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Share of Greenville, Ill., Education Product Firm Drop 17 Percent

Posted on: Monday, 3 October 2005, 21:00 CDT

By Doris Hajewski, Milwaukee Journal Sentinel

Oct. 4--Shares of School Specialty Inc. plunged about 17 percent on Monday after the company said it wouldn't close on its sale to an investment firm this week and cut earnings projections for the current fiscal year.

School Specialty, an educational products firm based in Greenville, was expected to close the sale to LBW Holdings Inc., a corporation set up to do the transaction by Bain and Thomas H. Lee Partners. The investment firms had agreed to pay $49 per share, or about $1.5 billion, including the assumption of about $101 million in debt.

LBW notified School Specialty that it could not complete the sale because its lender had terminated financing for the deal, citing concerns about the company's future financial performance.

After the announcement, shares closed down $8.42, at $40.36.

School Specialty said Monday that it believes the banks were concerned about disappointing results in August and September and about near term financial performance. The lenders, Banc of America Securities, J.P. Morgan Securities and Deutsche Bank Securities, are continuing to evaluate information they received in connection with financing.

LBW and the lenders have reserved their purchase rights under the existing agreements, and the drop-dead date for the transaction is Oct. 31.

"I think there's better than a 50 percent chance that the deal gets done," said Trace Urdan, an analyst with Robert W. Baird & Co. in San Francisco. "I think they're trying to work through whatever they decide the fundamental issue is."

Urdan said, however, that the sale could end up going for a few dollars less than $49.

At $49, the buyer would pay a premium of nearly $10 per share over the closing price immediately before the announcement.

Meanwhile, School Specialty said Monday that it was revising fiscal 2006 revenue guidance to a range of $1.03 billion to $1.06 billion, down from the $1.04 billion to $1.07 billion announced in August.

Earnings per share are now projected at $2.17 to $2.31, a 5 percent to 12 percent increase over last year but less than the $2.35 to $2.60 previously forecast by the company.

Urdan said the weakness that caused the reduced earnings guidance was in School Specialty's basic school supply business. He said school districts likely were reducing their fall orders because of worries over gasoline and heating costs.

School Specialty's business typically is affected by school district budgets, with sales increasing during times when districts are well-funded.

Urdan said school budgets were healthy.

"The real fundamental driver in growth is overall tax base improving," Urdan said. "And that's still intact."

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SCHS, BAC, JPM, DB, DBK,

Source: The Milwaukee Journal Sentinel

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