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Author: findingmyway Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 401  
Subject: Re: Buyout Date: 11/4/1999 5:58 PM
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Some points on the two responses to the proposal to a management led buy-out:

CWRailroad said in his reply:

"The Wise of the Street did a big diservice to both this company and the stockholders" -

I would have to disagree. The company did nothing to guide the public prior to their shocking announcement regarding a 40-45% shortfall on meeting earnings. Subsequently a 40-45% haircut for the stock. Happens all the time. Most companies, whose management understands their business model, will come out well in advance to "guide" the investment community to soften the blow of such events. As has been mentioned before in previous posts, DAB does very little in the way of PR except announce "another great opening". I think the response to this "surprise" was fully justified. They need to learn how to work with the man on the street - not just use his capital.


jwpatti said:

"Companies shouldn't get growth stock multiples unless revenue growth and dollar profit growth is supported by "real growth" of returns in excess of cost of equity."

I agree. DAB had been growing EPS & Revenue at a 40-70% clip for the past four years. Until the last twelve months or so, debt had been kept pretty well in check. But with the rapid expansion plans, long-term debt has ballooned to extreme preportions. (Estimated at $70 million)Something that has made the investment community quite unsettled. Narrower margins, higher debt, and a questionable rapport with those same investors tends to cause problems for anyone's stock price.

As far as a management led buy-out: I'm not sure that would be possible right now. The covenants of their long-term debt facility have some restrictions regarding profitablity and assets(as do all such arrangements). At the $15-18 a share price suggested, that would amount to more than $200 million in borrowing. I don't think, due to recent events and the existing debt and its constraints, that any one would "pony" up the money needed to manage such a transaction.

A more likely senario would be a takeover offer from someone with deep pockets to fund expansion. And as far as my thinking goes, I'm not sure anyone would be interested currently.
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