Heard Off the Street: Naughty or nice, companies pay price
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Now that the end of the world has been averted, civilization can revert to more mundane matters, such as the assessment of gifts that companies have bestowed on investors this blessed season. To do so requires casting aside the confining moral standards that seem to encumber fewer people each year, and applying strictly bottom-line metrics.
PPG Industries falls clearly on the nice side of the ledger. Shares of one of the few remaining stalwarts from Pittsburgh's industrial heyday are up 60 percent this year, closing Friday at $133.26. Investors have cheered PPG's initiatives to: bolster its coatings business with the $1.05 billion acquisition of AkzoNobel's North American paint operations; spin off its commodity chemicals business; and its ability to generate excess cash. The company has paid dividends each year since 1899 -- two years before the formation of U.S. Steel -- and has increased its dividend for 41 consecutive years.
On the naughty side of the ledger is Education Management, a Goldman Sachs-inspired venture getting schooled by regulators and shareholders. Goldman was one of the private equity concerns that took the Downtown operator of the Art Institute and other for-profit shrines of higher learning public in 2009.
Education Management posted a $1.19 billion fourth-quarter loss, bringing losses for the fiscal year that ended June 30 to $1.52 billion.
This passage from the educator's annual report serves as an autopsy: "The negative publicity surrounding student indebtedness, together with the inability of students to pay cash for their education and the effect of the numerous investigations of the proprietary post-secondary industry, has led to a reluctance in the number of prospective students to enroll in our schools."
Education Management shares closed Friday at $5. They are off 82 percent for the year. The failing grade has hit Goldman Sachs and its well-heeled investors the hardest. According to Bloomberg, they own 43.7 percent of the educator's deflated shares.
Santa is most likely not to friend Facebook, based on the social media concerns performance after its bungled May 18 public offering. After debuting at $38, shares of the Mark Zuckerberg production fell all the way to $17.55 -- more than half of the value that investment bankers and Facebook originally assigned to the shares -- leaving investors feeling hoodwinked by a hoodied CEO. The shares have rallied since mid-November, closing Friday at $26.26.
Investors are of the opinion that former Michael Baker president and CEO Bradley L. Mallory has given them the gift that keeps on giving. Since Pennsylvania's former transportation secretary took his cue from his board of directors and resigned Dec. 13, shares of the Moon engineering concern have jumped 25 percent.
They got another jolt last week when DC Capital Partners, which owns 5.2 percent of Baker's shares, made a $24.25 per share offer for the company. Some likened the Alexandria, Va., private equity firm to Ebeneezer Scrooge, accusing it of submitting a lowball offer for a company graced with a balance sheet that Daddy Warbucks would envy.
Baker shares closed Friday at $23.89. That's about $4 less than they fetched in early March, when Mr. Mallory still had the corner office and DC Capital was not stirring the pot. All by way of saying that investors can be capricious arbiters of price.
Downtown-based Federated Investors commenced 2012 encumbered by chronically low short-term interest rates and the possibility that federal regulators would kill the $2.6 trillion money market fund industry with regulations. But Securities and Exchange Commission Mary Schapiro threw in the towel in August after failing to get enough votes from her fellow commissioners to put proposals out for public comment.
One proposal would have abolished the fixed $1 per share value of money fund shares and let the share price float based on the daily value of the securities in a money fund's portfolio. Ms. Schapiro also proposed curbs on redemptions and tougher capital requirements. Federated president and CEO J. Christopher Donahue said the ideas amounted to "death by bullet, death by poison, death by hanging."
Even though regulators are expected to make another run at regulating and short-term rates are forecast to remain miniscule into 2015, Federated shares ended Friday at $20.23, up 34 percent for the year.
Investors of several local companies received Christmas gifts early.
Special dividends were offered by Federated, Dick's Sporting Goods, MSA and Commercial National, while H.J. Heinz, American Eagle Outfitters, Consol Energy and Northwest Savings Banks accelerated dividends normally paid in January into December. They did it, not to put money in shareholders' pockets prior to the Mayan apocalypse, but to beat anticipated income tax rate hikes in 2013.
Putting a price tag on Christmas gifts is an enduring holiday tradition, much like Aunt Jane's dense fruitcake. It has been one at least as far back as when ne'er-do-well wit Oscar Wilde lamented that people "know the price of everything and the value of nothing."
Perhaps it's too much to expect people to put price aside just one day each year. After all, for so many, it's all that matters the other 364.
First Published December 23, 2012 12:00 am