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Moneyline News Hour

Dow Falls to 10,435.16; Nasdaq Rises 23.53 to 4,013.36; Vivendi and Seagram Announce Merger; Oracle's Profits Beat Wall Street Forecasts

Aired June 20, 2000 - 6:30 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

STUART VARNEY, CNN ANCHOR: Tonight on MONEYLINE, the Nasdaq back above 4,000 for the first time in two months. But while investors picked up techs, they dumped old-economy stocks. The Dow takes a dive.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Today marked a beginning of one of the world's leading communications and media companies.

(END VIDEO CLIP)

WILLOW BAY, CNN ANCHOR: Vivendi snatches up Seagram to the tune of $34 billion, but the entertainment and beverage giant sinks on Wall Street.

VARNEY: Microsoft on the fast-track. Judge Jackson sends the appeal directly to the Supreme Court, but there's a surprising twist that just might give Bill Gates a reason to smile.

BAY: And a new look for Steve Madden: handcuffs. Federal authorities arrest the shoe designer. The charge: securities fraud and manipulating IPOs.

ANNOUNCER: This is MONEYLINE. Reporting tonight from New York, Stuart Varney and Willow Bay.

BAY: Good evening and welcome to MONEYLINE.

Tonight interest rate jitters rock the Dow.

VARNEY: But investors keep their faith in those tech stocks. The markets were of two minds today -- we've seen that before -- with blue chips suffering through a triple-digit tumble, wiping out yesterday's strong start to the week. But the Nasdaq held its own and pulled itself above the 4,000 level, a level not seen in more than two months.

Susan Lisovicz has more on the day's trading.

(BEGIN VIDEOTAPE) SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): Buying in Internet and chip stocks fueled a fourth consecutive rally on the Nasdaq. But the more compelling statistic was where the tech-heavy index finished: above 4,000 for the first time in 10 weeks.

A 23-point gain brought the Nasdaq to 4,013, reinforcing the recent perception among some investors that techs are best positioned to weather an economic slowdown.

FRED SEARS, INVESTORS CAPITAL FUNDS: I think this 4,000 level is perhaps very important to some of the institutional investors. They've been sitting with so much cash on the sidelines. I'm hopeful that they start to buy into this market a little bit.

LISOVICZ: And for a second straight day, chips ignited the Nasdaq rally. Winners included Micron Technology, PMC-Sierra, and Intel. But the fascination with tech issues came at the expense of old-economy stocks, and the Dow fell 123 points. Dow losers include Eastman Kodak, General Motors, and Coca-Cola.

JOHN HUGHES, SHIELDS & COMPANY: I think it tells you that you've seen some pull back, some decline in these stocks in anticipation of exactly what we're seeing here -- the potential for some slower earnings. I mean, the whole idea of higher interest rates is to slow the economy. We've seen certain companies like at Proctor & Gamble, Honeywell, which is really the old allied signal, another signal company preannouncing.

LISOVICZ: But tech companies are not immune to preannouncements. Computer Sciences was hammered on a lowered-revenue forecast and a pricy acquisition of software developer, Mind Corporation (ph). Apple Computer rallied in advance of its two-for-one stock split. Goldman Sachs fell after beating the Street on lowered expectations and the fall out continued for Honeywell.

(END VIDEOTAPE)

LISOVICZ: While the Nasdaq today reclaimed 4,000, the Dow sunk back into a correction now down nearly 11 percent from its high. The blue chips stand firmly below their 200-day moving average. The Nasdaq composite and S&P 500 firmly above -- Stuart and Willow.

VARNEY: Some people might think that with the Nasdaq back at 4,000, we're out of woods. Are we?

LISOVICZ: Not so. We've come a long way from that 37 percent decline that we saw recently from the Nasdaq high. But still down. Nasdaq more than 20 percent. Technically, a bear market.

VARNEY: Still more than 20 percent?

LISOVICZ: Yes.

VARNEY: Fair enough. Susan Lisovicz, thank you.

BAY: What hurt the Dow today was fear of an economic slowdown. Rhonda Schaffler has a look inside today's action on the Big Board -- Rhonda.

RHONDA SCHAFFLER, CNN CORRESPONDENT: Willow, even though the overall profit outlook is good, there have been enough high profile earnings warnings to make investors nervous, especially since the warnings have come from a wide range of industries.

In the past couple of weeks, companies including Honeywell, Xerox, Procter & Gamble and Electronic Data Systems have all told the Street: expect a disappointment.

While the industries are varied there are some familiar themes emerging during this confessional season. Some of the reasons cited by the companies include: rising interest rates, higher raw materials prices and a strong dollar, which can be problematic for companies with a portion of revenue from international operations.

Typically, before the earnings reporting season starts you do get negative preannouncements, but what's different this time around: the stocks of these companies remain under pressure. Since their warnings, most of these stocks have been hit hard with no recovery. In the past, traders might buy a beaten-down stock the day after a warning, assuming the stock would bounce back. But as one strategist told me today, it is no longer safe to bet on the bounce -- Willow.

