MARKET BEAT : Henley Deal Out of Spotlight, but It’s Still On
Amid all the hoopla surrounding the uncertain future of takeovers, one deal that seems to have been forgotten, but is alive and well, is La Jolla-based Henley Group’s intention to split itself apart at the end of December.
Announced in September, the transaction will create a separate entity for Henley’s real estate holdings, including considerable properties in Southern California. The rest, to be called New Henley, will consist of several independent companies, including Pneumo-Abex, an aircraft parts manufacturer, and Fisher Scientific, a health-care concern, as well as Henley’s stock holdings in Itel Corp. and Wheelabrator Technologies.
The important part: Wall Street’s lack of interest in Henley has caused the stock to sell at a sharp discount to its breakup value. It closed Friday at $59.75, but analysts at First Boston; Drexel Burnham Lambert, and Bateman Eichler, Hill Richards believe that the stock is worth $100 a share.
Bateman Eichler’s Burl East thinks that the real estate alone is worth $12 per share; his colleague Larry Harris puts an $88-a-share price tag on the rest.
While breakup values are often unrealistic goals used by Wall Street, they hold a more realistic meaning in the case of Henley. That’s because the company has said it intends to liquidate New Henley within a year or two. Drexel’s Larry Lytton goes so far as to say he believes that “substantial things could happen there within six to 12 months.”
No matter what, a company spokesman says, the profits will be distributed to shareholders as a cash dividend and/or some form of stock.
Which movie companies are the most likely to be acquired next, and at what price in the wake of Sony’s recent agreement to buy Columbia Pictures? Aside from MGM/UA, which is already considered “in play,” Bateman Eichler’s Paul Marsh says the most likely candidates are Paramount and MCA. Paramount, which closed Friday at $55, is worth $78 a share, while MCA, which closed at $61.875, could fetch $85.
But don’t expect to see new deal activity soon. San Francisco broker Michael McCrery of Paine Webber, who specializes in entertainment and counts industry honchos as his clients, believes that the entertainment group is headed lower and has reduced his holdings accordingly. Recessionary fears will cause consumers to spend less at the movies, he says, and that will push down earnings, putting pressure on stocks.
Potential predators, like Paramount’s Martin Davis (if Paramount doesn’t get bought first) or Chris-Craft Chairman Herb Seigel, who was Warner’s biggest shareholder before Warner merged with Time, McCrery says, “are brilliant operators, and they’re looking to buy assets at lower levels.” For that reason, he doesn’t expect to see takeover activity in the entertainment industry resume for up to six months.
Hilton Hotline: It may not really matter whether the Japanese will try to curtail American acquisitions, as has been speculated lately, at least as it applies to Hilton Hotels. Montgomery Securities analyst Michael Mueller, who tracks Hilton closely, says it’s a mistake to assume that the Japanese will be the only bidders for the Beverly Hills hotel chain. He believes that it’s possible that Hilton has attracted a group of international buyers, some of whom could form a consortium to buy the chain, much as the Japanese, with Scandinavian-owned SAS, bought Inter-Continental Hotels.
Railroaded: Santa Fe Pacific shares have come under pressure lately as investors expressed concern that a recent deal to sell part of its real estate holdings to the California Public Employees Retirement System for $400 million indicates that the underlying values aren’t as great as had been expected. Santa Fe’s stock, which topped with a 52-week high of $25, closed Friday at $17.375, off 37.5 cents. Bear, Stearns & Co. analyst Gary Schneider, known for his knack at pricing conglomerates, says he thinks that investors jumped to a conclusion, because all details of the deal and potential values “are not public.” He thinks that Santa Fe’s assets are worth a minimum of $28.75 a share and that Santa Fe’s two largest shareholders, Itel and Olympia & York, intend to do what it takes to get the price higher.
