What do you do when you are a $5.8 billion company? Go private, of course.
ARAMARK (NYSE: RMK ) provides concession services to stadiums, hospitals, businesses, universities, and convention centers around the country and the world, as well as rents and sells all kinds of uniforms and business apparel. Competitors include Cintas (Nasdaq: CTAS ) in uniform rental and France's Sodexho Alliance (NYSE: SDX ) in food services.
Wednesday, the company announced that it had generated $2.93 billion in revenue, good for 5% growth. Unfortunately, it also said its earnings were just $0.19 per share for its third quarter, well below analyst expectations of $0.36 per share. The earnings miss came from a $35 million impairment against goodwill and $7.9 million in inventory writedowns and severance accruals. Except for these charges, the company says, it would have earned $0.34 per share.
All of the charges were applied to ARAMARK's direct marketing segment, which sells uniforms to people in law enforcement, the military, and health care, among others. For the quarter, that segment reported an operating loss of $3 million before the charges, compared with operating income of $2.6 million in last year's quarter.
The day before it released its third-quarter earnings, ARAMARK announced that its board of directors had agreed to a purchase offer from its chief executive officer, Joseph Neubauer, and a few of his closest private-equity fund friends. This is the second time in the company's history that Neubauer has taken it private. The deal -- priced at $8.3 billion, including taking over about $2 billion in debt -- will pay all shareholders $33.80, up from the $32 offer last May.
In an interesting twist, Neubauer's shares will be limited to one vote per share instead of the 10 per share that class is entitled to. This would limit him to less than 5% of the total potential votes. That action, and remembering that his own salary and bonuses declined when the company made less money, almost makes me wish he wasn't taking the company private. Management that's considerate of the rest of the shareholders is hard to find at times.
However, looking at a history of the stock price for ARAMARK's latest run as a public company shows that shareholders are probably getting a good deal at this price. The highest the stock had traded before the May offer was just more than $30 last March. For the four years before that, since the company came public in December 2001, shares had mostly traded hands at $22 to $28. The buyout price is 12.5% higher than any high the stock had reached on its own.
Maybe when ARAMARK has fixed the problems leading to the large charges and declining profit, investors will be able to have another crack at owning this highly regarded company.
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