Article 20 of 661
MONEYLINE; Microsoft - CFO
Willow Bay, Stuart
Varney, Rhonda Schaffler, Ceci Rodgers, Susan Lisovicz, Allan
Dodds Frank, Fred Katayama, Steve Young, Bruce Francis, Peter
Viles, Casey Wian
Moneyline News Hour
(c) Copyright Federal Document
Clearing House. All Rights Reserved.
WILLOW BAY, CNNfn ANCHOR, MONEYLINE: Tonight, an unexpected
inflation scare doesn`t hold back jumping tech stocks: The
Nasdaq powers ahead to its eighth record in nine sessions.
STUART VARNEY, CNNfn ANCHOR, MONEYLINE: It`s the biggest
package UPS (URL: http://www.ups.com/) has ever delivered: a
massive IPO that values the company at more than $81 billion.
BAY: As investors consider the possibility of a Microsoft
(URL: http://www.microsoft.com/) breakup, they get the chance
to buy the first baby Bill: Microsoft Expedia (URL:
http://www.expedia.com/) makes its stock market debut.
VARNEY: And just outside Seattle, Bill Gates speaks to the
faithful for the first time since a judge called Microsoft a
ANNOUNCER: This the MONEYLINE NEWS HOUR. Reporting tonight
from New York, Stuart Varney and Willow Bay.
BAY: Good evening and welcome to MONEYLINE. Investors shake
off a potentially frightening inflation report.
VARNEY: And send the Nasdaq to a record high, its eighth in
Money simply plowed into technology, helping the Nasdaq to
continue to outshine the rest of the market. But the Nasdaq
was not the only record setter. Investors clamored for the
biggest IPO in American history, from a company that today
became an instant blue chip, United Parcel Service (URL:
Rhonda Schaffler has the details in today`s "Street Sweep."
RHONDA SCHAFFLER, CNN CORRESPONDENT (voice-over): Billed as
the largest initial public offering in U.S. history, shipping
giant United Parcel Service (URL: http://www.ups.com/)
UPS rocketed to $68, a gain of $18, or 36 percent, above
its offering price of 50.
JOE CANGEMI, FRANCES P. MAGLIO: The energy level, the
amount of order flow that was entering crowd, and as well as
it ran and as efficiently as it ran, it only foresees where
the markets are heading.
SCHAFFLER: The feeding frenzy spread to other issues:
Expedia, Microsoft (URL: http://www.microsoft.com/) `s online
travel arm, gained 281 percent, to more than 53.
Communications equipment maker Next Level (URL:
http://www.nlc.com/) shot up 153 percent. And iBasis (URL:
http://www.ibasis.net/) soared 153 percent.
Despite the impressive performance, some market watchers
are wary of the market`s exuberance.
ROBERT BALENTINE, CHAIRMAN, BALENTINE & CO.: Typically,
when we see this type of activity in the IPO market, that
would signal some type of speculative bubble in the market.
SCHAFFLER: A roaring rally in technology stocks lost steam
midway through the trading day. The Nasdaq composite
squandered a 61 point lead, closing up nearly 31 points to
3,155. But that was enough to give the index its eight record
in nine sessions.
The Dow Jones industrials slipped 19 points to close just
below 10,600. That didn`t discourage one of the bull market`s
BARTON BIGGS, MORGAN STANLEY ASSET MANAGEMENT: All mood
swings by manic-depressives ends in gloom and depression. But
in the short run here, I think we could have -- you know, I
think the market`s going higher. We could have a meltup.
SCHAFFLER: One stock to watch closely tomorrow, Rite Aid
(URL: http://www.riteaid.com/) . The stock was halted at 5
3/8, a new 52-week low, after the company warned investors not
to rely on earnings and cash flow guidance released a month
SCHAFFLER: A mixed bag of inflation data at the wholesale
level may have caused a slowdown in the market`s momentum
today and spooked jittery investors about the Fed`s intentions
at its policy meeting next week -- Stuart.
VARNEY: Rhonda, does the broader market have to wait for
its rally maybe until after next week`s Fed meeting?
SCHAFFLER: There`s a lot of debate about that. Some people
are saying that investors are waiting for this Fed meeting to
be over with. But there`s increasing talk here about the fact
that investors might decide to take profits ahead of what`s
been the end of a very good year here. So there`s real debate
on whether there will be enough after the Fed meeting to bid
the market up higher, especially since the gains have been so
strong this year.
VARNEY: All right, Rhonda Schaffler at the Big Board.
Thanks very much, Rhonda.
BAY: November has been an incredible month for the Nasdaq
composite. The index has climbed in nine out of the last 10
sessions, cracking eight all-time highs. The record run has
added 353 points, or 12 1/2 percent, to an already impressive
In fact, it`s shaping up to be the Nasdaq`s best year since
1991, if it holds onto its gains. So far, it is up 44 percent
VARNEY: Well, you could say definitely that the Nasdaq is
the index of the year and crude oil is the commodity. Prices
raced higher again today, boosted by comments from the Mexican
energy minister who said he would stick to production cuts
until mid-year 2000. Also, industry reports show that OPEC is
keeping its promises to reduce the world`s oil supply. On top
of all of that, light sweet crude rose 44 cents to $24.47 a
barrel. Prices have more than doubled since February, when
they dropped to their lowest levels in some 12 years.
