Once a Wall Street darling with a stock price that peaked at nearly $50 a share in 2003, Krispy Kreme Doughnuts Inc. has been serving up annual losses since 2004, and its stock hasn’t surpassed $5 in more than 18 months. Though investors haven’t been enamored lately, the Winston-Salem company’s board wants to make sure no one becomes overzealous. It adopted a “poison pill” plan to deter hostile takeovers, replacing one approved in 2000 before the company went public.
If an investor or group buys 15% of Krispy Kreme stock, other shareholders can buy new shares at a bargain price — diluting the potential acquirer’s stake and making it harder to get controlling interest. That would give management time to seek other offers or negotiate a premium from the bidder.
In some ways, Krispy Kreme might need a poison pill now more than it did when the company saw shares close at about $38 — $9.60 split-adjusted — on its first day of trading. With CEO Jim Morgan shutting down underperforming stores, renegotiating debt and restructuring operations, the company seems poised to return to profitability. Through three quarters of the fiscal year that ended in February, it had lost $677,000, compared with $3.8 billion the previous year.
That improvement — along with shares trading below $3 in early February — might be enough to make potential buyers salivate the way doughnut lovers do when Krispy Kreme stores light their “Hot Now” signs. “You could get a vulture company that swoops in and buys them up,” says Peter Tourtellot, managing director of Greensboro-based turnaround specialist Anderson Bauman Tourtellot Vos & Co. Other restaurant chains might be interested, too. Atlanta-based Wendy’s /Arby’s Group Inc. often is mentioned as a potential suitor. Wendy’s owned the Tim Hortons doughnut and sandwich chain before spinning it off in 2006.
While some critics say poison pills provide more protection for entrenched executives than shareholders, Tourtellot disagrees in this case. “This management is relatively new to the company. They’re the ones doing the turnaround and doing the sweat equity. They want to see the upside as well.” With Krispy Kreme’s comeback so close to completion, a hostile takeover would be a bitter pill for many to swallow. “It won’t be good for Winston-Salem, it won’t be good for the management, and it won’t be good for the shareholders.”
In a recent ad for Hanes undershirts, actor Charlie Sheen tries to buddy up to basketball great Michael Jordan, who rebuffs him and pulls away in a car. After the star of the television comedy Two and a Half Men was arrested on domestic-violence charges, Winston-Salem-based Hanesbrands Inc. pulled away, too, ending its advertising campaign with Sheen. “If there’s something in the news that takes away from the message of the ads, it’s standard procedure to suspend the ads,” Hanesbrands spokesman Matt Hall says. The ads stopped soon after the arrest — about a week or so before the campaign was scheduled to end. Print ads with Sheen will continue to appear into the spring because of publications’ production cycles.