Tuesday, December 14, 2010

ARC Stock, Value of Companies in Reprographics Industry, Acquisition Activity?

Old news, but “my, how the times have changed”…..

When a significant owner of stock in a publicly-traded company sells stock, the owner is required to file a “Form 4” with the United States Securities and Exchange Commission. Form 4 is a “statement of changes in beneficial ownership of securities.”

Sathiyamurthy Chandramohan, who was formerly the Chairman & CEO of American Reprographics, completed Form 4 filings in 2007 and 2010.

As I said, “my, now the times have changed”………

Per the Form 4 filed in 2007, and this was done to report shares of stock sold in the “secondary” public offering of ARC’s shares …..

- on March 27, 2007, 130,000 shares sold at $32.25 = $4,192,500.

3 years, 2 ½ months later, Per the Form 4 filed in June 2010, additional shares were sold …..

- on June 11, 2010, 25,000 shares sold at $8.81 = $220,250.

- on June 14, 2010, 175,000 shares sold at $8.74 = 1,529,500

That’s a decline in value of $23.475 per share!

The shares sold in June 2010 for $1,749,750 would have sold for $6,450,000 had they been sold in March 2007. Wow, what a huge difference!

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“Ain’t that” kind of like saying that, if your reprographics business was worth $5,000,000 in March 2007, it would “only” have been worth $1,361,000 by June 2010?

Service Point, one of ARC’s competitors, said in a press release, several months ago, that it was going to resume acquisition activity and, in a more recent report, Service Point indicated that it was in the final stages of due diligence on an acquisition opportunity in Europe.

The questions many “Reprographers” in the U.S. I think are asking themselves are; “will ARC resume its acquisition activity in the near-term future?,” and, if it does resume its acquisition activity, "what will ARC be willing to pay for future acquisitions, given the significant decline in ARC’s own value and considering that most, if not all, reprographics firms are worth less today than they were when ARC was very actively acquiring reprographers in 2006 and 2007?"

One would think that ARC’s recent private placement “Notes” offering frees up ARC from the restrictions that ARC had to live with when ARC was financed by the line of credit that the Notes were sold to payoff. In addition, the line of credit required significant quarterly payments against principal; the new unsecured “Notes” do not require quarterly or annual payments against principal. That frees up ARC to be very aggressive, acquisition/expansion/investment-wise, if it wants to be very aggressive. But, the question remains, will reprographers be willing to sell, given the deterioration of values of businesses in the industry?

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