NEW YORK (TheStreet) -- Two law firms are saying not-so-fast to Hastings' (HAST) Board of Directors following the announcement of an Agreement and Plan of Merger with Draw Another Circle and Hendrix Acquisition Group. Both Draw Another Circle and Hendrix are wholly owned by Joel Weinshanker. Weinshanker is also the president and sole shareholder of National Entertainment Collectibles Association (NECA), which already owns 12% of Hastings' outstanding shares.
Both law firms Brodsky & Smith and Tripp Levy sent out press reports Monday announcing that they were investigating the merger on behalf of shareholders. According to the the Agreement and Plan of Merger, Hendrix Acquisition would merge with Hastings with Hastings surviving as a wholly-owned subsidiary of Draw Another Circle. Under the Merger Plan, Hastings' common stock shareholders will earn the right to receive $3.00 per share they own.
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Hastings' Board approved the merger Monday morning and has advised shareholders to follow suit. CEO and Chairman John Marmaduke had this to say about the merger, "NECA is a significant supplier of movie, book and video game merchandise and collectibles to the Hastings superstores, and we've had a close and growing business relationship with Mr. Weinshanker over the last decade. Mr. Weinshanker, through his affiliation with the estates of Marilyn Monroe, Elvis Presley and Muhammad Ali, and his company's management of Graceland, is one of the leading drivers of the lifestyle industry, and we believe Hastings' business will continue to benefit from our relationship with him and NECA."
Lawyers representing shareholders at Brodsky & Smith counter, "The investigation concerns possible breaches of fiduciary duty and other violations of state law by the Board of Directors of Hastings for not acting in the Company's shareholders' best interests in connection with the sale process as an entity owned or controlled by Weinshanker currently owns approximately 12% of Hastings common stock. The transaction may undervalue the Company as an analyst has set a $5.00 per share price target on Hastings stock and Hastings stock traded at $4.20 as recently as June 17, 2013."
Hastings was up 58.0% Monday of news of the merger, trading at $3.01
TheStreet Ratings team rates HASTINGS ENTERTAINMENT INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate HASTINGS ENTERTAINMENT INC (HAST) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself and generally high debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- HAST's debt-to-equity ratio of 0.90 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.04 is very low and demonstrates very weak liquidity.
- HAST has underperformed the S&P 500 Index, declining 19.27% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Specialty Retail industry and the overall market, HASTINGS ENTERTAINMENT INC's return on equity significantly trails that of both the industry average and the S&P 500.
- 40.02% is the gross profit margin for HASTINGS ENTERTAINMENT INC which we consider to be strong. Regardless of HAST's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HAST's net profit margin of -6.55% significantly underperformed when compared to the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.3%. Since the same quarter one year prior, revenues slightly dropped by 6.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: HAST Ratings Report