EZCORP Is Down on Termination of Value Financial Deal

Have I mentioned this is a tough market :) When it rains...

EZCORP (EZPW) is down 8% as Value Financial Services terminated a deal that would of been accredative to EZPW. In the near term it would of added 1 cent to EPS, and this termination will cost nearly a million to EZPW.

• EZCORP, Inc. (Nasdaq: EZPW - News) announced Monday that its efforts to acquire Value Financial Services, Inc. have ended. As announced on June 5, 2008, EZCORP entered into an acquisition agreement with Value Financial Services, Inc. This past weekend, Value Financial Services, Inc. notified EZCORP that they elected to terminate the agreement.
• Commenting on the termination of the acquisition, President and Chief Executive Officer, Joe Rotunda, stated, "We are disappointed that Value Financial Services has elected not to move forward with the transaction, which I believe would have been beneficial to shareholders of both companies. Despite our disappointment, I continue to be energized about our growth prospects in each of our business segments.
• With the termination of this acquisition, we expect to take a charge of approximately $900,000 for transaction related expenses in our September quarter. As a result of this charge and the lack of an anticipated $0.01 per share benefit from the acquisition, we are lowering our earnings guidance for the quarter and fiscal year ending September 30, 2008 to $0.34 and $1.18 per share."

The stock is down to the $15.60s and thus far is holding its 50 day moving average just above $15.50. If we can hold this range I'd like to add - one could construe this as a slight negative to the long term because more stores = more growth, but this reduction in quarterly and full year guidance by a whopping 1 cent is not worth losing $50 million of market cap. But fundamentals mean little and a previously impeccable chart could have some holes blow into it with today's action.

EDIT: Essentially doubled position in the $15.60s, will stop out of this position below $15.00. Up to 2.6% stake.

Disclosure: Long EZCORP in fund and personal account

Comments

[Alan Brochs...:]

Mark, I have been all over this one ever since I wrote it up earlier this year at Seeking Alpha. I sold most of my stock in the 17s, but I reloaded big-time yesterday at 15.63. I love these shoot-first ask-later reactions. I am 95% sure that this is just pure profit-taking spurred by some momo guy who doesn't care why but does care that the EPS estimates have stopped rising (for now). I am 5% worried that there is a deeper issue - why did VFS walk away? My uneducated guess is that we will learn someone else entered the picture with a deeper wallet. Nonetheless, I think that even though gold is crashing, it is a great story. Nice heads-up

2008 Aug 12 08:59 AM

[TraderMark:]

Hi Alan,

According to the reuters article (take it for what its worth) VFS was acting irrational and probably trying to squeeze out a higher price.

The only irrational thing I see is a company dropping nearly 20% on 1 cent lower EPS ;) I realize maybe its a bit of a slower growth trajectory without these stores but this is a highly fragmented industry and many more acquisition targets.

The market is simply all overreaction - more now than ever before.

2008 Aug 12 04:19 PM