Following Brutal Stretch, Airline Industry Could Rebound in 2004
WALL STREET WEST
Is the commercial airline industry slowly starting to come back?
After taking stock of M & A; deals in the past year, Jon Kutler, chairman and chief executive of Quarterdeck Investment Partners LLC, expects the aerospace business to turn the corner next year with at least a handful of deals.
“Nine months ago the perception was that American Airlines and everyone else would go into bankruptcy,” said Kutler, who sold his firm last year to Jefferies Group Inc. “It may take a couple of years of increased stability before people start to feel comfortable and dramatically increase flying, but everyone has seen that flights are more full.”
While commercial aviation remains in a down cycle, the defense industry has completed a strong year for M & A; deals, although most of the deals have been mid-sized ones.
Kutler sees more money coming into the sector from private equity firms. Earlier this year, Quarterdeck served as financial advisor on the recapitalization of ITS Corp., an information technology firm in Oxnard, by local private equity firm Riordan Lewis & Haden.
“Consolidation needs to happen in the defense industry because there were low barriers to entry in the 1970s and 1980s and those companies have now grown in size,” Kutler said.
Perhaps the biggest change over the past few years is the absence of companies and deals out of Los Angeles.
In the past year, Quarterdeck has probably done more deals in London than in most other cities, including L.A., where most of the companies servicing the defense industry are too small. In addition, many privately held defense firms are turning down attractive offers on the assumption that prices will continue to rise.
But Kutler warns that the defense industry tends to suffer from very long 10-year cycles. “There are many years when there is no business,” he said.
Kate Berry
Flush With Cash
Insiders at DaVita Inc., the El Segundo-based dialysis company, recorded their biggest stock sales in at least five years over the past several months as the share price approached its highest levels since the 1995 initial public offering.
Insiders led by Chief Executive Kent Thiry have sold $17.6 million worth of stock so far in the fourth quarter, according to data from Thomson Financial. Thiry sold 231,371 shares valued at $8.8 million. In September, he sold an earlier $2.3 million worth of shares.
The uptick in sales also coincided with an outbreak of infections that DaVita has been battling at its dialysis facilities. A company vice president, LeAnne Zumwalt, said the sales were not related to the outbreaks, and instead reflected periodic decisions to exercise stock options. She also said the second largest inside seller, Chief Financial Officer Richard Whitney, had previously announced he was leaving the company. Whitney sold 81,429 shares valued at $3.1 million during the quarter, according to Thomson Financial.
Outbreaks dating back to May at four dialysis centers in Los Angeles, San Diego and Orange counties left seven people hospitalized and at least a dozen others ill. All the patients have since been treated with antibiotics and recovered, according to DaVita. However, state health officials are continuing to investigate Los Angeles outbreaks.
The outbreak, which was first reported two weeks ago by the Los Angeles Times, has not affected the company’s stock. Its shares, which have risen to an all-time high of $40.41 on Dec. 2, traded as low as $2.06 in March 2000.
Laurence Darmiento