BAY: Oil prices did pull back a bit last month, keeping a
lid on wholesale inflation. The Producer Price Index fell
unexpectedly in October. But minus volatile food and energy
prices, it rose 3/10 of a percent. The surprisingly strong
core rate set off inflation fears in the bond market. The
30-year Treasury lost a quarter of a point in price. The yield
tonight at 6.08 percent.
From Chicago, Ceci Rodgers has the details.
CECI RODGERS, CNN CORRESPONDENT (voice-over): The jump in
wholesale prices other than food and energy was almost all due
to rising costs for cars and light trucks in the new model
year. But bond traders still saw reason to worry about
inflation and a possible rate hike next week from the Federal
Reserve. Prescription drug prices surged, even more than
autos, and costs for goods in the production pipeline also
ANDREW WALLACE, R.J. O`BRIEN: The Fed made it clear last
week that they are paying very close attention to the economic
data they see this week. They now have PPI behind them.
Perhaps it has made them a little more concerned about
RODGERS: After rising to the highest levels in two years,
interest rates set by the bond market have been falling the
past two weeks. Signs of some cooling in housing, and auto
sales, plus little bad
news in the way of inflation had many analysts reversing
their predictions for a third Fed rate hike this year.
Economists are now less certain than ever about the outcome of
next week`s Fed meeting.
HARVEY HIRSCHHORN, STEIN ROE & FARNHAM: It`s still a
tough call. I still believe it`s less than 50-50. But as you
can see by the market action today, I think they thought the
odds were even lower and now have marked them up a little bit
RODGERS: In the tell-all Greenspan Fed, uncertainty about
which way the Federal Open Market Committee will vote is
unusual, especially less than a week before the meeting.
(on camera): The Fed`s decision could come down to a key
report due out Friday, a favorite of the proponents of the new
high-tech economy, worker productivity in the third quarter.
Ceci Rodgers, CNN Financial News, Chicago.
VARNEY: So the obvious big question next for the markets is
will the Fed hike rates or hold them steady next week.
Joining us now, Jim Bianco from Chicago. Jim, welcome back
JIM BIANCO, DIRECTOR OF RESEARCH, BIANCO RESEARCH: Thanks
for having me.
VARNEY: The question stands: Do we have an inflation
problem, and if we do, will the Fed raise rates next week?
BIANCO: I think if you take those two separately, no, I
don`t think we have an inflation problem. I don`t think we
have had an inflation problem this year. But yes, I do think
the Fed will raise rates next week.
VARNEY: Hold on a second, Jim. Hold on a second, Jim. If we
do not have an inflation problem, but yes, the Fed you think
will raise rates next week, what`s going on here?
BIANCO: Well, they`ve raised rates twice before. And it`s
been very hard to pin down whether or not we`ve had an
inflation problem to begin with.
I think that it`s more about the stock market, it`s more
about nominal growth in the economy. The Fed doesn`t want to
be in the position of fostering a boom in the stock market.
It`s doing very well without them.
They`ve raised rates. And as you mentioned, the Nasdaq`s up
44 percent this year.
If they were not to raise rates or if they were to refrain
or give people the idea that they`re done, they`re afraid it`s
going to be a green to speculate and the stock market could
launch off into much higher levels.
Maybe it`s not a bubble now, but the fear is if that
happens we then definitely would have a bubble as we move
So for that reason and the reason that the stock market is
doing so well right now, I think that the odds slightly favor
them raising rates next week. But it is a tough call right
BAY: A tough call. So if they raise rates next week, is
that the end of it?
BIANCO: No, I don`t necessarily think it would be the end
of it, because
if we accept the assumption that they`re raising rates
because the growth of the economy is very fast, that the stock
market`s moving higher, what they would like to see is a
moderation in both of those. So if they raise rates and the
stock market keeps moving up to new highs, it keeps going, I
think it keeps the heat on the bond market, keeps the heat on
the Fed to continue to raise rates until things cool down a
BAY: Let`s say we do see a rate hike next week. How does
the market react?
BIANCO: I think as far as stocks go it`ll probably be a
relief rally, because the perception within the stock market
is going to be that the Fed is done. And that`s widely held
right now, that next week is a moot point for them. If the Fed
moves or doesn`t move, they`re done.
In the bond market, I think it`s going to come down to the
statement that they issue with a rate hike, if they have one.
Will it be a hawkish statement, suggesting that there will be
more rate hikes, or will it be a dovish statement saying now
that they`ve taken back the 75 basis points of cuts last year
they`re done? And that will be the key for bond market.
Right now, I`m leaning toward a little bit more of a
hawkish statement. And the bond market might have some
problems with it. But I don`t think the stock market will.
VARNEY: We`ll be watching it. Jim Bianco, joining us from
Chicago, thanks for being with us on MONEYLINE, Jim.
BIANCO: Thank you.
BAY: Much more ahead on MONEYLINE. Time now to check in
with some of our other reporters. We begin with Susan Lisovicz
SUSAN LISOVICZ, CNN CORRESPONDENT: Willow, it sounds like a
broken record. Yes, the Nasdaq broke a record for the 37th
time this year. I`ll tell you why investors can`t seem to get
enough of technology.
ALLAN DODDS FRANK, CNN CORRESPONDENT: I`m Allan Dodds
Frank. So far, investors do not seem worried that a breakup of
Microsoft (URL: http://www.microsoft.com/) could reduce the
company`s value. Are they right or is there a downside?
FRED KATAYAMA, CNN CORRESPONDENT: And I`m Fred Katayama.
