Sale rumors fuel trading in stock of troubled firm

DEAL IN THE WORKS AT PRESTON?

November 10, 1992|By Suzanne Wooton | Suzanne Wooton,Staff Writer

Heavy trading in Preston Corp. stock continued for the third straight day yesterday, with speculation growing that the Eastern Shore-based trucking company, which is confronting cash flow problems, would soon be sold.

Yesterday, the stock closed down $1.125 at $6.50, while trading on the NASDAQ system hit 369,800 shares, nearly seven times (( the company's average daily volume.

On Friday, after Preston announced it hoped to report on a deal "in the near future," the company's shares jumped to $7.625, up $1.25 a share. Trading Friday was a heavy 514,000 shares.

"People must be guessing that there is going to be a transaction that will result in prices above the current rates," said Doug Rockel, an analyst for Merrill Lynch Global Securities in New York, who tracks the publicly traded company.

The Preston-based company, which has been suffering from intense competition and low prices, has lost money during each of the past three years. And yesterday, the company said continued poor performance is resulting in cash flow problems.

"This performance and the constraints of the company's debt facilities result in continued near-term liquidity problems," Preston said. "The company is currently negotiating with its lenders to provide additional funding for required near-term liquidity."

But, it added, those arrangements "would be conditioned upon the company successfully reaching a definitive agreement for the possible acquisition of the company."

Preston said yesterday that it had not yet received an offer.

"There can be no assurance the company will be able to announce any transition or, if so, at what price level," said Burt Trucksess, Preston Corp.'s vice president of finance.

Among the buyers most frequently mentioned are Yellow Freight Systems, which has indicated it wants to expand in the regional, less-than-truckload business.

But Mr. Rockel said the business, particularly Preston's highly profitable Saia Motor Freight Division, could also be attractive to other trucking firms, like Roadway Services Inc., and TNT Freight- ways Corp., as well as private investors.

Any transaction would be subject to approval by the Interstate Commerce Commission. Two years ago, Preston closed two subsidiaries that specialized in long-distance and full-truckload hauling. It also has shut down terminals and laid off some of its 8,000 employees. Last December, the company restructured its loans and lines of credit.

While trading in Preston remained active yesterday, the drop in price could be attributed to either profit-taking or to investors becoming frightened as the company confirmed suspicions of cash flow problems, according to Mr. Rockel.

For the first nine months of this year, Preston reported a loss from operations of $4 million, or 69 cents a share, on revenue of $434.7 million. That compared with year-earlier income of $1.2 million, or 21 cents a share, on revenue of $426.5 million.

According to Mr. Rockel, the cash flow problem at Preston was "forcing them to do things they wouldn't have done before."

"Left alone they would have preferred to work their way out of their losses," he said. "But it looks like they're getting down to the wire. Their lenders are forcing the issue."

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