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FOOL PLATE SPECIAL
An Investment Opinion
by Louis Corrigan
PPR's Bid For Brylane Looks Skimpy
<% ' AvantGo:FoolPlate %>Shares of Brylane Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYL)") else Response.Write("(NYSE: BYL)") end if %>, the top U.S. catalog retailer of value-priced clothes and extra-large women's apparel, added some pounds, eh, dollars today after the company announced last night that it had received a buyout offer from Paris-based Pinault-Printemps-Redoute S.A., Europe's third largest mail-order company and owner of the Printemps department store chain. PPR already holds a 49.9% stake in Brylane while its affiliates own another 0.2%, giving PPR effective control of the company. PPR is now offering to pay $20 in cash, or a total of $172.5 million, for the 8.62 million shares still held by the public. That price represents an 18.5% premium to Tuesday's closing price of $16 7/8 and a 27.8% and 16% premium to the average closing price of the stock over the last 30 and 60 trading days, respectively. A committee comprised of Brylane's three independent directors is now considering the offer.
PPR added that it is "not interested, under any circumstances, in selling its interest in Brylane." That apparently nixes the possibility that an outside party might enter with a higher offer. Nonetheless, investors have met PPR's offer with appropriate disdain, bidding Brylane's shares up $5 1/2 to $22 5/8. Despite PPR's assertion that "our proposal is at a fair price that reflects Brylane's historical results and future prospects," investors rightly see this as a lowball offer. For starters, PPR originally acquired a 44% stake in Brylane from The Limited <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LTD)") else Response.Write("(NYSE: LTD)") end if %> and other shareholders only last April. It paid $51 a share. From June 3 through August 19, PPR purchased another 772,000 shares at prices ranging from $24.6 to $51. The new offer, then, represents some serious dollar-cost averaging. Even figuring in the $310 million in long-term obligations on Brylane's balance sheet as of August 1, the current offer values the company at just $655 million, or less than 0.5 times trailing twelve-month sales of $1.34 billion.
There's no question that Brylane has had a tough year. The stock was trading around $40 in early August before Chair/CEO Paul Canzone warned that the second half of the year would be weak. Analysts had been looking for revenue growth of 10% but revised that to 7.5%. The stock got whacked for another $3 3/8 loss to $11 1/8 on November 18 after the company reported Q3 EPS of just $0.05 (excluding one-time charges), well below the $0.85 earned in Q3 1997 and substantially off the First Call mean estimate of $0.18. Sales actually declined to $348.2 million versus $365.5 million last year. The company blamed poor response to some of the firm's catalogs, with particularly soft sales in its regular size women's businesses, Chadwick's and Lerner. Canzone said Q4 sales would come in "slightly below last year's levels," adding that Brylane is facing an "aggressive" pricing environment.
Even so, Brylane went public in February 1997 at $24 a share and the stock didn't dip below $20 a share until late September. The company has a customer list of 23.4 million names, with 10.9 million customers who have placed orders in the last year or so. About 40% of the 4.5 million active customers of Lane Bryant, Roaman's, and Lerner have placed three or more orders over the same period. Despite a tough market for catalog companies, Brylane would seem to have some valuable assets, including a strong customer base. Earnings of $2.67 per share last year (before an extraordinary charge) give some indication of the firm's earnings potential.
What's curious is that based on the latest proxy, it appears that PPR may have violated a standstill agreement with its August purchases, which put its holdings at 8.783 million, or 50.9% of the shares said to be currently outstanding. That might explain why PPR chose to sell 166,000 shares October 15 at the lowly price of $13 1/2 after accumulating shares for months. In any case, Brylane's outside directors are now on the spot. According to the company's filings, Judith Campbell owns no shares, so she has little at stake. Peter Starrett owns 8,000 shares, half of which were acquired in August and September at an average price of $20.35. But William Johnson would appear to have serious reason to be personally annoyed by the offer. In August, he purchased 6,000 shares at $26.75. A buyout at $20 would put him out $40,500 in just three months. Probably not the return he had in mind.<% ' AvantGo:End %>
<% ' AvantGo:Ups %>Truck manufacturer Navistar International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAV)") else Response.Write("(NYSE: NAV)") end if %> zoomed ahead $1 13/16 to $26 9/16 after reporting fiscal Q4 EPS of $2.14, up from $0.85 last year and well above the six-analyst estimate of $1.46 listed by First Call. The company, which hinted at its financial strength last month, experienced strong demand across the line, according to CEO John Horne, and "we expect demand to remain high in 1999."