Pfizer (URL: http://www.pfizer.com/) now says it`s considering
an unconditional bid for Warner-Lambert (URL:
http://www.warner-lambert.com/) and its blockbuster drug
Lipitor. And now, Pfizer wants total control over another drug
We`ll tell you what`s on the drawing board at Pfizer --
BAY: Thanks, Fred.
VARNEY: Coming up on MONEYLINE, after last week`s legal
hammering, Microsoft shareholders stand up as one to show Bill
Gates how they feel.
BAY: And Compaq (URL: http://www.compaq.com/) boots up a
new computer line, but will it be enough to turn the company
VARNEY: After the bell tonight, Bank One (URL:
http://www.bankone.com/) issued its second profit warning in
less than three months. The nation`s fourth-largest bank says
this year`s earnings will come in between $3.45 and $3.55 a
share, below previous estimates.
The problem: continued weakness at the -- at its First USA
Bank credit card business. Bank One has tried to overhaul the
unit, and took over management of First USA after the chief
executive resigned in October. The stock lost $2 in
after-hours trading, after being down more than 4 in the
BAY: It`s been a trying few days for Microsoft (URL:
http://www.microsoft.com/) shareholders, as pundits from
Silicon Valley, Wall Street and Washington have debated the
impact of a harsh antitrust ruling against the company. And
while the stock hasn`t suffered serious damage, it wasn`t --
it hasn`t exactly flourished either. Today, Microsoft lost
another 1 3/4, and it is now down more than $4 this week.
Shareholders today spoke out about the case at Microsoft`s
annual meeting, and greeted the company`s executives with a
Steve Young is there in Seattle, and he joins us now --
STEVE YOUNG, CNN CORRESPONDENT: Willow, they came from all
over the country, about 2,500 of them.
Mr. Gates is on his home turf, and he`s before an audience
that likes his moves. The shareholders heard Bill Gates say
that the company would like to settle the case, he mentioned
that briefly. He said that they`ll go a long distance to
helping meet the government`s needs.
But we got a rather sarcastic Bill Gates also today, who
said if we do what the prosecutors say they want, if we come
up with development that`s good but somebody else had, they`ll
say oh, you can`t do that. If we do something that`s too good
or too cheap, they`ll say you can`t do that.
The shareholders got to speak and it was a rather short
meeting. All were very appreciative of Gates, the man, and
Microsoft (URL: http://www.microsoft.com/) , the company.
However, toward the end one shareholder rose and said: I`m
proud to be a shareholder in Microsoft, but I was humiliated
by the weak legal defense. And some of that was echoed outside
as well -- Willow.
BAY: Now I know you mentioned, Steve, that Mr. Gates said
something about a settlement. Did shareholders raise that
issue? Did they push that issue?
YOUNG: Yes. It did come up once or twice. And interestingly
there was not very much reaction from the hall. It did not
sound like a very popular idea, although shareholders I talked
to said they`d rather see the company settle than be involved
in a very, very long fight.
BAY: Steve Young, thank you for that report.
We`ll have more from Steve later in the show, plus we`ll
talk to Microsoft (URL: http://www.microsoft.com/) `s chief
financial officer, Greg Maffei about Microsoft`s legal dilemma
and about today`s spinoff, Expedia (URL:
VARNEY: Now some say that Microsoft`s stock has held up so
well because investors think even the worst outcome of this
antitrust trial would not be so bad. By most accounts, that
would be a forced break- up of Microsoft.
But as Allan Dodds Frank reports in tonight`s "Leading
Edge," breaking up is hard to do.
ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): Would a
breakup of Microsoft be a bust for shareholders? Given the
company`s current market value, that`s the $445 billion
And in the three trading days since the court`s findings,
the stock is off about $3, suggesting shareholders are not too
Under one scenario, the company might be broken into three
parts. One handling the Windows operating system, another,
applications such as Microsoft Office, and the third dealing
with the Internet. Or the operating-system monopoly might be
broken by splitting into three similar companies, each with
the Windows operating system.
Some investors say splitting Microsoft might not be as
successful as other breakups such as the dismantling of
AT&T (URL: http://www.att.com/) .
DAVID DREMAN, CHAIRMAN & CIO, DREMAN MGMT.: Microsoft
has one core business, which is the Windows, and -- for PCs --
but other than that, there are really no strong businesses,
and no really major cash cows. So it seems to me, though,
there are many parts that seem exciting but over time they`re
probably not going to produce the same kinds of cash vote.
FRANK: Some economists agree.
PROF. NICHOLAS ECONOMIDES , NYU/STERN BUSINESS
SCHOOL: Shareholders will be hurt because Microsoft will not
be able to be run flexibly as an entrepreneurial company
anymore. At the same time, consumers will be hurt, and
antitrust laws are there to protect consumers, not
FRANK: And if Microsoft did break apart, would the part
that lands Bill Gates really be better off?
DAVID NADLER, CHAIRMAN, DELTA CONSULTING GRP.: That company
would also have a lot of the baggage that Gates brings in
terms of perceptions to the industry, in terms of
relationships, and that baggage without the power of monopoly
could be a major drag on them.
FRANK (on camera): And some Microsoft watchers wonder
whether the company has enough management talent to run
several companies; on the other hand, Bill Gates` track record
might be enough for investors to ignore any downside.
Allan Dodds Frank, CNN Financial News, New York.
BAY: Coming up on MONEYLINE, we`ll tell you about the day`s
biggest market movers.
