AT&T;’s Bid for NCR Ignites Technology Stocks : Computers: Investors rush back to a sector that has been battered since spring. Takeover speculation is evident in the buying of some issues.
High-tech stocks jumped Monday, led by shares of major computer companies, on news that American Telephone & Telegraph Co. had made a hostile takeover bid for NCR Corp.
The AT&T; offer refocused investors’ attention on potential values among tech stocks--a sector that has just recently begun to rally after being beaten up badly since spring.
But while a major merger wave among tech companies has been talked about for years, few experts believe that the AT&T; bid is a prelude to a rash of takeover deals. Rather, many tech stocks appear to be gaining strength largely on the perception that global demand for computers is holding up, despite the Iraq-Kuwait crisis and the weak U.S. economy.
Nonetheless, among the few computer firms frequently rumored to be takeover targets, speculators were active Monday:
* Tandon Corp., the Moorpark-based personal computer seller that makes most of its sales in Europe, rocketed 31.25 cents, or 15%, to $2.06 a share. Tandon has long been considered ripe for picking because of the strength of its profitable European franchise.
* Digital Equipment Corp. leaped $2.75 to $54.50. DEC is viewed as a likely target for AT&T; if the long-distance company can’t get NCR.
* Smaller, specialized computer firms that have suffered setbacks this year--including Tandem Computers and Los Angeles-based Teradata Corp.--were big percentage gainers, as some speculators bet that the companies’ technologies might be attractive to suitors at the stocks’ currently depressed prices. Also, NCR holds a 9.4% stake in Teradata.
Many money managers, however, see little hope that other suitors will follow AT&T; into the computer arena. With takeover financing almost non-existent worldwide, deals require cash-rich buyers--and there are few companies in the United States with cash (or their own shares) to spend on a grand scale, analysts note. DEC, for example, would cost $6.7 billion just at its current stock price, not counting a premium. Tandem would cost $1.3 billion.
As for foreign buyers, with few exceptions, “the Japanese are out of money, and the Europeans are really spending it all internally,” argues Michael Murphy, editor of the California Technology Stock Letter in San Francisco.
Also, though many analysts have long expected more mergers between American tech companies with complementary technologies, memories of some of the disastrous marriages of recent years--such as the creation of Unisys from Sperry and Burroughs--tend to dampen such expectations. Many tech firms go the joint-venture route rather than try to merge outright, experts note.
So while there is no shortage of potential takeover targets among tech companies, the more troubled companies in the lot will probably end up “just withering on the vine,” says Ken Knutel, who runs the $550-million Kemper Technology stock mutual fund in Chicago. He counts Data General and Wang Labs as two that are unlikely to draw buyers, even though their technologies and their customer bases may have value.
Beyond takeover hopes, however, some money managers believe that there is substantial value in the shares of many leading tech firms. Many of the stocks are down sharply from their summer highs, as the Mideast crisis has fanned expectations of a global recession.
But at a personal computer conference in New York on Monday, the news was surprisingly upbeat, says Roger McNamee, who runs T. Rowe Price’s Science & Technology Fund in Baltimore. “The good news we’re hearing is, we’re two-thirds of the way through the fourth quarter, and business hasn’t fallen off a cliff,” he says.
Compaq Computer, in particular, stressed at the conference that fourth-quarter business “feels better” than third-quarter business, McNamee says. Many of the companies say overseas sales continue to be strong and U.S. sales haven’t collapsed as expected.
In recent weeks, some tech stocks have roared to life, anticipating better news. Even with the gains, the stocks generally sell for very low price/earnings ratios. Irvine-based personal computer maker Advanced Logic Research, for example, has jumped to $8.25 from a low of $4.50 a share in October. But it still sells for just six times the $1.44 a share it earned in the year ended Sept. 30. Stocks in the broad market mostly sell for about 12 to 15 times earnings.
As cheap as tech stocks may look, though, money managers say they have to remain conscious of the industry’s inherent volatility, and the risk that businesses will cut back spending on computers in 1991 if the world economy slows. Says Kemper’s Knutel: “At the heart of it, technology stocks are capital-goods stocks,” not much different from tractor or machine-tool suppliers.
TECH STOCKS: INVESTORS TAKE ANOTHER LOOK Shares of key computer companies and other high-tech companies rallied sharply Monday, on news of AT&T;’s bid for NCR Corp.
52-week Mon. close Percentage change: Stock high/low and change Mon. Tandon Corp. 4- 5/8 2 1/16,+5/16 +15.0% Data General 14 1/4-3 1/2 4 3/4,+ 3/8 +8.6% Teradata Corp. 35 1/2-6 3/4 10, + 3/4 +8.1% Tandem 30 1/8-8 7/8 13 1/8,+ 3/4 +6.1% Computers Pyramid 35 1/2-12 14 1/4,+ 3/4 +5.6% Technology Digital 95 1/8-45 1/2 54 1/2,+2 3/4 +5.3% Equipment Unisys 17 1/8-1 3/4 3, + 1/8 +4.3% Stratus 29-14 5/8 24,+ 7/8 +3.8% Computer Apple 47 3/4-24 1/4 38 1/8,+1 3/8 +3.7% Computer Compaq 67 7/8-35 1/2 54 1/2,+1 3/8 +2.6% Computer
Stock Year-to-date Tandon Corp. +153.8% Data General -62.0% Teradata Corp. -54.5% Tandem -42.9% Computers Pyramid -25.0% Technology Digital -33.5% Equipment Unisys -79.7% Stratus +4.3% Computer Apple +8.2% Computer Compaq +37.1% Computer
