here last November was headlined, "Maybe Investors Ought to Shift Their Sights From Tyco to Newell." The story showed how, quarter after quarter,
, once a fine and admired company whose brands include
, was forced to boost the takeover charges it was taking in connection with its controversial acquisition of
. The company did it again in the fourth quarter, when its Rubbermaid-related charges totaled $132 million rather than the $50 million that management had projected.
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To repeat what I wrote here at the time: "Newell has charged off almost all of what it earned last year to acquire a company that, at best, has helped produce little more than flat operating income through the first nine months of this year. Imagine what shape it would be in if it couldn't take all those charges. And given Newell's poor record at forecasting charges, it's not clear yet whether the company's current guidance will be adequate. Makes you wonder whether Rubbermaid, a controversial deal from the start, will ever make any sense."
Newell's stock, at 35 at the time, closed Friday at 23 1/2 -- down 15% on the day.
Now what? "Maybe people ought to start taking a look at
instead of Newell," suggests the source who gave me the Newell tip. "Honeywell just finished merging with
, and Allied-Signal was one of those conglomerates that did a lot of write-offs."
Can't wait to take a look at
You've got to hand it to
CEO Harland Stonecipher. (Pre-Paid is
no stranger to this column.) He speaks his mind without concern for what people might think. In this case, the "what people might think" is that he appears to be touting his company's stock ahead of today's earnings report. There's no law that says he can't do what he did ("We checked with our securities lawyers," he told me), but it clearly dances into the kind of gray area.
Pre-Paid is in the business of selling contracts to individuals that guarantee future legal advice. The stock took a dive in October on disappointing earnings news. Then, on Jan. 10, the company issued a press release saying that it had "record production and recruiting results" for the fourth quarter. (No problem.) It also said that it expected fourth-quarter results to be in line with estimates. (Again, no problem.)
The problem (or red flag) popped up last Wednesday when Stonecipher wrote a letter to the company's employees and member attorneys encouraging them to buy Pre-Paid's stock. "As sales associates, members of the home office and provider lawyers familiar with the growth and success of your company, you may want to consider being a buyer of Pre-Paid Legal Services Inc. stock at this time, given its relatively low price compared to last year's trading range. You may want to tell your family and friends about it.
"As I always tell everyone, I don't ever know what the stock market is going to do and I don't know what our stock price will be. As the founder and CEO of your company, I am undoubtedly prejudiced about your company. I'm very proud of our past record and truly believe the best is yet to come."
Isn't that akin to telling investors to buy the stock ahead of earnings? "This has nothing to do with earnings," Stonecipher countered in an interview. "It has to do with the price of the stock on that given day. It was the fact that the stock was trading 50% off of where it was a year ago, and our company, based on my opinion, is a better company today than it was then."
And whaddaya know, the stunt worked: Pre-Paid's stock leapt 20% after the letter went out.
In this litigious world, though, you'd think that would make some attorneys squeamish. (But, hey, Stonecipher runs a legal company, not me. Goes to show what I obviously don't know.)
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
email@example.com. Greenberg also writes a monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.