VARNEY: Plus, with Y2K now less than two months away, some
places still are not ready. We`ll be back.
BAY: Stocks hitting 52-week highs today: British Telecom
(URL: http://www.bt.com/) , Sony (URL:
http://www.world.sony.com/) , Cisco (URL:
http://www.cisco.com/) Systems, Gateway (URL:
http://www.gateway.com/) and Lands` End (URL:
Tonight`s MONEYLINE movers: Lehman Brothers (URL:
http://www.lehman.com/) up nearly 2 3/4. Salomon Smith Barney
raised its price target to $85 a share, saying the investment
bank is a good value relative to its peers.
Staples (URL: http://www.staples.com/) up 2 1/2. DLJ
upgraded the stock and said it is undervalued. Yesterday,
shareholders approved a plan to create a separate tracking
stock for Staples.com.
Copper Mountain (URL: http://www.coppermountain.com/)
Networks up 4 7/8. It plans to split its stock 2 for 1. The
company makes products for DSL Communications.
And NextCard (URL: http://www.nextcard.com/) soared 9 3/8,
trading at 26 times its daily volume. It will launch a
co-branded credit card with Amazon.com (URL:
http://www.amazon.com/) . Under the five year deal, Amazon
will buy a 10 percent stake in NextCard.
VARNEY: Compaq (URL: http://www.compaq.com/) shares up as
well, more than 7 percent, as the company unveils a new line
of low-priced business PC`s. The iPaq computer is designed to
give office workers easy access to the Internet. Question,
will the move be enough to fix what is a broken stock?
Bruce Francis reports.
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): At the end
of a disastrous year, you`d think that the last thing that
Compaq (URL: http://www.compaq.com/) would want to do is to
undercut its bread and butter business PC market with a
cut-rate $500 model. But Compaq believes that its new iPaq can
help in the war against Dell (URL: http://www.dell.com/) , and
the in the war to revive its tarnished reputation. With a far
simpler design, fewer parts, and just four different versions,
Compaq says the iPaqs will be easier to manufacture. That
should make them more profitable than on the typical desktop
PC, even at the at $500 price tag. Compaq says computers like
the iPaq can make up more than 50 percent of corporate desktop
sales in three years.
MICHAEL CAPELLAS, CEO, COMPAQ: The design of this product
and the way we`ll manufacture it protects our margin. We
actually look to see higher margins on these products,
particularly since we`ve really simplified the distribution.
FRANCIS: But analysts are unwilling to raise their ratings
on Compaq until the company posts more consistent results.
WALTER WINNITSKI, HAMBRECHT & QUIST: Compaq is looking
at ways to reduce their cost. By narrowing down this product
to only four separate skews, they can produce these products a
lot cheaper and avoid a lot of the costs that have really hurt
them in the past.
FRANCIS: A hurt that shareholders have felt most of all.
Compaq has plunged from a high of over $50 a share to less
than half that now.
ANDREW NEFF, BEAR STEARNS: The key to a turnaround is
coming up with neat, innovative products. You look at Apple as
class-a example of a turnaround. They need to have stuff that
really gets them ahead, and this is neat.
FRANCIS: Neat, maybe, but not available to consumers just
yet. Compaq will be targeting the new models at business
customers. But the company says it`s also working on a cheap,
simplified PC for the retail market, too -- Stuart.
All right, Bruce Francis reporting.
Thank you, Bruce.
BAY: Checking stories outside the world of business:
EgyptAir flight 990`s data recorder, recovered yesterday
morning, began to reveal some clues today about the doomed
plane. Investigators say the trip was uneventful until the
autopilot switched off. Eight seconds later, the plane began
what was described as a controlled descent. But explanations
to what happened next and why are still to come.
VARNEY: Progress tonight -- rather I should say 51 days to
the new year and satisfactory grades tonight for much of the
nation in the federal government`s fourth and final report on
Y2K readiness. Critical sectors are now fully prepared, the
government maintains, including financial services, utilities,
air and rail lines, telecommunications and the federal
government, including air traffic control and Social Security.
But some trouble spots do remain however: Local governments,
smaller hospitals and many small businesses have either not
started or not completed their Y2K homework.
BAY: Still to come on MONEYLINE: Two California banks fight
back, in a battle over ATM surcharges.
VARNEY: Plus: the rising price of doing business in
California`s courts. You`re watching MONEYLINE.
BAY: Stocks hitting 52-week lows today, Rite Aid (URL:
http://www.riteaid.com/) , CVS (URL: http://www.cvs.com/) ,
Omega Healthcare (URL: N/A) , Allied Waste (URL:
http://www.alliedwaste.com/) and Pulitzer (URL:
Big banks striking back tonight in a dispute over ATM
surcharges in California. Bank of America (URL:
http://www.bankamerica.com/) and Wells Fargo (URL:
http://www.wellsfargo.com/) say, starting tomorrow, they will
block everyone except their open account holders from using
their ATM machines in Santa Monica, that after the city banned
banks from charging extra fees for non-customers. Bank of
America is threatening a similar move in San Francisco unless
that city overturns its own ban.
Still to come on the MONEYLINE NEWS HOUR: the Nasdaq`s
breakneck pace resumes, with another record shattered.
VARNEY: A record of another kind, at the Big Board -- UPS
(URL: http://www.ups.com/) delivers the biggest IPO ever, a
".com" debut wrapped in brown paper.
