Tootsie Roll Industries (TR) isn't exactly on a roll. Since 2000, sales and earnings at the 100-year-old maker of chewy chocolate have been flat, and the stock has sagged to 30, down from 33.62 on Dec. 31. So the buzz is Tootsie may be buyout bait. "It is a brand name that would enhance any buyer," says Robert Stovall of Wood Asset Management, which owns shares. With its vast distribution and brand recognition, it would be a "great catch" for the likes of Nestl? (NSRGY), Hershey (HSY), or Wrigley (WWY)," says Stovall.
Elliott Schlang of researcher LJR Great Lakes Review says takeover talk gets louder as investors get disappointed with the stock -- and as top execs get older. Tootsie Chairman and CEO Melvin Gordon is 85, and his wife, Ellen, president and COO, is 73; they own 40% of the stock and control 77% of the voting B stock. "The question is when and how much they'll ask for," Schlang says. He notes the balance sheet is solid, with understated assets, such as plants and real estate in several states, such as Illinois and Tennessee. He says the stock is worth 35 to 37 in a deal -- having hit 44 in 2001.
Schlang says the 2004 purchase of Concord Confections, a big Canadian bubblegum maker, will lift 2005 earnings to $1.28 a share -- adjusted for a 3% stock payout on Mar. 1 -- up from $1.19 in 2004. Earnings peaked at $1.32 in 2000. Nestl? couldn't be reached; Tootsie, Hershey, and Wrigley didn't return calls.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial