Why CKE Restaurants' Stock Purchase Plan May Not Be as Appetizing as It Seems

Also, more on Mattel and disk drives. Talk about it on our message board.
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Food for thought:

The gumption of

CKE Restaurants

(CKR)

. Its stock gets hammered because biz is bad. It's in such rotten shape that it has to sell hundreds of company-owned restaurants to franchisees to help raise cash so it can continue to remodel existing

Hardee's

units.

So, why is it that the company doesn't have enough money to remodel its restaurants, but it has enough to loan execs as much as $10 million to buy shares of CKE stock? That's what the company announced yesterday in a release that quoted CEO Bill Foley objecting to his company's low valuation. "We believe these long-term individual commitments via personal note obligations to the company not only reflect management's confidence in the value of the company's stock, but also CKE's continued prospects for success,'' he said. CKE officials did not return a call seeking further comment.

Mattel and The Learning Co.: Tell us what you think on

TSC

Message Boards.

If it's such a good deal, why didn't they just buy the stock with their own cash? No matter what a company says, insider purchases accomplished with the help of company loans should be viewed with the same amount of suspect as a high-wire walker connected to a safety line. One reason for the cynicism from people like Bob Gabele, of

First Call/Thomson Financial

, is that you never really know for sure how the loan agreements are structured. "You cannot rule out the fact that the purchases themselves may have been made for reasons other than an investment motive," Gabele says. "Sometimes we see loans where they're forgiven after a period of time, and sometime they're nonrecourse loans," which means the exec, who probably pledged his stock as collateral, doesn't need to reimburse the company if the loan turns into a loss.

Gabele says stock-purchase loans are increasingly popular, and rarely are they a good sign.

Conseco

(CNC) - Get Report

, for example, has been doing them since 1996 by guaranteeing bank loans. At first, the insiders looked smart. The stock zoomed to around 58 from 17 before falling. It's now around 21, and as of Dec. 31, when the stock was still in the 30s, bank loans guaranteed by Conseco -- in connection with those stock purchases -- exceeded by $74.6 million the value of the stock pledged as collateral.

That should give CKE investors something to chew on.

P.S.: Some companies, like

Mattel

(MAT) - Get Report

, for instance, require top execs to own stock. That's one reason Gabele recently warned his clients not to get overly excited when CEO Jill Barad bought 10,000 shares of Mattel stock.

Speaking of Mattel:

Yesterday, on

TSC's

message boards,

Cramer

was beating himself up for getting so enthused about Mattel after hearing money manager Robert Olstein sing the company's praises on our

TV show on

Fox

.

What does Olstein, a long-term value investor, think now? "I was wrong," he says. But he adds that in retrospect he was wrong to buy the stock so high. But if he liked it at 24, he loves it at 13. "I don't think Mattel is worth 13," he says. Believing it's worth more than that, he purchased more Mattel after yesterday's disclosure that the company will miss its third-quarter consensus estimate. If nothing else, with its strong brand, Mattel is a prime acquisition candidate, Olstein says. He adds that he wouldn't be surprised to see Barad thrown out. "If they get a stable manager," he says, "this stock is up 20%" on the news.

Or so he hopes.

(If you missed my take midday yesterday on Mattel's latest fiasco and why it shouldn't have come as a surprise, read it

now.)

Disk-drive doldrums:

With

Western Digital's

(WDC) - Get Report

recent recall of 400,000 hard drives, the PC industry is getting walloped by a disk-drive shortage. The clear benefactors should be

Seagate

(SEG)

,

Quantum

(HDD)

and

Maxtor

(MXTR)

, yet some investors known to this column continue to gravitate toward Seagate -- and not only for reasons outlined

here a few months ago. "It's the highest quality company in a lousy industry," says the analyst for one buy-side firm long Seagate. "If you're going to play in a lousy industry, you ought to play with the best guy."

Looking a gift horse in the mouth?:

An item

here several weeks ago quoted very reliable sources as saying that

Policy Management Systems

(PMS)

, a provider of information technology software and consulting to the insurance industry, received and rejected as inadequate an unsolicited takeover in recent weeks from

Computer Sciences

(CSC)

. Neither company would comment at the time, but this much is clear: Based on Policy Management's disclosure yesterday that its third-quarter earnings would miss analyst estimates -- and the stock's 23% decline -- maybe the company should've taken the money and run.

And finally:

Iomega

(IOM)

blew up yet

again

after the market closed.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.