Real Estate Buyer Vows to Keep Earl Scheib in the Paint Business

WALL STREET WEST

Is the end near for Earl Scheib Inc.? Last week, the venerable Sherman Oaks-based auto paint and body chain agreed to be sold to Elden Holding Group LLC for $15 million, plus $2 million in potential transaction costs.

The sale of the company comes as little surprise since Scheib, the original discount auto body store, retained investment bank Ryan Beck & Co. to explore "strategic options" a year ago.

But privately held Elden, based in Sherman Oaks, is a real estate investment company, similar to a REIT. And Scheib officials admitted last week they had considered liquidating the nationwide chain's assets.

Scheib owns the land and buildings of 43 of its 113 shops across the country, and one option explored was the possibility of demolishing those buildings and selling the land to the highest bidder. The company's shops range from 4,000 square feet to 9,000 square feet.

Elden's decision to buy Earl Scheib was partly motivated by its valuation of the chain's properties, explained Cary Lefton, Elden's managing partner. However, he denied any immediate plans to close down stores. He said Elden plans to pump money into Scheib to build up the brand.

"The real estate value is there. But we see an upside in developing the brand name potential so that it has more value," Lefton said.

Elden received a preliminary commitment from Kimco Realty Corp., a New Hyde Park, N.Y.-based real estate investment trust, to provide financing for the acquisition.

Scheib wants to complete the transaction by mid-September. However, the letter of intent leaves room for a higher bidder to emerge.

"If another bidder is out there, we'd expect now would be the time that they'd take a look at us," said David I. Sunkin, Scheib's vice president and general counsel.

The sale would end a long decade of financial struggles for the 67-year-old fast-paint chain that had piled up millions of dollars in losses as it tried to get a turnaround to take hold. For the nine months ended Jan. 31, the company reported a net loss of $2.3 million, while sales were flat at $35.1 million.

In the early- to mid-1990s, the chain expanded too quickly in the East and Midwest where bad weather drove customers away from getting paint jobs. The Big Three automakers in Detroit also shifted to better rust proofing paint that made the need to repaint less of a priority.

A year ago, Earl Scheib began to see more cash flow as it began doing "spot jobs," which currently make up about 20 percent of its business.

At its peak in the late 1990s, Earl Scheib grew to more than 200 shops. Now about half are located in California, which poses its own problems of workers' compensation and health insurance costs.

Also, the company is a defendant in a closely watched lawsuit currently on appeal to the California Supreme Court. Lower-court rulings favored Scheib.

The suit alleges that the company failed to pay overtime benefits to shop managers and assistant managers and made unlawful deductions from the compensation of certain managers and assistant managers.

Elden's Lefton said his company would "further explore the litigation during its due diligence period to assess the exposure."

Pat Maio

Sick Stock

Biotech giant Amgen Inc. has taken a tumble and is looking like a bargain to at least a couple of analysts.

The stock is off by 19 percent from its Feb. 3 high of $66.23, closing at $53.55 on May 20.

"It's a cheap stock right now," said Eric Schmidt, an analyst at SG Cowen Securities Corp. "It will probably stabilize because it's so cheap."

Schmidt said the drop reflects some apathy on the part of investors, who see decelerating earnings as a discouraging sign for the Thousand Oaks-based company.

"It doesn't appear that the outlook is going to improve in the next year or so," Schmidt said. "People investing in biotech stocks place more emphasis on growth potential."

Amgen's first quarter net income rose to $690.2 million, compared with $493 million for the period a year ago. Revenue for the quarter rose to $2.3 billion from $1.8 billion.

Douglas Christopher, an analyst at Los Angeles-based Crowell, Weedon & Co., is more bullish about Amgen's prospects. Christopher, who owns stock in Amgen, said the company is fundamentally strong.

"This is a company that earns in the high 20 percent area in after-taxes net profit," he said. "The cash flow from operations is consistently strong."

He also said the company has a better portfolio of drugs than other pharmaceutical companies that are focusing on lifestyle medication, such as Viagra. Amgen focuses on drugs that help offset the side effects of diseases, such as Epogen, which stimulates red blood cell production.

"They've had two product approvals this year. That's been very positive," Christopher said.

He said the stock is likely down because investors are generally pulling money out of biotech stocks, no longer seeing them as a hot area.

Christopher and Schmidt both said Amgen makes sense for investors looking to place funds for longer than 12 months.

Karey Wutkowski

Lawsuit Settled

After four years of legal wrangling, ValueClick Inc. resolved litigation that could have led to a $25 million payout.

The Westlake Village online marketing company was named as a defendant in a lawsuit brought by a former employee against its subsidiary, Be Free Inc.

Joseph Lorenc, former vice president of client services for Marlborough, Mass.-based Be Free, originally filed a lawsuit against Be Free in September 2000 for damages resulting from an alleged promise to provide him with 1.5 percent of Be Free stock. ValueClick became a defendant when it acquired the company in October 2002.

The suit was resolved in Massachusetts Superior Court when Lorenc agreed to dismiss the case against ValueClick and Be Free with prejudice, in exchange for the company's agreement it would not pursue compensation for its attorneys' fees, according to ValueClick.

ValueClick General Counsel Scott Barlow said Lorenc dropped the suit to avoid losing and having to pay for the fees. He said the case presents an important precedent.

"There's an implied message that we're not going to lay down just because someone brings a lawsuit against us," Barlow said.

Lorenc and his attorneys could not be reached for comment.

Lorenc was fired for performance reasons eight months after he started, Barlow said.

Karey Wutkowski

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