Stocks: Prices flat to lower

The Dow Jones average of 30 industrials was unchanged at 2,376.47 points at noon EDT. The blue-chip indicator was up 1.46 points points an hour earlier NWA had gained one-half to 1051/4 after Pan Am’s announcement this morning that it is considering making an offer for Northwest Airlines. AT&T was down one-fourth to 34; Upjohn was off three-eighths to 311/2; and Delta Airlines was down one-eighth to 641/2.
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The Associated Press

Full text: [Orange County Register] May 9, 1989

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Talking Business with Brindisi of S.C.A.; When Executives Act Like Raiders

A former senior partner with Booz Allen, Mr. [Louis L. Brindisi] spoke recently about why he thinks companies should develop ways to reward executives through more generous use of stock options. Q. You have been promoting the concept of paying executives to think like corporate raiders. How should this be done? A. It can be accomplished in two ways: through restricted stock, meaning that you give executives of companies shares subject to the achievement of certain performance goals. Also, you can set that in terms of stock price or in terms of cash-flow levels or return on equity. The second way is to give them large stock-option grants. The management group in a leveraged buyout group might have 10 to 15 percent of the stock. But in most public companies, the management might have 1 percent. That’s where some of the problem lies. Q. This idea goes against most companies’ long-term practices. Are many companies beginning to develop such programs? A. Yes, but still too few. Of the Fortune 500 companies, maybe 10 percent are paying their top executives to think like raiders. Also, I find that companies that are in turnaround situations are doing this more and more. One problem with stock options is that typically they have gone to people in the middle management level. The strategy is to concentrate the stock ownership and opportunity in the hands of the top management of the company. They can really drive the stock price. Q. When you talk to groups and boards, there must be some resistance to this idea, some feeling that executives are paid quite handsomely now and that there is little wrong with the way they are compensated. How do you respond?
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Hicks, Jonathan P.

Full text: [New York Times] May 9, 1989

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Ogilvy stock price rises above $50-a-share offer

WPP’s new offer puts a value of roughly $750 million on Ogilvy, which is the world’s fifth-largest advertising concern based on 1988 billings. WPP, owner of the U.S. agency J. Walter Thompson, ranks third. She also declined to confirm a report in The Sunday Times of London that two American investment firms, Kohlberg, Kravis, Roberts & Co. and Wesray Capital Corp., had approached Ogilvy with offers higher than WPP’s initial bid. Together WPP and Ogilvy would be about the same size as the world’s biggest advertising company, Britain’s Saatchi & Saatchi, with about $13.5 billion in 1988 billings.
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PETER COY

Full text: [Houston Chronicle (pre-1997 Fulltext)] May 9, 1989

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Losing streak hits 7 as market jitters persist

Stock prices drifted lower Monday, as the Dow Jones industrial average dropped for the seventh session in a row, its longest losing string since 1982. The Dow fell 5.49 to 2376.47. In its downward stretch, the average of 30 blue-chip stocks has lost 42.53 points, or 1.8 percent. Traders attributed Monday’s weakness to continued nervousness over the near-term course of the economy. In particular, investors are leery about Friday’s report on the producer price index. Wholesale prices have shown unsettling increases in recent months, stirring inflation worries.
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Chicago Tribune wires.

Full text: [Chicago Tribune (pre-1997 Fulltext)] May 9, 1989

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Random Thoughts

Investors have some pretty firm ideas about what constitutes sufficient compensation. An investor in a bank stock will require his institution to earn a premium of roughly six percentage points – depending on the bank’s risk or “beta” – over the prevailing rate on the long-term government bond. This is what is called the bank’s cost of equity, or the minimum return on equity acceptable to the shareholder, which in today’s market will usually sum to about 14% or 15%. Otherwise put, a bank’s market-to-book ratio depends on both its economic spread – the spread between the return on equity and the cost of equity – and the growth rate of earnings. The ratio of market to book toward which the bank gravitates can be computed by dividing the ROE (minus the projected growth rate) by the cost of equity (minus the projected growth rate). The fact that the stock price is determined both by the economic spread and the growth rate of earnings means that there are times when a lower return-on-equity strategy is preferable to a higher return-on-equity strategy. For example, Bank A has an ROE of, say, 20% and a sustainable earnings growth rate of, say, 3%. Assuming that its cost of equity equals 14%, this bank will sport a market-to-book ratio of 1.55.
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SANFORD ROSE

Full text: [American Banker (pre-1997 Fulltext)] May 9, 1989

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Conversion Premiums for ESOPs

