Rawlings Sporting Goods'
(RAWL:Nasdaq) recent moves have drawn attention from investors and industry observers, some of whom anticipate that the sporting goods concern might soon become the target of a takeover.
Last Wednesday, Rawlings jumped 1 7/8, or 22%, to 10 3/8 on five times its usual daily volume. The sharp move sparked anew chatter about a possible takeover. Such a takeover would likely earn shareholders a decent return, given the premium paid in recent sports-equipment buyouts.
Indeed, study of recent takeover deals led Timothy Conder, an analyst at
A.G. Edwards & Sons
, to value a "targeted" Rawlings at about $14. A.G. Edwards, along with the three other firms, underwrote the Rawlings IPO in 1994. Conder currently follows the stock but does not rate Rawlings.
Conder's calculation is based on a selling price of about $110 million, which is lower than the firm's fiscal 1996 revenue of roughly $150 million. The discount stems from a $38.7 million debt burden and Rawlings' problematic core baseball glove business.
Conder's figures, however, appear conservative when compared with the price takeover specialists
Kohlberg Kravis Roberts
Spalding & Evenflow
this summer. They doled out slightly over a $1 billion to the
Cisneros Group of Cos.
, for the companies, which had combined annual sales of $680 million. And when
Canstar Sports Inc.
, the maker of Bauer in-line skates, in February 1995 the price was $409 million, nearly double Canstar's 1994 revenue of $205 million.
Also, a large buyer would have to be stepping lightly, since last week's stock action had a strangely retail feel to it. Just 7% of the total volume that day came in blocks bigger than 10,000 shares. Some industry observers think that kind of low-block volume makes a deal appear less likely in the near-term.
Furthermore, the market for baseball fielding gloves, Rawlings' strongest product, has been steadily shrinking since the early 1990s, in part because in-line street hockey has attracted teenage boys away from Little League diamonds. In addition, fan disgruntlement with the Major League baseball strikes in 1994 and 1995 contributed to weak sales. Glove sales have declined from 4.1 million in 1990 to 3.7 million in 1995, according to the
National Sporting Goods Association
Who might arrive as a suitor? Nike,
(BC:NYSE) and KKR have all surfaced in takeover chatter. However, one industry insider thinks a Nike bid is remote, primarily because Nike does not have an acquisitive history.
American Brands and Brunswick have been mentioned simply because of their recent purchases of smaller sports or recreational companies. Last month, Brunswick bought ice chest manufacturer
Igloo Holdings Inc.
for $150 million and American Brands acquired
last December for $700 million.
Although Rawlings would seem like a good fit with KKR's Spalding unit, there could be a conflict, Conder says, because Rawlings has the official basketball license of the NCAA while Spalding holds that position with the NBA.
Rawlings CFO Paul Martin said there was no news of a takeover and declined to comment further. For fiscal 1996, Rawlings had net income of $5,272,000, or $0.69 per share, as compared to $4,584,000, or $0.60 per share, in 1995.
Conder adds that without a suitor, Rawlings' stock is worth only $9 to $9 + in the next 12 months. And last month, Rawlings announced that it expects a net loss for the fiscal first quarter, ended November 30. That kind of profit problem ought to make cautious fundamentalists wary. For the higher-risk crowd, the takeover chance might seem more enticing.
By Avi Stieglitz