BENJAMIN MARK COLE
Judgement day is fast approaching for Westwood-based Erly Industries Inc.
The company announced last week that holders of the 13 percent mortgage notes issued by its “subsidiary” American Rice are now threatening to foreclose. American Rice still has not made its Feb. 28 interest payment on the notes.
American Rice is considered an Erly subsidiary, but it’s also a separate publicly traded company. Virtually all of Erly’s assets are in American Rice. In short, as goes American Rice, so goes Erly.
The bad news for Erly founder and Chairman Gerald Murphy, along with his son Douglas, who is president of American Rice, is that the collateral for the notes includes common stock representing Erly’s controlling interest in American Rice.
Bondholders indicated that an auction of the assets is likely in the next few months, in which case Murphy could lose control of American Rice.
“The company will either be bankrupt or have a new owner,” said Kenneth Funsten, president of Funsten Asset Management Co., which owns some of the bonds.
Erly’s share price has been in a freefall so far this year. It closed at $1.63 on July 29, down from $7.87 at the start of the year. American Rice’s stock stood at 63 cents last week, down from $2.06.
During that period, both Gerald and Douglas Murphy have been heavy sellers of Erly stock.
Fund needs managers
The $25 billion-in-assets Los Angeles County Employees Retirement Association (the county pension fund) will soon start looking for a new high-yield bond manager and another manager for international equities, said Ken Shaffer, chief investment officer for the Pasadena-based operation.
Each manager will probably take on $200 million for management. The pension fund’s board of investment, led by its recently installed chairman, county probation chief Richard Shumsky, will make the call on who manages the loot.
“It’s still a couple months down the road,” Shaffer said of the decision. “We are just issuing the RFP (requests for proposals).”
Shaffer also related that the huge county pension fund, despite the upcoming allocations, is moving more and more into “indexed” funds, which are funds invested in a broad mix of stocks, such as those that make up the S & P; 500 index. “About 50 percent of our stocks are in indexed funds, and the percentage keeps getting higher,” he said. It was 30 percent a few year ago, said Shaffer.
As the fund grows, it gets harder and harder to justify the fees that active managers charge, said Shaffer. With so many active managers, the styles of the different managers, when added together, bring on results not much different than an index fund, he added.
In terms of major asset allocations, the county pension fund is about 55 percent in stocks (foreign and domestic), 10 percent in real estate, 26 percent in U.S. bonds, and 7 percent in foreign bonds, and the reminder in cash or alternative investments, said Shaffer.
Seair to the rescue
Maybe Los Angeles isn’t a place that launches too many IPOs, but don’t tell the Boca Raton-based Seair Group Inc. After going public last week, Seair came straight to Los Angeles to demonstrate its product a small flying boat, with an inflatable hull on the set of the television series “Baywatch.” An upcoming episode of the show will feature the craft, which is set to retail at $23,000 a pop, on a rescue mission, said Steven H. Kerr, Seair president.
“At first they didn’t like the idea, but once they saw the boat, they couldn’t get enough of it,” Kerr said.
According to Seair literature, distributed at a company-sponsored stockbroker’s meeting in Beverly Hills’ Lawry’s restaurant last week, the company is perched to become “the AT & T; of Sport Flight,” and will “dominate the world market for the Flying Inflatable Boat within the next three years.” The company trades on the Nasdaq Bulletin Board under the symbol “UFLY.” It has just started production, and has no sales yet, said Kerr.
Market correction?
David Ryan, who started up his own money management shop Ryan Capital Management LLC in Santa Monica last month after 16 years with the William O’Neil + Co. shop in West Los Angeles, says a market correction is underway.
“I only look at the market short-term, but the smaller and mid-cap stocks have really come down in the last two weeks. The larger caps are holding better, but it may only be a matter of time,” said Ryan.
In light of the market direction, Ryan’s strategy? “Right now we are short, and we have no long positions. The key is to not lose money in down markets.” He will wait for a better market, before going long again, said Ryan.
Flipping for Yahoo
Quick, which has a bigger market cap: Times Mirror Co., parent of the Los Angeles Times, or Yahoo, the Internet navigation service?
It’s not even close. Santa Clara-based Yahoo’s market cap (shares outstanding times share price) last week was $8.5 billion, vs. $7 billion for Times Mirror. And yet, Times Mirror’s net income alone exceeds Yahoo’s total revenues.
The Yahoo phenomenon has veteran money managers shaking their heads. “It doesn’t make sense. I can only assume there is an awful lot of crazy money chasing things,” said Bill Mason, money manager at Cullen Fortier Asset Management in Woodland Hills.
Whatever the “real” value of Yahoo, its tremendous valuation on Wall Street raises a basic question: Why didn’t a major media outfit not just Times Mirror, but also the Washington Post, Knight-Ridder, Dow Jones and others start their own online navigational systems?
Times Mirror Chairman Mark Willes, back in his office after a month off due to surgery, passed on making a comment last week. Another Times executive, who asked not to be identified, said, “Why didn’t we do what a couple of guys in a garage did? I can see the question, but it’s not our business, and we have been focusing on our core business.”
Mason said the history of commerce is that new inventions often pass by established enterprises.
“Yes, the big companies almost always miss the new technologies,” he said. “IBM could have had Microsoft. Railroads thought the airplane wouldn’t work. Western Union dismissed the telephone. And any of the chain bookstores could have started Amazon.com.”
Staff Reporter Jason Booth contributed to this column. Contributing reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. His e-mail address is [email protected].
