Herbert Scherr, an Allegheny Beverage Corp. shareholder, probably best summed up the sentiment of stockholders at the company's annual meeting yesterday: "It's been a rocky road to say the least."
Commenting on a year of turmoil for the Cheverly-based company, Scherr said he "went through an agony" after he purchased stock in the company over the last three years for between $10 and $21 and then watched it fall to a low of about $8. But now, Scherr said he thinks Morton M. Lapides, chairman and chief executive officer of the company, deserves a compliment for his efforts to sell Service America, the company's food service subsidiary, for $500 million. "He's gotten a very adequate price," said Scherr. "This represents a substantial effort."
For Lapides, sale of the company would bring a profit of more than $10 million in the value of his common stock and warrants alone. In addition, Lapides' compensation last year was more than $800,000.
The effort to sell Service America is not over, however. While 69 percent of shareholders voted for the sale of Service America to Servam Corp., the approval is contingent on the buyer's completion of financing for the deal and Allegheny's ability to obtain the consents of the holders of the majority of its outstanding 9 1/2 percent bonds.
The company has offered $1,050 for each $1,000 bond. The offer was recently extended until midnight Thursday. Because of the extension, the company adjourned today's annual meeting and will reconvene it next Monday. The vote will be kept open until Thursday for stock owners who wish to change their vote.
In other actions yesterday, shareholders voted for a nine-member board of directors, including six new directors, and gave preliminary approval to changing the company's charter. That approval, also contingent on the sale of Service America, includes changing the company's name to Alleco Inc.
The completed sale of Service America to Servam, a recently formed company made up of members of senior management of Service America and the investment banking firm of Morgan Lewis Githens & Ahn Inc., would be the final piece in selling all of the company's operations. Other subsidiaries, including its Macke Laundry services and Desks & Furnishings, have been sold over the last year to pay the company's debts incurred when it purchased Service America for $225 million.
Lapides said that the sale of Service America will result in a book value of $20 to $24 a share for stockholders. The stock closed unchanged at $14.50 a share yesterday.
However, an unusually cautious Lapides noted to shareholders that there are no guarantees that the sale will be finalized. "I've been through too many acquisitions and too many sales to say that no, there will be no problems," he said, particularly in light of the fact that Servam is borrowing 100 percent of the funds. "A deal is a deal when dollars change hands," he said.
Lapides said it will be the job of the new board of directors, on which he serves as holder of all the company's preferred stock, to determine what business the company will go into next with the approximately $137 million before-tax profit it expects to realize from the sale.
"They're going about the sale and reinvestment of cash in a positive fashion," said Richard Jones, an analyst with Johnston, Lemon & Co. "They're going to make sure the sale goes through before they go out and buy another company."
In addition to huge debts, the company has been buffeted by uncertainties that include a shareholder suit against five of the company's officers and directors. The company has set aside between $5 million and $6 million for a possible settlement in the case.
The company also disclosed it is continuing to cooperate with an informal investigation by the Securities and Exchange Commission into possible violations of federal securities laws by the company.