Friday, January 23, 2015

Tootsie Roll's Mel Gordon Dies at 95: Don't Fall for the Acquisition Hype Just Yet

Tootsie Roll Industries (TR) has been my long-time nemesis. I held a position in the stock for several years, seeing what I believed to be the enormous value in the brand  combined with aging insider-owners Melvin and Ellen Gordon. It seemed ripe for a takeover; a perfect acquisition for Hershey (HSY), or some other larger name seeking to expand their brand portfolio. At least that's what I believed.

The problem, though was two-fold: On the fundamental front, revenues were flattening, once mid-teen net profit margins were falling, and what was a great brand seemed to be lost in the shuffle.  Secondly, the aging owners, the Gordons, were not going anywhere.

I finally realized the latter one day after receiving the 2007 annual report. Inside was a picture of Mel and Ellen Gordon, looking much younger than their years. The Gordon's essentially controlled the Class B voting shares, and called the shots. To me, their compensation seemed excessive, especially given the company's declining results, lack of growth and direction. But, they were not giving up this cash-cow. I, however, finally gave up.

Mel's passing is sad; and it's quite amazing that he stayed engaged as long as he did. The baton now passes to Ellen Gordon, formerly the company's chief operating officer, age 83, whose family acquired the company when it ran into trouble in 1935.

Shares were up 7% after the announcement of Mel's death amid new speculation that the company will be acquired.

Don't hold your breath though. Ellen Gordon is only 83.

We've been to this rodeo before.

*The author has no position in any stocks mentioned in this piece. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only

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