Perpetual Preferred Security Being Issued Transfers
Agreement Seeks to Entrench Management and Board
Luxor is deeply concerned that management and the board of directors (the “Board”) of RBA chose to further entrench themselves by entering into a completely unnecessary financing with Starboard Value LP (“Starboard”). After announcing a transaction for IAA that was deeply unpopular among shareholders, instead of listening to those concerns and engaging on the merits with its constituents, management and the Board further harmed their common shareholders by transferring, in Luxor’s estimation, in excess of
Given RBA’s strong financial position and the operating performance of standalone RBA, the only conclusion Luxor can draw is that RBA’s management and Board hoped that by issuing the preferred security to Starboard (the “Starboard Perpetual Preferred”) at massively below-market terms, the hollow endorsement that came along with the
Luxor believes that the “revised” IAA Merger has done little to change the financial terms for RBA shareholders. Indeed, the minor change in equity issuance by RBA in the revised deal is overwhelmed by the extravagant terms offered to Starboard.
The most glaring and obvious issue with the Starboard Perpetual Preferred is, as its name suggests, its preference in the capital structure to all existing common shareholders of RBA. Convertible structures are not inherently disadvantageous, but in normally functioning companies with good governance, boards don’t give out seniority without extracting advantageous terms elsewhere in the security. Typically, this trade-off implies that convertible holders, because of the downside protection provided by their seniority, receive less relative to common holders when the stock price rises significantly and receive more relatively when the stock price rises slowly or falls. In this instance, RBA shareholders receive none of these types of benefits whatsoever. No matter what happens to RBA, Starboard will significantly outperform common shareholders.
The nominal coupon on this security is 5.5%, but importantly, the Starboard Perpetual Preferred participates in all common shareholder dividends, thereby creating an effective annual coupon of 6.979% (see Appendix for detailed calculations), which will escalate in-line with any increases in dividends paid to common shareholders. Moreover, as additional proof of misalignment with RBA common shareholders and value transfer by RBA’s management and Board to Starboard, the dividend participation by the Starboard Perpetual Preferred is “subject to a floor of
The security is also effectively not callable by RBA for nine years. For nine years Starboard will enjoy a dividend rate at least 5.5% higher than that of common shareholders. Compounded at 5.5% for nine years, Starboard will receive 62% of its capital investment back in excess dividends. This compares to the ~20% conversion premium in the security. No matter what happens to the value of RBA common shares, Starboard materially outperforms common shareholders.
As a common shareholder, Luxor takes no comfort whatsoever with the endorsement that comes along with such an off-market security. Luxor takes no comfort whatsoever in Starboard representing common shareholders’ interests as their own, as Starboard is overwhelmingly in a different class of stock that has dramatically conflicting priorities to those of the common shareholders. Luxor believes that shareholder representation on the Board is warranted, but qualified director candidates committed to acting in the best interests of ALL shareholders are available without transferring
Luxor continues to believe that the IAA Merger risks the permanent destruction of over
Appendix:
Annualized Yield Calculation
Coupon paid quarterly: | 1.375 | % | ||||
Participation in common stock dividend (1): | 0.370 | % | ||||
Total quarterly coupon + dividend: | 1.745 | % | ||||
Annualized yield: | 6.979 | % | ||||
(1) Common Stock Dividend Calculation | ||||||
Par value of Preferred | ||||||
Conversion price | ||||||
RBA Shares at Conversion | 13.70 | |||||
Quarterly common div/share | ||||||
Quarterly dividends received | ||||||
Additional quarterly yield | 0.370 | % | ||||
About
CERTAIN INFORMATION CONCERNING THE PARTICIPANTS
THE PARTICIPANTS STRONGLY ADVISE ALL SHAREHOLDERS OF THE COMPANY TO READ THE PROXY STATEMENT AND ANY AMENDMENTS OR SUPPLEMENTS TO SUCH PROXY STATEMENT AND OTHER PROXY MATERIALS RELATED TO THE SOLICITATION WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON THE SEC’S WEB SITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS WILL PROVIDE COPIES OF THE PROXY STATEMENT AND OTHER RELEVANT DOCUMENTS WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST. REQUESTS FOR COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS’ PROXY SOLICITORS,
As of the close of business on
No Solicitation
This press release is for informational purposes only and is not a solicitation of proxies. Any proxies solicited in respect of the Special Meeting will be solicited by Luxor pursuant to the definitive proxy statement or as otherwise permitted by applicable corporate and securities laws.
Contacts:
Investor Contacts
RBA@luxorcap.com
(212) 297-0720
Info@okapipartners.com
Media Contacts
RBA@luxorcap.com
(646) 342-8087
luxor@gagnierfc.com
1 Security valued using sell-side models and incorporates a 400bps credit spread, 35 implied vol, and no change to RBA’s common dividend over time.
2 Given the Company’s strong earnings results announced concurrently with the announcement of the deal, Luxor believes that the deal announcement had a 25%+ negative impact on the value of the Company, which represents >
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