A co-founder and former president of Ritchie Bros. Auctioneers (RBA) are voicing their concerns about the auction house’s proposed merger with IAA, issuing a public letter to shareholders.
“We have reviewed closely Luxor’s analysis opposing the IAA transaction and believe that it is bang on, and that the impending merger with IAA risks negatively impacting the culture of the company and with it, its proud legacy,” said former chairman David E Ritchie and former president C Russell Cmolik.
“We know customers are concerned and uneasy about this proposed merger, and what the ramifications may be to them,” they said. “What a shame it would be to see this proud legacy wither to the detriment of the many valued hard-working and dedicated employees, and other stakeholders; and ultimately the value to the shareholders [many of whom are the very same employees and customers].”
Ritchie Bros. has been a public company for 25 years.
‘Distinctly inferior’ business
Luxor Capital, which owns 3.6% of Ritchie Bros. shares, expressed its “profound disappointment’ in the merger plans in a Dec. 16 letter.
“By every indication for marketplace investors, IAA is a distinctly inferior business to RBA,” the letter said, citing things like a 25% drop in marketshare in the last six years. “IAA is not a ‘proven leader’ as stated by RBA’s management but instead a distant number two player across all key aspects of its business.”
While Ritchie Bros. management have cited the benefits of using IAA’s yards as satellite yards, Luxor believes the locations are overutilizes – leading to IAA’s inferior service levels and market share.
In contrast, it noted that Ritchie Bros. is building out a wide range of software and services that represent “hundreds of millions of dollars” in aggregate potential.
Ritchie Bros. responds
“Ritchie Bros. is very different from the small family-run traditional auction business that Mr. Ritchie co-founded in Kelowna, British Columbia in 1958,” Ritchie Bros. responded, noting the co-founder retired 20 years ago.
“Under the current board and management team, the company has evolved, including through M&A, from physical auctions to embrace technology and digitization. Ritchie Bros. today is a trusted global marketplace for value-added insights, services and transaction solutions. As a result, Ritchie Bros. is no longer a stagnant business with little to no growth. Instead, under current leadership, Ritchie Bros. is now delivering record growth and premier shareholder returns year-after-year.”
The IAA acquisition faced due diligence and is “the right next step” toward the goal of transforming Ritchie Bros. into a “global, multi-vertical, digital marketplace with a long runway for continued outstanding profitable growth and significant, sustainable value creation,” the auction house added.
Voting on the deal
Ritchie and Cmolik said they initially believed directors would look to terminate the transaction or shareholders would vote down the deal. But press reports on March 10 suggested the merger may be approved by a small margin of shareholders.
“As discussed in much of the public analysis from Luxor challenging this deal, we believe the proposed merger with IAA will require an immense amount of management’s time to turnaround IAA’s declining business at a time when Ritchie Bros. should be re-doubling its efforts to serve its customers, employees and other key stakeholders – and grow its incredible core business,” they added.
A shareholder meeting is scheduled for March 14.
- This article has been updated to include a response from Ritchie Bros.