Gaylord rumors heat up

Renewed takeover speculation fuels stock surge

NEW YORK – After a lull of several months, speculation that Gaylord Entertainment Co. was about to be acquired sent the company’s stock price up 10% last week.

But unless a deal is announced quickly, Gaylord stock is likely to slump back to the level it has been trading at since October, when the company surprised investors by revising downward its growth projections for 1996-97. “My view is, it’s a hold,” said UBS Securities analyst Ed Hatch, who downgraded the stock after the growth revision last fall.

Gaylord stock jumped from $21.87 to a high of $25.62 during trading Wednesday and Thursday after Wall Street traders said Gaylord chief financial officer Terry London canceled a presentation he was due to give at an investment conference in California, prompting renewed rumors that the company was in talks to be acquired. The stock closed unchanged Friday at $24.

A spokesman for Gaylord confirmed London had canceled the presentation, saying he had been called to a “meeting in another city.” The spokesman, as usual, declined comment on takeover rumors. But investment bankers and industry execs said there was no sign of any imminent deal. Gaylord is, however, negotiating to sell its Seattle TV station, but the identity of the buyer is not known.

Gaylord has been the subject of on-and-off takeover speculation for the past two years since the company chairman and majority shareholder Ed Gaylord shopped it around but found no potential buyers to pay the price he wanted, which was said to be about $40 a share – valuing Gaylord at $3.9 billion. Gaylord’s main assets are the Nashville Network and Country Music Television cable networks.

Further complicating a sale of the company is Westinghouse Electric Corp.’s management of the advertising sales and affiliate relations for the two cable networks, in exchange for 33% of TNN’s advertising revenues and ownership of one-third of CMT. This deal, which is irrevocable, has made Westinghouse the most likely buyer.

Westinghouse, CBS’ parent, is in no hurry. While it has indicated several times a desire to expand in cable, the company has spent much of the past year consolidating its acquisition of CBS and finalizing its acquisition of radio group Infinity Broadcasting. A Westinghouse spokesman declined comment late last week.

And Gaylord has had its own problems. Last fall it lost its chief operating officer, Richard Evans, and shortly after announced a lower than expected third-quarter profit and revised down its projected growth rate from 18-20% to 10-12%. It announced a $100 million stock buyback at the same time.

Montgomery Securities analyst John Tinker noted in a recent report that the country music industry, the backbone of Gaylord’s business, “may be saturated” – highlighted by a decline in country music unit sales last year. Analysts say Gaylord’s Opryland theme park, which suffered a cash flow decline in the third quarter, is being hurt by increased competition from the gaming industry.

Gaylord stock fell to a low of $18.75 last fall, although it has since traded between $20 and $22. Hatch said it is “fairly valued at $24” and anyone buying at this level is buying “for the speculation that Gaylord would be acquired.”

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