Now that most of the production is done in China, all competitors realize that prices are going to have to keep up with commodity inflation. It is just a matter of time before we see double digit price increases, in course restoring profitability to the entire segment.
It appears that C&D shareholders don't want to sit around and wait for this to happen. With eight heavyweight institutional holders, (Krouse, Sun Capital Partners, Rutabaga Capital Management, Wisconsin State Board of Investment, T Rowe Price Associates, Nwd Investment Group, Fidelity and Wachovia) each controlling over 8% of shares, the board is under pressure to find a buyer. Not to mention that Renaissance Technologies has a 7.9% stake and traditionally this highly secretive hedge fund averages a 35% return per year. Insiders accumulated a considerable amount of shares this past December, so by applying the standard deviation wait time, an acquisition should be coming through about now.
The question is, who's buying?
We can only guess that the acquirer is Teleflex Incorporated (TFX). On the one hand CHP's CEO Dr. Jeffrey A. Graves, recently (May 2007) joined TFX's Board of Directors. This would allow Dr. Graves to work through the details of a deal without letting the general public know what was going down. On the other hand, this could mean that an acquisition was imminent, though TFX was not the acquirer and that Dr. Graves was just preparing for the day after. Another less likely suitor is EnerSys (ENS). There is always the possibility that a Chinese player might surface.
The problem is that the acquisition price would have to be substantially higher than the $7.00 figure we come up with in order to satisfy the institutional investors. Most institutional investors would probably vote against anything less than $9.40. How they work around this one is problematic. Another sticky issue is that institutional ownership is running roughly 21% more than the actual shares outstanding. The wheeler and dealers may have to come up with some gimmicks to get more investors to short this one before a deal can go through.
CHP 1-yr chart
Disclosure: This is the opinion of several CrossProfit analysts and is not the consensus at CrossProfit.com. There are no conflicts.