BAY: Rhonda Schaffler on the Big Board, thank you.

VARNEY: Some news that may move the markets tomorrow: Oracle outpacing Wall Street profit forecasts. Today after the bell, Oracle reported earnings of 31 cents a share, and that is six cents ahead of expectations. That's on quarterly profits that came close to $1 billion. However, the stock dropped more than 2 3/4 points in after-hours trading.

Let's get more on this story from Bruce Francis who's been covering it -- Bruce.

BRUCE FRANCIS, CNN CORRESPONDENT: Stuart, just moments ago, Larry Ellison of Oracle was just ripping into competitors on a conference call.

Oracle blew past analyst estimates, thanks to a 61 percent increase in sales of application software that manages and tracks customers for big corporations, and some good, old-fashioned cost- cutting as well. Revenue came in at $3.37 billion, up under -- just under 15 percent.

Net income, when you exclude some investment gains, tallied up to $926 million, an increase of 76 percent. That works out to 31 cents a share, six cents ahead of analyst estimates.

Some analysts noted, though, that Oracle's core database revenue grew just 12 percent, but Andrew Roskill says he's focused on Oracle's profitability. (BEGIN VIDEO CLIP)

ANDREW ROSKILL, UBS WARBURG: It's a pretty solid quarter. I mean, you know, they basically hit my number pretty much head on the license revenue line. Applications business was very strong. And margins were phenomenal. I mean, 41 percent operating margins are just, sort of, almost unheard of. There's only a handful of companies that have achieved that kind of -- that level of profitability.

(END VIDEO CLIP)

FRANCIS: On a conference call with analysts, Oracle CEO Larry Ellison says that the database results should come back very strong in the first quarter, that's the one to come. And the CFO called the outlook for this quarter "awesome." So a bold outlook there.

VARNEY: Yes, now, you were talking about this conference call. You said that Larry Ellison ripped into the competition. What exactly do you mean by that?

FRANCIS: Classic Ellison. He trashed SAP, called it a company in trouble, and said that companies like i2 are suffering right now at Oracle's hands.

VARNEY: So why is the stock down after-hours trading?

FRANCIS: I think they -- analysts are looking at the weakness in the database business -- or we should after-hours traders are looking at -- at lower-than-expected results in the database business. They say that should be cleaned up soon.

BAY: Because it's not typically a stock that sells on the news.

FRANCIS: No. This stock has really held in very well. It's just under 4 percent off its all-time high.

VARNEY: All right. Bruce Francis, thanks very much.

And more on this, in fact, coming up later in this broadcast, we'll hear more about Oracle from a man who knows just a little bit about it: Chief Executive Larry Ellison himself. Coming up later.

BAY: In Washington, a federal judge today put the Microsoft anti-trust case on the fast track. Judge Thomas Penfield Jackson, who two weeks ago ordered the company split in two, dispatched the company's appeal case directly to the Supreme Court. But the judge added a surprising twist to one of his own rulings. Following today's news, Microsoft stock was up 1 1/4.

Steve Young has the story.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): Despite a pile of protesting briefs from Microsoft, Judge Jackson sent company's appeal of his final judgment straight to the U.S. Supreme Court, instead of letting the Court of Appeals having the first crack.

It was only the third time in history that a law known as the "Expediting Act" was used to move a case on a fast track to the highest court in the land. Microsoft tried unsuccessfully to lodge the review with the Court of Appeals because that court has sided with the company before.

The judge's fast track move wasn't a surprise, but he still managed to turn heads. He stayed his own tough controls on the way Microsoft does business that was scheduled to go into effect September 5th.

HARVEY SAFERSTEIN, ANTI-TRUST ATTORNEY: I think Judge Jackson thought it would help get this case to the Supreme Court. On the other hand, there's sort of a two-edged sword about this issuing of a stay of the entire order, which is in some ways -- it takes off the emergency aspect of the appeal.

RICK RULE, MICROSOFT LEGAL CONSULTANT: And that, I think, is good news for Microsoft employees, for Microsoft itself. They don't have to confront what would have been irrevocable, very drastic remedies. It's also good news for consumers.

YOUNG: The Justice Department issued a statement saying that since there'll be no restraints on Microsoft while Judge Jackson's break-up order is reviewed -- quote -- "The direct appeal to the Supreme Court is of particular importance to the national interest."

The next question is: When will the Supreme Court decide whether to take the case or send it back to the Court of Appeals to narrow the issues for review?

(END VIDEOTAPE)

YOUNG: Conventional wisdom is that the Supreme Court won't decide that until it comes back from summer vacation in October. Of course, conventional wisdom in this case has proved wrong before -- Stuart, Willow.

BAY: Steve, quick question. Can we expect the flurry of near daily filings and responses to slow down until then or not?

YOUNG: I think we've seen a seasoned assist in that for, at least, maybe a couple of weeks.

BAY: OK. Steve Young, thank you.

VARNEY: And still ahead on MONEYLINE, as Vivendi and Seagram unite to create a transatlantic media powerhouse, what do investors think? The stock, remember, tells all of the story.

