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Buyout of FBN? Morgan Keegan Analyst Skepitical
March 14, 2008

In a post on The Landfair Retail Focus, February 24th about Furniture Brands (FBN), I wrote:

I'm only guessing, but I would think FBN's days of public ownership are numbered.

I saw a company that prior to the offer by Sun Capital, was trading at $10.34.  The shares were selling at a 60% discount to book value and 30% of sales.   While conditions certainly could deteriorate, that certainly looked cheap for a company with the brands of Broyhill, Lane, Thomasville, Henredon, Drexel Heritage and Maitland-Smith.

In a new research report, Morgan Keegan analyst Laura Champine disagrees with me.  "We are skeptical of any imminent deal by Sun Capital or any other entity" to buy Furniture Brands.

Based on our projections, an acquirer paying any type of premium to yesterday's closing price of $11.63 would be paying a ridiculous EBITDA multiple for a declining business model," Champine added.

With an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of $11.62 Million and a market cap of $548.03 Million, the shares are trading at almost 50 times EBITDA.  Is that ridiculous?  Compare that to Ethan Allen (ETH), 5.3 times EBITDA or Lazy Boy (LZB), 10.4 times EBITDA, and you have to ask yourself, “What is Sun Capital seeing that Champine is not?”  

Champine also said checks by her firm indicated that Broyhill, a brand that has been pressured over the past year, was being "highly promoted and discounted as much as 50 percent" at Big Lots Inc (BIG)which specializes in sales of excess inventory."

"This does not seem to coincide with the company's strategic initiatives to focus on building the brands and collecting a brand premium in the marketplace," Champine added.

Does Furniture Brands have a “declining business model” as Champine contends?  Is Sun Capital vulnerable because it has bet so much on the consumer products business model?  

These are interesting times we live in!  Stay tuned.

Thoughts?  Email me at landfair3554@comcast.net.

Posted by Mike Landfair on March 14, 2008 | Comments (0)