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When rumors swirled in late September that Weis Markets (WMK
), a Big Board-listed supermarket chain, would be taken private in a management-led leveraged buyout, its stock jumped from 32 a share to 42 within days. But when no deal was announced, the stock predictably tumbled, back down to the low 30s. It's currently trading at 34.
But some takeover players are once again buying into Weis, founded in 1912 and now operating 170 grocery stores, mainly in Pennsylvania and five other states, including New York, New Jersey, and Virginia. These pros argue that the LBO idea isn't dead: Management, led by Chairman Robert Weis, who owns 30% of the company but controls a total of 41% of the stock, is poised to take the company private, they say.
"We think Robert Weis is preparing to purchase the 59% that he doesn't yet own or control," surmises Charles LaLoggia, editor of the market letter SuperStock Investor, which focuses on companies that may be ripe for mergers or takeovers. LaLoggia has accurately identified 48 companies that were eventually acquired by other ocmpanies in the past 52 months. His most recent picks that ended up being taken over include PaineWebber (DLJ
), Advest (AXF
).
FAMILY FEUD. LaLoggia has been recommending Weis Markets mainly as a potential takeover play. Weis could easily pull an LBO, he says, in part because of the company's large cash position, which would help make it easier to finance such a buyout. The company has very little debt, he notes.
Weis Markets watchers estimate, says LaLoggia, that the company is worth 55 a share in a buyout, which would translate into 2.4 times book value. He notes that other supermarket chains have been acquired in recent years at more than three times book. Hannaford Brothers was acquired more than a year ago by a Dutch food company at more than three times book, recalls LaLoggia. Apart from the supermarket chain, Weis Markets also owns 35 Superpetz pet supply stores in 10 Southern and Midwestern states.
Robert Weis isn't the only member of the Weis family who controls a big chunk of the company's stock. Another is Janet Weis, who also has 41%, and it's her group that has been pressuring Robert Weis into taking strong action to enhance the value of Weis Market's stock.
OPTIONS REVIEW. The rumors about an LBO may be Robert Weis' solution to what Janet Weis' group is seeking. In an LBO, the buyer usually pays a premium above the stock's current price. Janet Weis and her allies, including Michael Apfelbaum, a member of Weis Markets board, have been pressing management as early as November, 1999, to take steps toward boosting the stock. "The board of directors must move more aggressively to investigate all options for increashing shareholder value," said Janet Weis in a recent 13D filing with the Securities & Exchange Commission.
Subsequently, management hired Morgan Stanley Dean Witter to review all options available, including a possible sale or recapitalizaiton of the company. But on March 1, 2000, management announced that it had concluded that transactions "other than the sale of the company would best serve the interests of shareholders and the company."
Janet Weis had noted in her SEC filing that "since January, 1995, the S&P 500-stock index has outperformed [Weis] stock by more than a factor of five." She argued that shares of the larger multiregional supermarket chains, including Safeway (KR
), and Albertson's (ABS
), "have dramatically outperformed [Weis] stock during the past several years."
Dennis Curtin, Weis Markets spokesman, declined to comment on a possible buyout as a matter of company policy. But if Chairman Robert Weis makes an LBO bid for the company, the price will have to be just right to win the backing of Janet Weis's group.
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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