BAY: Plus, another glowing deal in the City of Light as publicists wrap up a winning campaign for Saatchi & Saatchi. We'll tell you why it's a strategic coup for the French ad agency.

VARNEY: And the Nasdaq jumps the 4K barrier. Does this leap, however, have legs?

ANNOUNCER: From CNN's New York headquarters, this is the MONEYLINE News Hour.

(COMMERCIAL BREAK)

BAY: On the merger front, news late today that investment giant Alliance Capital will buy Wall Street brokerage house Sanford C. Bernstein for about $3 1/2 billion. The deal is the latest and one of the biggest mergers in the rapidly consolidating asset management business.

VARNEY: A trans-Atlantic announcement today: Executives from Vivendi and Seagram started in Paris, then went to New York to unveil their plans to create the world's second-largest media group. The all-stock deal was valued at $34 billion, but that value eroded as the day wore on.

Vivendi shares fell overseas and in New York trading. Seagram stock shed nearly 10 percent, about $5, on the day.

Greg Clarkin reports on today's global deal and the chilly reaction.

(BEGIN VIDEOTAPE)

GREG CLARKIN, CNN CORRESPONDENT (voice-over): Months of negotiations gave way to smiles as Vivendi's Jean-Marie Messier and Seagram's Edgar Bronfman Jr. announced their media marriage. Vivendi is buying Seagram and also gobbling up the remaining stake it doesn't own in European pay-TV company CANAL+.

It's a watershed event for Seagram, a liquor company transformed into an entertainment giant by Bronfman.

CHRIS DIXON, PAINEWEBBER: What Seagram has essentially done is they've taken a business which was growing at about 11 or 12 percent, it's probably just about tapped out its growth rate, and it's become part of an entity which will grow at almost 35 percent. So, that really is a big part of where the value is going to be unleashed. But execution is the key.

CLARKIN: And analysts say that's where it gets tough. First, there is the formidable task of convincing investors. Shares both companies sold off on the deal, with Vivendi shares now trading below the collar specified. And analysts say some institutional investors appear negative on the deal. And then there's the fact that Vivendi is little-known to analysts and investors outside of France.

EDGAR BRONFMAN JR. CEO, SEAGRAM COMPANY: We are right now focused on explaining the story to you, to the analysts, and frankly, also to our management teams so that they can get about the business of creating the kind of momentum now.

CLARKIN: Executives boasted at the mix of content and distribution the deal creates. Seagram is the content provider: music with Universal Music and its Polygram unit; movies, TV and theme parks with Universal Studios.

Vivendi is all about distribution: European pay-TV in CANAL+, satellites in BSKYB, an Internet portal in Vizzavi, and mobile phones with Cegetel.

JEAN-MARIE MESSIER, CEO, VIVENDI: It means that you can find a lot of designed services on all your devices of your life at any time, anywhere, whatever you are working with your PC, with your TV, or with your mobile phone.

(END VIDEOTAPE)

CLARKIN: Now today's deal will create an entertainment giant second only to a combined AOL-Time Warner, the parent of this network, and it was that megadeal which prompted Seagram to look for a partner, forcing media companies to rethink their strategies for the digital age -- Willow, Stuart.

VARNEY: All right, Greg Clarkin, thanks very much.

And by the way, we'll have more on this deal from the deal- makers: Vivendi's Jean-Marie Messier and Seagram's Edgar Bronfman Jr. That's coming up later on MONEYLINE.

BAY: In another media union out of Paris today, advertising group Publicis announced it is buying Saatchi & Saatchi for nearly $2 billion. The deal will create the fifth-largest advertising group in the world. Shares of Saatchi & Saatchi gave back some of their big gains from yesterday, dropping 1 3/4.

Peter Viles reports on what's driving this kind of consolidation in the advertising business.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): Saatchi & Saatchi, the London-based agency whose ads have pushed everything from chocolate bars to Margaret Thatcher, is merging with a French agency and doing so happily.

KEVIN ROBERTS, CEO, SAATCHI & SAATCHI: Most times in Europe we get killed, so it's going to be fantastic to walk a little taller in Europe. We have critical mass in the U.S. We'll become the No. 1 agency in China. We'll be in the top 10 in the U.S.

But that's just about numbers; for us, this is about passion.

VILES: Saatchi & Saatchi brings big U.S. clients, such as Toyota and Procter & Gamble. Together, Saatchi & Saatchi and Publicis billed an estimated $17 billion last year, which would make them the world's fifth-largest ad agency. London-based WPP will be the biggest when it completes its merger with New York's Young & Rubicam, followed by American agencies Interpublic and Omnicom.

CHRIS HANSEN, BANC OF AMERICA SECURITIES: ... the, you know, large corporations here in the U.S. have expanded rapidly abroad, and the, you know, European counterparts have expanded here in the U.S.: They're all looking to reach and/or spread a uniform brand image and communicate effectively with their customers, the same message across, you know, multiple geographies.

