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Technology Stocks : BAY Ntwks (under House) -- Ignore unavailable to you. Want to Upgrade?

To: Paul Fine who wrote (5859)	5/14/1998 6:34:00 PM
From: rupert1	Read Replies (1) \| Respond to of 6980

Paul: Sometime ago I suggested that you would be attending the last BAY AGM. My views have altered slightly, thus: 1. BAY has failed to provide any additional positive information to improve the fundamental outlook since the last earnings announcement. 2. We are left with House's woolly statement at the last CC that there would be a sequential increase in the order of 10%. But his credibility has been severely damaged by his well-documented and very late downgrading of his various projections for the last quarter and his failure to meet even the very latest of his downgrades, just two weeks before earnings. If, as has been suggested, BAY has fundamentally altered its declared stance to shareholders employees and is now actively shopping the company in the various indirect ways that have been discussed publicly in the last two days, then this might further reduce his credibility with shareholders and also suggest that he has given up on his more bullish expectations for BAY as a growing company able to take on CISCO. 3. If, as I suspect, he is not shopping BAY around and there was no bid from Nortel, the speculation has at least focussed the attention of the investing public and potential acquirers. But it is not a pretty picture. BAY has been widely described in these last two days as a company in trouble, needing a suitor. I cannot imagine what that does to potential customers considering multi-million, long-term investments in BAY equipment and its services. If BAY were to warn again, in two or four weeks, or if earnings failed to meet House's expectations or the Streets expectations, the loser image would be reinforced. The stock price would break down through the support given by takeover speculation (I think that speculation has prevented the stock from going to 20-22 and possibly 17-19). 4. In this scenario I think shareholders - meaning the large MM's - would demand a sale of the company at any price over 28. 5. If on the other hand, the company meets House's projections and exceeds earnings, the Street will boost its valuation up to the 30-35 range, and there would be optimism that the price would see 40-49 within six to nine months after earnings. In this situation, BAY would revert to its desire to stand alone (if it has ever departed from that desire ) and any acquirer would be reluctant to fight management and cough up the very much larger price that would be required by shareholders. And so, if you believe House that revenues will be 10% or more higher and fundamentals improved, then the AGM will not be the last one but might be the penultimate one. Victor