BAY: And inflation hawks beware, prices rising, not only on
Wall Street, but on the docks in Southern California. We`ll
Stay with us.
BAY: In tonight`s headlines: eight records, nine trading
sessions -- the red-hot techs lift the Nasdaq to yet another
new high, and there`s just as much sizzle in the IPO market.
Investors unwrap the biggest U.S. stock offering of all time
from United Parcel Service. And a successful spin-off after a
grueling few days for its parent company. Tonight, Microsoft`s
chief financial officer, on the debut of Expedia.
VARNEY: First, our top story, the news that investors have
almost come to expect: the Nasdaq Composite smashes a record
high. Another frenzied day of buying propelled the index 30
points. It finished the day at 3,155, and that by the way is
its 37th record of the year. There was not that much
enthusiasm for blue-chip stocks, which added to yesterday`s
triple-digit losses. The Dow Industrials down 19 to close at
10,597. Volume on the big board was strong: 984 million
shares. Declining issues outpaced advancers by an eight-to-
seven margin. And there were just 72 stocks that rose to new
highs; 115 hit new lows.
BAY: Technology stocks haven`t been this hot since 1991,
when the Nasdaq Composite finished up a stunning 56 percent
for the year. Of course, that was before the explosion of the
Internet, now a force behind the Nasdaq`s winning ways.
Here`s Susan Lisovicz.
LISOVICZ (voice-over): The Nasdaq`s 37th record of the year
was triggered by better than expected earnings from networking
giant Cisco Systems (URL: http://www.cisco.com/) which surged
nearly 6 percent on the day. But much smaller companies also
contributed to the heavy volume.
The third busiest day ever on the Nasdaq marked the debut
of several companies tied into the thriving Internet and
SCOTT REAMER, SG COWEN: You`re seeing investors wish to
participate in an entirely new segment of the economy,
particularly the Internet economy, that`s changing the way
whole industries in the United States work. There`s been
massive market share shifts, shareholder value shifts
underway, and investors want to participate in that shift by
predicting who the winners and losers are.
LISOVICZ: And the winners are clearly on the Nasdaq, which
has rocketed nearly 44 percent year to date, about three times
what the Dow has done. But the Nasdaq is weighted by market
capitalization, and its five big caps, Microsoft (URL:
http://www.microsoft.com/) , Intel (URL:
http://www.intel.com/) , Cisco, MCI WorldCom (URL:
http://www.mciworldcom.com) and Qualcomm (URL:
http:www.qualcomm.com) account for about a third of the entire
The Nasdaq counts more than 4,800 companies in all, and
most of them are down on the year, an imbalance also seen on
the S&P 500.
HARVINDER KALIRAI, IDEA GLOBAL.COM: The markets are
sticking with the winners right now, and when the average
stock on the -- say on the S&P 500 is actually down on the
year, the -- most of the money is going into the sectors that
have been performing very well, and that is the technology
LISOVICZ: And what are the best performing sectors within
the best performing index? Computer stocks, for starters, have
skyrocketed up 725 percent since 1993. Telecommunications
issues have jumped 275 percent. Biotech up nearly 200 percent
over the same span -- Willow and Stuart.
BAY: Susan Lisovicz, thanks.
VARNEY: You could call that a rally, couldn`t you?
Now, one drag on the market today: bonds. Treasury prices
slipped after some surprising news in the last major inflation
report before next week`s Federal Reserve meeting. The 30-year
Treasury down 1/4 point, and that pushed the yield up to 6.08
percent, though it`s important to note that the yield has come
down nearly a third of a percentage point in the past two
weeks. The catalyst for the selling: prices at the wholesale
level fell .1 percent in October. But factoring out swings in
food and energy prices, prices actually rose a stronger than
expected .3 percent.
BAY: Turning now to what is really the mother of all IPOs:
United Parcel Service today delivered a record-sized stock
offering worth nearly $5.5 billion. The package-delivery
service ended 92 years as a private company, going public at
$50 a share, an even richer price than expected. The stock
jumped 36 percent to 68, a spectacular one-day performance
that gives the company a bigger market value than
Hewlett-Packard (URL: http//www.hp.com/) .
Peter Viles has the report.
PETER VILES, CNN CORRESPONDENT (voice-over): The tightest
ship in the shipping business flew in the face of Wall Street
wisdom. Who says those multi-billion dollar IPOs can`t jump?
Big Brown shares popped $15 at the open.
LINDA KILLIAN, RENAISSANCE CAPITAL CORPORATION: In terms of
after-market performance, the bigger deals normally don`t have
that much of a real pop afterwards, and that`s not necessarily
because of the valuation, but simply because of supply and
VILES: But demand was there for the 109 million UPS (URL:
http://www.ups.com/) shares offered, and it leapfrogged ahead
of rival FDX (URL: http://www.fdxcorp.com/) in every financial
category. UPS has annual sales of $24.8 billion, profits last
year of $1.7 billion, and a market value tonight of $81.9
billion; FDX is valued at just $12.8 billion. One reason is
UPS`s leadership in residential-package delivery, which is
booming due to on-line shopping. Last year, UPS delivered an
estimated 55 percent of on-line holiday gifts. Another reason
is its powerful brand name.
