I and many others have been critical of Usana Health Sciences (NASDAQ: USNA) for a while now. Fraud fighter Barry Minkow has argued quite compellingly that the company's business model amounts to little more than a cleverly disguised pyramid scheme. How did he figure that out? He read the company's filings with the SEC.
Since Minkow's report, the stock has taken a beating: an auditor resigned, numerous credentials flaps were uncovered, the SEC opened (and closed, sadly) an investigation, and the company has repeatedly failed to meet the growth expectations of the Street.
Now founder Myron Wentz -- who owns half the stock through Gull Holdings -- is offering to take the company private at $26 per share. His reasoning? In the press release announcing the offer, Wentz explained, "Going private will provide significant cost savings and will allow USANA's talented management team, employees, and Associates to focus solely on providing industry-leading products and building USANA's strong Associate network without the pressures and distractions brought on by the public market."
Exactly! Going private will allow the company to operate its shady business model free from scrutiny. The selling of overpriced vitamins based on the promise of the potential to earn a six-figure income working from home has earned a lot of money for Usana. But having to disclose the business model in black and white has attracted the scorn of critics.
Now Usana can go back to what it does best: luring people in to a multi-level marketing business without having to disclose as much information about what a rip-off it is.
But before shareholders get too excited, they might want to take a look at Wentz's history of offering to buy the company. Back in 2002, Wentz made a similar offer (for a lot less money), but then Wentz later announced, "To allow our shareholders to benefit from any increased value, I have decided to terminate my current effort to acquire USANA's operating assets on the terms previously announced."
In late February, Corporate Express rejected Staples' bid for $10.63 per share. Today is the Dutch market regulator deadline to register an official bid. This morning, Staples upped its price by 10% to $12.53 per share for a total value of $2.26 billion. The offer is a 51% premium to Corporate Express' share price the day before the initial offer.
It seems that this sweetened offer may at least get Corporate Express interested in negotiating at this point. This time, Corporate Express has issued a statement that they are willing to negotiate and review the offer.
Corporate Express provides wholesale office supplies and printing and graphic services and an acquisition will increase the margins for Staples' overseas retail operations-a much needed boost in light of recent sales declines in the U.S.
Shares of Staples are up $0.30 at $22.26 in early morning trading. The 52-week range is $19.69 to $26.00. They plan to release earnings May 20.
Corporate Express is also trading up at $0.30 at $12.50 on relatively high trading volume. The 52-week range is $5.20 to $15.45. The market cap sits at about $2.29 billion.
Usana Health Sciences (NASDAQ: USNA) closed yesterday at $20.83. This morning, Gull Holdings announced its intention to make an offer to USNA shareholders to acquire all of the outstanding shares of USNA for $26 cash.
USNA is a developer & manufacturer of nutritional and personal care products. The stock is up 22% today on the acquisition news.
M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Right after the close, Hewlett-Packard Co. (NYSE: HPQ) did actually confirm in a press release that the company was in advanced acquisition talks with IT-sourcing giant Electronic Data Systems Corporation (NYSE: EDS). While it noted that there are no assurances that a deal will be reached, Wall Street took it in good stride.
As traders look to the news covering whether or not EDS will become part of H-P, traders were looking at how to get in the news. As a result, there are many other tech and IT-sourcing companies to look at that other potential players may take an interest in.
If we took the mid-point of the pricing at $12.5 Billion we would have a rough share price of $25.00 per share on EDS. At that rough price, you would have a company that analysts expect to be priced at 18.2 times DEC-2008 earnings and 0.55-times revenue estimates.
Read the full story of "Who Could Be Next" at 247WallSt.com to see which other stocks in IT-outsourcing stocks could be in play.
Cumulus Media Inc. (NASDAQ: CMLS) has announced that the management-led investor group has terminated the planned merger agreement. While there was a glimmer of hope that this was going to be rekindled, the deal spread on this was so wide that a fleet of trucks could have driven between it.
Cumulus has agreed with the investor group led by Lew Dickey, its Chairman, President and CEO, and an affiliate of Merrill Lynch's (NYSE: MER) Global Private Equity, to terminate the merger agreement which first came on July 23, 2007. The members of the investor group informed Cumulus that after exploring possible alternatives they were unable to agree on terms on which they could proceed with the buyout.