VILES: Consolidation often drives up stock prices, and advertising stocks bear that out: Saatchi shares gained 89 percent in the past year, and every major American agency beat the S&P 500, led by True North and Young & Rubicam, and Grey Advertising, Omnicom and Interpublic.

(on camera): Analysts say consolidation will also better prepare the big agencies for what's next: the development of more targeted forms of advertising using new delivery systems, such as the Internet and wireless devices.

Peter Viles, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: A bold move today from Rupert Murdoch. His News Corporation today filed with the SEC to spin-off its satellite television businesses. The new company will be called Sky Global Networks. Analysts forecast it could raise anywhere from $3 billion to $5 billion, and that would make it one of the largest media offerings ever and one of the biggest U.S. IPOs.

Sky Global Networks will include News Corp.'s interests in "TV Guide," British Sky Broadcasting, the Star system in Asia, and satellite stations in Latin America.

BAY: When MONEYLINE continues, the investment strategy of one of the world's wealthiest investors.

VARNEY: Stay right there, because that is next.

(COMMERCIAL BREAK)

BAY: The Nasdaq's recent move higher has brought the index within spitting distance of where it started the year: only 56 points shy of its close on December 31. But will this new upward momentum have staying power?

Terry Keenan takes a look "Behind the Numbers."

(BEGIN VIDEOTAPE)

TERRY KEENAN, CNN CORRESPONDENT (on camera): Willow, with the Nasdaq recovering half of this spring's stunning losses, the burning question on Wall Street these days is whether this Nasdaq rally is for real or whether it's a rally in a bear market.

Tom Galvin, the market guru at DLJ, makes the most convincing case for the bulls.

TOM GALVIN, DLJ: And we clearly tested the lows in May. We've held on to the rallies right after Memorial Day. And now the question is not how far will we fall but rather how much further do we have to go.

I think we'll break 5,000 before year end.

KEENAN: In addition to the remarkable 25 percent Nasdaq gain since Memorial Day, Galvin tells me his sunny scenario is also based on his belief that the Fed is at the end of its rate-raising program. He also says Microsoft, which accounts for 8 percent of the index, will start to add rather than subtract from the Nasdaq performance, turning in double-digit returns by year's end.

But like many experts who look purely at the charts and numbers, the folks at Ned Davis Research aren't so sanguine. Among the negatives they cite is the market's breadth. Yesterday's big Nasdaq rally, for example, the number of new lows exceeded new highs, and while volume has been better this week, the research firm says it is not at levels you would expect at the start of a new bull market.

If this is a big rally in a bear market, it wouldn't be without precedent. Since 1900 there have been 31 bear markets as measured by the Dow industrials. In more than half those cases there has been a rally of 10 percent.

The Nasdaq, of course, is far more volatile, but as of today's close, it has rallied 33 percent from the intraday low hit on April 14th. Not enough to convince everyone, but impressive nonetheless -- Willow.

(END VIDEOTAPE)

BAY: Thanks, terry.

VARNEY: All right. Now, let's check on some of the stocks that made pretty big moves today. First off, we have Broadcom. It surged 19 1/4 points on news that it will be added to the S&P 500 index, replacing GTE, which is merging with Bell Atlantic.

Inktomi jumped seven: Merrill Lynch Internet analyst Henry Blodget reiterated his buy rating and said it is one of Merrill Lynch's top Internet picks.

Gadzoox lost nearly seven points -- that's 34 percent. The software provider warned first-quarter revenue will be below analysts forecasts.

BAY: In other corporate news, Warren Buffet's Berkshire Hathaway is buying Justin Industries for $600 million. That comes to $22 a share. Justin is a footwear and buildings material maker.

Checking on the stocks: Justin Industries gained four, or more than 22 percent, while Berkshire gained 200.

VARNEY: It's old economy...

(LAUGHTER)

That's right. Coming up on MONEYLINE, after last night's violence in Los Angeles, concerns about the city's ability to keep control during this summer's Democratic convention.

BAY: We'll tell you about Mayor Riordan's reaction in our "News Digest." That's after the break.

(COMMERCIAL BREAK)

VARNEY: It's time for a look at the day's top stories in the "MONEYLINE News Digest." From Atlanta, Joie Chen -- Joie.

JOIE CHEN, CNN ANCHOR: Stuart, thanks you.

Two visions for America's retirement savings dominating the White House race today. Vice President Gore spelled out his savings proposal. It matches each dollar saved by an individual with government credits, up to three per dollar. Those credits could then be invested in mutual funds. Gore says his proposal wouldn't touch Social Security.

Meantime, George W. Bush today slammed the Gore plan as copying his own blueprint. Bush wants to let taxpayers invest part of their Social Security money in mutual funds.

Also today, CNN has learned that those hard-drives recovered this week at the Los Alamos nuclear lab may have been missing as long as six months. One lab official says the drives, loaded with classified information, were last officially logged in January.

Los Angeles Mayor Richard Riordan is promising safety at this summer's Democratic convention after unrest in his city last night. The violence, which followed a championship win by the L.A. Lakers, left cars demolished, store windows smashed, and fires burning in the streets.

