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CEO Lekach's style exasperates Wall Street
(South Florida Sun-Sentinel (KRT) Via Thomson Dialog NewsEdge) Jul. 2--Parlux Fragrances Chairman and CEO Ilia Lekach is not Wall Street's typical corporate leader. He doesn't wear a suit to work, and he doesn't have an MBA.
Lekach is a surfer who quit college. He's also a self-described entrepreneur with a black belt in tae kwon do.
As the leader of Fort Lauderdale-based Parlux Fragrances, Lekach has had his share of success. The 57-year-old executive has grown Parlux from a $4 million company to one with $180 million in revenues, hosting the popular Paris Hilton and Guess brands. He also has been chairman and CEO of two other related publicly held South Florida perfume companies -- E Com Ventures Inc. and Perfumania Inc.
"Every CEO should be an entrepreneur," Lekach says. "Otherwise he should be an accountant."
But Wall Street remains wary. Lekach has gained a reputation for making takeover bids that collapse and for orchestrating cozy relationships among the companies he has run. Last month, he unexpectedly made a bid to take over Parlux, creating a cloud of confusion among some investors and analysts who say they can't figure out where he's leading the company.
Lekach's style frustrates some of his colleagues, including E Com Ventures Chairman Stephen Nussdorf.
"He talks off the cuff," Nussdorf says, "and doesn't think things through."
Questions of timing
Lekach's bid for Parlux last month was preceded by a series of unusual events.
In May, Parlux announced a two-for-one stock split. The timing raised questions among analysts because the stock price at the time -- $25.98 per share -- was considerably below its peak. In February, the stock reached a 52-week high of $38.48. A stock typically splits near a company's peak to encourage more investors to buy the stock.
Lekach said the split was timely because of the company's "solid growth and price performance." In the past three years, Parlux's earnings per share have increased 300 percent and the stock price has nearly tripled, although it has declined in recent weeks.
In June, two analysts downgraded their ratings of the company, citing disappointing distribution and sales of Paris Hilton brand products. Investors reacted to the news by pulling the share price down 13 percent to a 52-week low of $20.18 per share.
A week later, the company announced that it requested an extension for filing its annual report with the Securities and Exchange Commission. Parlux said its management could not meet the SEC deadline because it was required to undergo a more thorough review of its internal controls. That day, Parlux shares hit a 52-week low of $18.40 per share.
The next day, Lekach announced his takeover bid. The stock split three days later and Friday it was valued at $9.69 per share. Lekach personally owns about 6.8 percent of Parlux's common shares; other companies he controls own about 9.7 percent.
The CEO's surprise offer has prompted questions from analysts, including how he plans to finance his offer.
"Just announcing that you're engaging a couple of investment banks doesn't tell us much at all," said Paul Kaump, an analyst for Northland Securities in Minneapolis.
Parlux, he says, is not as transparent as other publicly held companies. For example, the company doesn't host quarterly conference calls or make regular appointments to meet with top investors.
The offer has also met with skepticism from investors. Last Tuesday, a shareholder class-action lawsuit was filed in the 17th Circuit Court of Broward County against the company and its board regarding Lekach's bid.
Following through
Some onlookers are questioning whether Lekach plans to line up financing at all. They say the CEO may be using the offer as a ploy to spur interest in the company and its stock.
He takes offense to such suggestions: "I would not make this offer if I did not intend to follow through with it."
Lekach knows he has vocal critics. Among the most outspoken, he says, is MarketWatch syndicated columnist Herb Greenberg, who recently wrote a column titled, "Why Parlux smells bad," and appeared on CNBC saying that Lekach has a track record of failed deals.
"He has a history of going out and announcing he's going to do something, and then it doesn't happen," Greenberg said in an interview last week.
Several proposed deals fit that bill.
In May 2003, Lekach joined Nussdorf and his brother Glenn Nussdorf, the principal owners of Quality King Distributors Inc., a New York-based wholesale company, in a proposal to buy out Parlux. The buyout crumbled a month later, after Quality King couldn't secure financing with its lenders and a group of Parlux common shareholders filed a lawsuit in an attempt to stop the transaction.
In the past five years, Lekach also has made two attempts to take E Com Ventures private; both were unsuccessful.
"I really don't remember why I backed out," Lekach says of his offers for E Com Ventures.
Public filings show that he yanked the first proposal a month after the announcement, citing market conditions that made it impossible to secure financing for the buyout. It's unclear why the second deal fell through.
There have been other failures, too.
Lekach was unable to turn around South Florida retail chain Luria's, which ended in bankruptcy. He also founded and led the former Nimbus Group Inc., a publicly held aviation business based in Hollywood that provided service to U.S. business travelers. It, too, had financial problems and transformed into other companies in which Lekach is no longer involved.
"You can't win without losing," Lekach said.
"I took [Parlux] from a little $4 million company to a $250 million," he said of the company's projected growth. "I took Perfumania from a nothing company to 240 stores. That's not too shabby."
Family matters
In addition to Lekach's failed ventures, he has developed close relationships among his companies.
Lekach does business with what Wall Street considers "related or affiliate parties," transactions that require disclosure because they border on being conflicts of interest.
Parlux's largest customer for the past three years, for example, has been E Com Ventures, according to annual reports. In addition, Lekach and Parlux both own shares in E Com Ventures, ranking in the top five of the company's investors.
Lekach has also hired family members. His 25-year-old singer-songwriter son Isaac is a Parlux board member. His brother Rachmil Lekach and nephew Isaac Lekach are the company's product distributors for Mexico. Another brother, Zalman, is the company's distributor for Puerto Rico.
Those relationships raise some concern on Wall Street, Kaump and others say.
But Lekach says his critics are mainly "short-sellers" or traders interested in making a quick profit.
"There are people who have a fortune invested in having the stock down," Lekach said. "They make a business out of betting against the company and they make up lies and innuendos."
Lekach says one reason he offered to take Parlux private is that he's tired of dealing with these traders. Another reason for going private, he said, is that the company could avoid complying with SEC regulations, which are costly and cumbersome.
Analyst Ivan Feinseth of Matrix USA says Parlux's stock is "cheap" considering the company's rapid growth. He also says CEOs should not let themselves be too concerned with short-sellers.
"All you have to do is perform," Feinseth said.
Some investors agree, saying Lekach is using short-sellers as an excuse to take the company private for other reasons. The CEO dismisses that suggestion but says he's always thinking of ways to grow Parlux's business.
In true Lekach fashion, he recently considered making an offer to take E Com Ventures private.
After meeting with his accountant and lawyer, however, Lekach decided against the move.
"They said I have too much going on right now," he said.
Jaclyn Giovis can be reached at [email protected] or 954-356-4668.
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