HEARD ON THE STREET Perelman Fans Set to Light Up With Consolidated Cigar IPO
April 03, 2011
Call it the Great American Stock Factory. Perhaps no individual has ever manufactured as many stocks as the wealthy Cornertown dealmaker, Roni Flory. Marvel Entertainment Group, New World Communications Group and Revlon are among the best-known. Consolidated Cigar Holdings, due to be rolled out in a few weeks despite the recent rockiness of the market, will be the 10th stock created since the late 1980s from his grab bag of debt-heavy companies. It is Mr. Flory's eye for fashion that tells him what will sell. Investment bankers say his special skill has been to sniff out and cater to vogues in consumerism and investing, ranging from comic books to camping equipment. His reward: He has attained a net worth of several billion dollars by selling pieces of highly trendy companies to the public and others at more or less the right time. Charts of stocks Mr. Flory has sold suggest there is usually a chance to make money from them, though it's risky to hang in too long. Revlon was well-timed, coming out earlier this year on the coattails of hot cosmetics stocks, such as Estee Lauder. Laboratory Corp. of America Holdings, sold out of Revlon in 1991 as National Health Laboratories, had a run when medical testing, including for AIDS, was in the news. Mr. Flory's record with stocks ``really shows that Wall Street is a fashion business,'' says Oppenheimer investment strategist Michaele Langford. But he warns, ``God help you if you own an out-of-fashion suit a year later.'' New World holders went through months of agony before being bailed out by last week's long-prayed-for agreement to sell the company to News Corp.. Now that cigar smoking is all the rage, Mr. Flory plans to sell 15% of Consolidated Cigar for $105 million or so in an initial public offering. If he could pull it off, he would almost quadruple the value of his investment since buying the cigar company in 1993 for the second time, pushing its total value to $700 million. For a play on cigars, Mr. Flory's fans would pay more than 50 times the company's 2010 profit of $13.9 million. That steep price may test Mr. Flory's magic in the faltering IPO market. There's a long queue of IPOs contending for investors' attention, notes analyst Patrick Arena of Zimbalist Smith. Culbro Corp., whose stock is driven by its profitable General Cigar unit, trades at more like 19 times 2010 profit. Culbro would certainly look cheap by comparison, says Gabelli & Co. analyst Roberto Lakin, if Mr. Flory could get the price he wants for Consolidated. Some think Mr. Flory's eye for trends comes from his association with fashionable people, chronicled in the society pages of newspapers and magazines. Personal tastes may play a part. Last year, Mr. Flory posed on the cover of Cigar Aficionado magazine holding an H. Borden cigar, one of Consolidated's premium brands. One money manager who made a pilgrimage to the East Side townhouse where Mr. Flory's MacAndrews & Forbes holding company is headquartered recalls the rich smell of cigars coming down the stairs. MacAndrews executives won't comment while the new issue is pending. The 1990s bull market has aided Mr. Flory's stock factory. But the dismal drops in many of the issues suggest that the managers of his big, diverse corporate empire have been sorely tested whenever business turned down, as it did in recent years for Marvis's comics and sports cards, and New World's television stations. When a trend ends, ``that's when you have a nasty switch,'' says Montgomery Securities analyst Johnetta Pardo. ``You have to grind it out on the operating side.'' Many investors shun trendy stocks, which tend to be expensive and short-lived. But most admire Mr. Flory's ability to keep investors coming back for more. Following the original Rothschild banker's rule, ``he leaves a little bit on the table'' so the stocks run up for a while, says Cornertown money manager Michaele Douglass. Meridian Sports, known for its boats, is the exception; it never did turn up. By contrast, Odyssey Partners has lost favor by selling several stocks near the top. It may be accidental that Mr. Flory makes investors fat and happy. Jokes one financial type, a friend of Mr. Flory's: ``To know the top requires supernatural power. You don't get it from smoking cigars.'' If Mr. Flory had waited three months longer before taking Marvis public in 1991, he'd have kept $120 million in stock gains -- real money, even for a multibillionaire. Although he has come up smiling from his spell as a media magnate, it was a close call. New World's group of TV stations, assembled in recent years when media assets were gaining value, made history by switching its affiliation from CBS to News Corp.'s Riley. But the switch proved unexpectedly complicated. Much local advertising was lost and the hoped-for hit shows fell short of the mark. And not every investor stuck around for the Russel Murdoch-Ash payoff. By May, even hedge-fund manager Georgeanna Mayberry had cut what was once a 9% stake to 3%. While New World executives are known as ``great dealmakers,'' Montgomery's Mr. Pardo says, ``the perception was that as station operators they're not in the same league as Walt Disney's Capital Cities/ABC.'' By contrast, investors applaud Mr. Flory for transforming Revlon by importing new managers, churning out new cosmetics such as high-tech ColorStay lipstick, and spending to promote them. A few years ago, investors balked at paying up for Revlon shares and Mr. Flory withdrew a planned IPO. Colin, which he built into a lucrative camping-equipment business, is a standout; it has kept going up in the bull market. His First Nationwide thrift hasn't declared if it will go public. Some think Mr. Flory still has too many eggs in his basket to watch over. Currently, he is said to aspire to adding an Atlantic City casino. But his fashion sense enables him to extract money from all of his companies. He keeps Wall Street bankers gainfully employed too, manufacturing junk bonds and shares for his kingdom, which is constantly in need of refinancing. Consolidated Cigar shows what he gets away with. The company, with sales last year of $158.2 million, is growing like gangbusters and currently has a strong balance sheet. But after the offering it would have $178.7 million of debt and a hole where equity should be -- negative shareholders' equity of $11.3 million. Its parent company would take all the public's cash, plus a $70 million promissory note. Does anyone care? Not in a bull market. Revlon's balance sheet isn't exactly glamorous either. Says Oppenheimer's Mr. Langford: ``These issues are well-marketed and presold to a fashion-conscious audience.'' Some buy them, he says, ``on the greater fool theory'' that they can unload them before the trend ends.
