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Desktop publishing software company Adobe Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADBE)") else Response.Write("(Nasdaq: ADBE)") end if %> jumped $3 1/16 to $27 5/8 after spurning an unsolicited takeover bid from privately held and much smaller rival Quark Inc. Yesterday, Quark announced that it had proposed acquiring Adobe at an unspecified premium to its present market price. A takeover offer doesn't come as a complete surprise because Adobe has languished of late due to slower sales and the economic downturn in Japan. Two weeks ago, Adobe warned that it expected a 2% to 4% drop in fiscal Q3 revenue and breakeven to negative earnings after charges. The company also announced a restructuring that involved cutting 240 to 300 jobs and eliminating three top executive positions. Quark said it believes there would be synergies between its product line and some Adobe products. Quark also said it would divest certain Adobe products to alleviate antitrust concerns. Sounds like this may mean getting rid of one of Adobe's flagship products, page layout software PageMaker, which directly competes with Quark's QuarkXPress. No wonder Adobe was less than thrilled about the bid. Still, Quark's offer has sparked speculation that other bidders may come knocking on Adobe's door.
Southeastern regional bank holding company Regions Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RGBK)") else Response.Write("(Nasdaq: RGBK)") end if %> moved up $2 15/16 to $39 13/16 after Standard & Poor's Financial Information Services said it will add the company to the S&P 500 Index at the close of trading tomorrow, replacing DSC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIGI)") else Response.Write("(Nasdaq: DIGI)") end if %>, which is being acquired by Alcatel Alsthom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %>. Morgan Keegan raised its rating on Regions to "outperform" from "market perform." Insurance and financial services company Protective Life Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PL)") else Response.Write("(NYSE: PL)") end if %>, which gained $1/8 to $36 15/16, will be moved from the S&P SmallCap 600 Index to replace Regions Financial in the S&P MidCap 400 Index. Meanwhile, ready-mixed concrete producer Florida Rock Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRK)") else Response.Write("(NYSE: FRK)") end if %>, which rose $1 9/16 to $29 1/16, will take Protective Life's place in the S&P SmallCap 600 Index.
QUICK TAKES: Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> gained another $4 5/8 to $128 5/8 on optimism that the PC direct seller will parlay its U.S. success to other countries around the world. Today the company said it expanded a financing and leasing agreement with Newcourt Credit Group to international customers... Pharmaceutical company Pfizer Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> picked up another $1 1/2 to $108 as its impotence drug Viagra nears obtaining marketing approval in the 15-nation European Union, which could mean launching the product in Europe by mid-September... Several other large drug companies also continued to rise: Warner-Lambert (NYSE WLA) added $1 5/8 to $77 1/8, Eli Lilly <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LLY)") else Response.Write("(NYSE: LLY)") end if %> advanced $2 3/4 to $77 1/16, and Bristol Myers Squibb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMY)") else Response.Write("(NYSE: BMY)") end if %> climbed $4 1/16 to $112 5/8.
Land and marine exploration equipment company Input/Output <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IO)") else Response.Write("(NYSE: IO)") end if %> recovered $2 to $11 3/8 after being drilled yesterday for a $4 5/8 loss to $9 3/8 after warning that fiscal Q1 EPS likely will be "substantially below" market expectations... Telecommunications equipment maker Tellabs Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLAB)") else Response.Write("(Nasdaq: TLAB)") end if %> rose $1/2 to $58 1/2 after its board of directors met yesterday to discuss its proposed acquisition of Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %> but adjourned without comment... Telecommunications cable and wire manufacturer Superior TeleCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SUT)") else Response.Write("(NYSE: SUT)") end if %> rang up $2 1/16 to $36 13/16 after reporting fiscal Q1 EPS of $0.79, up 34% from $0.59 for the year-ago period and a nickel ahead of estimates.
Computer and telecommunications systems maker Comverse Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMVT)") else Response.Write("(Nasdaq: CMVT)") end if %> rose $1 5/8 to $46 after reporting Q2 EPS of $0.55 compared with last year's $0.37 and analysts' expectations of $0.52... IDT Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IDTC)") else Response.Write("(Nasdaq: IDTC)") end if %> jumped $2 1/2 to $17 7/8 after Friedman, Billings, Ramsey & Co. reiterated the telecommunications company a "buy," citing an excessive drop in the company's stock price... Airline operator Reno Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RENO)") else Response.Write("(Nasdaq: RENO)") end if %> climbed $15/16 to $6 1/16 after announcing it expects "record" Q3 earnings and that it plans to repurchase up to 2 million shares.