Online and catalog retailer Sharper Image <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHRP)") else Response.Write("(Nasdaq: SHRP)") end if %>, hot recently on optimism about its holiday prospects, jumped ahead $1 3/16 to $13 9/16 after reporting a 17% increase in same-store sales for November. Among other same-store sales movers, American Eagle Outfitters <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AEOS)") else Response.Write("(Nasdaq: AEOS)") end if %> flew ahead $2 3/8 to $59 3/4 on a 24.8% monthly gain while Gap Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> rode a 16% gain to move up $2 1/8 to $52 7/8. For an expanded table, grab some Breakfast With the Fool
Internet portal company Excite Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> cheered up $2 7/8 to $52 1/4 after Merrill Lynch boosted its near-term rating on the stock to "accumulate" from "neutral."
PC maker Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> rose $1 3/16 to $37 3/4 after announcing a partnership with software giant Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> to develop new system area network (SAN) technology for enterprise users.
Local exchange carrier and telecommunications services provider GTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %> rang up gains to $2 9/16 to $65 1/16 on reports that the company will provide Internet service for the China Internet Information Center, that country's leading online news source. Merrill Lynch upgraded the stock to "near-term buy" from "near-term accumulate" today.
Specialty semiconductor designer Xilinx Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XLNX)") else Response.Write("(Nasdaq: XLNX)") end if %> charged up $3 13/16 to $60 1/4 after Prudential Securities boosted its rating on the stock to "accumulate" from "hold."
Focused ion beam (FIB) semiconductor fabrication equipment maker Micrion Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MICN)") else Response.Write("(Nasdaq: MICN)") end if %> blazed $3 1/8 to $10 3/8 after it announced plans to merge with a subsidiary of competitor FEI Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FEIC)") else Response.Write("(Nasdaq: FEIC)") end if %>. Micrion shareholders will get one share of FEI common stock and $6.00 cash for each of their shares. FEI fell $1 1/2 to $6 5/8 this morning.
Consumer video conferencing products maker 8x8 Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGHT)") else Response.Write("(Nasdaq: EGHT)") end if %> gained $2 to $11 3/8 after it said Samsung will use its one of its video processor chips in its WebPhone, which allows people to make video phone calls on the Web. 8x8 stock, which ran into Trouble earlier this year, has recovered from lows below $2 per share in August.
Consumer products distributor AMCON Distributing Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIST)") else Response.Write("(Nasdaq: DIST)") end if %> spread $1 to $7 3/4 after it reported fiscal Q4 EPS of $0.26, up from $0.18 last year.
Online transaction processing services provider Pegasus Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PEGS)") else Response.Write("(Nasdaq: PEGS)") end if %> flapped up $2 5/8 to $23 3/4 said France's Concorde Hotels will use Pegasus products for reservations processing.
Data-management software developer Pervasive Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PVSW)") else Response.Write("(Nasdaq: PVSW)") end if %> improved $3/4 to $11 3/4 following a press release saying its Tango Enterprise product has been integrated into recent Internet IPO theglobe.com's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TGLO)") else Response.Write("(Nasdaq: TGLO)") end if %> online community.
Chip maker Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> won $2 15/16 to $48 11/16 after Credit Suisse First Boston upgraded the company to "strong buy" from "buy," setting a price target of $65 per share.<% ' AvantGo:End %>
<% ' AvantGo:Downs %>Enterprise computer networking company Cabletron Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> moved down $1 1/8 to $9 5/8 after warning late yesterday that it expects a fiscal third quarter (ended November 30) operating loss of about $0.10 a share before charges. Analysts were forecasting earnings of $0.11 a share, according to First Call. Revenues are estimated to be between $330 million and $340 million, compared with $331.8 million for the same year-earlier period.