ESOP regulations only state that the conversion premium must be “reasonable.” The premium is the difference between the market price of the common stock and the price at which the preferred stock can be converted. Many firms use convertibles in ESOP deals because they pay a higher dividend than common stock. That dividend can be used to pay off debt quicker. Preferreds also are less dilutive and can be structured to protect employees against a falling stock price.
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Full text: [American Banker (pre-1997 Fulltext)] May 9, 1989

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Stock Prices in Tokyo Decline on Profit-Taking; London Shares Give Back Most of Day’s Gains —- A Wall Street Journal News Roundup

In London, share prices finished higher but near the day’s lowest levels, pulled down in the afternoon as the dollar’s persistent strength revived worries that European interest rates might be headed higher. Tokyo’s Nikkei average of 225 issues, which gained 180.25 points Monday to climb above 34000 for the first time, closed down 103.37 points at 34031.87. It was the Nikkei index’s first decline since April 24, when it dropped 223.89 points. The dollar climbed to a high of 135.05 yen, its highest level in about eight months, before closing the Tokyo day at 135 yen. The U.S. currency’s failure to climb considerably above 135 yen was attributed partly to reported yen-support intervention by the Bank of Japan during the day.
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Full text: [Wall Street Journal] May 10, 1989

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Industrials Post Another Drop; Dollar Is Mixed

Investors’ unenthusiastic response to the Treasury’s auction of $9.79 billion of three-year notes sent stock and bond prices into a midday tailspin. Bond prices didn’t recover, but buyers did some bargain-hunting in the stock market after the Dow Jones Industrial Average had lost more than 16 points. The average ended at 2371.33, off 5.14, in moderate trading. It was the first eight-day decline in the industrials since August 1982. Analysts said that despite the late recovery, investors remain worried about inflation. Last week’s government report showing an 8.4% annual gain in wages, coupled with the coming release Friday of the April producer price index, is keeping a lid on stock prices. Even if the wholesale price index is favorable — unlikely, analysts say, given recent increases in oil prices — the inflation fears are deep-seated enough to preclude big gains in the near term.
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By Douglas R. Sease

Full text: [Wall Street Journal] May 10, 1989

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Stocks continue down Series: BUSINESS DIGEST

NEW YORK – Stock prices fell in sluggish trading Tuesday, as the market continued to play a waiting game before new economic data is released later in the week. The Dow Jones average of 30 industrials fell 5.14 points to 2,371.33, its eighth consecutive decline. Declining issues outnumbered advancing ones by about 4-to-3 in nationwide trading of New York Stock Exchange-listed stocks. Volume on the floor of the exchange was about 150.09-million shares, up from 135.13-million in the previous session. NEW YORK – Trans World Airlines Inc. announced Tuesday that it is not prepared at this time to submit a formal bid for strikebound Eastern Airlines. Takeover strategist Carl C. Icahn, the owner and chairman of TWA, has held numerous discussions with officials of Eastern’s unions and had been widely expected to make a bid for the Miami-based airline. U.S. Bankruptcy Judge Burton R. Lifland has set Wednesday as a deadline for all interested bidders to submit their offers for Eastern or its Northeast shuttle service to the federal bankruptcy court, which must approve any sales.
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Full text: [St. Petersburg Times] May 10, 1989

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STUDY LINKS CRASH TO COMPUTER TRADING

A new study yesterday by a Securities and Exchange Commission economist found that computerized trading strategies influenced stock prices in the days leading up to the Oct. 19, 1987, crash but not on the day of the crash.
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Full text: [Seattle Times] May 10, 1989

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Peace Dale Firm’s Stock Soars

SOUTH KINGSTOWN-A small Peace Dale company’s stock has surged more than 25 percent in the last two weeks on the heels of favorable press in such national financial publications as Fortune, INC. and Investor’s Daily. But maybe “surge” isn’t the right word. The company, American Power Conversion Corp., makes devices that protect computers from power failures, brownouts, surges or any other sudden changes in electrical current. Such so-called “uninterruptible power supply” products have grown in popularity as the nation has become more dependent on computers and other sensitive electronic gadgets that require a smooth, steady source of electricity. (excerpt)
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Hiday, Jeffrey L.

