Circus, Sierra stocks called laggards

Wednesday, April 21, 1999 | 12:20 p.m.

SACRAMENTO -- Circus Circus Enterprises Inc. of Las Vegas and Tyson Foods Inc., top the annual list of the poorest-performing companies in the United States, as selected by the $153 billion California Public Employees' Retirement System.

Calpers, the nation's biggest public pension fund, today said it picked nine companies this year for shareholder activism aimed at improving their stock prices. Calpers chose its target companies based on stock performance, board practices and a financial performance measure called economic value added.

Cummins Engine Co., Sierra Health Services Inc. of Las Vegas, Pioneer Natural Resources Co., St Jude Medical Inc., Pacific Century Financial Corp., Mallinckrodt Inc., and National Semiconductor Corp. are the other companies on Calpers' list.

Calpers puts pressure on lagging companies to reform their board practices, rather than just selling the shares, because the fund has found that activism can improve stock performance.

Despite its listing as a laggard, the stock of Circus Circus is trading in the $20-$21 range -- well above its 52-week low of $7.125 hit last fall. Investors are encouraged that Circus Circus will benefit from growing demand for visits to Las Vegas prompted by the opening of new resorts including Circus's Mandalay Bay.

But Calpers said: "Circus Circus' stock performance is less than its peers and has a board that is insufficiently independent of management."

Calpers said that according to Circus's 1998 proxy filing, $100 invested in Circus in January 1992 was worth only $63 five years later, while $100 invested in the S&P Midcap Leisure Services Index consisting of Circus's peers was worth $113 five years later.

Calpers is proposing that shareholders, during Circus's annual meeting June 17, approve a measure calling for a majority of Circus board members to be outside directors. Calpers owns 853,300, or 0.9 percent of Circus' 95.1 million outstanding shares.

CALPERS said Circus' eight-member board is equally split between insiders -- persons directly or indirectly affiliated with the company -- and independent outside directors.

Circus said it considers five directors outsiders, including one -- Donna More -- whose only affiliation is with an Illinois law firm that does some legal work for the company.

Sierra Health Services is trading at less than $12 per share -- well off from its 52-week high of $27.56.

Sierra last month moved to shore up its stock price, announcing cost-cutting measures, an expanded share repurchase plan and that it's "seeking strategic advice" from Wall Street brokerage Bear Stearns. That indicates Sierra may be interested in finding a merger partner or in being acquired.

Sierra's stock price hasn't moved much since that announcement.

Calpers said Sierra has already agreed to a Calpers request that it enlarge its board by two independent directors, thus avoiding even greater pressure from Calpers.

The stocks of 53 companies targeted by Calpers trailed the Standard & Poor's 500 Index by 75.2 percent in the five-year period before Calpers placed them on its lists, according to a study conducted by pension consultants Wilshire Associates Inc. The same stocks outperformed the index by 54.4 percent in the following five years, adding about $150 million annually to the fund.

Last year's target companies includes Michaels Stores Inc. Sybase Inc. and Advanced Micro Devices Inc.

One company on this year's list, St. Louis-based Mallinckrodt Inc., a maker of drugs and medical devices, complained that Calpers used old data in compiling its list.

Since Sept. 30, the cutoff date Calpers used to measure stock performance, Mallinckrodt shares have climbed 49 percent, compared with 29 percent for the Standard & Poor's 500 index.

"It is clear that a major corporate turnaround is well under way and this is not fully appreciated by Calpers," said C. Ray Holman, chairman and chief executive officer of Mallinckrodt, in a statement.