Those are tonight's top stories. We'll have more coming up on "THE WORLD TODAY." That's at 8:00 p.m. Eastern, 5:00 on the West Coast. Join us then -- Stuart.

VARNEY: All right, thanks very much, Joie Chen.

BAY: Coming up in our next half hour, we'll check out an after- the-bell earnings report from Oracle.

VARNEY: And we'll pour over the numbers with chief executive Larry Ellison and ask him what's in store for this database business.

BAY: And two media moguls shake hands on a trans-Atlantic deal. We'll talk to both of them about how they plan to work together.

VARNEY: And a shoe kingpin goes from high fashion to criminal allegations. We'll check out the charges that landed Steve Madden in handcuffs today.

(COMMERCIAL BREAK) ANNOUNCER: MONEYLINE continues. Here again, Stuart Varney and Willow Bay.

BAY: In tonight's headlines, a media megamerger has the heads of Seagram and Vivendi jetting from Paris to New York to present a universal deal to investors. Microsoft's appeal on a fast track to the highest court in the land, but will the appeal only accelerate the plan to break up the software giant? And Oracle blows past profit forecasts. Will that be enough to satisfy Wall Street? We'll ask the company boss, Larry Ellison.

VARNEY: But first, more on our top story. Call it the comeback kid: the Nasdaq tonight is at levels not seen since April. The composite index now stands above 4,000 and is just 56 points away from breaking even on the year. Chip stocks once again led the charge higher, sending the Nasdaq up more than 23 points. It closed at 4,013.

But a different story for old economy blue chips: the Dow industrials tumbled 122 points, as Honeywell sold off for the second straight day. But the Dow's triple digit declines were overshadowed by the gains on the Nasdaq.

Kitty Pilgrim tonight on just how far we've come in this tech turnaround,

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): The Nasdaq comeback reached a symbolic milestone today as the composite closed above the 4,000 level for the first time in two months.

JOE KLEINERMAN, CHASE SECURITIES: It's a big deal in the sense that the Nasdaq, from the May lows, have really run the New York Marathon and have sprinted over the last 18 days. So, we're talking over a 1,000 point rally in the Nasdaq in 18 days.

PILGRIM: Technology carried the optimistic sentiment of the market, as all other sectors languished, especially old economy stocks on the Dow Jones industrial average. Chip stocks continued their tear: Broadcom, Altera, National Semiconductor, Rambus all surged. Intel higher has well after soaring yesterday. Many Wall Street analysts continue to see the techs taking the lead. Since hitting its closing low for the year in late may, the Nasdaq is up 27 percent, close to wiping out its losses for the year.

From that low, stocks such as Microsoft, Intel, Cisco, Dell, and Oracle have posted solid gains. But the real cautionary note comes from a slowing economy. The implications of a slowdown on techs are unclear. For that reason, some Wall Streeters think, despite the Nasdaq's recovery, the upside gains are limited.

ASH RAJAN, PRUDENTIAL SECURITIES: I'll be very content if we finish up maybe 8, 10 percent of the Nasdaq this year, given the fact that eight weeks ago, we were just right in the middle of the carnage, and to see that -- this change of sentiment, if you will, and a valid change of sentiment, is certainly very encouraging.

PILGRIM (on camera): But a slowing economy may mean only a few more rate hikes this year. And certain sectors, including technology, would surely benefit from that.

Kitty Pilgrim, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: A after-the-bell surprise today from Oracle, but it did little to boost price of its stock in after-hours trading. The database software maker actually beat fourth quarter estimates by a full six cents a share. Net income jumped 76 percent and reached $926. In other words, Oracle made almost a billion in net profits in 12 weeks, not a bad performance. But its stock still fell in after- hours trading. It was down 2 3/4 points 83 5/16. Somewhat weaker than expected results in its core database software business. That apparently accounted for that after-hours decline.

Well, joining us now with more on this is Oracle's chief Larry Ellison, who joins us live from Redwood Shores in California.

Mr. Ellison, welcome back to MONEYLINE. Good to see you, sir.

LARRY ELLISON, CHAIRMAN & CEO, ORACLE: Good to be here.

VARNEY: You've been reporting profit gains on an annual basis of about 40 to 50 percent a year. Is that sustainable, and if so, for how long?

ELLISON: Well, this year we got our margins from about 20 percent to 30 percent. And we actually said, about a year ago, that we were going to use our own Internet, e-business technology to dramatically improve the efficiencies of our company and we expected to the save a billion dollars in the last 12 months. We did exactly that.

This coming year, we think can save another billion dollars and move our margins from 30 percent to 40 percent.

VARNEY: So, in other words, to some degree, you made extra money by cutting cost, as opposed to pushing that product out the door.

ELLISON: Well, not -- we certainly cut costs, but we had a record quarter in our application business, where for the first time ever, we moved -- we passed SAP and became the world's largest application software company. So the top line moved up as well.

VARNEY: You want to be -- Oracle wants to be, what I would call an enabler of e-commerce. But many companies trying to sell on the Web have not done that well. Do you think that's going the hold you back in the future?

