This will sound like a post straight out of the 80’s:

One of our recent new purchases for clients was RCM Technologies symbol RCMT which shortly after our purchase became the target of a hostile takeover by CDI Group.  My initial attraction to RCM (which is a service provider of IT, engineering and commercial staffing) was its balance sheet relative to the stock price.

Just before the announcement of the takeover attempt RCMT was the #1 rated stock in our proprietary RMHI model:

Stock Price 6/15 $4.79

Price/sales .93
Price/book .96
Book value $5
Current ratio 3.8
Cash .94 per share
No debt
EBITDA $5.3 million

CDI has made an unsolicited offer for RCMT for $5.20 in cash which RCMT immediately rejected.  Apparently CDI has had a sweet spot for RCMT for quite a while and might have made overtures in private which were rejected as well, hence going public to shareholders with the hostile offer.

As in any negotiation CDI can raise the price of their offer to RCMT shareholders.  One appealing aspect of RCMT is the cash they have on the books of almost $1 a share.   This pristine balance sheet could evaporate should RCMT continue to reject the offer while CDI remains hostile.  The RCMT board is tiered where no board replacements of significance could occur till 2011.

RCMT is a stock very much “in play” as we used to say, call it a financial soap opera.   Should RCMT continue to reject CDI overtures they’ll have some very unhappy shareholders especially if the offer is raised.   Another course of action for RCMT is the “white knight” where RCMT rejects CDI but offers itself to sale to a different company entirely.

Be careful out there

Brad

Long RCMT

Get out your old Wall Street video: Bud Fox likes RCMT