Not surprisingly, no discussion of the deal terms on the earnings call.
Good earnings report in my opinion. Gross and operating margins were very good. Comps were solid given the tough environment and February comps were up over 3%, which is very good given the weather. None of this matters I suppose if shareholders vote in favor of the deal as currently proposed, but it does give some fodder for an activist to potentially jump in here to push for a higher price. The key obstacle for an activist is that Golden Gate, which owns almost 25% of the company factoring in the warrants has already supported the deal as currently structured.
I'm not saying it will happen, but when the acquirer's stock adds over $1bn in value, it is logical to assume that the market thinks there are synergies and opportunities from this deal that weren't fully reflected in the acquisition price. Someone is making that bet...this can't be mainly short covering. Just look at the volume...it dwarfs the short interest.
There is no other buyer that can derive comparable synergies from this deal. TIF can afford to do it, but they're expertise is in a different market segment.
It could be causing some of it, but I don't believe the majority of the move. There has to be a contingent of investors (ie. merger arbs) that are betting that the deal terms are revised higher. I believe they are basing that judgment on the fact that SIG's stock has reacted so favorably after announcing the deal.
I wish, as a ZLC shareholder, that we had received part stock, part cash or all stock. If one thinks through the various synergies in this merger, it wasn't hard to imagine that SIG's stock would react favorably to the deal. ZLC shareholders should have been given the opportunity to participate in those gains above and beyond the premium we received in the deal, which arguably ZLC could have achieved as a stand-alone company.
They'd have to cover, but I have to imagine the vast majority of those shares were covered on the day the deal was announced. SIG isn't going to walk away from this deal and there is close to zero risk of them not getting the requisite debt financing.
Merger arbs must be betting that the deal terms will be revised given SIG's stock increased so dramatically after announcing the deal. That's the only explanation I can come up with.
I didn't understand that either other than hopes of a competing offer surfacing. I don't see any reason to believe that one will, but I'm holding on to my remaining shares for the time being. I view the risk of completing a deal with SIG as very low.
There will be a spread until the deal officially closes (will progressively narrow over time). The spread is actually very tight for this type of situation, which reflects the low risk of completing the deal. SIG has a great balance sheet and will have no problem arranging the financing to get this done.
I highly doubt there'll be a another bid as SIG can afford to pay more than any other strategic buyer given the synergies. I was hoping for stock versus cash as I was certain SIG's stock would react favorably. Alas, holders got a fair price for the stock and the other stakeholders (ie. employees, management) get to operate under the strength of a larger parent. The oft rumored merger between ZLC/SIG finally came to fruition.
I've been in this for a long time (you can see my posts if you care) so it's nice to be rewarded. I was hoping for a slightly higher price, but given where the stock was last year at this time, it's hard to complain.
The total sales number masks the underlying comps, which were up over 4% for the core Zales brand. They're closing underperforming stores and kiosks, which are a drag on margins. That hurts the revenue line, but helps on operating margins. This is a margin expansion story until fy 15, when the pace of store closures should drop meaningfully and the top-line (overall) should accelerate all else equal.
The market is rewarding the company for posting a good comp, but more importantly, not sacrificing margins to do it. The company increased gross margins over 200bp and operating margins 100bp. If you listened to the call, management explained that they chose not to compete on price and sacrifice margins just to drive comps. SIG did that and its valuation is being punished.
ZLC was also hurt quite a bit by the declining Canadian dollar, which hurt comps by over 6%.
zlc doesn't report holiday sales until tomorrow..the stock is down because SIG guided below consensus for EPS though SIG's comps were fine. Not sure why SIG executed so poorly on the margin side, but they do have a higher mix of watches, which by all accounts, was not a strong product category over the holiday season.
I agree on Bell. Would be a big positive for the company. My concern would be his age, but if he's actively engaged with the company, that's great to hear. At the very least, it would be good to get someone that Bell has worked with in the past and understand materials science and monetizing intellectual property.
On the positive side, in addition to the company being freed up for a sale with no obstruction, it appears that Breese wasn't fired for performance in the quarter. Notwithstanding his shortcomings in terms of new business development, he did do a good job in terms of paring the cost structure (other than the bloated salaries of the executive team which I will concede).
I hope the Board can do one thing right and get a CEO with materials science expertise that can get some licensing deals done soon.
Blabbing out news of a potential sale seems like the most plausible scenario if he resigned for this reason...If the company is going to be sold, Craig was going to be let go ultimately anyways...either way, he still benefits as his options vest...
It's a very good question. Unfortunately, they had to keep the current CFO around to make sure the financials get done properly. He should have resigned too.
Craig was clearly out his realm in terms of securing a licensing deal. The one deal he did went bust after 6 months. I thought he did a good job cutting costs and getting the company close to break-even, but he was a failure in terms of new business development.
Question now is do they finally sell the company...one other possibility could be that Lon Bell brings someone in with patent/licensing expertise