Red Flags Fly Over ACLN's Ships by Herb Greenberg
Senior Columnist
12/14/2001 01:48 PM EST
Fried-day:
When is a deal not a deal?: In recent days, when many stocks have been crumbling, a shining exception has been the stock of ACLN Limited (ASW:NYSE - news - commentary - research - analysis), which is in the business of selling and transporting new and used cars to Africa. Here is a New York Stock Exchange-traded company that is incorporated in the tax haven of Cyprus, with its headquarters in Belgium -- yes, home of the defunct Lernout & Hauspie (LHSPQ:OTC BB - news - commentary - research - analysis) ! -- and its shares in the past two days are up 12%. (Did I tell you that its 27-year-old CFO, a former investment banker at the firm that took ACLN public, is based in Los Angeles? How's that for being close to the action?! But I digress ...) Related Stories
The reason for the stock's rise, if you believe chatter on the message boards and comments being circulated by brokers, is the "news" or supposed news that ACLN has bought or is buying three ships, with financing of $150 million provided by J.P. Morgan Chase. Such financing, it would appear, would be material and merit a press release, no? You would think, but so far the only public information regarding such a deal -- all anybody is referring to -- is a story from a trade publication called TradeWinds that was being faxed around Wall Street on Thursday. (One ACLN short -- one of the most diligent I know -- says his broker yesterday told him the TradeWinds story was the reason the stock was up; the story, however, was originally published Nov. 30.) The story said that ACLN was buying the ships in a deal that was going to be financed by J.P. Morgan Chase. Now that story is being touted as true -- so true, in fact, that one message on the Yahoo! boards today insists the news will be announced today. Today! If so, why would that poster know before the company announced it? And if J.P. Morgan Chase is doing the deal, you can only hope that it has done its due diligence. Here, after all, is a company with only about a dozen employees that has a market value of about $500 million and the usual round of red flags, including limited disclosure, receivables that until last quarter were rising faster than revenue, and a host of related-party transactions. (Consider that ACLN's CFO, Chris Payne, owns a company called Catalyst Business Systems, a consulting firm that provides services and office space to ACLN. Payne is paid just $1 per year -- yes, that's one dollar -- to be ACLN's CFO. As part of his deal, according to the company's SEC filings, he gets a bonus equal to 1% of the total amount of any debt or stock financing above $10 million.) This is a company that last year didn't have an allowance for doubtful accounts. (The lower the allowance, the higher the earnings, and last quarter the company earned $1.65 per share.) Oh, one other thing: Its auditors are based in Cyprus. An ACLN spokeswoman didn't return my call from midday Thursday. Also never heard back from J.P. Morgan analyst Gregory Burns, who rates the stock buy. J.P. Morgan investment banking officials also couldn't be reached.
The safe way?: In a column Thursday about trusting companies, I used Safeway (SWY:NYSE - news - commentary - research - analysis) as an example of where the "trust us" policy applies. It was really nothing more than a throwaway example, but it really deserves more elaboration -- especially after the drubbing its stock took earlier this week in the wake of Kroger's (KR:NYSE - news - commentary - research - analysis) announcement that it aggressively cut prices. At issue is whether Safeway's margins, the highest in the industry, are at risk as it faces heightened price competition. The higher the margins, say skeptics, the greater the risk that they fall, especially as prices come under pressure. Simple logic, right? You would think, but CEO Steven Burd, who has done a marvelous job rejuvenating Safeway, insists it's not as simple as it looks. And he maintained that response when I asked him the same question several times during a 25-minute interview the other day. The essence of his response each time was to the effect that history has proven that Safeway has a "unique ability" to cut costs. "We've been here nine years and we remain stunned to find cost savings," he said. "The key here is technology. The more technology we apply, the more efficient we become. We have the best technology among conventional food retailers." At the same time, same-store sales are rising, which is critical and which is why he says Safeway should be able to cut prices and costs without affecting margins. Time will tell. Skeptics continue to believe that it's only a matter of time before something gives. All of which says that this is a story that requires closer attention. You can bet this column will give it in the quarters to come.
TV talk: I'll be flying red flags Monday at 11:50 a.m. EDT on CNBC. |
