Shareholders of Rocky Mountain Equipment are set to vote in mid-December on a proposal to take the company private
On Dec. 17, Rocky Mountain Equipment shareholders get the chance to approve or deny an inside bid to buy them out and take the company private.
It’s a $7 per share offer from AcquireCo, an entity controlled by RME chair Matthew Campbell and RME president and chief executive officer Garrett Ganden. That’s a 26.8 percent premium to the closing share price of Oct. 30, which is right before the bid was made public.
RME is Canada’s largest farm equipment dealership network. It has suffered a couple of rough years as bad weather across much of the Prairies and low crop prices have beaten down new equipment sales.
Last year, the company fell into a $1.1 million net loss, following profits of almost $18 million in 2018 and almost $23 million in 2017.
2020 has been looking much better for RME, after the company moved to slash inventories and reduce its need for financing.
“Over the past five quarters, RME has focused its efforts on a methodical and orderly reduction of equipment inventory,” says the company’s third quarter financial report.
“This is highlighted in the year-over-year equipment inventory reduction of ($135 million) and a decrease in short-term borrowing costs of ($957 million.)”
Its sales have increased over year-before levels, its gross profitability has increased from year-before and its operating costs and borrowing costs have declined.
The company saw a big swing away from farmers buying new equipment in 2019 and switching to purchasing used equipment. Servicing went well.
As the company notes in its 2019 annual report, farmers might shuffle their purchasing of equipment, but in the end they need equipment to farm.
“The business of farming requires producers to work their fields each year. Circumstances may exist, however, that cause farmers to opt for used equipment in lieu of new equipment, or they may elect to repair rather than replace their fleets. Our broad range of product and service offerings enables us to respond to these shifts in buying patterns and provides a measure of diversity within our financial results,” said the 2019 report.
Being the biggest and market-dominant firm in the sector has given RME the ability to weather the storms of recent years, it says.
The $7 per share bid for the firm values it at $135 million in terms of equity and $188 million as an enterprise. That falls at the low end of the valuation range assessed by Deloitte LLP, which found it to be $6.85 to $7.90 per share.
Access to the takeover bid documents can be found on the company’s website, at rockymtn.com.
A special committee of the board of directors approved of the offer and recommended it to the board. The board, minus members involved in the AcquireCo bid and non-independent directors, have also approved the offer.
The special meeting of shareholders will be held Dec. 17 at 10 a.m. Mountain Standard Time. It will be virtual-only, so interested shareholders will need to participate via a webcast.
When a company goes private, it ceases to be listed on stock exchanges and it is no longer publicly traded.
Many of the financial reporting requirements imposed on publicly traded companies are not required for private companies.
Companies often go private when somebody believes that it is undervalued, or that if it was restructured or if management was changed it would be substantially more profitable.
Private companies can often restructure themselves much more quickly than publicly traded companies, whose shareholder base is more diverse and not as closely connected to the company.