Stewart stock decided to explorestrategic alternatives

Tag : Cement Sheet
Stewart stock is tradingat a lowly $9.14 relative to the $11 offer price. Frank Stewart,who holds about 33 per cent of the firm, has indicated he is notinterested in selling. Yet, if more dinero were placed on thetable, his position might quickly change. The company dismissed theinitial Service overtures out of hand, but decided to explorestrategic alternatives when the better bid was forthcoming.
Nevertheless, even if the companies can agree on a deal, anotherstumbling block could be the U.S. Federal Trade Commission. Only acouple of years ago Service picked up No. 2 chain, Alderwood Group,radically diminishing competition in the field. Taking out anothermajor player might not be deemed palatable for consumers. Afterall, one is already dealing with enough turmoil when a loved onedies; the double whammy of a steep bill that pads corporate profitswhile dealing with emotional loss might even be too much for theFTC, which can be pretty laissez-faire about these things.
Service continues to be profitable, as its second-quarter resultsannounced last week demonstrate. While revenue was down 3 per cent,mainly because of the divesture of 400 funeral homes, profitabilityincreased to 14 cents a share, compared with 11 cents a yearearlier. The bottom line worked out to $31.4-million. Cash flowfrom operating activities was $70-million.
The company also has more than $100-million in the till. While thisis all well and good, the offer for Jefferson, La.-based Stewartwill cost more than $1-billion. This will certainly sully thebalance sheet. Back in the nineties, both of these companies bulkedup on excessive debt, with rampant takeovers of small funeralhomes. In each case, the end result was a drop in the stock pricefrom more than $50 to the brink of bankruptcy.
Ultimately, the probability of this marriage falling apart is akinto that of a May-December romance. And if the deal is notconcluded, Stewart's price will likely drop like a heart-attackvictim. Even with this possible jeopardy, our evaluation is to sitand wait, while hoping for a positive conclusion.
This column first appeared on GlobeinvestorGOLD.com