PALM BEACH GARDENS, Fla.—TBC Corp. has agreed to buy automotive service provider and franchisor Midas Inc. in a cash and debt assumption deal valued at about $310 million that will add the iconic Midas and SpeeDee brand names to TBC's portfolio of retail identities.
TBC is offering Midas shareholders $11.50 a share, which represents a 28-percent premium over the stock's closing price on March 12—the day after TBC announced its offer—and a 75-percent premium over the stock's closing price of $6.58 on Aug. 11, 2011, when Midas announced it would conduct a strategic review process deal.
TBC's offer includes the assumption of $137 million in debt and pension liabilities, the companies said.
There are more than 2,250 franchised, licensed and company-owned Midas shops in 14 countries, according to Midas data, including 1,484 in the U.S. and Canada. Of those, 78 Midas shops are company-operated locations. Midas also owns the SpeeDee Oil Change business, with 161 auto service centers in the U.S. and Mexico, including six SpeeDee shops that are company owned.
Midas reported net earnings of $4 million for the year ended Dec. 31 on sales of $183.6 million. The income came despite a $400,000 loss in the fourth quarter, and sales were down in both the fourth quarter and year, which Midas attributed
to having 23 fewer company-operated Midas shops during 2011, the result of the company's re-franchising efforts.
Franchising revenue during the year came to $54.2 million, but Midas put the combined sales potential of the franchise network at $1.5 billion annually. Midas charges a franchise fee of $30,000 and takes a royalty fee of 10 percent of revenue, according to Midas information. The company also requires interested franchisees have $50,000 to $100,000 cash available for investment into the business and a net worth of $250,000 to $300,000.
A typical franchised Midas shop is approximately 4,000 square feet and has six service bays, Midas said. In 2011, the average U.S. franchised shop had sales of $672,000, while the average Canadian franchised shop had sales of C$849,000. Brakes represent 30 percent of revenue, followed by suspension and exhaust at 11 percent each.
The proposed transaction has been approved unanimously by both companies' boards of directors, the firms said. In addition, Midas Chairman, President and CEO Alan Feldman has signed a tender and voting agreement in support of the offer.
“With nearly 2,300 locations worldwide, Midas is a leader in automotive services and we are very excited to welcome such an iconic brand into our portfolio,” said TBC Chairman and CEO Lawrence Day. “By combining the strengths of Midas' platform with our industry expertise and financial resources, we will build on their current momentum and take the company to the next level.”
Mr. Friedman said the transaction is “strategically compelling” and “represents a significant and immediate premium for our shareholders.
“The combination of these two highly complementary businesses will provide significant opportunities for Midas to prosper in the future and will create enhanced opportunities for franchisees and strong benefits to customers,” he added.
TBC did not elaborate on its reasons for wanting to acquire Midas, which has struggled financially in recent years, but in a March 13 conference call with employees, Mr. Feldman said: “…I would assume they bought us because they're sure hoping they're going to be a supplier of tires to us. And (they) look at the tire business as a tremendous opportunity inside the Midas system.
“…(T)hey will be…working with our franchise ops team…to push the tire business, to expand it and…make sure that…they get those brands out there,” he said.
“That's part of why this was so strategically compelling for them…. To be able to have access to the 1,700 shops in North America, and they're interested in international expansion as well.”
Midas has had a tire supply agreement with Bridgestone Americas since 2004.
Midas initiated a study last August to “explore and evaluate a range of strategic and financial alternatives to enhance value for stockholders.” That process included, but was not limited to, a possible sale, merger or other business combination.
At that time, Mr. Feldman explained Midas' decision: “Despite the company's improving performance, the board feels that the current market valuation of Midas does not reflect the underlying value of its assets and prospects for future growth.”
Under the terms of the merger agreement, TBC—through a subsidiary called Gearshift Acquisition Co. that it set up to effect the deal—will commence a cash tender offer no later than March 28. The companies expect the transaction, which is subject to customary terms and conditions, including regulatory clearance under the Hart-Scott-Rodino Antitrust Improvements Act, to close by the end of the second quarter.
In the interim, Midas is offering a retention bonus of one month's pay to all non-shop personnel below the vice president's level in an effort to keep employees focused on the job at hand.
TBC is the No. 2 retail tire and auto service provider in the U.S., with 752 Tire Kingdom, Merchant's Tire and NTB (National Tire & Battery) locations to go with about 456 Big O Tires locations, both company operated and franchised. Annual retail-related sales are estimated to be in excess of $2.25 billion.
TBC also is among the largest wholesalers in the U.S. through its Carroll Tire Co., Treadways and National Tire Warehouse (NTW) units as well as a major private brand tire distributor through its TBC Brands and TBC International units.
TBC is owned by Sumitomo Corp. of America, the largest subsidiary of Japan's Sumitomo Corp., a major integrated trading and investment business enterprises.
The merger agreement also provides for customary termination fees payable by Midas under certain circumstances and a provision under which Midas has agreed not to solicit any competing offers.
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