ARTHUR HATFIELD, ANALYST, MORGAN KEEGAN: I think it`s a
little of both. I think this is a great company, and quite
honestly, a lot of people I talked to recently were surprised
that this is not a public company. It`s a very successful
company with a great brand and that`s created a lot of demand
VILES: Among the biggest winners were employees and
retirees at UPS. They own two-thirds of the company, on
average, that`s 85,000 per worker, but senior managers own
much more. Noel Medina has been buying the company stock for
NOEL MEDINA, UPS DRIVER: I enjoyed being a driver, so this
is what I like, this is where I will stay as a driver.
VILES: It`s possible there are a few millionaires driving
UPS trucks tonight, but it is unlikely. UPS employees did not
get the stock at the offering price. They had to buy it in the
open market just like everybody else.
Peter Viles, CNN Financial News, New York.
VARNEY: The UPS offering dwarfs every other U.S. IPO by at
least $1 billion. The previous record-holder, Conoco (URL:
http://www.conoco.com/) raised $4.4 billion when it was spun
off by DuPont (URL: http://www.dupont.com/) last year. That`s
followed by Goldman Sachs (URL: http://www.gs.com/) whose IPO
was valued at $3.6 billion. The fourth largest IPO debuted
only yesterday -- Paul Allen`s Charter Communications (URL:
http://www.chartercom.com/) . And another very successful
spin-off rounds out the top five: Lucent (URL:
http://www.lucent.com/) Technologies, the former AT&T
(URL: http://www.att.com/) unit.
BAY: UPS was by far the biggest, but not the most
successful stock to go public today. There were three others
that didn`t just go up, they more than doubled their offering
price, including Expedia (URL: http://www.expedia.com/) , an
on-line travel service with a winning brand name behind it:
Microsoft (URL: http://www.microsoft.com/) . The software
giant spun off Expedia today at $14 a share. The stock soared
to 53 7/16. Next Level Communications (URL:
http://www.nlc.com/) jumped more than $30 from its $20 IPO
price. The company makes technology to speed up Internet
access. And Internet telephone company iBasis (URL:
http://www.ibasis.net/) went public at $16 a share; it
rocketed to 40 1/4.
VARNEY: Coming up, Bill Gates speaks to the faithful about
the antitrust case, and Microsoft shareholders respond with a
standing ovation. We`ll go to Seattle for the latest on that.
BAY: Plus, Pfizer considers another strategy in its bid for
Warner- Lambert. The details and more, when MONEYLINE returns.
BAY: In tonight`s other "Movers," Inktomi (URL:
http://www.inktomi.com) soared nearly 7. S.G. Cowen upgraded
the Internet search engine and said it now expects a smaller
loss next year. Cisco Systems (URL: http://www.cisco.com/) up
5 1/4, the second most active stock on the Nasdaq. Several
analysts raised their earnings estimates for the next two
years. Late yesterday, the networking equipment maker beat
first-quarter forecasts by a penny.
VARNEY: More bad news though from Rite Aid (URL:
http://www.riteaid.com/) : the troubled drugstore chain
canceled its planned conference call with analysts and warned
investors not to rely on its earlier forecasts for profits and
cash flow. The statement followed word that the SEC has
contacted Rite Aid about its plan to restate earnings for the
past three years. Its shares lost more than 2 1/2 points
today. Over the past year, Rite Aid is down more than 89
percent, that on weak profit reports and downgrades in its
BAY: In Seattle today, Microsoft shareholders gave Bill
Gates and company a rousing welcome. It was the first chance
for investors to meet face to face with Microsoft since a
federal judge issued his stinging findings of fact.
Steve Young was at the annual shareholders meeting and
reports the meeting was decidedly upbeat.
STEVE YOUNG, CNN CORRESPONDENT (voice-over): In Washington,
Microsoft (URL: http://www.microsoft.com/) has been labeled an
abusive, bullying monopolist. But at the company`s annual
shareholders meeting, Microsoft`s market success was
celebrated. Bill Gates said the company is willing to go --
quote -- "a long way to address the government`s concerns,"
but he said prosecutors are trying to tie the company`s hands
in unacceptable ways.
BILL GATES, CEO & CHAIRMAN, MICROSOFT: Is our
innovation going to force competitors to work harder? If so,
we can`t improve the product that way. Someone might file a
lawsuit. Are we providing these features at too low of a
price? Are they too good? Then someone might complain.
YOUNG: Shareholders gave Gates and his executive team a
UNIDENTIFIED FEMALE: He made it pretty clear that free
enterprise is pretty important to us, and I think we`ve been
UNIDENTIFIED MALE: I`m very proud of Microsoft, but I think
the government`s wrong, totally wrong.
UNIDENTIFIED FEMALE: I don`t think it`s a monopoly. I think
the competitors can -- I think they got competition. And I
don`t see them as beating it. I don`t see them as ever
splitting them up either.
YOUNG: But one shareholder told Gates Microsoft`s antitrust
defense was weak. He said Microsoft was outmaneuvered by the
government and he felt humiliated. Later, other shareholders`
expressed the same criticism of the company`s legal team.
It wasn`t handled very effectively. It was kind of, you
know -- it wasn`t that well.
YOUNG: The company, again, downplayed the impact of the
Judge Jackson`s devastating legal opinion by calling it just
one moment in a process.
BOB HERBOLD, COO, MICROSOFT: We, naturally, view this as
the third inning of a nine-inning game.
YOUNG: Herbold said the company was heartened Monday when
the stock didn`t take much of a hit, the first trading session
since the findings of fact. He would not comment on reports
that Microsoft used some of its $17 billion to prop up the
stock -- Willow.
