Recent large purchases of TRM Corp.'s stock may indicate that sophisticated investors believe the company is about to be sold at a premium price -- a move that at least one Wall Street analyst believes makes sense for the printer and ATM network company and its shareholders.
The company did nothing to squelch acquisition talk by hiring an investment banking firm to help it examine strategic options, a move akin to putting a "For Sale" sign out front. The company also took advantage of an unprofitable 2005 to make itself more attractive to a potential buyer.
Nine or 10 hedge funds and private wealth management funds have picked up, between them, close to 50 percent of TRM's common shares over the past three months. That would allow the group to direct the fate of the company, if they all voted their shares in concert. Investors, however, indicated in SEC filings that they did not plan to push for any changes -- at least not at this point.
Portland-headquartered TRM, a photocopier company that has diversified into networks of automatic-teller machines, has gone through a number of recent changes that have sent its stock plummeting.
A disappointing third quarter, reported last November, sent TRM's stock down from the $12 range to below $7 in a single day. Since then, the company has announced its inability to comply with lender covenants; a canceled acquisition; the abrupt departure of CEO Kenneth Tepper, as well as its chief operating officer; and a delay in filing its annual results.
Furthermore, TRM announced the hire of advisory and financial services firm Allen & Co., an indication that the company was likely looking for a buyer. And finally, the company's auditors, PricewaterhouseCoopers, issued a going concern warning.
A number of TRM investors sold off holdings after the big stock plunge in November; but perhaps surprisingly, a number have bought in again since December, at prices ranging from below $7 per share to over $9.
These new investors are likely looking for a quick and significant return on their purchases, said Jeff Sonnek, an analyst with Friedman Billings Ramsey & Co. of Arlington, Va.
"These guys are big players," said Sonnek, who thinks that TRM is worth more than $10 per share, based on its recent financial guidance. These big players would stand to benefit enormously if they could sell their stock for a $2 to $3 premium.
In 2005, TRM lost more than $9 million on revenue of almost $234 million -- a far cry from the previous year's earnings of $6.6 million on just $126 million in revenue.
But TRM "cleaned up" its financials in its fourth quarter, which makes it more attractive acquisition bait. It took a number of charges for items such as its canceled acquisition of Travelex; expenses related to implementing Sarbanes-Oxley compliance; write-off of some ATM assets in the United Kingdom, where the company suffered a rash of thefts; and debt retirement and severance costs.
For the first time, TRM management also offered guidance, saying that it expects revenue of $220 million this year and earnings before interest, tax, depreciation and amortization of $28 million.
This visibility into 2006 operations should make it easier to sell TRM to an interested buyer, said Sonnek.
Private ownership would be more appropriate for a company like TRM, Sonnek said.
"For a company the size of TRM -- $200 million in revenue -- the costs of being public are much greater as a percentage of operating earnings than for a larger company," he said.
With so many charges taken in the fourth quarter, a lawyer in place as the new interim CEO, and some insight into 2006 sales and results, "I think the company will be sold over the next three to six months," said Sonnek.
The change would make it easier for TRM's management team to focus on the business itself.
A public company needs to "answer to its shareholders" on a quarter-by-quarter basis, said Sonnek. Investment firm managers expect to see consistent growth within a defined period of time, so they can purchase stock and resell it at a profit within a couple of years.
Management teams of publicly traded companies are "soon dealing more with investors than concentrating on business lines," said Sonnek.
Private owners, on the other hand, are often willing to stick with their investment longer. "They have a different timetable in place," and so are not constantly calling management for updates and to offer their opinions.