Blue Bird Receives A Non-Binding Indication Of Interest Letter, Spitfire Opposes The Deal
Summary
- Blue Bird Corporation is a stable and growing business. It is the perfect investment for a PE.
- American Securities LLC owns 57% of the total outstanding shares of the company. They sent a letter of interest 10 days ago. It is a great opportunity.
- American Securities LLC will try to take the company private. An activist investor and some hedge funds will definitely ask for a fair price.
Introduction
In my opinion, the best way to study a company is studying current shareholders. I like finding sophisticated money managers inside a company since they study it before I do it.
Blue Bird Corporation (NASDAQ:BLBD) ("Blue Bird") is an outstanding opportunity. It is undervalued as you can read in this other article. Also, the main shareholder, American Securities LLC, which owns 57% of the total outstanding shares, submitted a non-binding indication of interest letter. There is even more since the hedge fund Spitfire (13D), which owns 7%, intends to oppose the deal.
The company
Blue Bird Corporation is an old company. It was founded in 1927. It manufactures and sells school buses in North America. This industry is quite stable and has low risk. Therefore, it is appropriate for private equities.
The company has experienced great revenue growth as well as profit growth in the last five years. Take a look at the following figures from an investor presentation:
In addition, the EV/EBITDA ratio does not look expensive - it is 7.8x. Also, the company does not have a tremendous amount of debt, which is normally the case after an LBO:
Cerberus sold the stake to American Securities LLC
Cerberus bought the company in 2006 and sold a small part in February 2015. I can imagine that they have been looking for a buyer, and they found it last month. The transaction has been very profitable for this PE:
"Cerberus is proud to have contributed to Blue Bird's strong turnaround since we initially acquired it in 2006," said Dev Kapadia, Managing Director of Cerberus. "Blue Bird has been a terrific investment for Cerberus with EBITDA improving from a loss-making level at the time of acquisition in 2006 to a projected $72-$75 million for 2016. Under the present management team, we have seen Blue Bird bus sales grow from 6,525 units in 2011 to a projected 10,800-11,000 units this year. This increase results in substantial top-line revenue growth of at least 70% over the same period, from $566 million to a projected $960-980 million in 2016."
Cerberus sold the last part, 57% of the total outstanding shares of company, to American Securities:
"The transaction will be executed in two tranches. The first tranche, which is expected to close on or around June 3, 2016, will include seven million shares at a price of $10.10 per share. The second tranche, which is expected to close promptly after Blue Bird's credit agreement is amended, will include five million shares at a price of $11.00 per share. Each closing is subject to certain conditions precedent, including certain changes to the composition of the Board of Directors and, in the case of the second closing, an amendment to Blue Bird's credit agreement relating to the transaction."
This is the second LBO. American Securities LLC will try to make a return like that of Cerberus. I think it is a good idea since the company is growing, the business is very secure, and the cash flows are quite stable.
Board of Directors
I could see in the company website that American Securities LLC has two directors in the company:
(Click to enlarge)
This is great since the buyer knows the company very well. If they are trying to buy all the outstanding shares, it is just because of the fact that they know that the shares are undervalued.
The activist
Spitfire owns 7% of the total outstanding shares of the company and it is trying to stop a transaction at the current market price:
"On July 20, 2016, American Securities LLC submitted a non-binding indication of interest letter to the special committee of the board of directors of the Issuer for the acquisition by ASP BB Holdings LLC ("Holdings") of all of the outstanding fully-diluted equity of the Issuer not currently owned by Holdings and its affiliates (the "Transaction"). The Reporting Persons currently intend to oppose the Transaction, and such opposition may result in any of the actions specified in Items 4((A)) through 4(j) to the Schedule 13D general instructions".
This hedge fund is proposing other alternatives to the Board of Directors:
In addition, as investors in the Issuer, the Reporting Persons have had and may continue to have general discussions with representatives of the Issuer regarding various matters relating to the business and operations of the Issuer. The Reporting Persons have also had and may continue to have conversations with other stockholders of the Issuer. In the course of such conversations with members of management, the board of directors and other stockholders, the Reporting Persons may suggest actions that could result in, among other things: the acquisition by the Reporting Persons of additional securities of the Issuer, or the disposition of securities of the Issuer; ((B)) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; ((C)) a sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries; ((D)) changes in the present board of directors or management of the Issuer; ((E)) a material change in the present capitalization or dividend policy of the Issuer; ((F)) any other material change in the Issuer's business or corporate structure; ((G)) changes in the Issuer's certificate of incorporation or by laws or other actions which may impede the acquisition of control of the Issuer by any person; ((H)) causing any class of the Issuer's securities to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (I) a class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(4) of the Securities Exchange Act of 1934, as amended; or (j) any action similar to those enumerated above."
I do not think Spitfire can stop the transaction. The buyer owns a big stake in the company and will close the deal. However, the fact that we have such an investor inside the company will force the Board of Directors to ask for a decent price.
Some other hedge funds bought the company too: Coastland Capital LLC, TLP Group LLC and Coliseum Capital Management, LLC.
Conclusion
This is a great opportunity for my readers. The buyer of this company is the main shareholder and wants to take it privately. An activist investor and some hedge funds understood the situation and will force the buyer to pay a fair price. In addition, the company is undervalued and shows growth.
This article was written by
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BLBD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.