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A Takeover Maven Sees Gold In Golden Books

Inside Wall Street


In the 1980s, investment manager Lewis Rabinowitz scored heavily by taking large stakes in potential takeover targets. But with the 1990s' dearth of deals, Rabinowitz, whose R. Lewis Securities manages about $100 million in investments, needs a compelling reason other than a possible buyout to invest. His latest quarry is Western Publishing Group, familiar to parents and children for decades through the company's Golden Books. The stock, which trades over the counter at 12, is up from 9 just a month ago but is still a "golden" opportunity, according to Rabinowitz.

The nation's largest publisher of children's storybooks also produces related games and videos. Western has several other businesses, too, but Golden and related products accounted for 75% of its fiscal 1991 sales of $493 million and almost all of its $7.5 million in earnings. Besides a great franchise, Western has a debt-free balance sheet.

SUITOR. The past few years haven't been easy. Sales of Western's once-popular Pictionary game dried up, which helped drive earnings down 66%, to 36~ a share in the fiscal year ended Jan. 31, 1991, but profits are now on the mend. The company has streamlined its distribution and become more aggressive in marketing. Some pros also speculate that Western's poorly performing Advertising Specialties division--which makes customized shirts and writing instruments--might be up for sale.

Rabinowitz estimates that Western will earn 75~ to 80~ a share in the fiscal year ending January, 1992, and $1.45 to $1.55 in fiscal 1993. Based on that earnings turnaround, he figures the stock could double in the next 12 months.

And that's not all. Rabinowitz thinks that Western--which had considered selling out to Paramount Communications in 1988 for $26 to $28 a share--could once again attract a suitor. And he's not the only one. Money manager Mario Gabelli recently boosted his company's stake to 29% from 27%.

A New York investor who holds a 3% stake thinks Western CEO Richard Bernstein faces "tremendous pressure to drive the company back to profitability and prod the stock to its old high in the upper 20s--or somebody will try to do it for him through a buyout." Bernstein owns 20% of the stock.

Western watchers speculate that Paramount may be interested again. But the talk focuses on Walt Disney Co. Whispers are that Disney, which has a five-year licensing agreement for Western to publish books using Disney characters, will need very little prodding to make a friendly takeover bid. Bernstein insists he hasn't solicited any suitors. Disney declined comment.GENE G. MARCIAL

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