Infection prevention and surgical support systems maker Steris Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRL)") else Response.Write("(Nasdaq: STRL)") end if %> gained another $1 1/32 to $31 1/32 after being selected to replace Viking Office Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VKNG)") else Response.Write("(Nasdaq: VKNG)") end if %> on the Standard & Poor's MidCap 400 Index... Online payment technology developer CyberCash Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYCH)") else Response.Write("(Nasdaq: CYCH)") end if %> traded up $1 5/32 to $10 11/32 after its CEO said he was "comfortable" with revenue forecasts of $15 to $20 million in 1998... Computer aided design software firm Autodesk <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADSK)") else Response.Write("(Nasdaq: ADSK)") end if %> regained $1 7/8 to $25 1/16. The stock had tumbled after warning last Friday that the Asian economic downturn will result in fiscal Q3 EPS about $0.05 to $0.08 below the analysts' mean estimate of $0.50.
Asynchronous transfer mode (ATM) switching products maker FORE Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORE)") else Response.Write("(Nasdaq: FORE)") end if %> lost $5 3/8 to $18 7/8 after saying it will acquire privately held Berkeley Networks for about $250 million in stock and cash milestone payments. Berkeley makes routers and switches that work in tandem primarily with servers running Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> popular Windows NT operating system. In the long run, the acquisition will bulk up FORE in the face of its larger networking competitors, such as 3Com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> and Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>. In the short term, though, Fore is looking at a $1.80 to $2.20 per share fiscal Q2 merger charge and a reduction in EPS over the next two quarters by about $0.04 to $0.06 per share. With this in mind, SoundView Financial today lowered the firm's short-term rating to "hold" from "buy."
Women's apparel maker and retailer St. John Knits <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SJK)") else Response.Write("(NYSE: SJK)") end if %> went through the spin cycle today, losing $8 to $18 1/2 after announcing that sales at its Amen Wardy Home stores fell short of expectations in the third quarter. As a consequence, the company expects to report basically flat earnings of $0.43 per share for the quarter, compared with $0.42 last year. That's not really such a big deal, though, as analysts aren't expecting huge things in the near term from the retail division. More worthy of concern were the company's comments on inventory at its full price boutiques, which "...exceeded plan, thereby forcing the division to take markdowns and to transfer merchandise to the outlet warehouse to reduce excess inventory." The inventory problem signals that the company will take a hit on margins and also that unit growth is below trend, which raises questions about whether the company can maintain its saintly historical growth rate.
QUICK CUTS: Semiconductor wafer fabrication equipment maker Applied Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %> dropped $1 7/8 to $29 9/16 after saying it will cut its workforce by 15% in an effort to cut costs amid the current downturn in the chip biz. The job cuts will result in an unspecified fiscal Q4 restructuring charge, which will result in a net loss for the period... Telecommunications systems designer Advanced Fibre Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFCI)") else Response.Write("(Nasdaq: AFCI)") end if %> lost another $1 to $9 1/4 after Lehman Brothers cut its fiscal 1998 and 1999 earnings estimates yesterday due to concerns about the firm's international operations... Flexible circuits and electrical cables maker Parlex Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRLX)") else Response.Write("(Nasdaq: PRLX)") end if %> fell $2 3/8 to $10 7/8 after reporting fiscal Q4 EPS of $0.21, matching the First Call mean estimate. However, the firm was downgraded to "attractive" from "buy" by Adams, Harkness & Hill.
Pet supplies retailer PETsMART <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PETM)") else Response.Write("(Nasdaq: PETM)") end if %> went to the dogs today, dropping $1/2 to $6 9/16 after reporting a fiscal Q2 loss of $0.01 (including legal and severance costs), missing the Street's estimate of breakeven results for the period... Pillows and bedding products maker Pillowtex Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTX)") else Response.Write("(NYSE: PTX)") end if %> was plucked for a $1 1/2 loss to $30 5/8 after saying it will close a bedding facility in North Carolina in the next 60 days, resulting in the layoffs of about 150 employees... Discount men's apparel retailer K&G Men's Center <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MENS)") else Response.Write("(Nasdaq: MENS)") end if %> dropped another $1 to $9 15/16 after the company said yesterday that its fiscal Q2 results were hurt by severe heat in Texas, which some analysts feel may also impact the firm's Q3 results... Apparel and footwear retailer J. Baker <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBAK)") else Response.Write("(Nasdaq: JBAK)") end if %> was burned $1 1/16 to $9 7/16 after reporting fiscal Q2 EPS of $0.18, beating the Street's estimate by a penny. However, the company said soft demand for athletic shoes will continue and negatively impact sales in August and early September.
