The owner of 5% of the shares BlueLinx filed a complaint Tuesday seeking to stop the 55% owner of the LBM distributor from taking the company private, arguing the majority owner's $49.6 million tender offer values BlueLinx far too cheaply.
BlueLinx actually is worth at least seven times the $3.40 per share price that Cerberus ABP Investor LLC (CAI) is making in the tender offer now under way, Stadium Capital Partners (SCP) , argues in its complaint filed in Delaware Chancery Court. SCP based its judgment on BlueLinx management projections that 1.3 million housing starts in 2014 would enable the company to post revenue of $4.37 billion and EBITDA (earnings before interest, taxes, depreciation, and amortization--a popular measure of cash flow) of $170.5 million.
"These EBITDA levels are similar to what the company achieved in its 2004 and 2005 fiscal years, during which years BlueLinx was consistently valued in the range of approximately 6.5x to 9.5x EBITDA," SCP's complaint said. "Employing this range of 6.5x to 9.5x EBITDA multiple and BlueLinx's projected 2014 EBITDA of $170.5 million results in a total enterprise value of $1,108 million to $1,620 million. Deducting the company's projected 2014 net debt of $318.4 million results in an equity value of $790million to $1,301 million, or approximately $24.16 to $39.78 per share -- i.e., more than 7.1x to 11.7x the current $3.40 per share offer price." BlueLinx's real estate assets alone would be worth 1.6 to 2.6 times the $3.40/share offer if that real estate was put on the books at its appraised value, SCP argued.
CAI filed its tender offer on July 21 and launched it on Aug. 2. The offer ends Aug. 27. BlueLinx appointed a special committee to review the offer, but as yet that panel hasn't issued a recommendation to shareholders.
SCP filed the complaint even though it stands to gain from the tender offer. It built its 5% stake in BlueLinx on the basis of a series of purchases between June 14 and July 21 in which it paid between $2.34 and $3.29 per share.
This also isn't the first time that SCP's principals have used the Delaware courts to protest an LBM deal. Last November, SCP's Stadium Capital Management of Bend, Ore., fought a recapitalization of Builders First Source (BFS), that time on grounds that BFS didn't need the money. (Story)
Atlanta-based BlueLinx provides products from more than 750 suppliers to 11,500 customers nationwide. It reported on Aug. 5 a net loss of $3.4 million for the second quarter, swinging from a year-earlier profit of $600,000. That loss occurred despite a 27.7% increase in revenues to $540.8 million.