Investing in Rumors: Sharper Image for Sale?
By Ian Cooper
With past buyout rumor speculation in Gap Inc, Rio Tinto, and Dow Chemical, we’ve always pointed out the importance of due diligence before jumping in head first. Sure, a buyout company just doubled its holdings in Sharper Image, by buying a block of stock from the company’s former, and seemingly bearish, CEO. But it doesn’t validate the buyout rumors.
On May 8, 2007, former CEO Thalheimer held three million shares of Sharper Image, or a 19.8% stake in the company. Why, if he thought the company was a buyout candidate, reduce his holdings to 1% after selling most of his shares to Knightspoint Group and Sun Capital Partners? That tells me that Thalheimer has a gross lack of optimism for his former company.
Granted, Thalheimer is no longer a Sharper Image insider. But he’s still knowledgeable about the company. And reducing his stake, in our view, is a reduction of his near-term optimism.
Much like our view of Gap Inc, we strongly doubt we’ll see near-term buyout offers for the company. Why would we? The company has been struggling with sagging sales over the last two years. Q1 2007 sales just plunged 37%. April same store sales were down 36%. April catalog sales dropped 69%. And Internet sales were off 40% in April. That’s pathetic.
Don’t hold your breath for a Sharper Image buyout. Just like I said with Gap Inc, Rio Tinto, and Dow Chemical LBO rumors, this one, too, won’t happen any time soon.
Take care,
Ian L. Cooper