Mike. Well, I guess leap of faith describes it, because I still can't make the numbers work out. By my reckoning Orcolite will need to have 20% to 25% operating margins to break even after interest costs at the current run rate. Any less, and it is dilutive to earnings, at least initially.
Total long term debt is now close to $200 M and is likely to go higher as management has said there will be another $25 M or so of capex this year and there are also likely to be working capital needs associated with Orcolite. My concern is that the leverage works both ways, as you know, and will magnify any downside surprises (which are not all that uncommon when digesting a sizeable acquisition).
I'm aware of the buyback and insider ownership. Like I said, they pass all my other smell tests, including management quality and shareholder orientation, just not the debt. By the way, the form 4 filer was exercising options (at $3.50 I think) that were due to expire. You will find that two new form 3's were also just filed, but these are just option grants to the two new directors.
One clarification. The Neuberger position was added to in 1997 bringing it up to 8.3% from about 5.5% a year earlier. Reich & Tang are the third 5% filers.
Thanks for your views. -JLF |
