Current Price – $14.51
Offer Price – $13.5 - $16.0
Upside – 10% or $150 (if upper pricing limit is used)
Expiration date – 15 November 2016
No proration for holders of less than 100 shares
Resources Connection offering to purchase up to 6,000,000 Shares in the Offer, which represents approximately 16.6% of the issued and outstanding Shares as of October 12, 2016. Upon the terms and subject to the conditions of the Offer, we will determine a single per Share price that we will pay for Shares properly tendered and not properly withdrawn from the Offer, taking into account the total number of Shares properly tendered and the prices specified by tendering stockholders. We will select the lowest purchase price, not greater than $16.00 per Share nor less than $13.50 per Share, that will allow us to purchase up to 6,000,000 Shares or a lower number of Shares depending on the number of Shares properly tendered and not properly withdrawn.
How likely is the pricing at the upper limit?
For most of 2016 RECN shares traded at $15+ per share, and for most of 2015 at $16+ 015. The share price dipped in Oct (and then rebounded yesterday following the tender announcement) after company released Q1 FY2017 results and CEO unexpectedly resigned.
The results were actually in line with the guidance that the company gave back in July during Q4 conference call, thus most likely the sell-off was caused by the departure of CEO which comes only few months after the departure of CFO. Investors are clearly concerned that something might be rotten if top executives are leaving the ship. CEOs departure was due to health issues, and CFO simply retired (at the age of 55).
However, I believe investor concerns are overblown - so far the company has served shareholders well. All free cashflow over the last years has been returned to shareholders via buybacks and dividends. Share-count went down from 45.5m in 2011 to 37m currently. Company continues to generate c. $35m of operating cashflow with minimal capex (it is consulting business). Current enterprise value stands at $424m, so the company is trading at 12xFCF, which I consider quite cheap.
My guess is that concern about executive departure was temporary market overreaction and that participating in the tender at current prices is quite safe. I doubt shareholders will be willing to tender shares at current levels ($14.5) let alone the lower limit ($13.5), which would actually be the lowest RECN has traded over the last two years.
No proration for odd lot holders:
For purposes of the Offer, the term “odd lots” means all Shares properly tendered at prices at or below the Final Purchase Price held by a stockholder who owns beneficially or of record an aggregate of fewer than 100 Shares. Odd lots will be accepted for payment before proration, if any, of the purchase of other tendered Shares.
Source and Amount of Funds:
If 6,000,000 Shares are tendered in the Offer at the maximum purchase price of $16.00 per Share, we expect the maximum aggregate cost of this purchase, including all fees and expenses applicable to the Offer, to be approximately $97.1 million. We intend to use up to $50 million of cash and cash equivalents on hand to purchase Shares in the Offer and to pay all related fees and expenses and will fund any remaining purchase of Shares in the Offer using funds borrowed under the Credit Agreement. The Offer is not conditioned on obtaining financing or on any minimum number of Shares being tendered.