ELLISON: Well, I think a lot of companies, a lot of new companies, startup.com's that thought they could run unprofitable businesses for a very, very long time and still have IPOs and sell stocks without selling product profitably, I think they found that was a short-lived, amazing period of time here in Silicon Valley. But all businesses are going onto the Web. Profitable businesses are going to be more profitable.

VARNEY: How much does it mean to Oracle if Microsoft is broken up? Is it a real big financial plus for you?

ELLISON: I don't think it makes a lot of difference for Oracle. The -- Microsoft's biggest problem in my view is not the federal government. Microsoft's biggest problem is that they missed the Internet. And because they missed the Internet, they're going to suffer, from -- on a technology basis -- to compound their legal problems with Washington.

VARNEY: You've come very close recently -- sorry, I have to ask you this -- but you've come very close recently, to beating out Bill Gates for the title of the world's richest man. Now, is that a title that you pursue aggressively? Do you crave that title?

ELLISON: Well, I'd like Oracle to be the number one software company in the world. And if becomes the number one software company in the world, I end up passing Bill Gates. So, I think it's a team game as opposed to an individual game, and our goal is to make Oracle number one in software.

VARNEY: Larry Ellison, chief executive of Oracle, thanks very much for being with us, sir.

ELLISON: Thank you, my pleasure.

BAY: Like Oracle, Goldman Sachs beat profit estimates today, and its stock still took a hit. The investment banking firm said net income rose 21 percent on strong revenue growth in its investment banking, stock trading, and asset management operations. But while Goldman beat estimates by 11 cents a share, those forecasts were already lowered by analysts last months, and so investors were not impressed. Goldman shares finished the day down 89 to close at more than 2 1/2.

VARNEY: In Washington -- shares of Microsoft gained today after Judge Thomas Penfield Jackson put Microsoft's appeal on the fast track. The federal judge today asked the Supreme Court to hear the company's appeal directly, instead of letting it go first to the U.S. Court of Appeals. But the judge also gave Microsoft something to smile about, agreeing to the company's plea that he delay part of his June 7th order, the part that imposed restrictions on the company's business practices. And shares of Microsoft finished the day up 1 1/4 points, closing just under $75 a share.

Still to come on MONEYLINE: a transatlantic megamerger that creates one of the world's biggest media giants.

BAY: We'll talk to the deal makers next.

(COMMERCIAL BREAK) VARNEY: It's been a whirlwind day for Jean-Marie Messier and Edgar Bronfman Jr. The two played both sides of the Atlantic in announcing the $34 billion merger of Vivendi and Seagram. At noon Paris time, Messier, Bronfman and other top executives announced their deal to the French press in the country where Vivendi is based. Just eight hours later, after hopping aboard the Concord, they faced the press here in New York.

What does Vivendi get from the deal? Brand names on a global scale, including Universal Studios, Polygram Records and Absolut Vodka, part of Seagram's spirits business, which Vivendi plans to sell after the deal closes. But Seagram shares fell on the day, down 5 points. That is 8 percent down.

BAY: For this trans-Atlantic deal to succeed, management will have to rewrite a Hollywood script that has almost never had a happy ending.

As Casey Wian reports, international investors have had a tough time making money with Hollywood studios.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN CORRESPONDENT (voice-over): Universal Pictures is in the heart of Hollywood, but it's had an international flavor for a decade. Japanese electronics giant Matsushita bought Universal in 1990, largely in response to rival Sony's purchase of Columbia Pictures a year earlier. Both deals were spurred by a desire to merge hardware and content.

STEVEN P. CESINGER, GRIEF & COMPANY: If you look at the entrants, you know, consumer electronics, hardware companies, it's just a different business entirely. Somebody who understands how to build the cheapest VCR isn't necessarily going to know the next best actor or actress.

WIAN: By the mid-'90s, both ventures were in trouble. Sony took a $3 billion loss. Poor financial results convinced Matsushita to sell 80 percent of Universal to another international company, Seagram of Canada. Its cost-control efforts have produced mixed results.

Now, French executives in Paris will be calling the shots at Universal.

MESSIER: I seen that there is one error that you have to avoid. That's to be the Frenchies coming in, in Hollywood being very proud and trying to manage U.S. studios. U.S. studios have to be managed in L.A. by U.S. professionals.

Perhaps the best example of a global failure in Hollywood is MGM. The venerable studio was purchased by Italian financier Giancarlo Paretti in 1990. After MGM defaulted on more than a billion dollars in loans, Paretti was ousted and the studio was taken over by French bank Credit Lyonnais, which nearly collapsed.

MGM is back in American hands, smaller but thriving. Hollywood's most notable international success is Rupert Murdoch, who bought 20th Century Fox in 1992. It's become a cornerstone of his global media empire.

(on camera): By moving to Los Angeles and becoming an American citizen, Murdoch was able to shed the label of outsider. That may be the biggest challenge facing Universal's new bosses in Paris.

Casey Wian, CNN Financial News, Los Angeles.

