Business Week???s Gene Marcial Says Tootsie Roll (TR) is a Buyout Candidate

Gene Marcial, Business Week’s Inside Wall Street Columnist, says Tootsie Roll is a buyout candidate:

1. Though the company has not performed well lately, as first-quarter sales tumbled, costs spiraled higher, and earnings are on a downward slope.

2. However, the “smart-money crowd” is starting to gather in the stock. That has lifted Tootsie’s share price since late April, when the stock traded at $23. It sprinted up to $27 by early June, where it has remained.

3. Tootsie Roll possesses many of the ingredients that make it a palatable buyout target; the company certainly needs new energy to spark a lift in sales, earnings, and stock price. And Tootsie Roll’s management hasn’t displayed the skills to improve the company in the current environment of rising commodity prices and stiffening competition.

d. Tootsie Roll’s chairman and CEO is now 88, and his wife, the company’s president and chief operating officer, is 76. They control some 76% of the class B voting stock and 54% of the common shares of the Chicago-based company, so the question of a hostile or unsolicited takeover at the Chicago-based company seems out of the question.

e. According to Mario Gabelli, “It looks like a sale will happen, although the big question is when.” Other big shareholders include Wells Capital Management, with a stake of 9.5%, T. Rowe Price (TROW), which holds a nearly 5% position, and Barclays Global Investors (BCS), with 4.3%.

f. Tootsie Roll is a well-recognized brand name, the balance sheet is strong with understated assets, cash flow, and dividend. But, earnings have been flat for years. And, that might attract its bigger rivals, which could see the prospect of rewarding synergies and potential growth in combining with Tootsie Roll. Such larger competitors include Hershey (HER), Mars and Wrigley (WWY).

Track Gene Marcial’s picks at:

http://www.trackthepros.com/categories.php?category_id=404