CBS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBS)") else Response.Write("(NYSE: CBS)") end if %> eyed an $11/16 loss to $27 3/16 after The Wall Street Journal reported that the radio and TV network is considering job cuts and outsourcing some of its technical work in order to reduce costs... Telecommunications billing and customer service software maker LHS Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LHSG)") else Response.Write("(Nasdaq: LHSG)") end if %> fell $3 3/8 to $47 1/8 after saying President Bruce Leonard resigned due to "a family situation." According to Reuters, Leonard also has filed with the SEC over the past week to sell a total of 200,000 LHS shares... Telecommunications, printed circuit board, and computer subassemblies contract manufacturer CMC Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMCI)") else Response.Write("(Nasdaq: CMCI)") end if %> dropped $5/8 to $5 5/8 after reporting fiscal Q4 EPS of $0.01, missing the Street's mean estimate of $0.08.
Fitness center operator Bally Total Fitness <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BFT)") else Response.Write("(NYSE: BFT)") end if %> was trimmed $1 7/16 to $19 1/4 after an article in The Wall Street Journal said the company would have lost "significant amounts of money" in its fiscal Q2 if it had used more "conservative" policies for its reserves for doubtful membership fee payments... Mining and papermaking machinery manufacturer Harnischfeger Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HPH)") else Response.Write("(NYSE: HPH)") end if %> lost $3 3/8 to $16 7/8 after saying "depressed" demand for its products will continue into 1999, prompting the company to reduce its workforce by 20% as part of an effort to cut costs by $110 million... Schlotzky's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BUNZ)") else Response.Write("(Nasdaq: BUNZ)") end if %> was sliced $1 1/4 to $13 after the sandwich shop operator was slapped with a class action shareholder lawsuit alleging the company "artificially inflated" its stock price by "reporting false and overstated net income" over the past year... First Data Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDC)") else Response.Write("(NYSE: FDC)") end if %> fell $1 1/4 to $24 1/4 as its TeleCheck Services check acceptance subsidiary agreed to acquire privately owned over-the-phone check acceptance service QuickCard Systems for unspecified terms.
FOOL
ON THE HILL
An Investment Opinion
by
Louis Corrigan
Perelman's Sunbeam
Financier Ronald O. Perelman is a piece of work. At least, that's the polite way to put it. A controlling figure behind the cosmetics giant Revlon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: REV)") else Response.Write("(NYSE: REV)") end if %> as well as stogie-maker Consolidated Cigar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIG)") else Response.Write("(NYSE: CIG)") end if %>, Perelman perhaps ought to be identified simply as the man who bankrupted leading comic book company Marvel Entertainment Group. That's because Perelman made millions on Marvel and then left it so debt-laden that bondholders eventually consumed the carcass, leaving common shareowners holding worthless paper. Marvel offers an interesting lesson in how Perelman creates shareholder (note the singular) value.
This heavyweight investor has now landed a mind-boggling combination of punches to average shareowners of troubled appliance-maker Sunbeam <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SOC)") else Response.Write("(NYSE: SOC)") end if %>. First, Perelman induced Sunbeam's former CEO Al Dunlap to pay a rich price for his 82% stake in Coleman <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLN)") else Response.Write("(NYSE: CLN)") end if %>, the heavily leveraged, poorly performingoutdoor products firm. For each Coleman share, Perelman walked away with $6.44 in cash plus 0.5677 shares of Sunbeam, or about $160 million and 14.1 million shares of Sunbeam then trading around $41 a share. Then, after Sunbeam's shares started plunging on earnings disappointments and signs of suspect accounting, the financier's troops managed to install a new Perelman-dominated regime after the board staged a coup that disarmed Dunlap of his famous chainsaw.
