Eljer May Be In Someone's Sights

There are times when bad earnings don't hurt. Take a major maker of plumbing fixtures and building products, Eljer Industries, which Household International spun off in April, 1989.

Eljer's stock shot up to 20 shortly after it got listed on the Big Board that year. But the housing slump and the recession sent it as low as 5 1/2 by mid-October. Recently, Eljer has been a surprising gainer, rising from 9 in mid-February to 14 3/8.

No, the company doesn't have good news to report. In fact, it suspended the quarterly dividend payment of 7~ a share on Feb. 20 because of poor earnings, which had slid to 35~ a share in 1990 from 1989's $1.03. So what gives?

Takeover prospects. When Household spun off Eljer, it had to pay a large tax-free dividend to Household shareholders. And Eljer had to sign a two-year pact stipulating that if a change of control takes place at Eljer, it has to reimburse Household for the dividend. Household spun off two other units--Schwitzer and Scotsman--with the same condition. The agreement expires on Apr. 15.

"We wouldn't be surprised if a strategic buyer offers to buy Eljer with the termination of the agreement," says Richard Rieger, senior analyst at Ladenburg, Thalmann, who puts Eljer's takeover value at $23 to $28 a share. Value investor Mario Gabelli owns nearly 10% of Eljer. The company declined comment on the rumor.

Before it's here, it's on the Bloomberg Terminal.