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Let me tell you a sad story about a boy named The Business Press Maven.
Over time, the boy had some of his biggest investment successes shorting one-trick ponies in retail, consumer goods and restaurants. His method was pretty set: He'd identify a one-trick pony like
or the company that made the Nordic Track. Essentially, he looked for single-concept businesses where their novelty would wear off, even as it started facing knockoffs. Then, the boy would wait and wait and wait -- until that gloriously dark day when the numbers finally broke. Even if he was a bit late to the wake, he would hop in and ride the thing down.
But many years later found the boy circling a stock called
. In expensively located stores, it offered what he saw as a single shtick: Kids could make their own teddy bears.
Sure, Build-A-Bear got a lot of mileage out of the shtick. I stopped counting press releases announcing new bears, from NBA bears to a
( HDI) bear. My kids, it (ugh) bears mentioning, have both. And I knew enough not to fight the tape, trend or whatever you want to call the lure of such top-dollar bears. This boy was not going to be the first one to borrow the stock. But when it started to bend, he'd make on the break and that would be this story's happy ending.
Then, a week ago, a telltale horror of our times.
Late in the quarter (an especially bad time for number cuts to come out, though not often something remarked on by the business media), Build-A-Bear nearly halved its second-quarter profit forecasts on what it said were going to be miserable North American same-store-sales decreases on the order of 7% to 9%. There were also
other problems: overseas, with emerging competition, fading customer attention and a complicated problem of appealing to boys more than girls.
It was just the big, hairy, ugly break the boy had been waiting for.
But before the boy could say, "Short the sucker now," a funny thing happened.
All around, from far and wide, articles began to come out saying that Build-A-Bear was a takeover candidate. This, of course, has become the business media's verbal tic, the defining, default opinion of this takeover madness: If they stumble, an acquirer will come.
was disappointingly typical in this regard. Basically no sooner had the earnings been decimated (and late in the quarter) than Build-A-Bear was defined as a takeover candidate in
an article about rocket stocks:
"Even with this guidedown, Build-A-Bear has a forward price-to-earnings ratio of just 12 and trades at a multiple of just 8 times cash flows. This profile makes Build-A-Bear an excellent buyout candidate here, and that's what people will be whispering on Monday."
Forget the whispering. They were
shouting it. This from
"Although the stock may trade on fundamentals over the near term, Susquehanna Financial Group said it still thinks the company will eventually be bought out by a private equity firm."
The boy knew a takeover was unlikely. This is a troubled company, in part because all the potential had already been tapped out of it. In a normal environment, a company is only a legitimate takeover candidate if it has fallen on hard times, but has unmet potential, or, if it can -- again with unmet potential -- be a good fit with another company. Here? For the life of him, the boy couldn't see it. But he was afraid to short, if only to avoid getting caught up in such talk.
You want a moral to the story? Here it is: This takeover mania will not last.
When is it going to end? I have no idea. You can go broke (not to mention blind and bald) predicting such things. But to be safe, this is what you have to realize: Every company that has troubles come to the fore is, these days, reflexively mentioned as a takeover candidate by the business media. Build-A-Bear is only one.
But as an investor, you need to ask yourself whether this company has any potential. Or is it reeling because it has come to the end of its potential? Did the gang who was running it -- including Maxine Clark, who is known (I kid you not) as the chief executive bear -- leave anything on the table? Here, I don't think so. Who would have imagined you could ride bear-making this high in the first place? And I don't think it's a good fit with any company I know of, either. Would, say, Steve Jobs want to be co-chief executive bear?
So, like a lot of other takeover talk I've rightly pointed out was just talk, that's what I think this is. But with so much talk out there, I wouldn't short the thing. And that's probably the end of the story, though I'll tell you if I ever write a postscript.
In this week's final item, I'm going to give the dreaded Business Press Maven "Back of the Hand" award to something different: a total lack of imagination on the business media's part.
With all the talk about
making a counterbid for
( DJ) (puh-lease, it was entry-level talk, Pearson couldn't do it and GE wouldn't), I don't believe I saw a mention of GE's motivation for floating such nonsense out there, or playing along by not shooting it down.
About to compete with Rupert Murdoch in the financial television world, GE was not about to risk years of losses on
The Wall Street Journal
. But it sure was working like the dickens to drive up Rupert's offer and have him enter the competition hurt, huh?
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.
A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial Web site twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children. Fuchs appreciates your feedback;
to send him an email.