Shareholders of Cort Business Services Corp. revolted last spring when top executives of the Fairfax furniture rental company hooked up with a New York leveraged buyout firm and offered to buy out the rest of the stockholders for $26.50 a share.
Now Cort has canceled its plan to go private, a development that stockholders find even more revolting.
Since the deal was called off two weeks ago, Cort's already faltering stock has fallen even further. At Friday's close of $18.75 a share, the buyout bid, which later was raised to $28 a share, doesn't look like such a low-ball offer after all.
So after wasting $2.2 million and a lot of time on the aborted deal, Cort is worse off than it was before the fiasco began. A Chicago competitor, Brook Furniture Rental, continues to make noise about trying to take over the company. Three lawsuits filed on behalf of disgruntled shareholders are pending. And the company still is searching for ways to restore the faith of investors and hopefully increase the price of its stock.
Cort has given Washington investors -- and corporate executives -- a cautionary tale of what can happen when managers who have done a marvelous job of building a company start fretting about their stock price and fiddling in finance instead of minding the store.
It also has given them what the most public critic of the buyout plan says is a chance to pick up Cort's stock at a bargain price.
T. Rowe Price Fund Manager Preston Athey helped kill the buyout plan by publicly opposing it, an unusual step for a mutual fund manager. Institutional Shareholders Services, the Rockville firm that advises professional investors on corporate disputes, also came out against the buyout.
The buyout price "was simply too low," Athey said, as is the current price of Cort's stock. "I personally think this is one of the most attractive stocks on the New York Stock Exchange, one of the most attractive stocks in the U.S. period."
Though Cort stock is down substantially from its peak of $46.75 a share in April 1998, Athey said T. Rowe Price isn't selling its stake. The Baltimore mutual fund company, one of Cort's largest shareholders, owned 1.4 million shares as of the end of September, public filings show. That's about 10.7 percent of the total stock outstanding.
Cort cited shareholder opposition to taking the company private when it canceled the plan Nov. 4 and all but acknowledged that it had difficulty finding the $453 million to pay for the stock buyback program. Between recent increases in interest rates and banking regulators' admonitions against leveraged loans, the availability of buyout financing has tightened significantly.
Another market trend is working against Cort -- the lack of interest in smaller companies, particularly those in older businesses that make money. And Cort does make money -- $2.10 a share this year and $2.30 a share next year, Athey estimates.
There are two clouds on that horizon. The stockholder lawsuits, which neither the company nor the plaintiffs' lawyers will talk about, will probably have to be settled. And a spokesman for Brook Furniture Rental said the rival's interest in acquiring Cort "is not dead." Brook "has a lot of options, they've gotta pick the right one," the spokesman said.
In response, Cort's New York press spokesman said, "Right now the company is not for sale. If an offer for the company was made, the board would follow its fiduciary duty and do what's in the best interest of shareholders."
But the big uncertainty is the market, which, as Athey puts it, is in "a frenzy of whatever is hot goes up and what's not doesn't." Without using the put-down "Internet bubble," Athey said "there have always been mania and speculative bouts in the past in various areas. They always finally end. Generally they end badly."
No telling when that will change, he added, but stocks such as Cort will be back in favor again "when the world finally decides they're going to look for solid companies with sales and earnings again."