Back in early July, Reddy Ice Holdings Inc. (NYSE: FRZ) announced a $1.1 billion going-private transaction with GSO Capital Partners. Reddy is a manufacturer and distributor of packaged ice, serving about 82,000 locations in 31 states. However, because of adverse weather, especially in Texas and Oklahoma, the company has experienced some softness in its results.
Well, an activist fund, Shamrock, is not convinced and thinks the price tag is "grossly inadequate." In fact, the firm plans to vote "no" on the deal.
Shamrock thinks Reddy is worth about $42 to $44 per share. Keep in mind that the current buyout offer is $31.25.
According to the Shamrock filing:
- Since 2004, Reddy has dramatically grown its ice revenue and free cash flow at 11.5% and 27.5% CAGR respectively, and, with the implementation of several initiatives, this growth should continue and accelerate. For example, in view of its strong market position, we believe sharper pricing opportunities exist and are achievable. Additionally, we believe that the Company can drive improved margins through benchmarking best practices across its manufacturing facilities, automating its production process and improved delivery routing. We note that other players in the packaged ice business are operating at higher EBITDA margins than Reddy is currently achieving and are targeting 30% EBITDA margins as their mid-term goal. Further, the Company has yet to recognize the opportunity for revenue growth and increased margins available, at little incremental cost, by monetizing advertising space on its packages of ice and on its fleet of delivery trucks. In the aggregate, we believe the Company can accelerate the rate of revenue growth and achieve margins in the 30% range over the next 24 to 36 months.
If you want to check out the filing, you can go to the SEC website. Also, if you want to see some more M&A deals, click here.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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