Ritchie Bros. Reaches New Deal WiAQth Starboard, Ancora Support

Ritchie Bros. Auctioneers Inc. is a Canadian company that specializes in auctioning off industrial equipment. The company has been in business for over 50 years and is a publicly traded company on the Toronto Stock Exchange.
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The company has agreed to amend the terms of its proposed acquisition of U.S. auto retailer IAA Inc. IAA 1.78%.
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Starboard Value LP, an activist investor, has backed a move that won over a major investor who had challenged the deal.
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The companies announced Monday that IAA stockholders would receive $12.80 in cash and 0.5252 Ritchie Bros. shares for each IAA share, up from the previous offer of $10 in cash and 0.5804 Ritchie Bros. shares. Based on Ritchie Bros.' closing price of $60.17 on Friday, this implies a combined value to IAA stockholders of $44.40.
Starboard plans to invest $500 million in Ritchie Bros., and the heavy-equipment and truck auctioneer has agreed to add the investment firm's Chief Executive, Jeffrey Smith, to its board.
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The investment and Mr. Smith’s appointment are contingent on Ritchie Bros. receiving investor approval for the IAA deal. Some shareholders have been pushing back against the deal, so it is not yet certain that Ritchie Bros. will get the approval it needs.
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Ancora Holdings Group has agreed to vote its shares in favor of the transaction, owning about 4% of IAA. This was said on Monday.
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As part of an agreement between IAA and Ancora, Tim O’Day, president and CEO of Canada’s Boyd Group Services Inc., is expected to be appointed to Ritchie Bros.’ board. This will happen upon the closing of the IAA deal, of which he is one of four IAA director designees.
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IAA's stock prices rose by about 2.5% before the market opened, while Ritchie Bros. saw a 1% increase.
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Ritchie Bros. Chief Executive Ann Fandozzi said in an interview Sunday that the amended merger agreement is the best option for both sets of shareholders based on the feedback she has received.
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In November, Ritchie Bros. announced that it had agreed to acquire IAA, a marketplace for car parts and damaged vehicles, in a cash-and-stock deal valued at about $7.3 billion including debt. The news was met by a record selloff in Ritchie Bros. shares.
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Luxor Capital Group LP, which holds about 3.6% of Ritchie Bros. shares, said recently that it filed a preliminary proxy statement with the Securities and Exchange Commission in connection with its opposition to the proposed deal. Among its concerns, Luxor said the transaction would require Ritchie Bros. to shift its attention away from initiatives that are important to the company.
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Ancora said in a letter to the company's board in November that it believed Ritchie Bros. was a logical buyer, but the firm held concerns about the purchase price. Ancora built a position in IAA in 2021 and called on the board to either fire CEO John Kett or sell the company.
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Fred DiSanto, Ancora chairman and CEO, along with James Chadwick, president of Ancora Alternatives, said in a statement Monday that the revised deal "positions IAA shareholders to benefit from a material improvement in cash consideration while retaining strong participation in the combined company's increased earnings power."
Starboard's Mr. Smith said on Sunday that he was surprised that the market initially reacted negatively to the proposed merger. However, he said that this provided an opportunity for him to get involved and improve the deal for all parties involved. "There are a lot of reasons why these two companies should be together, and we're very excited about the plan to improve revenue growth and the opportunity to have margin expansion," Mr. Smith said.
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Ms. Fandozzi stated that Ritchie Bros. is looking to establish a prosperous marketplace with a greater variety of offerings. She went on to say that by merging the companies and their real-estate portfolios, they should see an increase in revenue as well as opportunities to cut costs.
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Ritchie Bros. expects to see a significant increase in earnings before interest, taxes, depreciation and amortization (EBITDA) once it completes its merger with IAA. The company has not previously disclosed its expected earnings from the merger, but Ms. Fandozzi said that the company is expecting to see an increase of $350 million to $900 million annually. In addition, Ritchie Bros. expects to see cost synergies of $100 million to $120 million annually from the merger.
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Ritchie Bros.' board has approved a special dividend payout to shareholders of $1.08 per share, contingent on the close of the IAA transaction. This wasn't part of the previous deal structure.
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Starboard's investment in Ritchie Bros. would take the form of $485 million in convertible-preferred equity, with an initial conversion price of $73 a share, and $15 million in common stock for roughly $59.72 per share. This investment would give Starboard a significant minority stake in the company.
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Ritchie Bros. shares closed at $60.17 on Friday, giving the company a market value of $6.7 billion. IAA stock ended the day at $40.65, for a market capitalization of $5.4 billion.