Investors split over Ritchie Bros' $7 bln bid for Janus joins Luxor IAA

The sign outside Richie Bros. Auctioneers is seen in Longmont
The sign outside Richie Bros. Auctioneers is seen in Longmont, Colorado, U.S., February 21, 2017. REUTERS/Rick Wilking/File Photo

TORONTO, Jan 30 (Reuters) - Janus Henderson Investors on Monday became the second investor in Canada's Ritchie Bros Auctioneers (RBA.TO) to publicly come out against the company's planned acquisition of IAA Inc (IAA.N).

But large investors Eagle Asset Management and Independent Franchise Partners, which own 2.92% and 4.75% respectively of Ritchie Bros, helmed by CEO Ann Fandozzi, according to Refinitiv Eikon data and sources plan to vote for the proposed deal.

"We're broadly positive on it," said Eric Mintz, managing director of small cap growth and mid cap growth portfolios at Eagle Asset Management.

"We've got a lot of confidence in Ann. We think based on her success and her strategic initiatives that she put in place already, that she deserves the opportunity to execute on this."

Independent Franchise Partners, which has been increasing its position in Ritchie Bros since the deal was announced, is also supportive of the deal, sources close to the firm told Reuters.

Ritchie Bros on Jan. 23 sweetened the cash component of its buyout offer for IAA by 28%, valuing the U.S. auto retailer at $5.94 billion, and also secured the backing of a key IAA shareholder that had questioned the initial offer.

The initial offer in November valued IAA at $7.3 billion, including debt, but the new offer would come in at around $7 billion, also including debt, as of close on Jan. 23.

"We have significant misgivings about the strategic and financial rationale for this deal, and think the structure and timing are concerning," two Janus Henderson portfolio managers and an analyst said in a letter to the Ritchie Bros Board of Directors included in a securities filing.

The investors said they are "strong believers" in the existing business and in the company's vision of becoming a one-stop shop for heavy equipment owners.

"While we see some strategic merits to the merger, specifically synergies with the real estate footprint and some ability to share technology, we do not believe they are sufficient to justify the risk associated with the transaction," they said.

For its part, a Ritchie Bros spokesperson later on Monday told Reuters that the company had "extensive" engagement with many shareholders since the announcement and have heard from many who support the combination of the companies.

"Given the 8% increase in Ritchie Bros.’ stock over the last two months, we believe our shareholders increasingly understand the financial and strategic benefits of the acquisition, amended agreement and Starboard’s investment, and we will continue to engage with Janus."

The letter added that Janus Henderson, which owns a 3.44% stake in Ritchie Bros according to Refinitiv Eikon data, and has held the stock continuously for over 10 years, intends to vote against the transaction.

IAA shares opened down 1.14% on Monday, while Ritchie Bros' Toronto-listed shares were up 0.41%.

Investment firm Luxor Capital Group, which owns 3.6% of the Ritchie stock, has been a vocal opponent of the deal, and last week reiterated it was against the transaction after the proposed restructuring of the offer.

"Luxor believes that the 'revised' IAA merger has done little to change the financial terms for (Ritchie Bros) shareholders," the firm said in its latest letter.

Reporting by Maiya Keidan; Editing by Bill Berkrot and Jonathan Oatis

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