Cambria Automobiles has published the Offer Document where it lays out all the stuff regarding the offer to take it private by the management.

First, a little bit of background:

On the 22nd of March, Mark Lavery (CEO), James Mullins (CFO) and Tim Duckers (member of the management team), expressed their intention of doing what is called a Management Buyout. Basically they wanted to buy out all of the shares that they didn’t own and keep the company to themselves.

On the 19th of April, the Board of Directors announced the extension of the deadline to present a formal offer. 

Then, at some point, James and Tim backed away from the offer. Humm….

On the 9th of June, an Independent Committee composed by, among others, James and Tim, announced its recommendation of the offer. 

This is outrageous. James and Tim were part of the team that was taking the company private, and then they switched sides, became part of an Independent Committee only to recommend the buyout Mark Lavery was proposing. 

I’m not sure about what I’m about to say, but I’ve heard that they backed out from the offer only to be able to vote in favor in the upcoming meetings.

Talk about conflict of interests. Note that these 3 are members of the Board of Directors, which should represent all the shareholders and should look out for their best interests by, for example, not approving low ball bids like this one.

This is one of those few occasions when the interests of large and small shareholders aren’t aligned.

WHAT ARE THE OPTIONS?

Ok, now to the Scheme Document:

The first thing I want to mention about such document is that it is compiled in a way that it intimidates those reading it. That’s common practice and shareholders shouldn’t be unsettled by it.

There are 3 options:

1 – Voting NO on the Offer

2 – Voting Yes on the Offer

3 – Accepting an Alternative Offer that allows for shareholders to become minority shareholders of the new private company.

Let’s start with number 2 as it’s the simplest one. If shareholders accept the offer, they may be getting £0,8 for each share that they own.

If shareholders accept number 3, the Alternative Option, they may ultimately get 2 shares of the private company (there’s also an intermediate step, but let’s keep this simple) for each share of Cambria that they currently own.

The total amount of shares of the new company that can be issued under this option is 20.000.000, which means that this offer is limited to 10.000.000 current shares of Cambria (I hope I haven’t lost you).

So, if shareholders holding 15.000.000 of Cambria elect the third option (the Alternative Offer), only 10.000.000 of those 15.000.000 shares will be transformed into equity of the new company. The remaining 5.000.000 will be paid in cash (at £0,8 per share). I hope it’s more clear now.

These shares will not carry any voting rights. Lavery will be in effective control of the new company.

On top of that. Lavery (through the new company) is raising £75 million to finance the acquisition of Cambria. Investors must bear in mind that, if they opt for the Alternative Offer, they’ll be getting a company that is more levered than the current Cambria.

If shareholders choose the first option, to vote NO, they may be able to prevent the buyout from happening, thus keeping their shares of a public company, or, they may not be able to prevent the buyout from happening, and they will get their shares sold at £0,8 per share. There’s a third alternative, the one I like best, which is the CEO raising the offer price.

 

SO WHAT NEEDS TO HAPPEN IN EACH OF THIS CASES?  

First of all, shareholders must vote until the 14th of July 2021.

There are 3 documents (Form of Proxy) that must be filled and returned to the company; one WHITE, one YELLOW, and one BLUE. 

These must be received by the company before 10:00 am on the 14th of July.

Each serves its own purpose:

The WHITE is for use at the Court Meeting

The YELLOW is for use at the General Meeting

The BLUE is relative to the Alternative Offer

For the buyout to be approved, several things must happen:

– At least 75% of all the shares outstanding – excluding the 40.000.000 shares that the CEO owns – must vote YES in the Court Meeting. 

There are 100.000.000 shares outstanding, so the 75% refer only to the 60.000.000 that aren’t owned by the CEO. 

This means that to pass this condition, 45% of the total shares outstanding, or 45.000.000 (on top of those of the CEO) must vote YES.

– At least 75% of all the shares outstanding must vote YES in the General Meeting.

This means that 75.000.000 of all the shares must vote yes. Given that the CEO owns 40.000.000, this means that he has to get 35.000.000 more votes to take the company private.

So… the higher hurdle is the 45% for the Court Meeting.

So far, institutional investors owning 22.7% of the company have announced their willingness to vote YES. That means that the CEO only needs to convince an additional 22.3% of the total. 

I want to mention the Alternaive Offer before getting to the conclusion. Barring some stuff that I may not be seeing right now, I believe that it was made only to improve the chances of success of the buyout.

Hear me out. If it goes through, Lavery will only be paying for 50% of the company to take it private, or £40 million. 

He will then own 80% of the New Company (instead of 100%). This is rather peculiar, 10% of Cambria would be transformed into 20% of the New Company. It sound like a good deal. So what’s up with this offer? I’m not sure yet. 

Lavery raised £60 million so, if option 3 goes ahead, he will still have £20 million. Could he be buying out the private shareholders after taking it private?

Is this option just a way to get investors to vote YES? Because saying YES to option 3 will count as a YES to the buyout.

 

CONCLUSION

Investors will need to assess if they want to become shareholders of a private, illiquid, indebted company with these guys having full control. I don’t. That’s not my game. So I’m voting NO. 

*By the way, Degiro is charging me10€ for this. 

3 things can happen. A) It’s going private and I’ll be selling my shares at £0,8;
B) Cambria stays a public company; or C) Lavery raises the price.

I’d be fine with all of them.

 

PS: By the way, I believe that for the votes to be counted as valid, shareholders must attend both meetings, be it in person or virtually.

As an alternative, shareholders can elect a Proxy to be present on both meetings. For it, they should contact their brokers.

The Court Meeting will take place on the 16th of July at 10:00, and the General Meeting will take place on the same day at 10:15.

I’ll be updating you on this story as I get more information.