As most of you know – and certainly those holdings the common or preferred shares should know Franchise Group (FRG) is going private. Info is here.
FRG has 1 issue of 7.50% cumulative preferred (FRGAP) shares outstanding–4.5 million shares.
The apparent buying group includes B Riley (RILY) which immediately gets my attention–not that I know anything is wrong with the deal, but when RILY is involved you know that there will be financial engineering going on in the deal.
Should you sell your preferred shares? Good question.
The offering prospectus for the preferred can be found here. The change of control provisions etc are detailed and generally confusing.
My reading of this document leads me to believe the company is required to allow conversion of the preferred shares for an amount equivalent to $25 (plus accumulated dividends) under the change of control segment.
Now if I owned preferred shares they would be gone instantly at the current level (near $24). This company has debt to equity of at least 3 and some data has it at 6. Heavy debt a little equity–this is a typically RILY deal and they are going to likely take down much more debt. Do I want to have anything at all to do with a debt laden company?
We are yet to see the merger document–and I guarantee you if the company can wiggle out of a redemption or conversion they will do so. No way do they want to have to take down more high yield debt to hand over $100 million to preferred holders.
DO NOT take my writing as gospel–this stuff is confusing and written in such a way as to leave everyone saying ‘whats that say”.
We will await the merger document and see what it has to say.
RILY preferred RILYL with a similar coupon of 7.375% is trading at $21/share. I sold my FRGAP today
Exactly the type of scenario that will leverage the so-called Expert Market to crush the preferreds. I’m certain someone on the buy-side has already made the calculation.
Wondering if another, better, offer will appear during the shop around period. Or stated another way, “Was the earlier offer(s) ‘real’ and from an independent third party who was not Rily & friends or management?” In January, the Wall Street Journal was reporting there was going to be a bid by management. By March, it had changed to an “undisclosed suitor.” Back then I understood that management was not riding in the car let alone driving. Lots of chatter on this deal in the comments section on The Other Website. Just my opinion. DYODD.
I think the offer of 30 a share is due to the preferred. Many expected higher but when you take into account the preferred most people realized the common offer would be lower. You can see the reaction of people thinking this was gonna fetch 40 plus on SA. At 30 per share of the common they left room to handle the preferred.
With FRG selling below $30 this (5/11) morning not everyone is believing the $30 offer. Was as low as $29.17 today.
With B Riley willing to be part of the deal, which means they are not worried about refinancing risk. RILYO or RILYM maybe?