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Trading in Fluorocarbon Stock Takes Off as Firm Sells Stake in Japanese Company

February 14, 1988|John Charles Tighe

For months, investors had paid scant attention to Fluorocarbon, even after reports surfaced that a New Zealand investment group had increased its stake in the company.

But trading in the stock took off last week after the Laguna Niguel-based rubber and plastics manufacturer announced the sale of its stake in a Japanese company for $19 million.

During the first seven business days of February, an average of only 5,500 shares of Fluorocarbon stock changed hands each day in relatively sluggish trading in the over-the-counter market.

After Wednesday's sale announcement, 81,600 shares traded in a single day. Fluorocarbon gained 62.5 cents to close at $14.50 Wednesday. Trading remained active during the rest of the week, and by Friday's close the stock had reached $15.

Pay Off Debt

Fluorocarbon Chairman Peter Churm said the proceeds from the sale of his company's 50% interest in Nitta-Moore, which was acquired last May as part of Fluorocarbon's $70-million purchase of the polymer products division of Eaton Corp., will help pay off debt.

Fluorocarbon borrowed about $60 million for the acquisition, and the reduction of debt will help the company save significantly on loan interest expenses.

Fluorocarbon also should benefit because the sale agreement specifies that a license pact with Nitta-Moore will continue through 1998. Fluorocarbon could receive about $2 million a year in royalties from Nitta-Moore until the agreement runs out.

"With Nitta-Moore, they (Fluorocarbon executives) were managing assets. They'd rather get their money more active and pay off debt," said Edwin Louis, an analyst at First Kansas City Securities, a brokerage firm in Kansas City, Mo. "The sale is good news, and they got a great price for it."

While Louis attributed the increased price and trading volume to the sale, the company has also been the subject of investor speculation because of disclosures that a New Zealand-backed investment group has picked up 8.6% of the company's stock.

American Strategic Investments, which is owned by New Zealand investors who want to place their funds in U.S. companies, said it had increased its Fluorocarbon ownership to 370,400 shares.

Churm, who owns 333,000 shares or 7.7% of Fluorocarbon's stock, said he has told American Strategic Chairman Dugald Fletcher that Fluorocarbon has no intention of being taken over.

Churm and Fletcher met earlier this month in Laguna Niguel for a "get-acquainted visit," Churm said, but Fletcher left after being told that his ownership didn't entitle him to a seat on Fluorocarbon's board.

Contacted back in New York, Fletcher wouldn't disclose his plans for the investment.

Although institutional investors, who hold 41.8% of the stock, show no signs of dissatisfaction with Churm's leadership, their future actions are difficult to predict.

"There's no such thing as institutional loyalty," said John Simon, an analyst at Seidler Amdec Securities in Los Angeles. "If the price is high enough, institutions are going to sell. And if the price is right for Peter, which might happen somewhere in the 20s, he'd sell, too."

Stake Possible

With only 4.3 million shares outstanding, it wouldn't be difficult for a well-heeled investor to purchase a sizable stake in Fluorocarbon, said Stephen Handley, an analyst at the brokerage firm of Smith Barney, Harris Upham & Co. in New York.

Analysts said heavier trading volume in Fluorocarbon stock and continuing strength in the company's operations makes the company more interesting for investors to follow.

In fiscal 1987, Fluorocarbon earned $4 million. Simon said the company could report earnings of as much $5.3 million, or $1.25 per share, for fiscal 1988, which ended Jan. 31. In fiscal 1989, Simon said, profits could hit $8.1 million, or $1.90 per share.

But the stock isn't without risk.

"If basic industry does well, Fluorocarbon is going to do well. But the stock is dependent on industry," Handley said.

The major purchasers of the highly specialized rubber, plastic and fluid sealing products made by Fluorocarbon are large manufacturers, and the company's sales tend to swing with general economic conditions.

In recent years, Fluorocarbon has been hurt by a depressed oil industry. But the company has reduced its dependence on petroleum companies, which now account for less than 10% of Fluorocarbon's revenue.

Although institutional investors own nearly 42% of the company, they appear to be somewhat cautious about increasing their position.

Although 37 institutions owned Fluorocarbon stock near the end of 1987, up from 34 a year earlier, total institutional ownership has remained at 1.8 million shares, according to Standard & Poor's.

"(Fluorocarbon) took a risk by borrowing in uncertain times," said Handley. "That makes the institutions cautious of the structure of the company."

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