Multi-billion-dollar investment manager Luxor Capital Group, LP has issued an open letter expressing serious concerns about the proposed merger between Ritchie Bros Auctioneers Incorporated and IAA, Inc.
Luxor Capital, which owns about 3.6% of Ritchie Bros’ outstanding common shares, said it intends to vote against the merger at the company’s yet-to-be scheduled special meeting of shareholders.
In its letter, Luxor wrote that Ritchie Bros risks the permanent destruction of billions of dollars in shareholder value, as evidenced by the 18% drop in the company’s closing share price following the announcement of the merger on November 7, 2022.
Luxor also asserted that IAA is a “distinctly inferior business” to Ritchie Bros, and a combination would permanently depress RBA’s trading multiple.
The investment manager contends that IAA is a severely challenged business requiring a multi-faceted and likely expensive turnaround to prevent continued loss of customers, declining service levels and deteriorating earnings, saying IAA has lost about 25% of its market share in the past six years.
As well, Luxor claims that shares of Ritchie Bros are “dramatically undervalued”, believing its stock is currently worth more than US$120 per share, or about 100% higher than the pre-announcement trading levels, and thus should not be used as acquisition currency at this time. It estimates the merger stands to dilute Ritchie Bros shareholders by about 70%.
Luxor Capital concluded by saying it believes Ritchie Bros should continue on as a standalone company and focus on its expansion into the $300 billion heavy equipment total addressable market.
Under the terms of the merger agreement, IAA investors will receive $10 in cash plus 0.5804 of a Ritchie Bros share for each IAA common share held, implying a total equity value of about $7.3 billion.