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Biotech / Medical : Pharma News Only (pfe,mrk,wla, sgp, ahp, bmy, lly) -- Ignore unavailable to you. Want to Upgrade?

To: chirodoc who wrote (1082)	11/19/1998 2:56:00 AM
From: Anthony Wong	Read Replies (1) \| Respond to of 1722

Heard On The Street: Timely Reports Boost 'Follow-On' Stocks November 19, 1998 12:35 AM By Susan Pulliam, Staff Reporter of The Wall Street Journal Looking for stock ideas? Try buying shares of companies making follow-on offerings. That's right - follow-on stock offerings. And make sure they're big enough to whet the appetite of Wall Street securities firms, whose analysts will almost certainly follow with a barrage of positive comments on the company as the firms vie for a piece of the underwriting action or, in some cases, try to curry favor with an existing client. It used to be that stocks would go down after a follow-on offering, which, as opposed to an initial public offering, is a stock offering by a company that is already public. After all, the conventional thinking about such stock offerings was that they were dilutive to holders' shares, since earnings now needed to be spread over a larger share base. Then there was the worry about how an increase in supply can hurt a stock's value. What's more, these offerings are often a vehicle for insiders themselves to sell shares - sometimes viewed as a bad sign. But lately that has changed. Take the case of Monsanto. After the market closed on Nov. 11, the chemical concern announced a big restructuring plan that included a $1 billion follow-on stock offering that would be dilutive to earnings for the first two years. Investors weren't impressed the next day, when the stock closed down 1/2 to 38 11/16. Since then, however, more than a dozen analysts have risen to the stock's defense, helping the shares rise to a close of 41 1/2 Wednesday. Goldman Sachs analyst Avi Nash cut his earnings estimates for the company for both this year and next, but kept the stock on the recommended list nonetheless. Goldman and Citigroup's Salomon Smith Barney unit are managing a proposed $2.5 billion debt offering as part of the restructuring. Mr. Nash declined to comment. Along came Rite Aid Tuesday, also announcing a $1 billion follow-on offering, this one in connection with its proposed purchase of Eli Lilly's PCS Health Systems. Investors weren't happy, and the stock closed down 13/16 to 43 5/8. Wednesday the outlook changed, however, partly with the help of Bear Stearns and Merrill Lynch, both of which upgraded Rite Aid. Its shares jumped 2 3/8 to 46. Salomon Smith Barney called the deal a "major positive," even though the analyst didn't raise his earnings estimates or upgrade the stock. A Goldman analyst didn't make any changes to his estimates or rating either, but praised the "pharmacy vision" the deal will help realize. Wall Street's enthusiasm about Monsanto and Rite Aid may partly be the result of the dearth of big stock offerings during the recent market turmoil. Indeed, the Monsanto transaction will be Citigroup's first big underwriting deal since the merger of Citicorp with Travelers, completed last month. Copyright (c) 1998 Dow Jones & Company, Inc. All Rights Reserved. smartmoney.com