If you owned stock that was stuck under $12 and someone came along and offered you $17.50 for it, you'd be crazy not to take the cash, right? Well, then, call Charlie Craig crazy.
He's chairman and CEO of Bradenton-based employee leasing firm Staff Leasing, which rejected a takeover offer from an outfit called Paribas Principal in April. Paribas, based in New York City, helped Craig acquire Staff Leasing back in 1993 and remains one of the company's largest shareholders, with 12% -- second only to Craig, who holds 22%.
Staff Leasing stock had bounced around the $10-$13 range after sinking from as high as $32 a year ago. The offer from Paribas, an affiliate of a French bank, gave shares a needed jolt. Paribas' 350 investments worldwide include another leasing firm in Minneapolis, and Paribas officials figured the acquisition of Staff Leasing would make a nice fit. Gary Binning, a Paribas partner, says Craig "welcomed us with open arms."
A special committee of directors spent about a month evaluating the deal. Result: Thumbs down. "They just came out with a press release," says Binning. "Not even a phone call."
What the press release said: Essentially, bad timing. Staff Leasing was (and still is) in the thick of negotiating a new workers' compensation contract with an insurer. That's important because the company generates half of its revenue from workers' comp services. The Staff Leasing release also cited several initiatives in progress, such as the opening of six new sales offices and the rollout of Internet payroll software. In conclusion: A buyout would just get in the way.
Binning says Staff Leasing's response doesn't hold water. He says Paribas' offer was not contingent on the workers' comp contract, and Paribas even agreed not to pursue its due diligence with Staff Leasing's insurance vendors to avoid stirring things up. As for the other "initiatives," Binning says those seem like normal business undertakings that a sale shouldn't affect. "Every aspect of our offer was negotiable," he says.
Analyst Mercedes Sanchez, with St. Petersburg-based Raymond James, follows staffing companies and thinks Staff Leasing had a different reason for spurning Paribas: Craig wants to buy the company back himself (he took it public in 1997). "Charlie Craig's background is in venture capital," she says. "My belief is he is working on the side to get some support to make a counterbid for the company."
Craig, however, says her theory is just that. The company called Sanchez to tell her she was wrong, and Craig denied the story again at the recent shareholders meeting. "Charlie said he had not and was not trying to put a deal together," says Staff Leasing's investor relations vice president, Doug Hall.
Assuming Craig really doesn't have a deal up his sleeve, he'll have some explaining to do if the stock doesn't pop over $17.50 soon. Already the company is facing one shareholder lawsuit over rejecting the deal, and come next year's shareholder meeting, a $12 share price just ain't gonna cut it.
Concern over the stock price is valid, Hall says. "But you're assuming that the Paribas deal was a viable deal that could have gotten done and would have gotten done. Price is only one factor in a transaction. There's a lot of things that had to happen."
So, Staff Leasing shareholders, hang in there. The company expects to announce its new workers' comp deal next month, and eventually staffing stocks will come back in favor. If not, there's always Paribas: Binning says its offer is still good.
Sunbeam: Dog Eat Dog
Al Dunlap used to say about his cold-hearted cost-cutting approach that he wasn't in it to be liked: "If you want a friend, get a dog. I'm not taking any chances; I've got two dogs." Thank goodness for the pups, as Dunlap certainly won't find many human pals at Sunbeam's Boca Raton headquarters these days.
Since Sunbeam's board unceremoniously dumped Dunlap a year ago, the infamous hatchet man and the troubled appliance maker have been duking it out over Dunlap's severance as well as who's responsible for the nightmarish losses plaguing the company.
Dunlap wants $5.5 million in salary, benefits and accrued vacation. He's also sued Sunbeam to force the company to pay his legal bills incurred defending class-action suits and an SEC investigation. Says Sunbeam: Not!
Meanwhile, the company just reported $60.7 million in losses for the first quarter. New chairman and CEO Jerry Levin blames the mess on questionable sales tactics instituted during Dunlap's regime, such as billing resellers for products that aren't delivered until later. That let Sunbeam inflate revenues for a given quarter, but it also stuck Sunbeam with a lot of excess inventory. A shareholder lawsuit claims Dunlap was well aware of the dubiousness of these practices, that he referred at one point to then-CFO Russell Kersh's "bag of accounting tricks."
Dunlap, for his part, believes that he's being maligned and misunderstood. He's also being dunned a bunch of money: More than 6 million stock options he was awarded over the years are worthless, although he and Sunbeam are fighting over that, too.
So just what is Al doing these days? His lawyer tells reporters Dunlap is fielding "a whole lot of offers," and the Palm Beach Post reported this spring that Dunlap has been seen golfing at the Boca Raton Resort & Club and fishing golf balls out of lakes. Hmmm. Maybe Chainsaw Al needs friends more than he thought. Or perhaps a retriever.
Taking Stock of Staffing Firms
Staff Leasing isn't Florida's only staffing company whose stock is in the penalty box. At $8.50, Romac International is trading at about 73% off its 52-week high. Modis Professional Services, the former AccuStaff, isn't doing a whole lot better. And Interim Services' shares, at $22, are down 28% from their yearly high.
Staffing stocks started declining last fall when investors began fretting that an economic slowdown would mean quick cuts in temporary hiring. A more pressing problem has been the anticipated drop in information technology (IT) spending throughout 1999, as corporations that broke the bank on Y2K readiness last year stall further IT outlays pending The Big Event. This is bad news because Romac, Modis and Interim in recent years have shuffled resources to focus more on IT staffing and consulting.
Case in point: For its transformation from AccuStaff into Modis, the Jacksonville-based company shed its commercial and healthcare staffing divisions, leaving it with information technology and professional services. Last year IT business accounted for 69% of total revenues. Obviously, then, IT spending cuts would put a major dent in the 40%-plus growth rates CEO Derek Dewan likes to boast. "Peak growth rates for these companies were achieved last year," says Mercedes Sanchez, the Raymond James analyst who follows staffing companies. "Now in '99 we have some pretty tough comparisons."
Then too, each company's particulars are impacting stock performance. Tampa-based Romac has had trouble digesting its April 1998 merger with Source Services Corp., including first quarter figures that didn't meet expectations. Modis has been similarly occupied with its restructuring. Dewan's arrest last year on a misdemeanor charge of soliciting prostitution didn't help. The stock dropped 18% the day the arrest was announced. First quarter earnings growth of 25%, however, recently lifted the stock off its $7 low.
Interim, in Fort Lauderdale, has weathered best the Wall Street malaise. A recent merger with competitor Norrell Corp. will nearly double revenues and add two new business lines. Plus, Sanchez says, the well-diversified Interim has been the most aggressive of all three companies in its use of the Internet to match job candidates with companies.
Declines in IT spending will make the next six months "difficult," says Sanchez, and that's why she recently downgraded her ratings on Romac and Modis. Long term, however, Sanchez is bullish. The IT business is booming, she says, with more and more companies looking to outsource their technology needs. "The big picture is, the fundamentals of this industry are stronger than ever."