Wickes Disclosure Sets Off Heavy Trading : 7.65 Million Shares Sold in Wake of Questions Over Carpet’s Safety
Trading in Wickes Cos. stock reached an astounding 7.65 million shares Thursday in the wake of its announcement late Wednesday that one of its new subsidiaries has produced and sold an “indeterminate amount” of commercial and institutional carpeting in the past 10 years that does not meet certain flammability standards.
Wickes’ stock lost about 10% of its market value, closing at $3.625 a share, down 37.5 cents, on the American Stock Exchange. The trading was the heaviest on any of the nation’s exchanges and is one of the heaviest in the firm’s history.
Wickes officials declined to elaborate much beyond its initial statement but did confirm that some employees of its Collins & Aikman subsidiary were dismissed because of the problem. “As we learn more that becomes material, then we will communicate it,” said Michael Sitrick, Wickes’ senior vice president for communications.
The lack of detailed explanations served to intensify uncertainty among industry officials and financial analysts, who were caught off guard by the stunning news.
“It’s a mystery to me how something can happen for 10 years and it then suddenly appears four months after buying the firm,” said Anthony Pearce-Batten, analyst for Legg Mason Wood Walker in Baltimore. Pearce-Batten speculated the incident may strain the relations between Wickes’ and Collins & Aikman’s management. “I don’t imagine things are too harmonious right now,” he said.
The New York investment house of Smith Barney, Harris Upham & Co. rescinded its buy recommendation on Wickes’ stock until “we know more what the final impact will be,” said H. Lloyd Kanev, a company analyst.
The problem centers on polyvinyl chloride-backed carpet sold by the floor-covering division of Collins & Aikman, a highly regarded textile manufacturer that Wickes acquired in January for $1.16 billion. The floor-covering division has sold more than 30 million square yards of this carpeting in the past decade, generating sales of about $360 million, at today’s prices.
Carpet manufacturing is a $7 billion-a-year business centered in the Southeast around the northern Georgia town of Dalton, where the Collins & Aikman carpet plant is situated. Also in Dalton is the Carpet and Rug Institute, the industry’s trade group.
“The thing that threw me,” Institute President Ronald E. VanGelderen said in a phone interview, “is that this industry is so concerned about meeting (flammability code) standards, both federal and local. That’s why this is such a shock. This kind of thing has never happened before.”
Wickes has stated that it doesn’t know how much the problem could eventually cost.
As a result, its 1986 financial results probably will not get an unqualified endorsement from its outside auditor, the company indicated.
