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Potential takeover targets. That's what money manager John Bendall unabashedly says he invariably looks for. His approach: "We only buy shares in companies that are worth more as a whole to a strategic buyer," says Bendall, chairman and CEO of Hermitage Capital, a small investment boutique in New York. Bendall has worked for many years with various takeover pros, including Carl Icahn and Harold Simmons, in accumulating large stakes in potential targets for the sole purpose of instigating or participating in merger or takeover deals.
Three companies that Bendall now has in his sights -- and in which Hermitage has acquired sizables stakes -- are Big Board-listed Nashua (
NSH
), a supplier of specialty imaging products and services to industrial and commercial companies; Cubic (
CUB
), an American Stock Exchange-listed designer and manufacturer of electronic payment systems for public mass transit; and Daxor (
DXR
), an Amex-listed maker of "blood volume analyzer" devices.
Nashua, currently trading at 9, which is also a premier producer of labels and specialty thermal papers, may be taken private, says Bendall, by management through a leveraged buyout (LBO). Insiders, says Bendall, have been buying shares, and the company has also been repurchasing them.
BELOW BOOK VALUE. Last May, shareholders reelected all of the company's board members, ending a bid by some dissidents to win seats. One of those who didn't support the board was mutual-fund maven Mario Gabelli, who owns 17% of the stock. One investment group that tried to launch a takeover of Nashua -- and failed -- was Newcastle Partners, a Dallas shareholder group representing 2.5% of Nashua's outstanding shares. Sources say Gabelli will oppose any LBO attempt -- unless shareholders get a fair price.
The stock is trading well below book value, which is estimated at 13 a share, notes Bendall. Cash flow is expected to hit $1.80 a share in 2000, he adds. "We figure the company, which has a market cap of just $54 million, is worth 16 to 18 a share," says Bendall. In 1999, Nashua posted revenues of $171 million and a loss of $4.4 million, or 77 cents a share. It has been losing money since 1995. Neither Gabelli nor Nashua returned phone calls asking for comment.
Cubic, currently trading at 23 a share, could also find itself in play before long, says Bendall. The reason: Some 40% of the company is owned by Chairman, President, and CEO Walter Zable, who, says Bendall, is in his early eighties. He suspects Zable will sell his large stake to a group that will want control of the company. Cubic has a market cap of $205 million. Sales in the year ended Sept. 30, 1999, totaled $511 million. And it earned $14 million, or $1.57 a share, in fiscal 1999.
TICKET-TAKER. Cubic designs and makes automatic revenue-collection systems for public-transit projects worldwide -- specifically for railroad, bus, and parking-lot systems. It has won large contracts from such major cities as New York, Washington, San Francisco, London, Bangkok, and Shanghai. In China, its contract calls for the company to help a Chinese company integrate its smart-card technology into a new ticketing system for the Shanghai Metro.
Bendall figures that Cubic, which he estimates has a book value of $20 a share, is worth 40. It's quite possible, he says, that a large foreign company will bid for Zable's stake.
Daxor is a tiny and little-known maker of Food & Drug Administration-approved devices known as blood volume analyzers, which provide rapid measurement of the total amount of blood in an individual's body. Determining blood volume, says Bendall, is important in many surgical and medical conditions because it can facilitate much more precise treatments and avoid serious complications in patients.
HEALTHY BUYS. The Mayo Clinic has signed a pact with Daxor to use its technology, notes Bendall. Other health-care facilities that use the analyzer include Cleveland Clinic and Presbyterian Medical Center for New York. Bendall believes that Daxor would be attractive to a large medical-device company, such as Abbott Laboratories or Johnson & Johnson. Currently trading at 13 a share, Daxor has a market cap of $64 million. With $40 million in cash and unburdened with debt, Daxor could be worth 30 to 35 in a buyout, says Bendall.
Barring a takeover, he says, Nashua, Cubic, and Daxor still represent sound investment opportunities. But should any one of them get bought, says Bendall: "It would be like hitting the ball out of the park."
Copyright 2000, Bloomberg L.P.
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