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.