(END VIDEOTAPE)

BAY: Earlier today, I sat down with the leaders of the new company: Vivendi Universal. I began by asking Edgar Bronfman Jr., who's been criticized for previous deals, if he is confident he's done the right thing this time.

(BEGIN VIDEOTAPE)

BRONFMAN: I've been criticized for buying MCI. I've been criticized for buying Polygram. I've been criticized for divesting DuPont. And when you look at the value -- and for the deal for USA Networks. And when you look at the value creation of each of them, I can look back and say, I think I've done the right thing for shareholders and I think I'm doing the right thing for shareholders today.

BAY (on camera): As the company moves forward and you take on your role as vice chairman, what do you hope to accomplish?

BRONFMAN: Well, I hope to play a role in real extraordinary value creation opportunity of Vivendi Universal. I'll have responsibility for music and all of the Internet activities of the group. And I think that the opportunity to create and deliver to consumers the promise of the new digital age, which means that they can be connected to what they're connected to today in their PC everywhere they go at every time and in every place, that's the new digital age. Only Vivendi Universal is placed to be able to give it to them. And I look forward to participating in that extraordinary opportunity.

BAY: You both talk of a deal with great potential, yet both stocks are down. What are investors missing here?

BRONFMAN: Well, from my perspective I think what investors are missing is they simply need to be educated. First of all, there is -- there is the normal arbitrage, and there's certainly been pressure on the stocks as a result of that. But in addition, we've just got to education -- excuse me -- investors as to the power of this combination. I think it's largely unknown, but I don't think it's untested or untried.

We simply need to explain to investors how powerful this is, and frankly, also, to explain to them that the net asset value of Vivendi is maybe 50 percent greater or more than where it's trading today.

And we're very confident in that asset value, and we think we can explain that to investors.

BAY: But still, do you expect that investors and analysts will struggle a little bit with the value of this deal, as they did after the AOL-Time Warner merger was announced.

MESSIER: I think it's going to be much quicker to recover than after the AOL-Time Warner, because that's a quite obvious and powerful combination. And I think that as soon as we will have explained and educated all investors around the world about the potential of putting together these key contents and the access to the Internet age that we get through Vizzavi -- with, by example, more than 100 million subscribers in Europe -- they will understand the real value of this deal.

It's so obvious that there is a gap there, that you better buy Vivendi now because you will never see again the stock at the current level, price.

BAY: Is there a role for Barry Diller in the combined company?

BRONFMAN: Well, from my perspective, Barry is continuing to run USA Networks. That's what he wants to do. And I think frankly there's a lot that Vivendi Universal has to off USA Networks, particularly in Europe, combining some of the tremendous assets within USA Networks -- like Home Shopping Network, like Ticket Master, like Hotel Reservations Network -- with the Vizzavi portal and other assets that will dramatically USA Networks European presence.

BAY: One last quick question about another one of your colleagues, Rupert Murdoch. You've been pursuing a deal with him. Do you think he'll be more receptive after today?

MESSIER: I think that after the announcement of our transaction Rupert Murdoch just conveyed the message that it was even more interesting for him to have this discussion with Vivendi Universal than it was with Vivendi.

(END VIDEOTAPE)

VARNEY: I remember when Vivendi was a water company and that was it.

BAY: And no they have a lot of explaining to do, because this is a complex deal.

VARNEY: Still to come, the world awaits word from OPEC whether to pump oil production.

BAY: But will it be enough to bring relief to sky-high oil prices?

(COMMERCIAL BREAK)

VARNEY: OPEC officials will gather in Vienna to discuss whether to increase oil production. Today, crude prices shot up $1.36 a barrel, back above $33. Allan Chernoff looks at the ripple effect.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): Van Hall is shopping for a new truck. He lives on a fixed income, so the jump in gas prices is influencing his decision.

VAN HALL, CAR SHOPPER: Instead of getting that eight-cylinder, I may prefer going to a six for, you know, economizing. Gas prices are through the roof now.

CHERNOFF: The higher gas climbs, the more prohibitive gas guzzlers become.

ARVINO AINGHAL, POTAMKIN, MANHATTAN: In the last one month, we have experienced some slowdown in the sales. People are concerned, consumers these days are concerned over the growth in gas prices.

CHERNOFF: And Detroit is concerned as well. Sport utility vehicles generate more than $10,000 in profit a piece compared to only $3,000 for a typical car. Already the cooling economy has hurt sales, off 13 percent in just the past four months. And it's forcing manufacturers to offer cash incentives.

On Tuesday, GM conceded it would not be able to hit a 5 percent net profit margin this year in North America, a long-term goal for the company.

No industry feels the energy squeeze more than airlines. Every dollar increase in the price of a barrel of crude costs U.S. commercial airlines an extra $540 million a year in jet fuel expenses. The average price of crude is up $9 this year. That means $4.9 billion in extra expense.

DAVID TREITEL, SH&E: The most immediate impact night is it's cut into the profitability of the business and quite substantially.

