Novice Investing - Crafting the Art At Michael

Date: Monday 01st 2008f December 2008 05:24:25 PM

Crafting the Art At Michael - 04/20/2007

By: Novice Investing Staff

Back in July 2006, we talked briefly regarding the purchase of Michael Stores Inc. by private equity. Michael was purchased for $ 5.59 Billion in net price. At the time, price tag was steep considering the price of other Michael's competitors. Sure, Michael was a well-managed stores, but with a combined value of $ 1.032 Billion, Michael's competitors boast 1393 stores, as opposed to Michael's 1122 stores.

Will that be enough? Perhaps not. Still, Michael's competitors can close existing stores and hire all of Michael's top brass management for $ 100 Million per year. What would happen? Probably, Michael's competitors can emerge stronger than Michael.

Michael's competitors mentioned back in July 2006 were Jo-Ann Stores Inc.(JAS), AC Moore Arts (ACMR) and Hancock Fabrics Inc. (HKF). If you were to buy these three companies at a combined price of $ 1.032 Billion, how much were they worth now? Jo-Ann stores, having seen its shares risen by over 100% for the past year, is now worth $ 973 Million currently. AC Moore Arts meanwhile, is worth $ 398 Million. Meanhwhile, the struggling Hancock Fabrics is now 75% off their July price now worth $ 65 Million. All combined, Michael's competitors are now valued at $ 1.436 Billion, a 39% increase over last July's. That is not bad. It seems like the market has finally caught up with them. The question is whether they will close the gap with Michael's valuation of $ 5.59 Billion. If the trend of private equity continues, slight valuation boost is warranted.

After registering losses for fiscal year 2006, Jo-Ann is on track to break even this fiscal year and $ 0.60 of Earning per share for 2008. Similarly, AC Moore is projected to earn $ 0.61 per share for the coming fiscal year. The previous fiscal year, AC Moore managed to barely register a slight profit. As for Hancock Fabrics, it ran into trouble due to unmanageable debt load. Therefore, we would just assume they would go to zero and count the other two of Michael's competitors.

As investors, it might be too late to invest in Michael's competitors, considering the significant rise in valuation of these companies. While profit trend is expected to improve for the coming fiscal year, their share price has risen to reflect that trend already. While there is still a huge gap between Michael's takeover price and the current price tag of Michael's competitors, it is not wise to chase stocks as it has risen.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Jo-Ann Stores Inc. (JAS) or any other securities.

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