Vic Edelbrock Waves Goodbye To Public Listing, Offers Buyout
WALL STREET WEST
After enduring years with an undervalued stock price, Edelbrock Corp. is looking to rev up value by taking it private.
O. Victor Edelbrock Jr., who is chairman and chief executive, proposed last week to acquire the 48.8 percent of the company that he or his affiliates don’t already own.
Edelbrock, whose father, Vic Sr., founded the Torrance-based manufacturer of performance automotive parts in the 1940s, has offered to pay $14.80 per share, which would put the cost of the buyout at $39.4 million.
Edelbrock officials declined comment, citing quiet-period restrictions. The board has formed a special committee of independent directors to evaluate the proposal, and hired independent legal counsel.
“I’m glad to see the Edelbrocks say the stock is undervalued and that they’re going to do something about it,” said Richard Todaro, a portfolio manager at Kennedy Capital in St. Louis. His firm once owned 4 percent of Edelbrock’s shares but has since sold them.
Todaro said Edelbrock has traded below book value since the company went public in 1994. One of the main reasons, he said, is that Edelbrock has retained majority ownership, and investors are not willing to pay a premium for a company in which they have limited control.
The company was trading at $13.52 on April 8, the last trading day prior to the Edelbrock proposal. As of April 14, the stock was at $14.92, slightly higher than the offer price an indication that some traders believe the buyout offer will have to be raised.
Todaro said that the primary advantage of going private is freedom from the regulatory and legal expenses of being a public company. Those costs, which have risen sharply since the passage of Sarbanes-Oxley legislation, can run from $1 million to $2 million annually. In 2003, Edelbrock brought in $3 million in net income on $115 million in revenue.
Todaro said it should not be difficult to raise the money needed to buy out shareholders, as Edelbrock can borrow against the value of the company’s land, receivables and inventory.
Karey Wutkowski
Legal Dividend
Cherokee Inc. is sharing the wealth with its shareholders in announcing a 50-cent special dividend from the proceeds of its arbitration award from Mossimo Inc.
The Van Nuys-based company announced that much of the $6.4 million it received will be distributed to shareholders of record as of May 12.
The award stems from a finder’s fee agreement Cherokee had with Mossimo as of March 28, 2000. Cherokee, which licenses its brand to Target Corp. stores, played a key role in getting Santa Monica-based Mossimo products into Target. As a result, Mossimo agreed to pay out 15 percent of all revenue it receives from Target stores to Cherokee.
Russell Riopelle, chief financial officer of Cherokee, said Mossimo paid the royalties for the first year and a half and then stopped paying.
After months of lawsuits, arbitration and appeals, a Los Angeles Superior Court judgment dated June 17, 2003, awarded Cherokee all the withheld finder’s fees, full attorneys’ fees and 10 percent interest on the withheld finder’s fees. In March, the California Supreme Court declined Mossimo’s request to review the trial court judgment.
Mossimo previously paid some of Cherokee’s earlier attorney’s fees; Cherokee is pursuing another $410,000 related to the appeals process. As for the future finder’s fees, which add between $2.5 million and $2.7 million to Cherokee’s annual revenues of about $35 million, Riopelle said the proceeds could go toward more quarterly dividends or toward acquisition efforts.
Karey Wutkowski
Low Price Listing
Scope Industries, which operates 13 plants that recycle dried bakery goods into feed for dogs and chickens, is fed up with the costs associated with being public.
Last month, the company filed a deregistration statement with the Securities and Exchange Commission to delist from the American Stock Exchange.
Instead, it plans to trade on the pink sheets, the online electronic trading system where mostly small cap stocks trade but listing requirements aren’t as stringent. With a stock that traded for $75 a share on April 14, Scope will be somewhat of an anomaly on the pink sheets, which are home to lower-priced issues. The stock does trade infrequently, a pink-sheet characteristic.
“It was purely an economic decision,” Meyer Laskin, the company’s 77-year-old chairman and chief executive, said of the reason for delisting. “The costs of being listed are going to increase so much with Sarbanes-Oxley and we barely average 100 shares a day I wouldn’t call that a market.”
The company has just 70 stockholders of record and insiders control 70 percent of its stock.
In the fourth quarter ended Dec. 31, Scope reported net income of $1 million, compared with $1.4 million for the like year-earlier period. Fourth quarter revenues were $20.1 million versus $21.1 million in the same period a year earlier.
Scope long has been considered an odd company because it recycled bakery products and operated a chain of beauty schools called Marinello Schools of Beauty. The company sold its beauty school division last month to B & H; Education for roughly $8.2 million.
“Our principal business is waste recycling,” Laskin said. “We thought we should put our emphasis there.”
Luskin said the company has been performing well of late because of rising corn prices. The company’s dried bakery products often are purchased as alternative feed supplements for animals and closely track the corn commodities market.
Kate Berry
Signs of Life
Another signal that capital markets are on the rebound: Michael D. Donahue, chairman of the Los Angeles Venture Association’s annual Investment Capital Conference, reports that paid reservations are running at more than 50 percent above last year’s conference, which drew 380 paid attendees.
Including speakers and other comp attendees, total attendance is tracking toward about 1,000 for the April 27 event, which will be at the Bonaventure Hotel in downtown Los Angeles.
Attendance at the event, which is run by LAVA’s Investment Capital Association arm, peaked at 1,500 in 2000, said Donahue, of counsel at the West Los Angeles law firm of Richardson & Patel. “It was just a crazed period where everyone was putting together some sort of business plan and trying to make money,” he said.
By last year, attendance had fallen to 750.
“Principals of operating companies were staying away out of frustration that the capital was not available,” Donahue said. This year, he said, attendance has returned across the board, from capital providers, to services providers to start-up companies themselves.
Anthony Palazzo