The kicker? On August 12, Perelman pressured a special committee of Sunbeam's board to approve a sweetheart deal giving him warrants to acquire 23 million shares at $7 each anytime in the next five years. Just a week earlier, the stock had dipped below $7 for the first time since going public in August 1992. This gift was designed to keep Perelman from suing Sunbeam over the plummeting share price and to enable the company to retain new CEO Jerry Levin, Perelman's turnaround man, and other management support from Perelman's MacAndrews & Forbes investment group. No one on the board seems to have cared that these were the same geniuses responsible for Coleman's middling performance, the very thing that made the company attractive fodder for Dunlap's turnaround skills.
Although this little warrant deal effectively doubled Perelman's Sunbeam stake from 14% to 28%, the board didn't bother to seek shareholder approval. Instead, it relied on a special exception to the New York Stock Exchange's policy on such transactions. Sunbeam's audit committee determined that, given an ongoing SEC investigation into the company's accounting and the firm's plans to restate recent financial results, it simply would take too long to get shareholder approval.
Delays would "seriously jeopardize" the company's financial viability since a potential Perelman suit would be hanging over the company even as its management team remained unsettled. As board chair and special committee member Peter Langerman said in a press release, "The Special Committee unanimously determined that this settlement agreement is in the best interest of all Sunbeam shareholders."
It certainly was in Perelman's best interests. When the stock hit $8 5/8 the next day, bouncing back from a perilous fall the week before, the warrants made Perelman $40 million richer -- literally overnight.
These machinations, however, have not gone unnoticed or unchallenged. Sunbeam shareowner Ronald Goldstein has filed suit in Delaware Chancery Court in Wilmington, Delaware, charging that the warrant settlement "constitutes a waste of Sunbeam assets, selfish conduct by the Sunbeam board to avoid personal liability, [and] wrongful benefits for [Perelman and his holding company] at the expense of Sunbeam's public shareholders." In other words, average shareowners who were shafted by Dunlap's allegedly fraudulent accounting under the board's watch are now being shafted once again as the board members cover their butts. Similar sentiments have been echoed by others, from Fool reader Ayce2nd to TheStreet.com's Herb Greenberg.
This episode raises a number of questions. Considering the chunk of change he has tied up in Sunbeam, did Perelman really have much leverage, or did the board simply cave in? That is, would Perelman really have launched a truly nasty legal battle and risked further devastation to Sunbeam's stock and perhaps even bankruptcy? Seems unlikely.
Moreover, why would any public company go out of its way to secure an executive team that had not only done a poor job running a business before but was seemingly willing to betray public investors -- those folks who still own Coleman shares, which Sunbeam hasn't gotten around to acquiring -- by acquiescing to a deal that made Perelman whole while ignoring those other investors? Indeed, had it still been possible to do so, Sunbeam shareholders might have been better off in the long term had the board simply told Perelman and his team to shove it -- to simply take back Coleman.
Dunlap's legacy, of course, will really only become clear once the accounting haze has lifted. But the latter stages of this Sunbeam debacle seem a little more obvious. This is the sad story of how an independent board -- indeed, a supposedly model board built partly on theories laid down by corporate governance expert Charles Elson, who became a Sunbeam director at Dunlap's urging -- has essentially ceded control of the company to an outside party without shareholder approval.
Sure, the special committee that agreed to the warrant deal consisted of Langerman, Elson, Howard Kristol, and Faith Whittlesey -- folks with no ties to Perelman's MacAndrews. And Langerman is the leading voice on the board for Franklin Resource's Mutual Series funds, which holds a 17% stake in Sunbeam. Moreover, this special committee got financial advice from The Blackstone Group and legal advice from Weil, Gotshal & Manges. All that means is that selling out average shareholders without their approval has rarely been done so judiciously.
While the market reacted positively to the warrant deal as well as to yesterday's announcement of new restructuring plans by CEO Levin, it remains to be seen whether the new Perelman-controlled Sunbeam can deliver results for other Sunbeam investors. For now, the warrant package makes one suspect that one of two conclusions must be true. Either the board blinked and unnecessarily gave away the store, or Sunbeam is in far worse shape than even the skeptics imagine. In any case, it wouldn't surprise me if the company enjoyed some marvel-ous times ahead.
Related articles:
-- Sunbeam's Cloudy Future, The Evening News 08/06/98
-- Sunbeam, Midyear Review, 7/20/98
-- Al Dunlap Ousted, The Lunchtime News, 06/15/98
-- Daily Trouble: Sunbeam Corp. 05/18/98
-- Marvel-ous Debt? The Evening News, 10/09/96
-- Sunbeam Message Board
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool
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