One Shareholder Suit Dropped, Mercury Air Still Faces Assault
WALL STREET WEST
It’s one down, two to go for Mercury Air Group, the Los Angeles aviation services firm that has been accused of securities fraud and racketeering.
Last week, plaintiff Keith Scott voluntarily dismissed his complaint against Mercury Air, which was filed in Los Angeles Superior Court on Dec. 23, but had been moved to federal court because of the racketeering charge.
“All the allegations contained in the lawsuit came from our public filings,” said Wayne Lovett, executive vice president and general counsel for Mercury Air Group. “They have taken things in the public record and turned them around.”
Rex Beaber, the attorney for Scott, did not return calls.
Mercury Air faces two other shareholder suits, each alleging breach of fiduciary duty. One was filed in Los Angeles Superior Court on Nov. 18 on behalf of Investorwatch LLC; the other was filed in San Diego Superior Court two weeks later on behalf of plaintiff Andrew J. Chitiea.
Each of the three suits revolves around a series of related party transactions over the past two years. In July 2000, according to the Chitiea complaint, three company directors, Joseph Czyzyk, Philip Fagan and Frederick Kopko, purchased a controlling interest of Mercury Air’s stock, and then subsequently raised their salaries.
Chief executive Czyzyk, for instance, saw his salary increase to $520,000 from $250,000 a year. Kopko and Fagan were on the compensation committee when the raises were approved, according to a filing with the Securities and Exchange Commission.
Mercury Air has said the charges are without merit.
Both complaints point to a January 2002 transaction in which the same three directors purchased the company headquarters, which was disclosed in filings. They maintain the transaction was unfair to shareholders.
“The message is we believe the allegations are dead wrong,” Lovett said. “I expect the other two will be dealt with and hopefully dismissed in the near future.”
Amid the legal troubles, Bermuda-based buyout firm Acquisitor Holdings Ltd. has purchased 10 percent of Mercury Air’s stock in open market transactions, raising suspicions that a buyout offer could be on the horizon.
“I don’t know what they want and I don’t know what else can I tell you. These are people who have an interest in our stock and I haven’t heard from them,” Czyzyk said. “We’re in the phone book.”
Officials from Acquisitor did not return calls.
Talk of war in Iraq depressed stock prices in January, but Max Darnell, newly named chief investment officer of Pasadena-based First Quadrant, sees this as the best time to buy stocks in three years.
“We’ve been pretty bearish on equities since late 1999, and we have come back since late last year to a short term bullishness,” said Darnell, previously research director at the “quant” based money management firm. He expects U.S. stocks to deliver single-digit returns over the next several years, though not without “a great deal of volatility.”
Corporate scandals, earnings quality issues and pension obligations still present obstacles to U.S. equities, so he prefers Europe right now, Darnell said. But all in all, he prefers stocks right now to bonds, which have rallied for four years, but are vulnerable to rising inflation, he said.
First Quadrant oversees $13 billion in assets, using reams of data everything from broad economic measures to issuer-specific points to make investment decisions. With the new title, announced last week, Darnell remains the firm’s research guru. The change is more a recognition of his previous role, said Curt Ketterer, a spokesman for First Quadrant.
M & A; Slump
Orange County saw 20 percent fewer mergers and acquisitions last year and the dollar value of the deals that did take place plummeted by 70 percent, according to Los Angeles-based Houlihan Lokey Howard & Zukin’s Mergerstat LP.
The number of deals involving Orange County companies fell to 234 last year from 290 in 2001. The dollar value of those transactions fell even steeper, to $2.78 billion from $10.1 billion in 2001.
“The driving factor for lower volume has been pricing and financing,” said Daniel Lubeck, managing director at Newport Beach-based Solis Capital Partners, a private equity fund.
Until six months ago, owners still were seeking to sell their businesses at higher valuations, Lubeck said. That’s one reason why the number of deals was down last year.
And those that sold did so at prices more in line with the market, which has brought valuations in tune with Wall Street and the tepid economy, Lubeck said.
Orange County companies bought 141 businesses last year, down from 152 in 2001, according to Mergerstat. They spent $1.61 billion on acquisitions last year, off from $3.85 billion in 2001.
On the flipside, 93 companies were bought in deals valued at $1.17 billion last year. That was down from 138 acquisitions worth $6.23 billion in 2001. The average Orange County deal size fell to $12 million last year, down from $35 million in 2001.
The biggest deal of 2002 came late in the year: Chicago-based Tribune Co.’s buy of two TV stations from Santa Ana-based Acme Communications Inc. The deal, announced Dec. 30 and set to close in the first quarter, is valued at $275 million.
Orange County Business Journal
Riordan Gets SMS
Private equity investor Riordan, Lewis & Haden has bought Brea’s Systems Management Specialists Inc. from Britain’s Marconi PLC for nearly $10 million 10 percent of what the data services provider sold for in 2000.
Los Angeles-based Riordan Lewis said it invested $9.5 million for a majority stake in SMS. The company’s managers, including Chief Executive Patrick Dolan, invested more than $1 million in the deal, which closed last month.
In 2000, during technology’s boom, Marconi paid $125 million for SMS. The telecommunications gear maker sold SMS as part of a restructuring prompted by the industry’s downturn.
The deal marks the first for Riordan Lewis since the October 2001 $7 million recapitalization of Santa Barbara-based Intri-Plex Technologies Inc.
SMS provides data services for Beckman Coulter Inc. and parts of Fluor Corp. and Boeing Corp. The company is a smaller version of Electronic Data Systems Corp. or IBM Corp.’s outsourcing arm.
Orange County Business Journal