Pic ‘N’ Save Vows to Boost Profit to Fend Off Takeover
Pic ‘N’ Save, facing a proxy fight and takeover threat, began wooing shareholders Wednesday by promising to slow the company’s expansion and to take other steps to boost profits.
But the close-out retail chain also poured cold water on the idea of taking itself private or seeking a friendly buyer to fend off advances from an investment group led by La Jolla financier David H. Batchelder.
Breaking its silence on the prospect of a hostile bid, Dominguez-based Pic ‘N’ Save expressed doubt that the company could bring an “attractive” price in either a management buyout or a takeover. Implicitly questioning Batchelder’s ability to finance a deal, Pic ‘N’ Save cited the reduced amount of money available for takeovers and concerns among investors about the financial strength of some types of retailers.
“We have serious reservations about whether now is the appropriate time to seek either a leveraged buyout or sale of the company,” Pic ‘N’ Save said in a news release.
Separately, in a letter to shareholders in its newly issued annual report, Pic ‘N’ Save said the company has decided “to moderate new store growth significantly so that we can further sharpen every aspect of our operation and concentrate all of our energies on improving profitability.”
The letter, dated April 26, added that the company is evaluating “aggressive alternatives” that also could boost returns for investors. Spokesmen for the company declined to elaborate.
Pic ‘N’ Save’s comments follow the disclosure made by Batchelder on April 11 that his investment group, Girard Partners, had acquired 6.6% of the retailer’s stock. Last Saturday, representatives of the two groups met without agreement.
Batchelder is soliciting proxies to gain a majority on Pic ‘N’ Save’s board, a move he promises would be a prelude to selling the company to Girard Partners or another buyer.
Batchelder has said he is acting because of weakness in Pic ‘N’ Save’s profits, which fell 34% last year to $30.9 million on sales of $475.2 million. He could not be reached for comment Wednesday and has not indicated in the past how he would finance a Pic ‘N’ Save acquisition.
The recent downturn in the retailer’s profits has been blamed on the cost of an expansion that has nearly doubled the chain over the last three years to 190 stores in the West, South and New York area.
Analysts agreed that a buyer for Pic ‘N’ Save would be hard-pressed to find financing for the deal. All the same, investors appeared disappointed by the company’s disclosures. In over-the-counter trading, the stock closed at $13, off 50 cents.
“It’s a tough environment to do a leveraged deal in unless it’s clear the cash flow is strong enough,” said Thomas H. Tashjian, an analyst with Seidler Amdec Securities. He added that Pic ‘N’ Save appears to have little prospect of turning around its finances quickly.
Despite weakness among some merchants, two big-name retailers--Marshall Field department stores and the Saks Fifth Avenue fashion chain--were sold for unexpectedly high prices last month. Tashjian said, however, that those chains commanded such prices because of their strong image. The success of deep-discounters such as Pic ‘N’ Save, he said, depends much more on how low they keep their prices, and profit-cutting competition among these chains has been intense.
BACKGROUND
La Jolla financier David H. Batchelder last month raised the possibility of a battle for control of Pic ‘N’ Save when he disclosed that his investment group acquired 6.6% of the stock of the close-out retail chain. The battle could be decided at Pic ‘N’ Save’s annual meeting on June 20, when Batchelder hopes to have enough shareholder support to gain a majority on the company’s board.