Catalog retailer Lillian Vernon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: LVC)") else Response.Write("(AMEX: LVC)") end if %> announced last night that it has launched a new website with "upgraded shopping capabilities and graphic enhancements" at www.lillianvernon.com. The announcement was about a week too late to take part in the recent Internet-related share price blitz, though, and traders knocked the company's shares down to $1 to $15 1/2 this morning. Several recent Web-related run-ups from last week also fell. Egghead.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGGS)") else Response.Write("(Nasdaq: EGGS)") end if %> was fried $3 7/16 to $18 3/16, Books-A-Million <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAMM)") else Response.Write("(Nasdaq: BAMM)") end if %> was burned $3 5/16 to $12 11/16, NetRadio owner Navarre Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAVR)") else Response.Write("(Nasdaq: NAVR)") end if %> slid $1 1/4 to $8 1/4, and Wavephore <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WAVO)") else Response.Write("(Nasdaq: WAVO)") end if %> receded $13/16 to $8 11/16.
Stocks tied to soccer-mad Brazil got a collective red card from the U.S. markets today after Brazilian legislators nixed a tax proposal that would have reduced the country's $64 billion budget deficit. In response, the country's main stock index fell 6% this morning on worries that the inaction on the deficit front adds more risk to Brazilian equities. Bank Unibanco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UBB)") else Response.Write("(NYSE: UBB)") end if %> fell $3 1/8 to $16 3/4, and the American depositary shares of the 12 new holding companies formed by the recent breakup of telephone monopoly Telebras also dropped. Among the latter group, Telesp Participacoes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSP)") else Response.Write("(NYSE: TSP)") end if %> slid $2 1/4 to $23 9/16, Telecomunicacoes Brasileiras <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBH)") else Response.Write("(NYSE: TBH)") end if %> sank $6 11/16 to $86 5/8, and Tele Norte Leste Participacoes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TNE)") else Response.Write("(NYSE: TNE)") end if %> slumped $1 7/8 to $16 5/8.
Broadband networking products supplier ANTEC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANTC)") else Response.Write("(Nasdaq: ANTC)") end if %> sank $4 9/16 to $15 3/16 after saying its fourth quarter is "not shaping up as anticipated" due to lower-than-expected international sales, which will result in revenues between $130 million and $135 million and earnings in the $0.02-$0.04 per share range. The First Call mean estimate had called for earnings of $0.14 per share in the quarter. On a brighter note, the company expects an expansion of its joint venture with Nortel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %> will add to revenues and earnings in fiscal 1999.
Enterprise application software company BMC Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMCS)") else Response.Write("(Nasdaq: BMCS)") end if %> lost $4 1/14 to $52 after Morgan Stanley Dean Witter lowered its rating to "neutral" from "outperform." The move follows an 8% gain yesterday after the company's CFO reportedly made positive comments about BMC's outlook at a Credit Suisse First Boston investors' conference.
Several retailers fell this morning after reporting declines in November same-store sales figures. Women's apparel retailer Cato Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CACOA)") else Response.Write("(Nasdaq: CACOA)") end if %> dropped $3 1/2 to $9 9/16 after reporting a 7% slide in same-store sales, while a 10% slide in comps at Goody's Family Clothing <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GDYS)") else Response.Write("(Nasdaq: GDYS)") end if %> drove that company's shares down $1 1/8 to $9. Athletic shoe store Footstar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTS)") else Response.Write("(NYSE: FTS)") end if %> lost $3 7/16 to $19 11/16 on a 12.7% decline in comparable-store sales during the month.
Children's Comprehensive Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KIDS)") else Response.Write("(Nasdaq: KIDS)") end if %>, which operates treatment centers for at-risk and troubled children, moved down $2 9/16 to $9 11/16 following a NationsBanc Montgomery Securities downgrade to "hold" from "buy."
PC direct marketer Micron Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> lost $1 5/8 to $18 after Chairman and CEO Joel Kocher told an investment conference that the company and other box makers could see "increased pressure on gross margins" in 1999 if a "price war" between Dell <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> and Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> accelerates, according to a press release.
Digital animation feature film production firm Pixar Animation Studios <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PIXR)") else Response.Write("(Nasdaq: PIXR)") end if %> was knocked down $2 13/16 to $45 3/16 by a downgrade from Morgan Stanley Dean Witter to "neutral" from "outperform."<% ' AvantGo:End %>
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