E Land Buying K-Swiss Footwear After Sales Stumble

Tickers in this article: ES KSWS
NEW YORK ( TheStreet) -- It's the time of the season for acquisitions, it seems; and not just any acquisition, the down and out names, those that have seen better days and been shunned are starting to be scooped up. These are the kind of companies that sometimes hit value investors' radar once the best days are well behind, when the growth crowd has given up and moved on.

We of the value persuasion see something potentially attractive in these companies, whether it's cash, certain assets, or perhaps even a brand name and believe that the markets have punished them too harshly. We hope for improving fundamentals along with renewed interest from investors. Takeovers can be good too, at the right price, that is.

We saw one deal for Energy Solutions (ES) Fun With Acquisitions for the Value Investor announced less than two weeks ago. I believe the takeout price of $3.75 per share is on the low side. There's still time for other offers through Feb. 6, and with the stock now trading 4% above the takeover price, there's some speculation, real or imagined, that there will be other offers. But Energy Solutions was just the beginning.

Late Wednesday, South Korean apparel distributor E Land World Ltd. agreed to acquire legendary athletic footwear company K-Swiss (KSWS) for $4.75 per share in cash, which represented a 49% premium over Wednesday's closing price. This represents a somewhat sad end to K-Swiss as a publicly traded company. The company was founded in 1966, went public in 1990, and was a great growth story, especially between 2000 and 2006, when shares rose form about $3 to $35.

In the past few years, there were new product introductions and acquisitions, but nothing that could get K-Swiss back on the path of profitability. Revenue, nearly $500 million in 2005, fell to $216.8 million in 2010, before rebounding to $268.4 million in 2011. Unfortunately, the company never recovered from the last recession, was unable to regain its niche and has not had a profitable year since 2008. In recent years, K-Swiss was frequently trading below its net current asset value.

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The company's balance sheet has often appeared to be quite attractive, with relatively large amounts of cash, and little or no debt, but as the losses mounted, the cash dwindled, ending the latest quarter at about $40 million. Still, that means that E Land is effectively getting K-Swiss for about $130 million or $3.65 per share if you back out the cash. The deal also prices K-Swiss at a relatively low 1.55 times net current asset value.

Interestingly, K-Swiss' latest quarterly earnings report showed one of the most narrow losses, $1.9 million, or five cents per share, that the company has had in years. The loss was well below consensus estimates ( a loss of 13 cents per share), although that consensus is comprised of just 2 analysts. It's difficult to conclude that its narrower quarterly loss was a sign of better days ahead, as revenue was down 16% versus the same quarter last year.