Heard on the
National Presto in Spotlight;
Management Feels the Heat
By TIMOTHY D. SCHELLHARDT
Staff Reporter of THE
As president and chief executive officer of housewares maker National
Presto Industries, Maryjo Cohen long has known pressure cookers. Suddenly,
she is feeling heat of a different sort.
For years, Ms. Cohen, 46, and her 81-year-old father (and chairman) have
managed to run National Presto -- whose financial and stock performances
have been lackluster -- without any major analysts scrutinizing them.
Not anymore. A group of New York Society of Security Analysts members,
examining how corporate-governance practices could enhance shareholder
value, will release as early as Wednesday a six-month inquiry into its first
test subject: National Presto.
The results aren't pretty. "Existing management is not willing or able to
take the necessary actions to increase shareholders' wealth," concludes
Hefni Investments' John Tully after studying National Presto's use of assets
and talking with several former institutional investors in the Eau Claire,
Wis., company. Together the Cohens control nearly 30% of company shares.
The society's members chose National Presto because they believed the
company presented many attributes typical of an underperforming concern. But
Ms. Cohen believes the company is simply being picked on.
The move by the members of the 62-year-old society -- which holds
luncheon meetings for companies to make presentations to analysts -- is the
latest effort on Wall Street to link corporate governance and shareholder
value. The California Public Employees' Retirement System has for years
issued an annual list of underperforming companies. Its target list reflects
companies' relative rates of shareholder return and weaknesses in
corporate-governance practices. And shareholder activists Robert Monks and
Nell Minow, through their Lens Investment Management, have been targeting
companies for anti-shareholder behavior for years as well.
Mr. Tully suggests several alternatives to boosting the company's return
on assets. Among them: taking the company private, paying a special cash
dividend or even selling the company. He also believes National Presto
appears to qualify as an investment company, noting that 80% of its assets
are in cash or cash-equivalents that totaled $241 million at the end of
1998. But he says management hasn't registered as an investment company with
the U.S. Securities and Exchange Commission to provide tax and regulatory
benefits to shareholders. He suggests the SEC begin its own inquiry into the
Ms. Cohen, for her part, says National Presto doesn't consider itself an
investment company that would require it to register with the SEC. "It's a
fairly complicated area that has been reviewed" by lawyers, she adds. She
says the SEC hasn't contacted the company about the issue. An SEC spokesman
says the agency wouldn't comment on the investment-company issue regarding
More broadly, Ms. Cohen says the proposed draft of the analyst report she
saw "contained many errors." She declines to elaborate. But in a recent
letter to the group's adviser, she contended the group's suggestions were
"speculative" and "unrealistic."
What is clear is that National Presto stock has been a dud. In the past
five years, while the Standard & Poor's 500-stock index has climbed 200%,
National Presto shares have been virtually flat.
So it is no surprise that some current investors are frustrated. Says
Kenneth Bertsch, director of corporate governance at the Teachers Insurance
Annuity Association-College Retirement Equities Fund, the huge pension
system that owns 90,000 National Presto shares: "We've had concerns about
the lack of board independence" at the company. He says TIAA-CREF voted in
favor of three shareholder resolutions at a recent annual meeting. "The
company has not been terribly receptive to input from the outside,
especially on how to deal with its cash situation," he says.
In the corporate-governance analysis, Brean Murray & Co. analyst Gina
Sockolow suggests steps the company could take to deploy non-operating
assets to increase earnings per share by 33%, including investing the cash
reserves "in any low risk, low-growth business operation instead of
investing in a changing portfolio of municipal bonds."
Mark Nurse of Chase Personal Asset Management contends a "shake-up" of
National Presto's six-member board which includes three members of
management and others with management ties "will be a step in the right
And Arthur Andersen's James Reda criticizes executive compensation,
suggesting the company pays its top executives too little to attract
"professional senior executives." Last year, National Presto's engineering
vice president received a base salary of only $45,000 and its sales vice
president got just $37,204; Ms. Cohen's salary was $64,000. Senior
executives do get bonuses, but they aren't based on any particular
So how did such a small company -- its sales in 1998 were only $107
million -- draw the society's spotlight? The analysts' aim, says Mr. Reda,
has been to "analyze corporate-governance issues on a similar level as
corporate-finance issues in the decision to buy, hold, or sell a stock."
Initially, 20 to 30 companies were considered because each had generated
some questions over asset management and also had some corporate-governance
Group members say National Presto was selected for several reasons,
including the Cohens' large stake in the company and because they have
"vigorously" criticized previous attempts by shareholders to effect change.
(At this year's annual meeting in May, for instance, Mr. Cohen suggested
that shareholders who dislike the company's policies simply sell their
One factor that weighed in the selection: A substantial number of large
institutional investors own National Presto shares because the stock is
included in the S&P small-cap stock index. Many of these holders are unhappy
with the performance of the company's stock, whose price peaked at $62 in
1992 and has languished in the 30s and 40s for over a year. National Presto
shares were unchanged Tuesday at $38.4375 in composite trading on the New
York Stock Exchange.
Another reason for its selection is the company's huge pool of cash or
cash-equivalents, representing nearly 90% of stockholders equity. The
company has maintained similar levels of cash without expanding its
operating business for over a decade; it hasn't had a significant new
product introduction since the slicer-dicer Salad Shooter over a decade ago.
Presto also makes pressure cookers and Presto pressure canners for home
canning of vegetables and fruits.
Then there are the corporate-governance issues: The company's board isn't
independent of management and met only twice last year, and directors aren't
The Cohens naturally are boiling over the attention, and they have tried
to apply a bit of heat of their own. Ms. Cohen repeatedly declined to
participate in the project or attend group meetings. She only agreed to
respond to the group's individual analyses after the company's chief legal
officer sent a letter trying to discourage release of the study, the report
In a June 22 letter to Gary Lutin, a former New York investment banker
and the group's adviser and co-sponsor, Ms. Cohen asserts that "not a single
broad educational value is served by the group" and terms the report
"confrontational, judgmental, and critical of a company's practices." Among
other criticisms, Ms. Coven says the analysts adopted "speculative,
unrealistic and wildly conjectural hypotheticals."
"Perhaps your authors, none of which appear to be CFAs [certified
financial analysts], lacked motivation or found reporting on [National
Presto] of insufficient complexity or general interest to merit a study in
the first instance," Ms. Cohen said, adding: "Most people in your position
would take their markdown and abandon the project."
Mr. Lutin acknowledges that without Ms. Cohen's cooperation, the project
"wasn't all that was hoped for." But, he has agreed to co-sponsor another
similar project. He hopes, however, that the next company "will actively
participate and clearly benefit from the process." He adds: "This shouldn't
be a process of picking a company and beating it up."