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Non-Tech : CHKE-Cherokee
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To: Marty Leder who wrote (9)11/14/1997 7:56:00 PM
From: Rick Slemmer  Read Replies (1) of 46
 
Marty:

Yup; and did you see this part of the release (italics are mine)?

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Cherokee also announced that it has retained Libra Investments Inc. to act as its financial advisor in connection with a possible sale or leveraged recapitalization of Cherokee. The Board of Cherokee authorized the company to study the possibility of a leveraged recapitalization in which the company would borrow up to $50 million to make an extraordinary dividend of approximately $5.50 per share.

The company noted that such a leveraged transaction, if completed, would reduce the company's net income in the short term, due to the interest expense associated with such a transaction, but the overall earnings before interest and taxes (EBIT) will be the same as it otherwise would have been if such a transaction had not occurred.

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Now that ought to perk up some interest in CHKE; buy the stock for $14.00 and get a $5.50 dividend. I have two questions:

1. Why would CHKE go to the bank and borrow $50 million to give to the shareholders; and

2. How fast and how far will the stock drop the day after the dividend record date?

You can bet your booties that the stock will pop up a few points when (and if) the dividend is approved. I might give Investor Relations a call and see if they can answer Question 1.

RS
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