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K2 Insiders Buying

post #1 of 2
Thread Starter 
The Wall Street Journal (Copyright 2004)
Wednesday, August 4, 2004
Inside Track
K2 Looks to Get Ahead in the Game With Deals

Executives Snap Up Shares As Firm Has Short Timeout From Its Acquisition Spree

By Tony Cooke Dow Jones Newswires

WASHINGTON -- K2 Inc. has been a busy acquirer of sporting-goods brands, but the company paused its buying spree long enough recently to allow company insiders to buy shares. Four company insiders last week paid more than $416,000 to buy 31,000 company shares at an average price of $13.43 a share, according to filings made with the Securities and Exchange Commission. K2 shares closed yesterday at $13.77, down 31 cents, or 2.2%, in 4 p.m. composite trading on the New York Stock Exchange.

"We think it's a great value," said Dudley W. Mendenhall, K2's senior vice president of finance, who bought 1,000 shares last week for $13 a share.

Mr. Mendenhall said K2's success will be driven by its acquisitions. "The opportunity in this sector is consolidation," he said. "It's not organic growth."

Alan Robinson, an analyst for Delafield Hambrecht Inc., said K2 has exploited its advantages in scale, including its manufacturing operations and distribution network, enabling the company to buy smaller companies and lower costs while improving sales.

In July, K2 closed its acquisitions of Volkl Sports Holding AG (premium skis), the Marker Group (ski bindings) and Marmot Mountain Ltd. (outdoor technical apparel and equipment). K2 is also the owner of sports-equipment brands Rawlings and Worth (baseball/softball), Shakespeare (fishing), Stearns (watersports) and Brass Eagle (paintball).

In addition to the positive signal sent by the insider purchases, those transactions also imply another message: that K2 has paused for a bit in acquiring other companies. Because insiders are typically prohibited from making trades when an acquisition is pending, insider purchases and sales are sometimes seen as signaling a lack of planned mergers or acquisitions.

In fact, Mr. Mendenhall said, one reason for the timing of the share purchases is that the restrictions on insiders have been lifted by the company. "Given how acquisitive we are, we don't have a lot of opportunities to buy shares," he said. "This was just a unique window."

However, Mr. Mendenhall said it would be unwise to assume that K2 has stopped looking at targets for mergers or acquisitions. "We continue to be very active from an M&A standpoint," he said. "We're in due diligence on things all the time."

Mr. Robinson said he has been puzzled by the market's relative lack of enthusiasm about K2. The company's shares have pulled back since trading above $18 in February.

Mr. Mendenhall attributes the market's perception of K2 to two factors: difficulties experienced by the retailers with which K2 does business, and analysts who fail to appreciate that K2 is different from its competitors.

"I think the challenge in this industry is there's not a lot of comps -- a lot of comparable companies that analysts can look at," said the senior vice president.

Other sporting-goods companies compete with K2 only in individual lines, and don't have the same breadth of products, he said. Also, K2 is the only company in the industry with manufacturing facilities in China, enabling the company to manufacture overseas without outsourcing, which allows the company to maintain control over quality and intellectual property.

As for the problems at other retailers, Mr. Mendenhall said, "We have been, I think, unfairly painted with some of the retail issues out there." For instance, he said, Sports Authority Inc. has seen its share price suffer lately because of weaker-than-expected sales and problems with its integration of Gart Sports, which it acquired last year. "We have not been impacted by a variety of retail missteps," he said. "Those problems have been mostly in categories that we're not in at all."
post #2 of 2
Don't waste your money guys. The markets in a funk right now, which is affording better opportunities in higher quality companies than this. Too many acquisitions, too rapidly, too much uncertainty. They need to prove they can meld it all effectively and profitably. Cut costs without alienating subsidiary managements and workers. No easy task. Better to put your money in proven, stable companies now selling at big discounts.

Now is a great time to put money to work in the market. Just not in K2
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