Not sure I understand the negative response to my previous post. Was simply trying to point out that they have taken calculated risks in the past…obviously not on this scale though. At any rate, I think the lack of coverage and awareness of the whole Nathan's story, while good in the early days because it allowed a bargain stock buy, has turned harmful in recent years. The p/e far lagged the market p/e for similar growth stories, and there is now little scrutiny aside from individuals posting here. Was there a takeover offer? Did we miss out on a $110 buyout? I would speculate the answer is yes. All being said, I think shareholders deserve a little more of an explanation and transparency.
Interesting that you bring up SMG. They took a big lawsuit hit, I think $5 or $6 million by breaking the contract with SMG. They may have expected this to happen ahead of time. It is now obvious that the lawsuit "hit" turned out to be a very good business decision since they have recouped their losses and earned a lot more as a result of the new Morrell deal. Obviously the costs involved with the recent borrowing are going to be much larger, but there is a precedence for this type of action by management.
Only explanation I can think of is If they are expecting 15% to 20% annual growth over the next 3 to 5 years. If this is the case, maybe they generate $6 per share in EPS excluding the debt cost 5 years from now. Within that time frame they figure they will payoff or refinance the debt, and they pocket the $25 dividend. Just seems like hurried move to fend off a takeover and preserve access to potential long term gains. This is the only scenario that makes sense to me. Any other explanation involves shooting themselves in the foot, or opening themselves up for huge legal liability. In the short run, the earnings are gonna get whacked hard, and who knows whether Mr. Market is smart enough to look beyond.
Stock is trading at or close to all time highs when you factor in the dividend, and the fact that the 86.99 trade was probably more an aberration on low volume. Dividends being reinvested, or is this all some kind a scheme to take the company private? Never seen anything like this before. Thoughts?
Never even crossed my mind to sell back at $22 during the dutch auction. That being said, I think some publicity would have helped over the past few years. I agree that when u buy u look for a hidden gem with no analysts, but I think the lack of publicity eventually hurt here. If anyone with half a brain was covering this story over the past few years the stock would have traded at much higher multiples, and I believe the events of the last few weeks would never have occurred. I look at a lot of stocks and p/e ratios are absurd right now. It's not unusual to see 40 times forward eps for companies with less growth and brand strength than Nathan's. Stock should have been well over $100 based on comparable companies.
I think you should count your lucky stars that a buyout didn't go through since based on the previous article/link posted on this board on 2/5 you were short. Given the events that have unfolded, it's pretty obvious a buyout was attempted, and the price would have to have been at least $100 based on the poison pill.
I've assumed the position in preparation for the IRS. Market as a whole seems pretty frothy. Seems like some intelligent people have come out of the woodwork here. Anyone have any other stock ideas?
I saw an article that said the debt was not callable for 2.5 years. Tried to post a link, but I think the post got deleted. Anyway, I figure 2.5 years will cost about $20 million in interest after tax, about $4.50 per share. If the board foresees 15% - 20% annual growth in earnings over the next 5 years excluding interest expense, maybe it makes sense to take the interest expense hit, then pay down the debt some and refinance later down the road. 15 - 20% growth could double earnings in 5 years. So, then maybe you are looking at $5 to $6 earnings less an interest expense that is hopefully materially reduced. In the meantime, you get a $26 dividend. There's is also the potential of a windfall if they get some big company to sell more of there hotdogs. Although it's more of a long shot, one could imagine some fast food giant like Burger King offering up their hotdogs. I'm speculating someone tried to buy them out at $100 - $120, and they think the company is worth $150 - $200. Just shooting from the hip like everyone else here though. What is frustrating to me is that they could have bought back half the company with cash on hand and much less debt last year with more dutch offerings, but they sat on their hands. Imagine share count cut in half and eps $5.50 now...A p/e of 30 would put the price today at $165.
Thanks. Over the years, I've owned several stocks that were bought out. It's nice to get a quick run-up in the share price, but I probably would have been better off long term if most of the companies were not bought out. I can understand if they foresee some significant earnings growth coming over the next few years as you speculated. I think I'm going to give them a few months to refinance this debt before I do anything. I can't imagine any other "legal" scenario that wouldn't hurt "Lorber and company" worse than the rest of us. When they were trying to get out of the old license agreement with SMG there was a lot of litigation, and they paid a significant price...it wasn't exactly clear at the time why they were doing this, but in hindsight it's apparent they knew there was a windfall to be made with a new agreement. Hopefully this is a similar situation. We should see some kind of news soon just to clarify the dividend details...hopefully we get a some more useful information.
You've literally echoed the thoughts in my head except for one thing. I can't figure the volume. I never really pay a whole lot of attention to volume on stocks in general, but it seems very thin here, especially given the news. Has the market really spoken on such low volume? Seems the market has been blind to nathans for a long time. Never been a single analyst covering.
Death and taxes will catch up with u eventually. I have no marriage to management, but I think u have to try not to go tripping over $100 bills picking up pennies when analyzing this. Management is not perfect, and has made mistakes, but they've also grown the company over 1000% in the last 10 years. I'd bet the dividend far exceeds what most here paid for the stock. I'd be surprised if we don't see a refi of the debt.
I understand your comment, and tax concern. I've been long some shares since the 90's...but it just doesn't jive that they are not looking out for shareholders. Based on Yahoo Howard Lorber owns close to a million shares, an gets paid 616k. Why would he care about saving his 616k annual job when he holds $80 million in stock. Seems it would be in his best interest to maximize shareholder value. My best guess is they got buyout interest or hint of it, and got defensive. To the best of my knowledge the dividend will be taxed like a long term capital gain.... However, if the gain is "too big", it could thrust u into a new tax bracket.
Also, interesting to note are the major holders. Board member Howard Lorber holds close to a million shares. I don' t think he would want to shoot himself in the foot. It seems Mario Gabelli 's funds also hold as many shares as they can .
I'm trying to put myself in the board's shoes. In all likelyhood next quarter eps would be about the same as the last. That would put eps at or above $2.70. A p/e of 40 is conservative based on most other takeovers I've seen of late. That would put the price at $108. Add $9 - $10 in cash per share sitting on the balance sheet, and you're pushing $120 per share. How are u going to negotiate this when the market price is so low/undervalued?
I thought the steel partners exchange was weird when I read about it too, but never really understood it fully, and I'm not sure if it's relevant, or just a coincidence in timing. Re, the poison pill, I'm not sure u can just amend a poison pill that quickly, can u? Just seems more realistic that there was a private equity firm knocking at the door, and as a result urgent action was taken to prevent a buyout at what the board considered an unfair/undervalued price. I think they will refinance the debt sooner than later.
Thinking about this a little more, and it could also be a defensive measure by the board. Maybe someone knocked on their door and offered $110 per share. If you back out the cash, and factor in next quarters expected eps, that would put the p/e in the mid 30's. The current poison pill price is $100. They may have issued the debt in a panic to prevent a takeover figuring they could easily refinance with a bank at a much lower rate later given a reasonable amount of time. After a big dividend the $100 poison pill will be more potent.