Saturday, September 25, 1999
Fairfield company's shares fall steeply
Kroll-O'Gara discloses possible sale
BY MIKE BOYER
The Cincinnati Enquirer
Shares in Kroll-O'Gara Co., the fast-growing security hardware and services provider, lost almost half their value Friday after the Fairfield-based company disclosed it was considering selling itself and cautioned that it would miss earnings estimates.
Kroll-O'Gara shares, which had already lost a third of their value this year, plunged $11.50 Friday, closing at $14.311/4, in trading of 2.9 million shares, 21 times the average daily volume of the last three months.
Investors were spooked by the company's disclosure late Thursday that it had hired the investment firm of Bear Stearns & Co. to evaluate a range of alternatives — from selling the company to seeking new equity investment.
The move comes amid reports of a power struggle between Jules Kroll, chairman and CEO, and Thomas O'Gara, vice chairman. The two were the architects of the 1997 merger of Mr. Kroll's Kroll Associates, a leading international detective agency, and the O'Gara Co., a vehicle armoring and security services firm, taken public by Mr. O'Gara and his brother, Bill, in 1996.
Kroll-O'Gara, ranked among the fastest growing small companies by Business Week in May, also said it was deferring planned acquisitions in the current quarter and that earnings for the period would be reduced by 12 to 14 cents a share.
Fourth-quarter earnings would also be affected, but the company said it was too soon to say by how much. The company had been expected to earn 37 cents a share in the current quarter and 38 cents a share in the fourth quarter, according to a survey of four analysts by First Call/Thomson Financial.
Bill O'Gara, the company's president and chief operating officer, said Friday that he couldn't comment under attorneys' advice on why the company was evaluating its options.
He said he also couldn't comment on what impact the company's strategic review would have on its Fairfield-based Hess & Eisenhardt vehicle armoring business, which employs about 300.
“It's too early to say, but my guess is that it will have no impact” on the Fairfield operations, he said.
Privately, some investors have speculated recently that the company was having difficulty integrating the 12 acquisitions it has made in the past 18 months.
F. Thomas O'Halloran, analyst with Warburg Dillon Read, downgraded his opinion of Kroll-O'Gara's shares from “strong buy” to “hold.”
The analyst, who cut his 1999 earnings target from $1.17 a share to 88 cents a share and his 12- to 18-month stock price target from $33 to $21, said he didn't think that the projected earnings drop was due to failure to complete acquisitions.
“Rather, I believe that the shortfall is due to the difficulty the company has had integrating these acquisitions and controlling the costs,” he told Bloomberg Business News.
In June, the company said it would take restructuring charges of about $4.5 million to cut costs accumulated in its acquisition spree. It also disclosed that it was seeking a buyer for its voice and data communications business based in the United Kingdom.
Last month, the Wall Street Journal reported that Thomas O'Gara had unsuccessfully attempted to oust Mr. Kroll as chairman and CEO. The company has declined to comment on that report.
Ironically, Thomas O'Gara, a former exotic car dealer in Beverly Hills, Calif., conducted a high-profile effort to woo Mr. Kroll, a well-known expert in sniffing out financial fraud, into a merger in 1997.
The merger with Mr. Kroll's firm instantly made Mr. O'Gara a leading player in the fast-growing market for corporate security services with a network of offices around the world. It also propelled the combined companies into a series of acquisitions in new business areas such as employee screening and computer and Internet security.
The rationale for the merger of Kroll and O'Gara was that the combined companies could act as a kind of “one-stop shop” for all a corporation's security needs and cross-sell each other's clients products and services.
In interviews in late 1997, Thomas O'Gara, who owns a ranch in Idaho, and Mr. Kroll, who lives in New York City, downplayed any strategic differences between the two.
“Jules and I spent a lot of time working on our shared vision and the goals we want to accomplish,” Thomas O'Gara told The Enquirer.
Bill O'Gara said Friday that the company thinks its comprehensive approach to what it calls “corporate risk mitigation” is still valid.
“The strategy we've laid out is still solid,” he said. “We're disappointed in the market's reaction today.”
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