Centers around what to do with a growing pile of cash. Cash is good, but going unused will serve to reduce shareholder value. Cash will be used for something in the near term. I suggest the following and I think that the alternatives represent ALL possibilities:
-Special dividend - return of captial. Lets say they decide not to seek new business lines. You might agree or disagree. By the end of the April quarter, the company may have up to $80? million dollars, of which they might retain $20 million. So they may elect to distribute, say, almost a buck a share. At 2013 tax rates, not a very meaningful distribution to the shareholder, considering all other possibilities.
-Retain capital and make acquisition. The company has a new management team. the prior management team seemed to struggle to define itself, its brand, and products. As a result, they seemed to make acquisitions that were all over the board. Debney seems to be a conservative fellow an the company has good leadership at this point. THe last of the sloppy acquisitions has been cleaned away. SWHC has a solid capital and cash base to work from and will be able to execute meaningful acquisitions. The most obvious prospects are the Freedom Group assets that have been in an auction process for almost four months. I would expect to hear of the winning bidders very soon. I do not expect SWHC to get a bargain if they win the sale at all. They may likely assume certain debts in the acquisition, reducing cash and financing requirements. Since Cerberus levers up all of its assets, the amount paid would be comprised of the assumption of debt and perhaps the payment of cash. I do not think that the Freedom owned brands are excessively profitable, the brands do need professional, industry management, something the Cerberus gang does not quite possess as they are financially oriented buyers.
-Get bought out. This is the last alternative and will happen if one of the first wo paths is not taken. SWHC is a cash cow.
I have one idea you missed equity_360. Use the cash to expand production and for R&D. Develop new products, build factories to make them, advertise them and hire salespeople to sell them. We are so used to zero sum thinking that this concept does not often occur to us.
well, they should be careful about building infrastructure - they are better off doing things like making the current factories 'flexible', getting more out of existing space, and finding ways to shorten delivery nad produciton times, from order entry to shipping. If they cut the total production cycle time by 1/3, its like building another 1/2 of a plant. So, its like building capacity by 50% with no real increase in overhead. RGR is doing this and it is working out very well as can be seen by RGR gpm which is a few hundred basis points ahead of SWHC.
In this political environment, SWHC would probably elect to hold a significant cash position. They could pay down existing debt, repurchase shares, or acquire a portion of Freedom with the excess.
I would think whoever acquires Freedom will get a significant discount. They are selling under self imposed duress, not the best condition for getting a premium price. There will not be a lot of bidders. If SWHC bids, I would expect the purchase to be acretive to earnings right away.
The price pressure we are seeing now is probably the result of earnings related selling and continued divestment by various funds. The stock will be basing soon and then we will see a run into early June with a sales/backorder report and then late June with earnings. Look for earnings in excess of $.45 as well as significant cash accumulation.
People keep talking about this "Cash Pile"......they got less than $60 Million, have debts of $50 million and have some of that cash dedicated to stock buyback.
Hate to tell you guys, but $60 million isn't "Significant" in todays world.
Last 2 Powerball winners could have almost taken this company private. This isn't some massive powerhouse Company. It has like 3,000 employees and very little Capital Infastructure.
We are much in agreement. You might be overly pessimistic on Freedoms ability to sell for a decent price. I agree there would be a discount due to political environment, but on the whole, I think the deal pricing would be pretty close to 'fair'. Not stunningly high or low, but 'fair'. I would expect that SWHC or whomever the buyer is to also assume some debt as part of the price paid,.
Good comment on basing out there was quite a short interest build right around this price range back in ealry January I think. - if they managed to cover, we go UP UP. This whole beat down has been about the shorts covering the position built between 12-14 and 12-31
Smt date------Short int--------avg daily-----DTC
2/15/2013 14,577,656 2,222,274 6.559792
1/31/2013 15,559,299 3,929,106 3.960010
1/15/2013 17,148,471 4,303,118 3.985127
12/31/2012 14,701,706 8,592,816 1.710930
12/14/2012 12,746,761 5,599,477 2.276420