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Technology Stocks : SOFTKEY=MERGER MANIA

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To: Machaon who wrote (871)	3/12/1997 8:43:00 PM
From: Thomas C. Donald	of 966

Why is TLC selling at a PE of 4? (Question from Bob) I have the impression that the shorts built their positions late last fall. (Does anyone know otherwise?) This was long after the 1Nov2000 notes were in place, so the strategy was probably not tied to TLC's debt. Three and a half years from now is a long time away and 5-1/2% is a good interest rate. Fears of a downturn in sales should have the same effect on the PE of Broderbund as on TLC. Broderbund, however, is selling at 18 times newly revised (downward) 1997 earnings. Furthermore, TLC seems to be doing a better job at selling than Broderbund and has not issued any earnings warnings like Broderbund did. Why the double standard? A clue might be in TLC's drop from $16 to $12. There was a lot of talk about TLC's loss of market share in retail sales. When the preliminary release of the quarter's results was finally issued, it became apparent that TLC had simply traded direct sales for retail sales and had not experienced a "sales downturn" at all as had been hyped. This suggests that the shorts were sucessfully using the news media and the anaylsts to promote their position. Maybe there is no fundamental reason for the decline in TLC's stock price. Maybe everyone sold simply because they thought that there might be a problem as evidenced by the large short positions and because they were afraid that others would sell and drive down the price before they could get rid of their shares. There are some big holders of TLC's stock who have hung onto their positions. Maybe they are smarter that those who have dumped their shares. If they think so, they should buy more and start squeezing the shorts. Does anyone have other theories?

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