CHERNOFF: Airlines have raised fares, passing some of the expense to consumers, and they've become more efficient. Fuel comprised 30 percent of airline expenses 20 years ago. Now, thanks to efficient aircraft and higher passenger traffic, the share is down to 12 percent.

Truckers also are facing tough times. If fuel prices hold at current levels. the industry would have to pay an extra $10 billion, and so far half those increased costs are being passed along.

(END VIDEOTAPE)

CHERNOFF: It is still much too early to determine the impact on profits. No one knows if the price of oil is going to hold. In fact, OPEC could send it tumbling at its two-day meeting that begins tomorrow. But the longer oil prices remain sky-high, above $30-a- barrel, the greater the cost to American industry and corporate profitability -- Stuart. VARNEY: All right, Allan Chernoff, thanks very much -- Willow.

BAY: A temporary lull in oil prices back in April helped to narrow the U.S. trade gap, but it is still poised to smash all records this year. The deficit slipped to $30.4 billion last month. But the gap widened against several countries, including Japan and China.

VARNEY: All right. Checking on some stocks that made moves today, we start out with Nextel. It was down nearly 4 1/2 points. Racial and sexual discrimination complaints were filed with the FEOC today against that company. Nextel says it will conduct a thorough investigation and believes that its policies support a positive work force.

Digital Island jumped more than 10 1/2: One of the Nasdaq's most actives, the network service provider received a $45 million investment from Compaq, Intel and Microsoft.

Thomas & Betts lost more than 7 1/2 -- that's 28 percent. The maker of electrical connections and components warned that quarterly profits will be -- quote -- "significantly below" analysts forecasts.

BAY: In our "Sector Focus" tonight, a blockbuster day for biotechs. Celera led the group higher, up 16 percent. MONEYLINE confirmed that the genomics company and the federally funded Human Genome Project plan to release a rough draft of genetic sequencing later this month.

Lexicon Genetics also gained ground after announcing that it's altered more than one-third of genes in the mouse genome.

Checking investor reaction: Celera rocketed more than $19. Lexicon Genetics rose nearly 4 1/2. Millennium Pharmaceuticals, Genentech and Abgenix higher as well.

VARNEY: Still ahead on MONEYLINE, a designer who made his name in the shoe trade charged with market manipulation.

BAY: We'll tell you about the case against Steven Madden, after the break.

(COMMERCIAL BREAK)

BAY: A man best known on "Fashion Avenue" made a splash today in a very different venue: federal court. Designer Steve Madden was arraigned today. A statement from Steve Madden Limited said the company remains strong. But the stock dropped nearly 15 percent today before the Nasdaq halted trading.

Allan Dodds Frank has more.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): For designer Steven Madden it was a rough day in federal court, or two courts to be precise. He was arraigned first in Manhattan, then in Brooklyn on two indictments charging him with conspiracy, securities fraud and money laundering.

Madden, who made his name in the women's shoe business, is charged with participating in securities fraud with the principals of two now-defunct brokerage firms: Stratton Oakmont and Monroe Parker. Many of those brokers have pleaded guilty in other cases.

Madden was released on $750,000 bail. The schemes, the indictments say, largely centered around more than a dozen initial public offerings. The government claims the brokers secretly gave IPO stock to Madden. He then allegedly bought and sold it at their command, and for flipping the stock, he allegedly shared in profits of more than $4 million.

For instance, in a 1996 initial public offering for Big City Bagels, the brokers allegedly arranged for Madden to get stock in the IPO, and they brought him in to make a $200,000 bridge loan to Big City. In return, prosecutors say, he got 100,000 shares, whose sale was supposedly restricted for 13 months. But when Big City went public, Madden sold the restricted stock within hours to the brokers for $2 a share. That was far less than the average of $9.40 a share he got for another 181,000 shares the same day.

JOEL WINOGRAD, ATTORNEY FOR STEVE MADDEN: And the same witnesses that are testifying against him have testified in other cases. And all the defendants in those other cases have been acquitted, and we expect the same thing to happen here in this case.

FRANK (on camera): Madden's company went public in 1993 and now sells shoes in more than 3,000 outlets, including nearly 60 of its own stores. Last year, it reported sales of more than $160 million and profits of more than $11 million.

(voice-over): How this case will affect the company is not yet known. If convicted, Madden faces up to 20 years in prison and fines of $500,000 or more.

Allan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: And "Ahead of the" -- "Ahead of the Curve" comes up next.

(COMMERCIAL BREAK)

VARNEY: Here's what could move the markets tomorrow. Oracle: It beat profit estimates late today. Also, watch Apple Computer and Exodus Communications, who split their shares after today's closing bell.

OPEC ministers meet in Vienna tomorrow, could decide to boost oil output.

And be sure to keep ahead of the markets. Watch "AHEAD OF THE CURVE" tomorrow morning at 5:00 a.m. Eastern here on CNN.

BAY: That's MONEYLINE for this Tuesday. I'm Willow Bay.

VARNEY: And I'm Stuart Varney. Here's Mary Matalin with "CROSSFIRE."

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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