BAY: Steve, did you hear much concern about breaking up the
YOUNG: There were questions from shareholders, but they
said it was far too preliminary to even talk about that.
BAY: Steve Young, thank you.
Microsoft`s stock fell again today, down 1 3/4, closing at
Still coming up: Microsoft`s legal woes not hurting its
VARNEY: The software giant`s online travel unit hits Wall
Street with a bang. Microsoft chief financial officer Greg
Maffei on the Expedia IPO and the company`s antitrust battle.
That`s when MONEYLINE returns.
VARNEY: It is the top travel site on the Internet, and
today, Expedia (URL: http://www.expedia.com/) soared on Wall
Street. The Microsoft (URL: http://www.microsoft.com/) spinoff
nearly quadrupled on its first day of trading. It ended at 53
7/16. The IPO came as Microsoft talked to its shareholders
about the recent ruling. Earlier, I asked Expedia`s chairman,
Greg Maffei, also Microsoft`s chief financial officer, it a
settlement with the Justice Department is likely.
GREG MAFFEI, CFO, MICROSOFT: I really can`t comment on
that, because both sides have agreed that we wouldn`t discuss
the particulars of any settlement talks. What I can say is, is
that Microsoft --and Bill Gates reiterated today -- is very
willing and wants to settle this case. We can`t give up our
principle that we have the right and the freedom to innovate
and improve our products. But short of that, we`ll go a long
way to settle this case.
VARNEY: Is the greatest fear here not that the government
will suggest the breakup of Microsoft, but the lawsuits that
you are going to face from state attorneys general, allegedly
injured competitors and private citizens? Is that the greatest
threat? You`ve become almost like a tobacco company.
MAFFEI: Well, I don`t want to speculate on lawsuits are the
greatest threat. I think the real principle here, the thing
that is the most important thing for us, is the right and the
ability to improve our products, to give consumers what they
want, to add new features, to improve our technologies and
create products that they want. That is the most important
thing. And anything which limits that really is the greatest
threat for us.
VARNEY: The polls that we`re seeing suggest very strong
support for Microsoft and for Mr. Gates. What do your
shareholders feel? You`re at the shareholders meeting? What do
they feel and what do they want you to do?
MAFFEI: Well, I think, in general, we`re very lucky that
our shareholders have given us a lot of support, and they want
us to fight for the principles. They would love to see this,
you know, settled. They`d love to see us move past this, but,
in general, I think they support our actions.
VARNEY: Now, one remedy that the government may go for here
is, of course, the breakup of Microsoft. And today, you are
spinning off a division of Microsoft, Expedia. It`s gone
extremely well. If this is a trial run for future spinoffs
this, you`d have to say that it`s a pretty good road map,
MAFFEI: Well, I don`t know if it`s a road for future
spinoff. We`re very gratified at the success of the Expedia
IPO to date. It`s a great site that consumers love. They love
the product, and we`re glad to see that translate into some
investor demand as well.
VARNEY: It`s a cluttered marketplace, though, isn`t it?
You`ve got Priceline (URL: http://www.priceline.com/) ,
BizTravel.com, airline homepages. Do you expect consolidation
in online travel planning?
MAFFEI: Well, I think first, though, it is a cluttered
market, Expedia has been very lucky to be the No. 1 site for
the last six months running, as measured by most of the
Internet measurement statistics. And we`re very gratified with
that. Even in a cluttered market, consumers have reached out
and found the product. As far as consolidation, I think the
opportunity for consolidation certainly exists. We`ve already
seen Travelocity and Preview (URL:
http://www.previewtravel.com/) , the No. 2 and 3 competitors,
announce their mergers, and there may be others. The reality
is, though, it`s a very big market that`s growing very fast,
and we think there`s a lot of opportunity here.
VARNEY: Can I just return to the shareholders` meeting at
Microsoft for a moment? Do you sense any anger on the part of
investors about what`s happened to Microsoft?
MAFFEI: I think there`s disappointment among some investors
that this case has gone this way and this far, but in general,
as I said, I think they`re mostly happy with the work that
Microsoft has done, the performance of Microsoft to date.
VARNEY: OK, sir. Greg Maffei, we thank you very much indeed
for joining us on MONEYLINE.
Thank you, sir.
MAFFEI: Thank you. Thank you, Stuart.
BAY: Up next on MONEYLINE: Pfizer considers the next move
in its plan to over Warner-Lambert.
VARNEY: And it`s all about an unconditional deal. That
story when MONEYLINE returns.
VARNEY: In other corporate headlines: a management shakeup
at Mattel (URL: http://www.mattelmedia.com/) `s troubled
The Learning Company said its chairman and president have
both left the firm. Losses at The Learning Company dragged
down its third- quarter profits. Mattel stock rose slightly.
Allstate (URL: http://www.allstate.com) is cutting 4,000
jobs, about 10 percent of its work force. The insurer wants to
use direct marketing to boost sales on the Internet. Allstate
is also planning a $2 billion stock buy-back; that stock rose
BAY: An unconditional bid for Warner-Lambert: that could be
Pfizer`s next move in its battle with American Home Products.
Pfizer is also interested in controlling an arthritis drug
it co- markets with Monsanto.
Fred Katayama has the story.
KATAYAMA, CNN CORRESPONDENT (voice-over): Pfizer (URL:
http://www.pfizer.com/) wants control of two of the best-
selling drugs on the market: the cholesterol drug, Lipitor,
and now the arthritis drug, Celebrex.