Full text: [Providence Journal] May 10, 1989

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Ex-Broker Is Sentenced

Mr. [Robert Chestman] was charged with buying 11,000 shares of Waldbaum on Nov. 26, 1986, just before the public announcement of the sale of Waldbaum to A.&P., which is owned by Tengelmann Warenhandesgellschaft. The Government said that Mr. Chestman had learned of the upcoming sale from a client, Keith Loeb. Mr. Loeb is related to Ira Waldbaum, the president of the supermarket chain. The indictment charged that Mr. Chestman had bought the stock for himself, Mr. Loeb and other clients and had made a total of more than $250,000 in profits when the stock price rose after the public announcement.
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Reuters

Full text: [New York Times] May 10, 1989

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Stuart-James Manipulated Stock Prices, SEC Charges

According to the SEC, the Stuart-James Co made nearly $5 million in two days by manipulating the prices of two stocks. The charges are part of the SEC’s first major enforcement action since its chairman announced a crackdown on penny-stock fraud in 1988.
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Sleeth, Peter

Full text: [Denver Post] May 10, 1989

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SNET Annual Meeting

Southern New England Telecommunications (NYSE:SNG) is increasing the company’s financial health, while it invests in the state’s telecommunications network, SNET shareholders were told Wednesday. Speaking at the company’s annual meeting, SNET chairman and CEO Walter H. Monteith Jr. said SNET’s stock price has risen close to 30 percent in 1989. “Our dramatically improved stock performance and our solid earnings, plus two dividend increases announced in the last five months, are good examples of our ability to do well in a changing environment,” Monteith said. (excerpt)
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Seekamp, William

Full text: [Business Wire] May 10, 1989

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Thrifts Find Options Limited in Efforts to Increase Capital

The efforts by the savings and loan association industry to raise capital, under the higher capital standards for thrifts imposed by Congress, are discussed. The two difficulties in raising capital are seen as decreased net income and stock prices at solvent thrifts.
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Roosevelt, Phil

Full text: [American Banker] May 10, 1989

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Biotech Firms Are Making a Comeback

Biotechnology companies are enjoying rekindled interest from investors for the first time since the stock market crash of October 1987, but the smallest of firms are having a difficult time finding start-up funds, industry analysts and company officials said. Local and national biotech firms are moving from research and development to commericalization of genetically engineered products that treat diseases such as AIDS, cancer and kidney failure. The resultant growth in sales is attracting investors seeking industries with the potential for fast growth. (excerpt)
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Cooper, Stephen K.

Full text: [Washington Times] May 11, 1989

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Tokyo Stock Prices Drop as Correction Continues; In London, Profit-Taking Pushes Shares Lower —- A Wall Street Journal News Roundup

Stocks closed narrowly lower for their second decline in as many sessions as the market continued to correct itself after the Nikkei index’s first climb above 34000. In London, selective profit-taking pushed share prices lower in moderate trading as the market mulled over the chances for a rise in interest rates in continental Europe. The Nikkei Average of 225 issues, which fell 103.37 points Tuesday for its first retreat in eight sessions, dropped 39.52 to 33992.35. Volume on the first section was estimated at 900 million shares, down from 1.02 billion Tuesday. Losers outnumbered gainers 482-406, and 204 issues closed unchanged.
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Full text: [Wall Street Journal] May 11, 1989

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Stocks End Loss Streak At 8 Sessions — Small Gain Is Made Despite Softer Dollar, Lower Bond Prices

Stock prices finally broke a string of eight consecutive losses, despite a continuing decline in bond prices and a softer dollar. The Dow Jones Industrial Average eked out a gain of 3.12 points to 2374.45 in light trading. But long-term bond prices slipped on the eve of the Treasury’s auction of some $9.5 billion of new long-term debt, and the dollar sank as traders braced for a possible big round of central bank intervention.
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By Douglas R. Sease

Full text: [Wall Street Journal] May 11, 1989

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Blockbuster Rebuts Bear Stearns Report That Depressed Stock

The report by Lee J. Seidler, a senior managing director and accounting analyst at Bear, Stearns & Co., argued that Blockbuster shares, which had been trading at a multiple of 59 times 1988 earnings, were extremely overvalued. Mr. Seidler said Blockbuster has been hyping its stock price with “fancy accounting” to enable it to use its stock as currency in buying new stores.
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Full text: [Wall Street Journal] May 11, 1989

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Cybermedix stock price soars on news of sale by Agra

Saskatoon-based Agra said Wednesday it wants to sell its controlling stake in Toronto-based Cybermedix because it believes the company’s shares are worth as much as $24 apiece, almost twice their all-time high of $12.50. Halted during the morning pending Agra’s announcement, Cybermedix Class B shares jumped $6.25 to $18.25 apiece by the close of trading on the Toronto Stock Exchange.
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Full text: [The Ottawa Citizen] May 11, 1989

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