Shareholders of Ritchie Bros. Auctioneers Inc. RBA-T have narrowly approved its acquisition of IAA Inc., ending a months-long battle over the future direction of the heavy equipment seller.
That a simple majority of shareholders supported the roughly US$6-billion purchase of Illinois-based auto salvage and auction company IAA highlights the contentious nature of the transaction, as corporate takeovers are generally approved with upward of 90-per-cent shareholder support.
Ritchie Bros. did not disclose the exact results of the Tuesday morning vote, saying only that a preliminary count showed the deal was approved and final results would be filed with securities regulators “as soon as practicable.”
However, one of the most prominent shareholders opposed to the transaction – Luxor Capital Group – said its own proxy solicitor tabulated roughly 46 per cent of votes cast were against approval. The company had no immediate comment on those figures.
The deal pitted Ritchie Bros. management against some of the company’s largest shareholders, major proxy advisers, and even the company’s namesake co-founder. After months of shareholder opposition to the original proposal, announced on Nov. 7, 2022, Ritchie Bros. revised its offer in January to include a larger cash component and a special one-time dividend for its own shareholders.
Still, only some opponents to the transaction acquiesced to the sweetened deal terms that were ultimately approved Tuesday. Those terms included US$12.80 per IAA share and 0.5252 Ritchie Bros. shares for each IAA share, plus an additional US$1.08 a share for Ritchie Bros. shareholders.
Other naysayers found the revised terms only hardened their resolve. Luxor and Janus Henderson Investors US LLC, holders of 4.2 per cent and 3.4 per cent of Ritchie Bros. shares, respectively, objected specifically to how the company was able to increase the cash component for its offer.
Part of the extra money came through a US$500-million capital injection from activist investor Starboard Value LP. New York-based Starboard agreed to purchase US$485-million worth of Ritchie Bros. preferred shares for US$73 a share with a 5.5-per-cent dividend and another US$15-million in common shares at US$59.72 a share. Starboard chief executive officer Jeffrey Smith will also join the company’s board of directors now that the deal has been approved.
“We already had misgivings about issuing Ritchie Brothers common equity to fund” part of the IAA transaction, Janus said in a letter dated Jan 30. “However, we believe that the terms agreed to for the preferred equity are even more concerning.”
Janus also accused Mr. Smith “as a preferred investor” of potentially having “interests that are not completely aligned with those of common shareholders.”
Both Luxor and Janus also claimed IAA was “structurally disadvantaged” against its main rival, Dallas-based Copart Inc.
“Copart has invested heavily in hard assets, including its real estate footprint, with more locations and larger yards, and a larger international presence,” Janus said in its letter. “This gives Copart a structural advantage over IAA that could take a great deal of investment to overcome … [and] it is not the responsibility of Ritchie Brothers shareholders to rescue IAA from a competitively disadvantaged position.”
Even major proxy advisers were divided over whether to support the deal. On March 6, Institutional Investor Services and Glass Lewis both recommended shareholders reject the deal, while Egan Jones urged support.
“Credibility is a particularly important consideration in this case and it has been impaired by the shifting narratives around the long-term strategy and evergreen targets, as well as the miscalculated treatment of shareholders’ concerns during the assessment of revised terms,” ISS said in a statement explaining its rationale.
Egan Jones, however, said “the merger sets a realistic approach of shareholder value creation and maximization in the long-run” and “IAA’s business will complement [Ritchie Bros.’] strategic vision.”
The war of words escalated once again on Monday, when David Ritchie, the company’s co-founder and former chairman, released a public letter opposing the deal. The letter, which was also signed by former Ritchie Bros. president C. Russell Cmolik, warned the merger “will require an immense amount of management’s time to turnaround IAA’s declining business.”
Ritchie Bros. did not mince words in its response, noting both Mr. Ritchie and Mr. Cmolik had retired nearly 20 years ago and that the company “is very different from the small family-run traditional auction business” that Mr. Ritchie co-founded in 1958.
“As a result, Ritchie Bros. is no longer a stagnant business with little to no growth,” the company said.
In the end, enough shareholders sided with management for the transaction to proceed. Luxor, which had been the first shareholder to oppose the IAA transaction, publicly admitted defeat.
“Despite our best efforts on behalf of all shareholders, and our disappointment in the outcome, we wish the company well with its integration of IAA,” Luxor president Doug Snyder said in a statement.