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No. of Recommendations: 3
I've been long JAKK for about a year and a half now and have watched the stock trade up to $30 and down to $8. Trust me, I've kicked myself many times for failing to sell and for buying more. For the most part, however, I return to my long term investment horizon and forget about the hiccups.
During this entire time I have felt very comfortable with JAKK's business model, its product lines, its strategies, and its balance sheet. The only concern I had was with respect to management.
Clearly, these guys know toys and the toy market. Competence is not the issue. Greed is. Within the industry Berman, Friedman, and Bennett are paid salaries that far exceed the average. So long as these guys were growing the company at a better than 50% clip I could live with the high cost.
But then things started to deteriorate. First, they sold virtually all of their stock as part of the Dec. '99 secondary. The sale alone doesn't bother me. What bothers me is that there was never really a re-investment. As it stands now, I believe the triumverate owns in the neighborhood of 3% of the company. For a company this small with as much power as these guys have, that scares me.
After they sold and no longer had a compelling incentive to improve shareholder value, they decided to loan themselves a ton of our money (which was raised through the secondary and a dilution of our shares) to buy fine houses in Malibu. Although they said they would pay it back, it was widely believed these were loans that would some day be forgiven.
Shortly thereafter, they stood before a group of analysts at a dog and pony show and told them all how well they were running the company. Days (note that - days, not weeks) later they warn and make the analysts look silly. Now I'm no fan of analysts and I believe they do a perfectly good job of making themselves look silly, but I do not like the loss of cerdibility our mnanagement team experienced.
Because of how they made the analysts look, those same analysts all of the sudden become very critical and began scrutinizing, for example, the "loans." So what does our management team do in response? They begin "agressively paying them back." Meanwhile, under their breath, they mention possibly re-pricing some options.
Ah ha, can't keep the money from the loans, the exhorbitant salaries aren't enough to live on, and you can't take advantage of the options because you've done a poor job of increasing shareholder value. So, lets re-price those options. Blah!
And on top of it all, along comes yesterday's warning. The warning itself doesn't bother me as much as the stuff described above, but what really gets my goat is (1) they release a statement early morning (2) they schedule a CC for a few hours later (3) they provide a link to the CC online, but that link takes you to a Best Buys conference call from 1999.
Come on guys, if you are going to hammer me, at least be competent enough to let me know why.
I did, by the way, call Joel at his beachside Malibu office to find out why the link wouldn't work and to find out how to listen in on the CC, but of course they weren't yet open and I have yet to have my call returned.
So.....ejan, your observations re: management are very good. Right now, however, I would prefer to see mgmt's rewards more closely tied to their ability to increase shareholder value. Until then, I'll remain skeptical and watch these fat cats very closely.

Keith
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