Last Tuesday, there was a 15-inch blizzard in Colorado Springs, Colo. Because of the heavy snowfall, traffic was snarled, people couldn't get to work, and one of the city's leading companies, Holly Sugar Corp., decided the best course simply was to shut its door for the day. As a Holly telephone operator explained it to me: "Things were very bad here."
Well, as it turns out, that blizzard -- bad as it was -- may shortly be regarded as a non-event by the folks at Holly. The reason: A more devastating blizzard is on the way. Its origin: Wall Street.
The 103-year-old brokerage firm of Ladenburg, Thalmann & Co., along with 125 of its clients, has acquired 170,000 shares, or 10.7 percent, of Holly's 1.583 million shares outstanding. And Ladenburg intends to push strongly for liquidating the company's assets at more than a $100 a share.
Obviously some people know the story. The price of Holly's stock, which was about $19 a share just a few weeks ago, has run up dramatically, hitting a 12-month high last week of $38.50. Significantly this sizzling gain has come in the face of a rash of bad news from Holly.
Holly's management, by the way, is not oblivious to Ladenburg's intentions.
Ladenburg Chairman Carl K. Erpf fired off a letter Nov. 16 to Holly's chief executive John Bunker in which he called on the company to set a stockholders meeting to vote on a liquidation plan. The letter -- a copy of which I've obtained -- also carried an implied threat: "Unless you disagree, it seems quite unnecessary to request a shareholder list at this time."
How Holly's management will react is anybody's guess. Bunker wasn't available and Holly secretary Clarold Morgan refused to return a phone call. aIt seems clear, though, in light of what's going on at Holly, that management of the $147 million company will have its hands full trying to convince its roughly 3,000 shareholders not to go along with Ladenburg. Its recent results have been awful.
For two years running, the 74-year-old company has run in the red -- losing more than $6 million in fiscal '78 and $5.7 million in fiscal '79. Between late June and late October, sugar prices have been booming, rocketing from roughly 9 cents to 15 cents a pound. Yet in its latest fiscal quarter than ended last Sept. 30, Holly again showed a loss.
If that's not bad enough, Holly's management seems to be totally confused about the price trends in its own market, judging from some recent remarks by Bunker; further, it fouled up badly in its production goals, which played havoc with its bottom line.
In Erpf's letter to Bunker, he made a point of zeroing in on specific inconsistencies in Holly statements. Erpf pointed out, for example, that at Holly's annual meeting last June 29, Bunker stated that "a pound of sugar conceivably could cost almost as much as a gallon of gas." But in its Sept. 30 interim report to stockholders dated Oct. 31, the Holly chief did a total about-face. He said, "We do not see any fundamental reason to expect sugar prices to rise to a level which would afford stockholders a proper return on investment for the current fiscal year."
Erpf's right. Bunker clearly goofed.
Erpf's letter also noted that Holly's Aug. 3 10-Q report to the Securities & Exchange Commission stated that "Holly's high fructose corn syrup plant in Tracy, Calif., will be in full production to meet peak demand for syrup by California's canning industry in August." Here again, Holly fouled up. In September, the plant was suspended for six months to correct a design problem -- a delay which produced a loss of approximately $1 million in Holly's most recent quarter.
Its Inept results aren't the only thing Holly's going to be up against should it try to ward off Ladenburg. Management's total stock holdings are just under 35,500 shares, or a bit below 2.5 percent of the outstanding stock. In fact, one of the outside directors said he planned to see 60 percent of the 25,000 shares he owned, which would reduce management's holdings to less than 2 percent.
To make matters worse for Holly, a Minneapolis businessman, Irwan Jacobs, recently filed a 13-D report with the SEC in which he disclosed ownership of 155,700 shares of Holly, or 9.8 percent of its stock. Jacobs is also unhappy with Holly's management and has called for the company's sale or liquiddation.
Stephen Weisglass, Ladenburg's president, said the brokerage firm (which itself owns only 20,000 Holly shares) has been in touch with Jacobs. But he said there's been no discussion of either purchasing his stock or working jointly with him in an effort to force a Holly liquidation.
Ladenburg and its clients acquired their Holly holdings over the past two months, with the bulk of the purchases at $20 a share or below.
"Wall Street can't afford to sit back anymore and see companies mismanaged without doing something . . . and Holly is being managed poorly." Weisglass said. "All the other sugar companies are making big bucks. Why not Holly?" s
Weisglass pointed out that the company wasn't paid dividends for seven quarters in a row. And because its agreement with its lenders calls for a net worth of $75 million before shareholder payouts are permitted, this no-dividend situation is going to continue, he says.
Weisglass said Ladenburg has spent hundreds of hours analyzing Holly's assets (including its extensive land holings, sugar beet factories, inventories, corn syrup facility and its 50 percent ownership of a limestone quarry). And it has concluded that a liquidation of the company's assets should yield something over$100 a share.
But what happens if Holly says no?
"Then we'll fight," said Weisglass, pounding his fist on a conference table. "We're prepared to take whatever action is necessary to accomplish what we want. And Holly's management sure as hell can't protect its a-because it doesn't own any stock."
Clearly Ladenburg wants the assets liquidated. But it's not ruling out alternatives. Weisglass said resistance from the company could produce a tender offer for all of Holly's shares. "And we could also look for a potential buyer, say a Victor Posner (the wheeler-dealer head of Sharon Steel and NVF), who's a big asset player," he added.
As Weisglass sees it, "The day is over when companies are accountable to no one but themselves. I think you're going to see more and more forced liquidations by brokerage firms which, yes, are making money for clients, but which are also portecting the rights of shareholders against badly managed companies. And what's wrong with discouraging corporate mediocrity . . .?"