All, Thread mining;
Well it is alot of info but market IS closed.
Courtesy of Rande Is...
+Rande Is (3416 )
From: +Rande Is
Monday, Feb 15 1999 1:08PM ET
Reply # of 3438
Under a dollar. . .the price of a lottery ticket.
SME - Service Merchandise is hardly new to this thread. But what IS new is direction.
When we first discussed this in December, the company was releasing 3 financial PR
statements which were to give an indication as to whether they had a chance of making
it in the world of bricks and mortar stores or not. . . .they failed miserably.
Even after doing away with printing catalogs, opting for newspaper inserts, and after
changing the format of the stores to full-service . . . more like a department store. . .still
same store sales dropped from last year. Then in December, the company missed an
interest payment on their loan [which they now say was within the grace period]. . .and
the stock plunged to a quarter.
Those with iron stomachs scarfed up shares at bargain basement prices while they
could, which lasted just a day or so. The assumption made by sellers was, the
company's last ditch effort to get some revs going failed and the next stop was
bankruptcy court.
Since then, some very important developments have occurred. First, Citibank and Bank
Boston said they would grant a 750 million dollar loan package to SME...consisting of
600 mil in revolving credit and 150 mil term loan. I think it was this past summer when
Citibank handed them 300 mil term with a 600 mil revolving credit. . .so this new
package is similar to the old one. What is different is SME's plan. With the old money,
they tried to make the bricks and mortar stores work and they created their massive
website.
But with this new money, Citibank is not going to hang out and watch them make the
same mistakes. In fact, SME has 120 days from the time this loan was granted until they
provide Citibank with a restructuring plan.
newsalert.com.
And what is SME's plan?? Well of course, if we knew it, that would be insider info and
we could not trade on that. . .so we make predictions based on the facts at hand.
SME's first act upon being given another chance was to hire the best turnaround
management company they could find. This was like admitting that the current
management was clueless. .. which they showed they were. Then, as terms of this
arrangement, they appointed a new interim CEO of SME [principle of new management
co.]
I think this was the right move finally. . .to hopefully put SME on right track . . . or is it
too little too late?
Here is a bit about the turnaround company, etc.
Jay Alix & Associates is a leading firm in the business of offering underperforming
companies both consulting and interim management to lead and support
implementation of strategic repositioning, operational turnarounds, business
development strategies and debt restructuring. The firm, which has headquarters
in Southfield, Michigan, and offices in New York and Chicago, has extensive
retailing experience with such clients as Interco, Inc., Hartmax Corporation,
Woodward & Lothrop, Leslie Fay and Cotton Ginny. Other clients have included
Unisys Corporation, National Car Rental Systems, Ryder Systems, Oxford
Health Plans, Figgie International, Phillip Services Corporation, Umbro
International, and AM International.
Info on the new interim CEO [a principal of Jay Alix and Assoc.]: NASHVILLE,
Tenn.--(BUSINESS WIRE)--Jan. 11, 1999--Raymond Zimmerman, Chairman of
the Board of Service Merchandise Company, Inc. (NYSE:SME) today announced
the appointment of Bettina M. Whyte as interim Chief Executive Officer. Whyte,
age 49, is a principal of Jay Alix & Associates, who has been engaged by the
Board of Directors to lead the Company's turnaround efforts.
Whyte has more than 15 years experience serving leading major corporations
through financial and business turnarounds. Her most recent assignment has been
CEO of APS Holdings, a Houston-based automotive parts seller. Whyte has also
been involved in turnarounds and restructuring for Music Land, Business Land
and Edison Brothers, and companies in industries as diverse as healthcare,
manufacturing, transportation, technology and oil and gas distribution.
Zimmerman remarked, "The Board of Directors and the management staff are
delighted that Bettina has joined the team. Her experience and expertise will play
a pivotal role in returning Service Merchandise to profitability."
So. . . now we have a top turnaround management firm and an experienced turnaround
CEO at the helm. Let me interject here. . . these guys EARN their money and are
leaders because they cut to the bone and FORCE companies to stop making stupid
mistakes, stop being blind, cut the fat and get on the right track. . . I would imagine the
contracts signed are like signing over power of attorney.
