Privatization Season Rolls On

The founder pins a low-ball offer that reads more like an opening move than a final price.

There has been a noticeable wave of management-led privatizations lately, and this situation is the latest one to land on the list.

The company has received a non-binding take-private offer from its founder and chairman. A special committee review is underway, and the stock is trading meaningfully below the proposed price, leaving a solid spread on the table. Investors also get a cheap option that the offer is raised or that a competing bid emerges.

The opportunistic angle is fairly blatant and goes well beyond a simple low premium. The offer arrived just days after poorly received quarterly results caused a sharp drop in the share price (~30%), and the bid was positioned right in the middle of that selloff. Despite the selloff, the earnings were not that bad – only slightly weaker than expected. The drop looks more like a mix of overreaction and the impact of the company’s leverage.

Two activists have already pushed back and are calling for a full strategic review. Management has signaled that it will consider alternatives as well.

The bid also feels a bit like an opening move to put the company in play. There are several hints pointing in that direction. Given the recent pickup in deal activity across the sector, there is a decent chance the company attracts interest from other buyers.

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