Despite a $2-billion war chest, Wickes Cos. may have bitten off more than it can chew with its proposed back-to-back acquisitions of Collins & Aikman and Lear Siegler, according to securities analysts who follow the Santa Monica-based retailing and manufacturing concern.
"There are so many things that could go wrong," said Frank Rolfes, a securities analyst with Dain, Bosworth Inc. of Minneapolis. "This debt could kill them."
The Collins and Lear deals would cost about $2.8 billion and could take all of Wickes' huge cash holdings and double the $2 billion in debt already on its balance sheet. The new debt would include that now held by the companies that Wickes is acquiring, analysts said.
Thus, unless Wickes sells off sizeable chunks of Collins and Lear, it could be left with as much as $4 billion in borrowings--the same level of debt that it had when forced into Chapter 11 bankruptcy reorganization in April, 1982. After a severe purge of money-losing operations and a substantial paring of that earlier debt, Wickes emerged from bankruptcy in January, 1985.
Since then, Wickes has purchased the consumer and industrial products business of Gulf & Western for $1 billion, acquired the Western retail operations of W. R. Grace & Co. for about $185 million and had its investment bankers, Drexel Burnham Lambert, raise about $1.38 billion through so-called junk bond financing.
"They may be the brightest people in the world," said one analyst about the Wickes management team led by Sanford C. Sigoloff, "but if they're not, the whole thing could come tumbling down around them. . . . There's too much leverage and too much dependence on junk bonds," said the analyst, who asked to remain anonymous because he and his clients plan to unload their holdings in Wickes stock as a result of the proposed Lear deal.
A Wickes spokesman said that income from operations and opportunities to sell parts of its new acquisitions will make the debt manageable from both a balance sheet and an income point of view. In addition, the spokesman noted, Wickes could also sell some of its current operations.
Still, analyst Rolfes said that if the two proposed acquisitions are completed, Wickes would be left with a debt-to-equity ratio--a key measure of a company's financial strength--of 80%. "Most companies get nervous with a ratio in excess of 30%," Rolfes said.
Donald Trott, an analyst with the securities firm of Mabon, Nugent & Co., said that "shareholders are betting that Sigoloff can create some value out of all this wheeling and dealing."