Must-read Lashinsky follow-up article in SJ Mercury
Posted at 11:00 p.m. PDT Saturday, August 8, 1998
A weird week when market
rumor mill turns out to be
right
BY ADAM LASHINSKY
Mercury News Staff Writer
RUMORS are a way of life in the stock market, and experienced
investors learn which ones to heed and which ones to ignore.
Although ''the market'' turns up its share of kooky ideas, the rumor
mill on high-tech stocks has taken on a strange characteristic of late:
It's been right.
Consider, Bay Networks Inc. (NYSE, BAY) being bought by
Northern Telecom Ltd. (NYSE, NT) and Ascend
Communications Inc. (Nasdaq, ASND) taking out Stratus
Computer Inc. (NYSE, SRA) were gossips' staples before the deals
happened.
But how should investors without sources of their own react to what
they hear from their brokers, the media and their friends?
''The source of the rumor is key,'' notes veteran San Francisco
gossip and stock trader Harvey Baraban. ''If (CNBC reporter)
Maria (Bartiromo) is on the floor of the exchange, it could just as
easily be a plant.
''Newspapers,'' he continues, ''should not be taken lightly. Anything
where there's been a thought process involved'' is more credible.
How about investor message boards on the Internet? ''Totally
unreliable.'' [Hey, I resent that <<gg>>. Sticks and stones...]
In the case of last week's biggest as-yet-unfulfilled rumor,
International Business Machines Corp. (NYSE, IBM)
purchasing Sun Microsystems Inc. (Nasdaq, SUNW), gossips
reacted primarily to word that a major institution had made a large
trade in Sun's stock.
That didn't stop others from spinning their own theories, such as the
real belief that an absence of stock transactions by insiders could
mean something is in the works.
''Fourteen separate (Sun) insiders sold a total of 281,159 shares
during the month of February at prices between $44.09 and $48.06,''
writes Craig Columbus, a researcher with Disclosure Inc. in
Bethesda, Md. ''Since that time, the selling has basically dried up.
The lack of selling gains significance if you consider that Sun insiders
are traditionally regular sellers throughout the year -- and especially
during the summer. During July and August of last year, for instance,
company execs dropped over 2.2 million shares at $37.75 to
$53.00.''
After the fact, it's sometimes possible to get a take on the accuracy of
rumors. For instance, on May 13, news accounts suggested Bay had
rejected a takeover offer from Nortel because it was insufficient.
However, a careful read of Bay's special proxy statement that details
its negotiations with Nortel spells out what was behind that rumor. On
May 11, Bay informed Nortel it wouldn't sign a confidentiality
agreement that made ongoing talks between the two companies
exclusive. Bay continued to negotiate with five other companies, the
proxy relates.[5 other companies!! Yikes. And we wonder if anyone is interested in ASND. Can anyone say "Bidding war?"]
Sources at any one of those concerns might have leaked some
version of the truth.
ASCEND -- IT'S BAAAAAACK: Speaking of rumors that came
true, look at what's happened in the week since Wall Street worthies
and other smart folks were yammering about how stupid it would be
for Ascend to buy Stratus. [Go get 'em, Adam]
As a refresher, the bottom fell out of Ascend's then-ascending stock
when this column stated firmly that the Alameda company would snap
up the Massachusetts computer maker for its Signaling System 7
telephone switch technology. On July 31, Ascend's stock dropped,
$7.03, or 14 percent, to $44.47, on fears the merger would distract
Ascend, hurt its earnings and make it an unattractive takeover
candidate for Lucent Technologies Inc. (NYSE, LU).
Ascend hit the street the same day, hosting briefings for investors in
New York and in Santa Clara as part of a larger networking industry
confab.
''We knew if anybody found out about this without hearing our
explanation they'd just flip out,'' says Ken Fehrnstrom, Ascend's
senior vice president for business development. ''They'd think
Ascend had lost its marbles.'' After the announcement Monday
''everybody stepped back and said, 'Wait a minute, let's look at
that.' ''
The result? Ascend has gone from hero to goat to hero.
''I've been pounding the table on Ascend all week,'' Paul Sagawa, an
analyst with Sanford C. Bernstein & Co., said between cocktail
parties Thursday night at the Santa Clara Westin. In fact, Sagawa and
others are wondering how Ascend's competitors will respond to the
company's embrace of SS7 technology, which allows phone
companies to offer value-added services like call waiting and voice
mail.
Ascend's stock ended the week at $47.50, within the range of where
it traded before the Stratus deal popped. [Wall St. hates to admit it was wrong and sold in a panic. Come on back ya nervous nellies...]
AT HOME ON THE ROAD: Don't look to @Home Corp.
(Nasdaq, ATHM) or analysts from five of the investment brokerages
that follow it to explain why the Redwood City company's stock
spiked last week.
Not a peep of market-moving news came out of @Home, whose
stock jumped $7.50, or 18 percent, to $47.75 since Tuesday. So if
nothing's going on, what gives?
Simple. The company's senior management, including CEO Thomas
A. Jermoluk, was on the East Coast marketing @Home's
2.5-million-share secondary stock offering. The purpose of the
traveling circus known as a ''road show'' is to convince institutional
investors to buy new shares in the offering. But there's nothing
stopping investors from leaving a briefing and snapping up some
@Home shares on the open market.
Says one person who has caught Jermoluk's enthusiastic act: ''T.J.
tells a compelling story.''
Everything about @Home is blue chip, from its management team of
hotshots from other Silicon Valley companies to its venture backers,
Kleiner Perkins Caufield & Byers. Its investment bankers are no
exception. Lead manager Merrill Lynch & Co. and Morgan Stanley
Dean Witter, along with supporting actors Goldman, Sachs & Co.,
BT Alex. Brown Inc. and Hambrecht & Quist LLC, should have no
problem peddling the stock.
The company and their bankers characteristically are mute during
their pre-offering quiet period, meaning they can shout and scream to
representatives of big institutions but can't comment to the public.
Contact Adam Lashinsky at the San Jose Mercury News, 750
Ridder Park Drive, San Jose, Calif. 95190, or
siliconstreet@sjmercury.com or (408) 271-3782.
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