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Wednesday, August 23, 2006

Smith & Wesson Sets Up to Gun Down Competitors


Stock Tickers: SWHC, TASR, ADG

Today Smith & Wesson (SWHC), or what investors call "Dirty Harry," filed to sell up to 15 million shares of common stock. The shares closed down 2.9% at $8.54 today, but shares are down 2.8% to $8.30 after-hours. This is said to be $130.65 million based on current market prices. The official S-3 says that this will be for general corporate purposes that includes acquisitions, yet the simultaneous S-4 hints that this is more for acquiring companies than anything else.

Smith & Wesson has a current market cap of $337 million, and trades with a 39.3 trailing P/E ratio, and if current estimates for 2007 are accurate then it has a forward fiscal April 2007 P/E of under 30. The company did just recently move over to the NASDAQ for trading. The April 30 financials showed only $731,000 cash, total short-term assets at $53.1 million, and total assets at $94.698 million. Its current liabilities were $31.6 million and total liabilities were $53.365 million.

Here are some notes from the company:

This prospectus covers shares of common stock and shares of preferred stock that we may issue and sell from time to time in connection with acquisitions by us of other businesses. We expect the terms of any such acquisitions will be determined by negotiations with the owners or controlling persons of the businesses to be acquired and the shares issued in connection with such acquisitions will be valued at prices reasonably related to market prices current either at the time of agreement on the terms of an acquisition or at or about the time of delivery of the shares.

We will not receive any cash proceeds from sales of the stock covered by this prospectus. We will, however, acquire assets, stock, or businesses in connection with acquisitions and may receive proceeds upon the exercise of options, warrants, convertible securities, or other securities we issue or assume in connection with acquisitions.

We are authorized to issue 100,000,000 shares of common stock, $.001 par value, and 20,000,000 shares of undesignated preferred stock, $.001 par value. At April 30, 2006, we had outstanding 39,310,543 shares of common stock and had reserved approximately 2,908,167 shares of common stock for issuance with respect to options outstanding under various stock option plans. No shares of preferred stock were outstanding at that time. The following description of our capital stock is intended to be a summary and does not describe all provisions of our certificate of incorporation or bylaws or Nevada law applicable to us. For a more thorough understanding of the terms of our capital stock, you should refer to our articles of incorporation and bylaws.

The big question................

So, who would Smith & Wesson acquire? They are the ONLY public gun-maker in the US. With a $337 million market cap, Taser (TASR) is out of reach with its $467 million market cap and lofty 100+ P/E. There is a munitions maker named Allied Defense Group (ADG) valued at $116 million. Outside of these two names, there are probably hundreds of smaller players that are not public that could be within the scope of the company.

The CEO is about to appear on CNBC with Larry Kudlow after 5:00 PM EST, and as positive as Kudlow is you can just almost be assured that the tone will be very rosy and friendly for what the street thinks of as a controversial stock. The company is also in a bid for a large government contract, so that will likely come up as well.

Michael F. Golden, Smith & Wesson President and CEO, said, "We have previously indicated our intention to expand and diversify our business through strategic acquisitions and alliances. Our expanded credit agreement and these registration statements are intended to assure that we have sufficient resources to take advantage of any opportunities that present themselves. We do not currently have any definitive plans for acquisitions or alliances and have not entered into any letter of intent or other documentation with respect to any such transaction. We also have no current plans to raise additional funds through the public securities markets or through our credit agreement."

The Company has received approval for a $30,000,000, two-year Revolving Acquisition Line of Credit with TD Banknorth, NA. When finalized, the new credit facility will be available to finance up to 90% of the price of acquisitions, subject to certain terms and conditions.

The strong wording from the company and the tone of this would lead one to believe that Smith & Wesson isn't making this public just because they like to do SEC filings.

Jon C. Ogg
August 23, 2006

Jon Ogg can be reached at jonogg@gmail.com; he does not own shares in any of the companies he covers.
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