In its hostile quest for Lipitor and its manufacturer,
Pfizer is considering dropping the conditions for its bid for
Warner-Lambert (URL: http://www.warner-lambert.com/) that
would significantly raise the cost of an acquisition.
JAMES FLYNN, ING BARINGS: Basically, the Warner-Lambert
position is that
they haven`t received a bid. They received something that`s
contingent upon things that the Warner board doesn`t expect to
be removed. And given they don`t expect them to be removed,
they don`t feel like they have a bid.
So Pfizer`s is saying, you know, we`re prepared to make
everyone agree that this is a real bid.
KATAYAMA: Pfizer says it may drop its suit that challenges
two anti-takeover measures: the $2 billion breakup fee, and
the issuance of stock options. But dropping them would eat
into Pfizer`s future earnings.
SERGIO TRAVERSA, MEHTA PARTNERS: It`s going to be diluted.
There is no doubt it is going to be a diluted deal if they do
the acquisition through the purchase-accounting method.
KATAYAMA: Traversa estimates that doing so would take a $30
billion bite out of the earnings of a combined
Pfizer-Warner-Lambert over the next 20 years, or an average of
$1.5 billion each year.
But with investors bidding up Warner-Lambert shares and
selling off Pfizer, analysts and shareholders say Pfizer will
have to significantly raise its bid. Analysts estimate that
Pfizer can up its ante to roughly $105 a share without
Pfizer may need a diet drug to curb its own appetite for
big drugs. It also wants 100 percent control of Celebrex, the
arthritis drug it markets with Searle. Pfizer said it would
consider buying the manufacturer, Searle, but not Searle`s
parent, Monsanto (URL: http://www.monsanto.com/) .
KATAYAMA: Monsanto would not comment. Analysts expect
Pfizer to try to adopt a gentler attitude, given how it has
already frayed its relationship with Warner-Lambert. Removing
the conditions would be a step in that direction -- Willow,
BAY: I thought this was meant to be a rather gentlemanly
KATAYAMA: Well, that`s how the industry has been billed.
But you`ve got this great relationship with Warner-Lambert,
and plus, earlier on we had Glaxo (URL:
http://www.glaxowellcome.co.uk) and Wellcome. And that wasn`t
exactly a welcome bid, on the part of Wellcome.
BAY: Fred Katayama, thank you.
VARNEY: All right. And up next, it`s costing more and more
to import goods through California`s port and we`re going to
tell you why.
BAY: Plus, "AHEAD OF THE CURVE": some of what you need to
know tonight before the markets open tomorrow.
You`re watching MONEYLINE.
VARNEY: Checking some of what could move the markets
tomorrow: more profit reports. Expect results from Dell
Computer (URL: http://www.dell.com/) , The Gap (URL:
http://www.gap.com/) and Nordstrom (URL:
http://www.nordstrom.com/) . Also watch the share price of
Bank One (URL: http://www.bankone.com/) . After the bell, it
warned that 1999 results will fall short of estimates. It
blamed weakness at its First USA credit-card unit. Its stock
fell more than $2 in late trading.
Tomorrow of course is Veterans Day. The bond market is
closed but the stock market will be open for trading.
BAY: Finally tonight, with Wall Street fretting again over
a possible rate hike, the Fed need look no further for signs
of inflation than the ports of Southern California.
Casey Wian reports from Long Beach.
CASEY WIAN, CNN CORRESPONDENT (voice-over): Costs at the
ports of Long Beach and Los Angeles, the nation`s busiest, are
soaring. Dock workers recently won an 8 percent raise. The
state will soon charge ships a $1,000 each as part of an
environmental program, and both ports have hiked their fees by
10 percent to finance expansion.
Shipping lines have responded with huge planned increases
in their per-container rates, double the price in some cases.
DON WYLIE, PORT OF LONG BEACH, CALIFORNIA: Even with the
increased rates, let`s say that a general rate for an
eastbound 40- foot container is about $2,800. Based on a
40-foot container carrying 12,000 pair of shoes, that`s only
23 cents per pair of shoes. The transportation costs relative
to the retail price of most consumer goods is insignificant.
WIAN: Shipping lines say their rates are just recovering
from the Asian financial crisis, and from an influx of new
competition willing to lose money to gain market share.
ROBERT KLEIST, EVERGREEN AMERICA: On inbound business,
imports, the rate is beginning to approach a level that we
would consider to be reasonable and satisfactory. On outbound
business, American exports have not kept up with imports by
WIAN: That means many containers return to Asia empty.
Those with cargo fetch as little as $150 a piece, barely
enough to cover the cost of loading them onto a ship. The
imbalance is squeezing shipping line profits, and their
planned price hikes may not stick.
JACK KYSER, L.A. ECONOMIC DEVELOPMENT CORP.: It`s going to
be tough to pass through a lot of those costs because right
now most retailers, most manufacturers, don`t have a lot of
pricing power in the domestic market.
But definitely there are inflationary whiffs all around out
WIAN: So far, rising costs have not slowed the flow of
goods through Southern California`s ports.
(on camera): This year, container traffic is on pace to
increase by about 10 percent over 1998, which was a record
Casey Wian, CNN Financial News, Long Beach, California.
BAY: That is MONEYLINE for this Wednesday. I`m Willow Bay.
And I`m Stuart Varney. Thanks for joining us. Good-night
from New York. "CROSSFIRE" is next.
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