so-called "dark fiber" business over 20 years. (Dark fiber optics, so named because it is not illuminated, provides virtually unlimited bandwidth for transmitting data, voice and video.)

For a company like Metromedia, which currently books around $20 million a quarter, $550 million is a lot of money. The question is when Metromedia will be able to get its hands on it. Depends, apparently, on how it interprets a new industry accounting standard. (A company spokeswoman didn't return my call regarding this issue.) Just last month

Williams Cos.


, which runs its own fiber optics network, warned that it would miss third-quarter earnings in part because it had adopted a recently issued interpretation by the

Financial Accounting Standards Board

regarding any dark fiber transaction entered into after June 30. "This interpretation requires these transactions be treated as operating leases with related revenue recognized over the life of the agreements," Williams said in a press release.

If Metromedia reaches the same conclusion, it'll have to amortize the $550 million over 20 years. That would amount to little more than $20 million per


. Twenty million per year! Does that warrant what happened to Metromedia's stock just before and after the Bell Atlantic deal was announced?

Here was a stock that was trading at a mere 24, sporting a $4.8 billion market cap, a week ago Friday. At $4.8 billion, some short-sellers thought the stock already reflected plenty of deals like Bell Atlantic's. In the past week, however, Metromedia added another $2 billion in market value -- two billion for a deal that may not add any more than $20 million per year to revenue.

One other thing: Investors apparently were impressed that Bell Atlantic would pay $28 per share (not including a convertible stock deal that was also done at the same time). But as part of the deal Bell Atlantic gets what Metromedia calls "industry leading" prices. Exactly what are industry leading prices? A spokeswoman says they're the same volume discounts offered any large customer. She declined to provide details. To one Metromedia short-seller, though, any discount means that the $28 per share Bell Atlantic is paying for the stock really isn't $28. "If you're buying it at $28, and someone's slipping you $10 under the table, then the price is really less," he says.

The company doesn't see it that way: One price is a stock market price and the other is a product price.

Maybe so, but wouldn't the price the company pays for the stock depend on the discount it gets from the company? When a company like Metromedia has such a big market cap, a stock price of $36, a book value of less than a buck, no profits, loads of debt, a heavy cash-burn rate and lots of competition, that's a question investors ought to be asking.

Short Positions

Mattel/Learning Co. fallout:

"While your comments on





are well-made, this isn't the only example of bad diligence out there," writes one obviously plugged-in reader. "Having been a front row participant in the consolidation game in the banking industry, I have to wonder if any CEO is really representing his shareholders. With the same bankers and lawyers negotiating the deals for both the company and management, one can only conclude that the only objectives are a bigger company so that the CEO can justify a higher compensation package and a sweetheart exit package for the selling management so that the acquirer can be treated accordingly when it's his turn.

"I never saw a deal that the advisors didn't like once the CEO was on board. What passes for due diligence is a joke!"

And from the update file:

Back in April, Marc Cohodes of

Rocker Partners

, no stranger to this column, was quoted

here as predicting that

Engineering Animation


would miss its second quarter after already having blown up for missing and having to restate past quarters. "Usually when you move the refrigerator and find a cockroach, in the tech business you find another one and another one," he said.

Well, EAII didn't miss the second quarter. Instead, on Oct. 1 it said that it would miss its third quarter and would have to restate second-quarter results.

Is there an exterminator in the house?

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,