Ritchie Bros. Sweetens Deal for IAA, With Starboard’s Jeff Smith Set to Join Board
Canadian company increases cash payout for IAA shareholders to $12.80 per share, from $10
Canada’s Ritchie Bros. RBA 0.82% Auctioneers Inc. agreed to amend the terms of its proposed acquisition of U.S. auto retailer IAA Inc., IAA 1.78% as activist investor Starboard Value LP plans to make a $500 million investment in Ritchie Bros.
Under the terms of the amended agreement, IAA stockholders would receive $12.80 in cash, up from $10, and 0.5252 Ritchie Bros. share for each IAA share. That implies a combined value to IAA stockholders of $44.40 based on Ritchie Bros.’ closing price of $60.17 on Friday. (Previously, the stock component was 0.5804.)
As part of the agreement with Starboard, Ritchie Bros., a heavy-equipment and truck auctioneer, agreed to add the investment firm’s chief executive officer, Jeffrey Smith, to its board, executives at the firms said.
The investment and Mr. Smith’s appointment are contingent on Ritchie Bros. receiving investor approval for the IAA deal, which has received pushback from shareholders on both sides.
Ritchie Bros. Chief Executive Officer Ann Fandozzi said in an interview Sunday that the amended merger agreement along with Mr. Smith’s involvement should be seen as a “better answer” for both sets of shareholders based on all of the feedback she has received.
In November, Ritchie Bros. said it had agreed to acquire IAA, a marketplace for car parts and damaged vehicles, in a cash-and-stock deal valued at about $7.3 billion including debt. The announcement was met by a record selloff in Ritchie Bros. shares.
Luxor Capital Group LP, which holds about 3.6% of Ritchie Bros. shares, said recently that it filed a preliminary proxy statement with the Securities and Exchange Commission in connection with its opposition to the proposed deal. Among its concerns, Luxor said the transaction would require Ritchie Bros. to shift its attention away from core initiatives.
Meanwhile, Ancora Holdings Group, which owns about 4% of IAA, said in a letter to the company’s board that although it believed Ritchie Bros. was a logical buyer, the firm held concerns including about the purchase price. Ancora built a position in IAA in 2021 and called on the board to either fire CEO John Kett or sell the company.
Starboard’s Mr. Smith said Sunday that he was surprised that the market initially soured on the deal. He said, however, that provided a chance for him to get involved and sweeten the pot for everyone involved. “There are a lot of reasons why these two companies should be together, and we’re very excited about the plan to improve revenue growth and the opportunity to have margin expansion,” Mr. Smith said.
He also noted that Starboard was an investor in IAA’s parent company, KAR Auction Services Inc., prior to its spinout.
According to Ms. Fandozzi, Ritchie Bros. is aiming to create a successful marketplace with more offerings, building on Ritchie Bros. success in the auction business. She said that combining the companies and their real-estate portfolios should yield revenue growth and opportunities for cost savings.
Ritchie Bros. expects roughly $350 million to $900 million in incremental adjusted earnings before interest, taxes, depreciation and amortization annually from combining with IAA, which it hasn’t previously disclosed. The company continues to expect $100 million to $120 million in annual cost synergies, according to Ms. Fandozzi.
Additionally, Ritchie Bros.’ board plans to approve a special dividend payout to its shareholders of $1.08 per share, contingent on the close of the IAA transaction. This wasn’t part of the previous deal structure.
Starboard’s investment in Ritchie Bros. would take the form of $485 million in convertible-preferred equity, with an initial conversion price of $73 a share, and $15 million in common stock for roughly $59.72 per share.
Ritchie Bros. shares closed Friday at $60.17, bringing the company’s market value to $6.7 billion. IAA stock ended at $40.65, giving the company a market capitalization of $5.4 billion.