NEW YORK, Jan 30 (Reuters Breakingviews) – Warren Buffett has his aw-shucks act down pat. And the Sage of Omaha has monetized that image to great effect, sweeping into situations to support companies in a tight spot with his cash and his implicit seal of approval while getting a plum deal that no other shareholder could land. With markets sagging and deals drawing opposition, such imprimaturs have a value – and at Ritchie Bros Auctioneers (RBA.TO), it’s the turn of Starboard Value’s Jeffrey Smith to play rescuer.
Of course, Buffett’s investments aren’t as gentle as his image. His firm’s $10 billion punt on Occidental Petroleum (OXY.N) in 2019 helped shore up boss Vicki Hollub’s risky pursuit of rival Anadarko Petroleum. It didn’t come cheap – and the deal ended up being structured to avoid a vote by pesky shareholders. Still, it was enough to win the deal and keep Hollub in place amid a bruising fight with activist Carl Icahn.
Today’s market may be full of similar opportunities. Big acquirers can see smaller rivals laid low by the stock-market downturn, spying opportunities for acquisitions. But they need to overcome one big obstacle: shareholders. The sellers’ shareholders are wary of cashing out on the cheap; buyers may not want to see depressed stock used as a currency, or more debt when financing markets are expensive.
Heavy equipment auctioneer Ritchie Bros ran into both problems in its $7 billion bid to buy salvage-car portal IAA (IAA.N). Announced in November, it quickly drew opposition from IAA shareholder Ancora and Ritchie investor Luxor Capital.
Last week, Ritchie found a solution: Starboard. It restructured its offer to include more cash and less stock, supported by a $500 million investment from Smith’s firm, mostly in the form of preferred stock carrying a rich dividend. Starboard will get a seat on Ritchie’s board if the deal goes through.
Unlike Occidental, Ritchie’s deal will face a shareholder vote, and Janus Henderson, a shareholder in Ritchie, on Monday announced it would vote against the deal, citing in part the terms of the preferred investment. Other shareholders are ready to come out in favor, though, like 4.8% holder Independent Franchise Partners, with the company touting further support. It probably helps that Ritchie has offered goodies to other shareholders, like a special dividend. Crucially, Starboard’s interest also results in less dilution, while allowing the company to avoid taking on incremental debt to fund its cash bump.
Success here would be no small victory. Shareholder opposition is expected in market turmoil. Still, there may be other chances to repeat this trick in the future, so long as markets remain under stress and reasonable deals are on offer.
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CONTEXT NEWS
Investor Janus Henderson said in a Jan. 30 filing that it opposes heavy equipment auction company Ritchie Bros Auctioneers’ acquisition of salvage-vehicle seller IAA.
Ritchie Bros initially agreed to acquire IAA on Nov. 7 in a $7.3 billion cash-and-stock deal. After opposition from shareholders including IAA investor Ancora and Ritchie Bros investor Luxor Capital, the companies announced a restructured deal on Jan. 23. As part of the deal, Starboard Value agreed to invest $500 million in Ritchie Bros, with fund boss Jeffrey Smith taking a seat on Ritchie’s board if the IAA deal succeeds.
Editing by Lauren Silva Laughlin and Sharon Lam
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