February 17, 1999
Stock's Price Ricochet
Is One for the Books
By TERZAH EWING
Staff Reporter of THE WALL STREET JOURNAL
Stocks go up and stocks go down, brokers like to say. But rarely is the ride
quite as wild as the one taken by Golden Books Family Entertainment Inc.
In an event rarely seen in the annals of stock trading, the children's books
publisher appeared Tuesday at different points on both the day's biggest
percentage gainer and biggest percentage loser lists of Nasdaq stocks. All
within a period of about two hours, courtesy of -- what else? -- Internet
mania.
About 11:15 a.m. EST, news reports came out that the company planned to
begin selling books online. That wasn't new news: Those familiar with the
company expected Golden Books to peddle its wares online.
But Net-happy buyers -- either ignoring or unaware of previous reports of the
company's financial difficulties in its own public filings -- didn't care. Instead,
they eagerly snapped up the company's shares. By 11:30, they hit 3 5/16, up
63% from their Friday close of 2 1/32 on the Nasdaq Stock Market.
But the roller-coaster ride was just beginning. After the shares slipped a bit
and traded in a range between 2 3/4 and 3, a CNBC-TV report broadcast at
1:05 p.m. panned Golden Books. (Dow Jones & Co., publishers of The Wall
Street Journal and the Interactive Journal, also provides content to cable
channel CNBC in the U.S., and jointly owns CNBC operations in Asia and
Europe).
The CNBC report noted that the company "is expected to announce very soon
what is essentially a prepackaged bankruptcy reorganization, which will result
in the stock price losing almost all of its current value."
The euphoria evaporated instantly. Just 15 minutes after the broadcast, the
stock plunged to 1 9/16, then slipping further to close at 1 1/2, down 17/32,
off 26% from its Friday close and 51% from its peak.
"The buyers were everybody, and the sellers were everybody also... It's very
scary when those things happen," said Tony Broy, head of Nasdaq trading at
wholesaler Hill Thompson Magid & Co.
Philip Galanes, Golden Books' general counsel, described the stock's morning
run-up as "mystifying," adding that the announcement was "truly a nonevent.
We just announced a redesigned Web site." He said "the world knew" before
Tuesday about the firm's intent to sell books online. He declined to comment
on the subsequent plunge or on the CNBC report. He said there was no insider
trading during the volatile day.
The company's difficulties have been well documented. In a filing late last fall
with the U.S. Securities and Exchange Commission, Golden Books said there
is "substantial doubt about its ability to continue as a going concern."
Indeed, part of the explanation for the unusual volatility Tuesday in Golden
Books' shares, traders say, lies in its financial difficulties. Last September,
according to a filing with the SEC, the company defaulted on a $5.7 million
interest payment. In mid-November, in the same 10-Q filing with the SEC in
which it reported a $18.9 million, or 71-cent-a-share, third-quarter loss,
Golden Books said it was discussing with creditors "an overall restructuring"
of its debt and, if that failed, would consider "other alternatives, including
protection under applicable bankruptcy laws."
Mr. Galanes, the company's general counsel, said Golden Books still is
negotiating with its bondholders but as yet "there's no deal."
Golden Books has struggled despite the efforts of Chief Executive Richard
Snyder to build it into a media conglomerate since he joined the company in
May 1996. Mr. Snyder was forced out of Simon & Schuster by parent firm
Viacom in 1994.
Even in a market that is becoming accustomed to Internet-related stock-price
spikes, followed by sharp declines, the trading in Golden Books reached a new
level of volatility. As the Internet frenzy gathered steam toward the end of last
year, shares in companies would rise over a few days before falling back
quickly, when rapid-fire "day traders" lost interest and moved on to the next
hot stock.
But the pace of the stock-price movements may be quickening. Lycos, an
Internet portal company, had more than doubled since Jan. 1 in anticipation of
a takeover, but its stock plummeted 26% a week ago Tuesday, when the
Waltham, Mass., company agreed to merge with USA Network's Home
Shopping Network unit on terms that some Lycos holders didn't like. Then it
shot back up about 18% the next day on news that a big shareholder would
oppose the deal unless better terms could be negotiated. |