So this CEO has carte blanche with SME. She can virtually do anything that a
bankruptcy judge could do, but fortunately for SME shareholders. . .without the
bankruptcy. . .this re-organization is self-inflicted. . .and not without pain. . check this
out:
newsalert.com.
SERVICE MERCHANDISE ANNOUNCES INTENTION TO CLOSE UP TO 134
STORES
NASHVILLE, Tenn.--(BUSINESS WIRE)--Feb. 9, 1999--Service Merchandise
Company, Inc. (NYSE: SME) today announced its intention to close up to 134
underperforming stores over the next three to four months. During that period,
the Company plans to run inventory clearance sales at these locations.
"This action is an important step in the Company's out-of-court restructuring,"
according to CEO Bettina M. Whyte. "These sales will serve to reduce bank debt
and allow the Company to refocus its energies on its remaining 213 stores and on
refining its niche in fine jewelry, gifts and home products," said Whyte.
Now read these next 2 paragraphs carefully. . .
Over the next several months, SME intends to develop and implement a
business plan intended to return the Company to financial health. In the course
of this process, the Company will assess all of its operations and substantially
reduce its cost structure.
In an unrelated announcement, the Company also stated that Robert McDowell
has resigned from its Board of Directors.
So. . . why didn't the previous management cut these underperforming stores last year?
Could it have had something to do with the "resignation" from the Board of Directors? I
don't know. . .but suffice it to say that this new CEO and Jay Alix firm is making
extraordinary strides at attempting a full turnaround of SME. . .and THAT is what has
me interested again.
Should this Bettina Whyte and Jay Alix firm, be as smart as I would think they would
need to be. . . then they will quickly recognize the true value of SME's little known
E-COMMERCE site. . . one of the largest on the internet. Remember those Service
Merchandise catalogs? All that jewelry and watches . . small appliances, gifts and
household goods? All of it is available online and HAS been since Labor Day of 1998.
But SME has not announced any portal deals. . .they have not advertised anywhere in
cyberspace, nor have they fully taken advantage of PR in announcing the E-commerce.
But perhaps this new management will. It takes a good deal of cash to close out 134
stores, but I would think that part of that 150 million, or part of the revolving credit. . .
could be earmarked to a NEW LAUNCH of the website. A facelift of the website
might do just the trick. . .one that shows the products on the various index pages, then
gives descriptions of selected items. Here is URL to website:
servicemerchandise.com
SME previously announced their website as more of a convenience, in "addition to" the
bricks and mortar stores. . . .In my opinion, Amazon or other would-be internet retail
giants should be VERY interested in SME. There is very little competition by
e-commerce retailers, in the areas of jewelry, crystal, wedding gift items, excercise
equipment, small appliances, household items, and even furniture and home decorating.
And with the recent purchase of Fingerhut by Federated Department stores, it becomes
clear that ANY company could be taken over by any other company. . .whether it
makes sense or not.
As this turnaround company makes SME a leaner meaner machine, it also makes SME
an attractive takeover candidate. Hello Amazon? Are you listening?
But how do we prosper from any such turnaround? Well, those that bought at .25 have
little fear of SME's future. . .buying under .75 has considerably more risk, yet an
argument could be made for the upside potential out-weighing the risk.
I am looking for buying dips under .75 for the purpose of speculating on a successful
turnaround play or takeover play. . .over the next 6 months. On the near-term, I am
looking for any E-commerce announcement to take the stock up to 1.50 - 1.75 over
next 2 - 3 months, where it should hit some serious resistance from many that bought
there. . .big float / slow mover. . NYSE. . . . It could reach a peak of 2.50 again should
the company disclose the full re-structuring plan to their stockholders. I think any buyout
would be around the 2.75 area, near the current book value.
As this new plan is unfurled, I think we will see interest grow in the company. . . . from
old shareholders . . .other swing traders looking at takeover possibilities. .
.E-Commerce speculators. . .but mostly from penny stock investors wanting to be part
of a major company that they can brag to friends about owning.
No penny investor wants to say, "yeah, I am invested in a new company from
Vancouver that has the mining rights to the Goliath asteroid system. . .and is now raising
money to develop a mode of transportation and methods for harnessing, retrieval,
re-entry and mining. But if they can pull it off, they project 7 trillion dollars in revenues in
their first year of operation."
Rande Is
PS> I currently hold no position in SME, though certain extended family members do
hold small long positions.
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