Doubling Once, Doubling Twice...?by
Low-priced stocks have had quite a run so far this year. Take Com Systems, a small Van Nuys (Calif.) provider of long-distance telephone services. Its Amex-traded stock began the year at 1 5/8 and is now at 3 5/8. Robert Grossmann, director of research at Stratton Oakmont, believes the stock could double again this year.
Why? Grossmann thinks Com Systems is a likely buyout target. When the company needed financing in January, 1990, to expand operations, OmniCorp International, a Dutch merchant bank, came to its rescue by providing $9 million in bailout money. In return, Com Systems issued 4.5 million preferred shares to OmniCorp, convertible to a 57% common-stock stake. In early March, 1991, OmniCorp wanted to cash out, so it sold the holding to Atlanta-based Resurgens Communications for $30 million.
The deal sent the shares of both Com Systems and Resurgens flying. Resurgens jumped from $4 a share to $7. But Com Systems is still the stock to buy, says Grossmann, who figures it's worth $6 to $7 a share. He believes that when the deal, which must be approved by state regulatory agencies and the directors of both companies, is completed, Resurgens will offer to buy the rest of Com Systems at a premium. Bob Bolen, who tracks Resurgens at J. C. Bradford, also thinks Resurgens will want Com Systems because it would enhance Resurgens' operations.
"The fit is excellent," says Grossmann. Com Systems provides direct-dial and operator-assisted calls to residential and commercial customers, including hotels and hospitals in a number of Western states. Resurgens transmits operator-assisted long-distance calls from multiphone facilities largely in Texas and Tennessee.