ENGLEWOOD, Colo.-Returning Big O Tires Inc. to the hands of ``insiders'' is the goal of an offer by the firm's current senior management and franchised dealers to purchase Big O's outstanding stock for $18.50 per share. The group tendering the buyout offer, announced Dec. 5, is led by Big O President and CEO Steven P. Cloward.
Where that leaves the pending purchase offer by California's AKH Co. Inc. is uncertain, though Big O's board chairman, John E. Siipola, said the directors ``welcome'' the most recent proposal, and plan to ``immediately review all proposals received and their contingencies.''
The board and its Investment Committee-formed last June to explore ways to enhance the company's value-met Dec. 5-7 at Big O's Englewood headquarters.
Committee representative and board member Horst K. Mehlfeldt said it was too early to know how the Cloward group's offer will impact other alternatives, including the Oct. 31 offer-for an undisclosed amount-by AKH, which recently began its due diligence review.
Mr. Cloward told TIRE BUSINESS that management has talked about buying Big O ``for a long time.'' But the plan's success, he said, hinges on ``participation of the dealers.''
The group appears to have that.
Wes Stephenson, a Big O franchisee since 1978, who also is vice chairman of the company's National Dealer Planning Board, is heading up the committee of dealers enlisting support for the Cloward group's leveraged buyout.
Over the last several weeks he has met with Big O dealers in every region of the country, and he said the acquisition plan has ``enjoyed (their) near-unanimous approval and participation.''
Thus far, he has talked with 220 out of a total of 280 dealers, and nearly 98 percent have indicated ``full support'' for the strategy to, as he put it, place the company ``back in control of insiders-the management, the employees and the dealers.''
Publicly held Big O has some 370 stores in 18 states and 41 associated dealers in British Columbia. Many of its franchisees own multiple outlets.
To indicate their seriousness, dealers have anted up between $75,000 and $100,000 to hire the certified public accounting and consulting firm KPMG Peat Marwick, Montvale, N.J., ``to investigate our options,'' Mr. Stephenson said. He and his brother Jeff are co-owners of Spring Valley Tires Inc., operator of six Big O outlets in Las Vegas.
Mr. Cloward called the offer ``an investment in something I believe in,'' and said dealers are hoping it will help ``ensure that the programs they've spent their lifetime building and perfecting will pretty much stay in place.''
He was unsure whether his group will now have the inside track on buying Big O, or if its offer will precipitate a bidding war with other potential suitors.
In addition to outside financing, the deal would require the firm's management, franchisees and any other interested participants in Big O's Employee Stock Option Plan (ESOP) to roll their shares of Big O stock into the venture.
The ESOP is Big O's largest stockholder, holding a 19-percent stake. The firm has approximately 3.36 million shares outstanding-with a value of $62.2 million at $18.50 per share.
Messrs. Cloward and Stephenson also acknowledged the group has been contacted by more than one tire manufacturer interested in helping finance the deal.
``We certainly believe that having a manufacturer as an integral part of our plan...as well as our long-term supply arrangement is critical to our success,'' Mr. Cloward said, though he would not confirm whether Big O's current supplier, Kelly-Springfield Tire Co., is involved.
Mr. Cloward said he's prepared to commit a ``significant'' amount of equity ``put away over my career with Big O....If I didn't believe in (the deal) and wasn't excited about it, it would be much easier for me to sit back and see the company, along with my shares, sold.''
But it's that concern over what might happen to Big O that has rallied dealer support.
Mr. Stephenson said franchisees-the ``primary movers and shakers in this company''-are not prepared to ``just sit by and watch this company pass into the hands of people we're not familiar with, or (whom we) find possibly adverse to our own interests.''
They're worried, he said, another company may try to ``tweak'' Big O to fit its own programs.
While he declined comment on AKH's offer, Mr. Stephenson said Big O dealers would ``probably be more receptive to a company that operated in areas not across the street from our own stores. It's a little surprising to us that (AKH) wants to join forces with us when we're virtually in identical markets as competitors.''
AKH operates 125 retail outlets in California, Oregon, Washington and Utah under the names Discount Tire Centers, Evans Tire & Service Centers and David Early Tires.
As for AKH, its investment banking firm, Chriss Street & Co. Inc. in Corona Delmar, Calif., visited Big O for the first time Nov. 23 to initiate due diligence. According to Chriss Street, the firm has ``received cooperation from Big O,'' and expects that to continue. But he would not discuss any financial aspects of AKH's offer, nor if the company was prepared to outbid others to purchase Big O.
Mr. Stephenson said Big O dealers believe their group's offer of $18.50 per share ``should be very attractive, and provide a very good return'' for investors.
On the morning of the Cloward group's offer, Big O stock, recently trading at about $16 per share, rose to $17.125.
If the group were to purchase Big O, Mr. Cloward foresees little change operationally. Most plans under way will continue, he said, ``including our consolidated distribution systems and plans for growth.
``Obviously, when you're doing a leveraged buyout, there will be some review of (sales and general administrative expenses) and ways in which they could be trimmed. Our group has done and will continue to do a look-see on that basis.''
The acquisition would result in the return of Big O to private company status, which also could provide financial benefits.
Though being publicly held provides the advantage of access to capital and liquidity, Mr. Stephenson said a private Big O would ``take stock away from perhaps somewhat disinterested outside parties that may not understand our programs or needs.
``We hope it would focus management's attention more intently on operating the business.''
Other savings would accrue from the elimination of the many reports-and attorneys and support staff-required of a public firm, Mr. Stephenson added.
One of those ``disinterested'' parties he referred to could very well be Kenneth W. Pavia Sr., Big O's second-largest shareholder. He is a general partner in Balboa Investment Group L.P., Newport Beach, Calif., with a 9.6-percent stake in Big O.
It was Mr. Pavia who instigated a proxy fight last summer, eventually forcing Big O to hire an investment banker to look at ways to enhance the firm's value.
Mr. Cloward said he doesn't fault Mr. Pavia's motives. ``He's always felt the stock was undervalued, and as such, he needs a way in which to represent his own exit strategy and receive the value he's convinced is in the stock.
``We don't necessarily disagree with him. I think this (plan) answers his need as well as ours.''