Next Challenge for Wickes Is What to Sell to Pay for Deals
Wickes Chairman Sanford C. Sigoloff has been tearing through corporate America lately like a lottery winner on a first buying spree.
In the last few days, Wickes has agreed to two billion-dollar acquisitions that will send the Santa Monica-based firm bursting into the top 50 firms on the Fortune 500 list of the largest industrial companies less than two years after emerging from bankruptcy court protection.
By the time it wraps up its deals, Wickes will be a company with more than $8 billion in sales and $6.5 billion in assets, rivaling in size such corporate fixtures as Pepsico, General Dynamics, Coca-Cola and Sara Lee.
“This guy Sandy is sort of the Indiana Jones of the corporate jungle,” said Donald Trott, an analyst with Mabon, Nugent & Co. of New York. “Around each turn he takes in the jungle, there’s a new challenge facing him, and the objective is to get out of the jungle with a viable, healthy company.”
Sigoloff completed a one-two punch with the $1.7-billion agreement on Tuesday to buy Lear Siegler, an aerospace and manufacturing conglomerate, just two days after Wickes agreed to purchase Collins & Aikman, a New York manufacturer of upholstery fabrics and wall coverings for $1.16 billion.
But as Wickes races to complete the two deals by year-end before tax law changes make the acquisitions less profitable, the talk on Wall Street has turned to what Sigoloff will sell to reduce the staggering debt load that the company will take on from the planned acquisitions.
While two such large purchases are an obvious gamble by Sigoloff, several analysts expressed confidence that the corporate “rescue artist” has not bitten off too much, especially given the general good health of the two acquisition candidates. Wickes, a retailing and manufacturing conglomerate, will be able to shelter the earnings from those companies with more than $400 million in tax-loss carryforwards left over from the company’s money-losing days.
“In neither case has Wickes acquired a turnaround situation,” said Gregory H. Kieselmann of the Los Angeles-based Morgan, Olmstead, Kennedy & Gardner investment firm. “The priority is to get the debt load down. It’s a bit onerous, at a 4-to-1 debt-equity ratio” after the acquisitions.
Wickes is not saying what it plans to sell, and those close to the company contend that Sigoloff probably does not have anything earmarked yet. Sigoloff was not available to be interviewed. A spokesman said Wickes is confident that its debt, which stood at $2 billion on July 26, will be “quite manageable,” thanks to income from operations and “divestiture opportunities.”
By making these acquisitions, Sigoloff is gambling on a stable economy and interest rates and a continued appetite by the investment community for so-called junk bonds, which Wickes issued to raise $1.4 billion in funds, Trott said.
An obvious candidate for the auction block is Lear Siegler’s troubled Piper Aircraft unit, analysts say, although there is some speculation that Wickes might sell some of its existing businesses, such as its clothing operations, if the price is right. Sigoloff reportedly has agreed to consult Lear Siegler Chairman Norman A. Barkeley about any sale of that company’s units.
Piper Aircraft has been losing money, Lear Siegler said in its latest annual report, but the company does not break out Piper’s results separately.
Wickes may not have much luck if it tries to unload Piper because of problems in the general aviation business and may have to simply close the operation, said Thomas Lloyd-Butler, an analyst who follows Lear Siegler for Montgomery Securities in San Francisco.