As a result of the termination of the merger agreement, the investor group has agreed to promptly pay Cumulus a merger termination fee of $15 million. In addition, the terms of the previously announced amendment to Cumulus' existing credit agreement will not take effect. Cumulus had a market cap of $253.6 million based upon a $5.81 close on Friday.
The company has also announced that its board of directors intends to explore the possible implementation of a new stock repurchase plan in the near-term in order to provide liquidity opportunities to stockholders.
Some companies get it, some don't. Circuit City Stores, Inc. (NYSE: CC) has been in the camp of companies that don't get it. That may have finally changed today.
The company appears to have finally capitulated and realized its days under its own efforts may be limited. There are two separate announcements this morning, but in reality it is all part of the same issue.
This will allow the company to deal with the activist pressure, and may ultimately lead to the company either being run by a better team or become a subsidiary of another company. The company just issued a release that it has reached an agreement with Wattles Capital Management.
According to a report from the Ernst & Young's quarterly US IPO Pipeline Report, IPO activity is flattening as companies are waiting and watching to market to make their move. While that observation is obvious as a heart attack, there are some rather good details that may lead to help determine good IPO's versus bad IPO's in that report.
In the first quarter of 2008, 90 IPOs sat in the pipeline, the same amount as the last quarter of 2007. New registration was stable across the quarters, but the slide is still downward sequentially. In January there were 10 while February and March saw only 6 and 7, respectively. While the amount the registrations represent grew this quarter compared to last, $16.8 billion up to $17.3 billion, the numbers slowed toward the end of the quarter. It seems pre-IPO companies are holding tight and watching the market.
As expected, first quarter 2008 weakened compared to the first quarter in 2007. In the first quarter of 2007, 103 deals waited in the pipeline compared to 90 in 2008. In 2007, the registrants represented $22.8 billion compared to $17.3 billion in 2007. The average deal size also dropped, down to $192 million from $221 million. The largest deal in 2007, The Blackstone Group L.P. (NYSE: BX) reached $4.0 billion while in first quarter 2008, the largest was American Water Works at $1.6 billion. Visa Inc. (NYSE:V) was left off because of an end of quarter and for size issues as 'one of a kind.' Companies are also sitting in the pipeline much longer, 163 days on average compared to 113 in 2007.
Technology takes up the bulk of the pipeline with 26 registrants and $3.3 billion in dollar amount, up from $2.8 in fourth quarter 2007. Technology attracts foreign issuers with four out of five foreign issuers in the technology sector. While technology went up first quarter 2008, oil and gas dropped 60% from $5.3 billion fourth quarter 2007 to $1.9 billion. Biotech accounts for a solid 12 registrants and pharmaceuticals tally 11. California leads on a state-to-state basis, filing 16.7% of the total filings at 15. Texas and New York followed with 11 and 8, respectively.
Also according to the report... Patience and confidence are likely to ebb by June, but if you're a good company with solid business plans, practices and proven results, opportunities still await you in the markets.
First Data Corp. has entered into an agreement to acquire InComm today, only about 7 months after it was acquired by affiliates of Kohlberg Kravis Roberts & Co. The value and terms of the transaction has not been disclosed, however, the deal is estimated to be accretive for First Data and is expected to close next quarter.
InComm is an industry leader in marketing, distribution, and technology innovation of gift cards, prepaid wireless products, reloadable debit cards, digital music downloads, content, games, software and bill payment solutions. InComm generated $300 million in net revenues in 2007 on $8 billion in retail sales transactions. The combination will allow First Data and InComm to provide a full prepaid product suite.
This should be an interesting deal as First Data Corp. is a electronic commerce and payment processing services. At the time that KKR closed its merger, First data said it had over 5 million merchant locations, 1,900 card issuers and their customers, in its network. This may really allow the combined InComm & First Data channel to expand rapidly. Brooks Smith, the CEO of InComm will head First Data's Global Prepaid Services unit once the transaction closes.
Liberty Mutual has agreed to acquire Safeco Corp. (NYSE: SAF) for some $6.12 billion this morning. Liberty offered to purchase all outstanding common shares at $68.24 per share, representing roughly a 50% premium to the closing price on Tuesday.
