ENGLEWOOD, Colo.-Disgruntled over what he believes to be the lackluster performance of its stock, Big O Tires Inc.'s second-largest shareholder is recommending the company take some aggressive action. In order to maximize share-holder value, Kenneth W. Pavia is proposing that North America's largest independent retail tire franchiser either be sold, merged, take itself private, or return to its roots as a cooperative.
The maverick 50-year-old Mr. Pavia is general partner of Newport Beach, Calif.-based Balboa Investment Group, a limited partnership that controls a 9.6-percent stake in Big O.
The largest shareholder is Big O's own Employee Stock Option Program (ESOP), which controls an 18-percent stake in the Englewood, Colo.-based firm.
The company's board of directors has grudgingly agreed to allow Mr. Pavia's proposal to be included in the proxy statement pertaining to Big O's annual shareholder meeting, to be held June 8 in Louisville, Ky.
Mr. Pavia's proposal asks the Big O board to hire a nationally recognized investment banker to explore alternatives for enhancing the value of the company. These alternatives would include ``the possible sale, merger or go-private transaction involving the company, or return to conducting business as a cooperative.''
Steven P. Cloward, Big O president and CEO, said the company asked the Securities and Exchange Commission to rule against inclusion of Mr. Pavia's proposal in the proxy, which the SEC declined to do.
Consequently, Big O made a decision to put the merits of Mr. Pavia's proposal ``in the hands of the shareholders,'' he said.
Mr. Cloward said the proposal ``doesn't fit into the projects we would like to allocate management time to. We've got a lot of opportunities and projects we're working on, and this just detracts from the company's ability to give 100-percent focus to those.''
Nicholas Colas, an analyst who closely follows Big O for New York-based CS First Boston, said the ``bottom line is: (Mr. Pavia) wants more money for his shares than what he paid for them. The execution of it is irrelevant. He wants the stock price higher....''
The analyst admitted ``it's very, very hard to get votes against management.'' A move like that ``usually has to come from within the board, not from shareholders.''
This isn't the first time Mr. Pavia and Big O have locked horns.
Last year he instigated an attempt to add two additional seats to the board, reportedly to help enhance the value of Big O stock. The company compromised, announcing on Dec. 7 the appointment of Frank L. Carney, a Pizza Hut founder, to a newly created ninth seat on its board.
Of his actions, Mr. Pavia said, ``I'm simply an investor...trying to exert whatever rights and privileges I have by virtue of the fact that my group has put up $4 million to $5 million (for Big O stock), which is considerably more than all the directors and officers of the company combined have invested in the company-exponentially more.
``Obviously,'' he continued, ``the investing public doesn't view Big O's performance as being anything outstanding,...otherwise I would think the price of its stock would reflect that optimism.''
Are shareholders unhappy?
``It's hard to tell,'' Mr. Cloward said. ``...I can say there are a lot of shareholders who are happy. Our stock is up 27 percent over last year.''
Shareholders will be able to vote on Mr. Pavia's proposal either by mail-in proxy or in person at the annual meeting. Mr. Cloward said that, in the forthcoming proxy statement, the Big O board will rebut Mr. Pavia's motion and recommend it be rejected.
A Big O investor for two years, the Balboa group, comprising Mr. Pavia and ``a few'' limited partners, also holds minor stakes in a couple of other companies. But Big O is, by far, its biggest investment.
Mr. Pavia said the Big O board ``has a fiduciary duty to the shareholders to maximize values...,'' and he believes the best way to do that is to accept one of the options mentioned in his proposal.
He also maintains that interested suitors have actually contacted him, or Big O, about purchasing the company.
But Mr. Cloward denied there's been much interest in acquiring Big O. ``We had one run on the company, at a price substantially lower than Big O stock is selling at today.''
``This is not the first company, nor the first time Mr. Pavia has done this,'' he noted. ``This is at least the third company I'm aware of. He's followed almost identical patterns in all three. He takes a small position, then encourages shareholders to sell....''
If shareholders decide Big O needs to retain an investment banker, ``that's what we'll do,'' Mr. Cloward stated. But meanwhile, ``we'll not stop our development and consolidation projects.
``We have more positives going for the company right now than we've had in 30 years. We won't slow down, but will just continue to run our business plan.''