Opposition mounts over Ritchie Bros. bid for IAA despite sweetened deal terms

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Another major Ritchie Bros. Auctioneers Inc. shareholder is publicly opposing the Canadian heavy equipment seller’s multibillion-dollar plan to acquire IAA Inc.

Janus Henderson Investors US LLC, an investment adviser based in Denver representing holders of roughly 3.4 per cent of Ritchie Bros. stock, published a letter Monday addressed to the Vancouver-based company’s board of directors detailing “significant misgivings” about the roughly US$6-billion offer to buy Illinois-based auto salvage and parts auction company IAA. Janus said it intends to vote against the transaction when shareholders meet on March 14 to decide the fate of the deal.

The letter comes one week after Ritchie Bros. sweetened its original proposal with a larger cash component and days after Luxor Capital Group, which owns roughly 3.6 per cent of Ritchie Bros. stock, became its first major shareholder to publicly reject the revised deal. The company, meanwhile, said Monday that support was growing for its revised takeover proposal.

Ritchie Bros. has had “extensive engagement” with many of its shareholders and has “heard from many who support” the IAA deal, the company said, some of whom “are now among our largest shareholders.”

Independent Franchise Partners LLP is among those shareholders. The London-based investment firm, which holds roughly 4.8 per cent of all outstanding Ritchie Bros. shares, confirmed to The Globe via telephone that it supports the IAA transaction.

Both Janus and Luxor object specifically to the terms activist investor Starboard Value LP received in exchange for a US$500-million capital injection that Ritchie Bros. used in part to increase the cash component of its offer to US$12.80 per share from US$10 previously.

Starboard will be allowed to purchase US$485-million worth of Ritchie Bros. preferred shares for US$72 per share with a 5.5-per-cent dividend, according to the investment agreement, and another US$15-million of the company’s common shares at US$59.72 per share. Additionally, the deal would allow Starboard chief executive Jeffrey Smith to join Ritchie Bros. board of directors if the IAA transaction is ultimately approved.

“We already had misgivings about issuing Ritchie Brothers common equity to fund” part of the IAA transaction, Janus said in its letter. “However, we believe that the terms agreed to for the preferred equity are even more concerning.”

Janus also objected to the possibility of Mr. Smith joining the company’s board as “a preferred investor may have interests that are not completely aligned with those of common shareholders.”

Luxor, which has opposed the IAA deal since it was originally proposed in November, 2022, said in a Jan. 24 statement that the revised deal, which in addition to the larger cash component for IAA shareholders also included a US$1.08 one-time special dividend for Ritchie Bros. shareholders, was “overwhelmed by the extravagant terms offered to Starboard.”

Both Luxor and Janus also claim IAA is “structurally disadvantaged” versus its main competitor, Dallas-based Copart Inc.

“Copart has invested heavily in hard assets, including its real estate footprint, with more locations and larger yards, and a larger international presence,” Janus said in its letter. “This gives Copart a structural advantage over IAA that could take a great deal of investment to overcome … [and] it is not the responsibility of Ritchie Brothers shareholders to rescue IAA from a competitively disadvantaged position.”