Safeco sells $5.9 billion worth of insurance policies annually, compared to Liberty Mutual selling some $20 billion annually. The deal will create the country's fifth largest property insurer with a combined 15,000 independent agencies. Safeco will join Liberty Mutual's Agency Markets business unit.
The boards of both companies have approved the merger and the deal is expected to close by the end of the third quarter upon regulatory and shareholder approval.
The company still has to report earnings as though it was a public company because of its ratings and because of its public debt. The company has shown that over the last twelve months, the company's adjusted EBITDA was $1.55 billion.
Net sales for Q1-2008 were $1.405 billion, up from $1.361 Billion in Q1-2007 and down from $1,539 billion in Q4-2007. Unfortunately, the company is still posting an operating loss of $152 million for the quarter, compared to $654 million in operating losses in Q1-2007 and $595 million in Q4-2007. The net loss after items for this last quarter was $245 million, also down from a loss of $539 million in Q1-2007 and down from a loss of $525 million in Q4-2007.
Its cash and total short term investments were $1.25 billion on March 28, 2008, compared to $751 million at the fourth quarter ending December 31, 2007; and its accounts receivable were $680 million and inventory was $732 million. But here is where things get tricky. Its long-term debt is $over $9.3 billion alone. Of the company's total asset base of $15.197 billion, more than $5.3 billion is goodwill and more than $3.6 billion was listed as intangible assets.
If you go back to the BloggingBuyouts article, "Why private equity firms avoid technology companies," you'll see that being a highly leveraged technology company that requires high capital expenditures isn't always the greatest place to be be. Unfortunately for all the private equity partnersm the company can't live on EBITDA alone and many believe that Freescale will need more capital and thus more leverage.
The original private equity deal was put at $17.6 billion for an enterprise value. So far that isn't turning out too great. Who knows, maybe a re-IPO of Freescale isn't too far off.
Jon Ogg is a producer and editor of the Special Situation newsletter for 247WallSt.com.
It was almost amazing that private equity funds never acquired many banks or other depository institutions, despite the lending woes that came to pass. For some time there was value there before the logic and rationale behind credit evaluations were tossed out the window. We had discussed this with many groups last year and the answer was always that the private equity firms were sitting out to avoid the relative valuation erosion as peer-pressure drove down the value of the solid companies.
Wilbur Ross may soon be making a change to this approach of avoiding the group. Last week there many reports out of Reuters, Crains, and others discussing Ross's intent to go after depository institutions.
The past articles discussed and pondered different aspects that Ross and his new backers might pursue, but new information from today may shed a bit more light on Ross intends to invest this money and how sovereign wealth funds may be involved in this.
Deutsche Bahn AG is closer to coming public. A report out of FT has noted that the German rail operator has already prepared the guts of its prospectus for its the planned initial public offering. It is also said that an advance report to be published Wednesday.
Past reports have shown that a 25% to 25% stake would be sold, and this looks like a call for about 24.9% of the company would be listed under the name "DB Mobility & Logistics."
The German railway company plans to acquire several logistics firms within the next weeks in places such as in Italy and the U.K., according to the report. On a dollar-adjusted basis, you could expect a sale for the public float of some $4.8 billion to $7.9 billion.
If there is a privatization that has been in the works for an eternity, it is this one.
Sometimes brilliant people armed with spreadsheets screw up badly. Sometimes, as in the case of Linens n' Things, they screw up really badly.
In February of 2006, Apollo Management agreed to take Linens n' Things private for $1.3 billion. Now, less than two years later, the company is poised to file for bankruptcy, according (subscription required) to the Wall Street Journal. The company employs 17,000 people, with 590 stores in 46 states. The company lost $242 million in 2007.
The Journal reports that "Linens also is working to avoid or delay filing for bankruptcy protection by meeting Monday with its lenders and largest vendors to work out an agreement, but a deal is unlikely."
Linens n' Things is a victim of two of the economic woes generating the most media attention: the housing downturn and the credit crunch. In addition, lower-cost suppliers of similar products like Wal-Mart (NYSE: WMT) are taking market-share. People who are having trouble paying their mortgages tend not to obsess over thread count.
