Going private may give the Weiss family the freedom to take risks without having to worry about posting short-term results to keep shareholders happy, said Scott Fine, professor of banking and finance at the Weatherhead School of Management at Case Western Reserve University.
BROOKLYN, Ohio -- After more than 50 years as public company, American Greetings Corp. is on the verge of becoming private again.
The board of directors for the nation's second-largest greeting card maker agreed on Friday to be acquired by the members of the controlling Weiss family in a transaction valued at about $878 million. The deal, first proposed six months ago, could close this summer.
If approved by the majority of non-family shareholders, the 107-year-old Cleveland-born company would become part of Century Intermediate Holding Co., a Delaware company owned by American Greetings' Chairman Morry Weiss; director and Chief Executive Zev Weiss; director, President and Chief Operating Officer Jeffrey Weiss; and other family members.
"We are excited to be able to lead the company into the next chapter of its history," Jeffrey Weiss said in Monday's statement announcing the deal.
"The transaction returns the company to private ownership in a way that we believe enables the company to continue to serve the interests of its customers, employees, suppliers and the communities in which it operates as it has for over a century."
Scott A. Fine, a professor of banking and finance at Case Western Reserve University's Weatherhead School of Management, said that despite being "for sale for the past six months, nobody's stepped forward" with a competing offer.
About American Greetings:
Business: Nation's largest publicly held designer and manufacturer of greeting cards, e-cards and other social-expressions products. Second in size and market share to privately owned Hallmark Cards Inc.
Founded: 1906, by Polish immigrant Jacob Sapirstein.
Became public: 1958.
Headquarters: One American Road, Brooklyn, since July 1957.
Family owners: Chairman Morry Weiss, Chief Executive Zev Weiss (Morry's son), President and Chief Operating Officer Jeffrey Weiss (Zev's brother).
Employees: About 8,200 full-time employees and about 19,300 part-time (including about 2,000 in Brooklyn), as of Feb. 29, 2012.
Revenue: $1.67 billion in fiscal 2012.
Profits (net income): $57.2 million in fiscal 2012
Websites: americangreetings.com and corporate.americangreetings.com
"I'm not sure that anyone's dying to get into the greeting cards business," he said. As a smaller company with smaller returns, "it just didn't get a lot of attention from institutional investors."
Going private may give the Weiss family the freedom to take risks without having to worry about posting short-term results to keep shareholders happy, he said.
"They can be a little more flexible and make some long-term bets," he said. "On the other hand, the company's taking on a lot of debt, and they're going to have to focus on repaying all this bank debt."
The Weiss family may have decided that public investors are too pessimistic about the company's prospects and don't fully appreciate how valuable it is, said Pavel G. Savor, assistant professor of finance at the Wharton School at the University of Pennsylvania.
By taking back control, the Weiss family can also take advantage of ultra low long-term interest rates to finance the transaction, Savor said. He said because of such good rates, the number of such deals since the financial crisis has never been higher.
The deal will be financed with the contributions of the Weiss family's shares, cash from a $240 million non-voting preferred stock investment from Koch AG Investment LLC, a subsidiary of Koch Industries Inc., a $400 million term loan, a $200 million revolving credit line, and cash on hand.
American Greetings spokeswoman Patrice Sadd declined to respond to questions about what the change in ownership means for employees or the company's plans to move its corporate headquarters to Westlake from Brooklyn.
"Due to securities laws and other considerations, we are unable to comment on the transaction and refer you to the press release and related filing we made with the SEC today, both of which are available in the Investors section of our website," she said via email.
The company employed 8,200 full-time and 19,300 part-time employees as of Feb. 29, 2012, including about 2,000 at its Brooklyn headquarters.
Westlake Building Commissioner Don Grayem said the company's land near Crocker Park has been cleared but that no building plans have been submitted to the city.
The company said its $18.20-per-share offer is a 26.9-percent premium over the trading price on Sept. 25, when the Weiss family first proposed buying the company; and 13 percent higher than Thursday's closing price of $16.10. The markets were closed on Good Friday.
Shareholders could receive a total of $18.35 per share, including a quarterly dividend of 15 cents per share, if the transaction closes in July.
Monday's announcement, released before the markets opened, sent shares to a 52-week high of $18.05, up 12 percent from last week.
American Greetings' Special Committee of independent directors, which was asked to review the Weiss' offer, consider alternatives and negotiate the price and other terms, "concluded unanimously that that the transaction with the Weiss Family was fair and in the best interests of the Company's public shareholders."
Based in part on that decision, the other independent members of the board also unanimously approved the deal.
Weiss family members did not vote, but Zev Weiss said in a statement that "the family believes the transaction is a win for all concerned, including public shareholders. The negotiations with the Special Committee and its advisors were vigorous and arm's length, but we're pleased that we were able to come to an agreement that properly respects all parties' interests."
American Greetings, whose fiscal year ended Feb. 28, would still be expected to file its final fourth-quarter and year-end financial documents before going private.
John Bowblis, assistant professor of economics at Miami University's Farmer School of Business, said a major reason most public companies go private is to save money.
"The regulatory cost of being a publicly traded company has increased tremendously" since the Sarbanes-Oxley Act was passed in 2002. The cost of hiring outside auditors, providing liability for officers and complying with an increasingly complicated set of regulations has grown prohibitively expensive, he said.
Plus, "when you're a public company, you're beholden to shareholders who want to see results from year to year and quarter to quarter," he added.
Savor said that besides having to file quarterly earnings and other disclosures, running a public company can also make management "overly risk-averse or overly short-term," because it avoids actions that may hurt earnings and distress shareholders.
The nation's largest greeting card company said via email that "Hallmark has long recognized the benefits of private ownership, and while we can't speak for AG, we can certainly understand why they would want to go private as well."
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