Standard Brands’ Story May Get Even Gloomier
This is a sad story, and it looks like it’s going to get sadder--and probably a lot meaner--before it’s over.
For six years, earnings have been sinking at Standard Brands Paint Co., the Torrance-based chain of home-decorating stores. Its stock, $32 a share in 1987 and $15 just last year, now has fallen to $7.625 on the New York Stock Exchange.
Many of the company’s 3,200 employees are dejected, and its biggest shareholders are livid. One of those holders, a private Kansas City, Mo., investor named John Latshaw, has decided he’s had enough. He is waging a proxy battle to wrest control of Standard away from Chief Executive Stuart Buchalter.
Latshaw, who owns 15.8% of Standard stock, was given a board seat by Buchalter on March 29, to serve until May, 1992. On April 9, however, Latshaw contends that Buchalter changed his mind and decided Latshaw’s term would expire at the annual meeting scheduled for May 24.
No way, says Latshaw. He insists that he’s going to serve until May, 1992. What’s more, he has nominated three of his Kansas City pals to Standard’s board as well. Standard hasn’t yet said whether it has accepted those names for the annual meeting proxy ballot. The proxy is due out sometime in the next two weeks.
All of this comes from documents that Latshaw has filed with the Securities and Exchange Commission. Neither Latshaw nor Standard will talk publicly about their fight--or anything else. Shareholders are left to guess, for now.
What’s wrong with Standard? The chain has been a well-known franchise in California since the 1930s. But since the mid-1980s, Standard has been badly squeezed by much bigger players in the do-it-yourself decorating business.
Standard’s 130-some stores in eight Western states average 15,000 square feet and concentrate on paint, floor coverings and wall coverings. In contrast, the Home Depot chain has charged into California with stores that average 90,000 square feet and sell much more than paint--and all at deep-discount prices.
All told, hungry competitors have caused Standard’s revenue to drop to an estimated $290 million last year, versus $338 million in 1985.
Still, other retailers facing heavy competition have managed to carve out niches for themselves and prosper. Standard has not. Management “has done an incredible job of screwing this up,” grumbles Harvey Eisen, whose New York-based SunAmerica Asset Management owns about 230,000 of Standard’s 5.5 million shares.
Meanwhile, many Standard employees, who own 20% of the company through a retirement plan, argue that they have been victimized. Abe Grundstein, who represents Standard’s union workers in the United Food & Commercial Workers union, contends that his members have gone for six years with virtually no pay raise and that the company now wants a further three-year wage freeze.
If Standard persists in its demand, Grundstein is threatening a mail campaign, targeting Standard shoppers, that would plead for a boycott of the chain. He admits this is a “doomsday” weapon that could destroy Standard, but he says the union sees few alternatives. As for Latshaw, Grundstein views him favorably. “He’s not there to gut it--he’s there to make it turn a profit,” Grundstein says.
That is not, however, the way Latshaw evidently sees things. The 69-year-old former E. F. Hutton executive has suggested in his SEC filings that all of Standard’s assets should simply be sold to the highest bidder.
Latshaw has good reason to want the company sold: He began buying the stock in April, 1989, and many of his shares were purchased for $15 or more. He’s badly under water on this foray.
Standard shareholders might ask whether Latshaw brings any special expertise to Standard’s situation. He currently heads a company that makes mechanical controls and various plastic products, including ice scrapers. The company fell on hard times last year and lost $240,000 in the quarter ended last Feb. 2, on sales of $5.67 million. The stock, listed in the over-the-counter “pink sheets” because so little trades, is quoted at $6 a share, down from $16 a year ago.
The irony of Latshaw’s battle for Standard is that a previous takeover attempt--launched by New Zealand’s Chase Corp. in 1987--is arguably a big reason why Standard has limped so badly in recent years.
Under threat by Chase, Standard borrowed $150 million in 1987 to buy back half its stock. That was an era when buybacks were expected to “enhance shareholder value”--you know, the Michael Milken mantra. Heavy debt wasn’t evil, but rather an inducement to create a better company.
It didn’t work that way at Standard. The company’s annual interest bill of $20 million is crippling it, while competition squeezes margins.
Whatever Latshaw’s reason for wanting out of Standard now, analyst David Jackson at Western Group in Los Angeles agrees that selling Standard may be the only real solution. “I’d sell it in a second--just for the real estate,” he says.
Because Standard owns most of its stores (rather than leasing them), the company could in theory attract plenty of buyers who would be interested in Standard’s store sites for some use other than home-decorating outlets. Value Line Investment Survey estimates that Standard’s real estate makes the firm’s true value close to $20 a share, or nearly three times the current stock price.
But in this depressed real estate market, do buyers exist for Standard’s properties? Latshaw says in his SEC filings that he has made “isolated inquiries” but found no interested third parties. And the company’s own attempts to sell selected sites haven’t exactly attracted long lines of bidders.
Still, Latshaw appears to have a good chance of winning his proxy fight and presiding over what could be a long liquidation process. Standard’s union is clearly at wit’s end, and shareholders such as SunAmerica’s Eisen see little hope that the company can turn itself around. “You’d be hard-pressed not to back anybody but current management,” he says.
SIX YEARS OF PAIN Earnings of Torrance-based Standard Brands Paint Co. have fallen for six straight years--and now, several big shareholders have decided that enough is enough.
Earnings per share ‘84: 1.87 ‘85: 1.40 ‘86: 1.33 ‘87: 0.79 ‘88: 0.57 ‘89: 0.36 ‘90: -0.80 ‘91*: -0.95 *Estimate Earnings exclude gains and losses from discontinued operations Source: Value Line Investment Survey