On another note, housewares retailer Pier 1 Imports (NASDAQ: PIR) appears to be making strong progress on its turnaround, with its first comparable sales gain in 17 quarters and a return to profitability -- its first quarter in the black in 12 quarters.
But its huge debt load makes it tough for Linens n' Things to weather economic storms.
If you look over "at-risk" mergers, the acquisition of Myers Industries, Inc. (NYSE: MYE) looked about as hopeful as waiting for the Titanic to pull into port. This merger was announced almost one-year ago as a $1.1billion deal, and the market cap is $478 million.
The company has announced this morning that it has received notice that GS Capital Partners, the private equity arm of Goldman Sachs (NYSE: GS), does not intend to proceed with the proposed acquisition of Myers. As a result, Myers Holdings and GS Capital have mutually agreed to terminate their merger agreement, with an effective date of April 3, 2008.
After looking back over its past earnings release, it appears that raw materials costs are probably part of the problem for the rubber and plastics maker. Myers had also received a $35 million payment from GS Capital Partners to extend the merger date to April 30.
Myers Industries continues to focus on its sound business growth plan and fundamentals directed at sustainable, profitable growth. The company noted it "is confident in its ability to continue value generation for customers and shareholders."
The buyout price was originally set at $22.50, and shares closed on Thursday at $13.60. The 52-week trading range was $9.73 to $22.73, so this one was fairly well telegraphed that it was a goner. About the only hope here was that a lower buyout would come. Hoping in the same sentence as investing is generally one of the worst investment policies out there.
If you've ever wondered why so many low-P/E ratio technology companies haven't been gobbled up, there is a really good explanation: R&D, leverage, and volatility.
Business Week just ran a great cover story titled "When a Buyout Goes Bad" for this week's magazine. The case in hand is the old private equity buyout of Freescale, which was the chip business from Motorola Inc. (NYSE: MOT). This talks about a company that was turned around from the edge of the cliff by a great tech leader who created a great stock again. Then the $17.6 billion buyout came from a group led by The Blackstone Group (NYSE: BX), Carlyle Group, and Permira Advisers. This buyout came after being in a competing bid from a consortium led by KKR, Bain Capital, Apax Partners, and Silver Lake Partners.
Last year the company's revenues fell 10% while the chip sector revenues grew by 5%, then Motorola announced a spin-off or sale of its handset business, and then there is the issue of the $9.5 billion in debt that was clumped on top of the company to get the private equity buyout done.
Unless you are selling transistors and capacitors or just plain Jane DRAM, technology companies require heavy R&D commitments. This is why historically technology companies used to come public back before the 1990's "get rich from tech stock option awards" became the norm. The accounting changes required investor backers of a different group to mark down 15% of their $7 Billion stake as well. In fact, it notes that it is having a hard time ponying up the $1.2 billion for R&D and $400 million for capital expenditures needed for Freescale. And now there are inventory problems.
For me personally, I am not all that surprised that Freescale was a temporary success. One night right shortly before Freescale was spun-off by Motorola, I was flying from Austin to Chicago. I spoke to two workers that said they were low level managers for Freescale. When they called the company "Free-Fall" and told me about some of their pension or retirement issues and stock option plans getting mixed up (not for the better, at all), it left a bad taste in my mouth. Then when this one went private with that much debt and knowing what comm-chip R&D percentages of revenue were, I thought the billionaires were drinking too much of the cool-aid.
You should read that article as it puts it well into context. This is why niche technology companies generally end up being acquired by other niche technology companies or by larger tech companies that are competitors or that can complement each other. In mid to late-2006 you started seeing the private equity frenzy go into overdrive.
If you want good news or the silver lining, I do actually have some. I think that there will be another wave of public technology companies that get acquired. But the buyers will almost all be LARGER public technology companies. Private equity and technology can mix, but the deals need to be smaller deals with less leverage and in companies that require less R&D.
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BloggingBuyouts is the best resource for news, opinion, and research on the least understood, most powerful force driving financial markets today -- private equity investing. Michael Rainey, editor.
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Usana Health Sciences
Sometimes brilliant people armed with spreadsheets screw up badly. Sometimes, as in the case of Linens n' Things, they screw up really badly.
