Sunday, February 22, 2009

San Angelo's Frothy Deals-Town & Country, SACMC

While home prices never soared in West Texas, several 2007 corporate acquisitions look pricey in hindsight. Just as a homeowner pays a higher mortgage when they buy a bigger home, business combinations add to a firm's debt and interest load.

Susser Holdings Corporation purchased Town & Country Food Stores

Interest expense
2007 $17.2 million
2008 $40 million (estimated from 9 months data)

Long term debt
2007 $120 million
2008 $410 million

Susser's mortgage went up almost $300 million. Their monthly house payment increased $2.75 million. That's alot of folks milk and gas money, especially in tough times. But that didn't deter Lord Abbett from buying 1.7 million and and Fidelity 2.2 million shares of Susser.

Community Health Systems bought San Angelo Community Medical Center

Interest expense
2006 $104 million
2008 $650 million

Long term debt
2006 $1.9 billion
2007 $9.1 billion

CHS's mortgage went up $7.2 billion. Their monthly house payment increased $45.5 million. That has to be a hard pill to swallow in the current economic environment. Fidelity purchased 7.1 million shares of CHS. A Ronald Baron bought 8.8 million shares. Good thing he isn't named Robert. It's a bad sign when Robber Baron holds 10% of your shares.

While West Texas claims immunity from America's excesses, San Angelo landmarks bear the weight of additional debt. I don't know how all this will play out, but we are not immune.