I posted the agreement between Eddie Lampert and Autozone (AZO) this morning and got a flood of questions. Reader Jeff answered 90% of them with this post.
“EBITDAR- Earnings Before Dep./Amor, Interest, Taxes, Rent (lease payments).
Thus, the company can take on long term debt of 2.5x its annual EBITDAR. Relatively modest leverage.
The voting restriction for ESL is basically saying that, if he continues to accumulate, the shares he gets over a certain level (40% now, coming down to 37.5%), he will need to vote them in proportion to how the rest of AZO’s shareholders vote.
So, if all non-ESL shareholders vote 50/50, in aggregate, ESL will be required to vote any of its shares in excess of 40% 50/50 as well. This will stay in effect as long as ESL’s ownership remains in the range of 25% – 50%.
So Lampert gets his wish that they continue to recap a bit, taking on more leverage and buying back more shares, in exchange for some voting concessions.”
Now, something interesting. With the new repurchase allotment, Autozone will be repurchasing 8% of the outstanding shares. By default, this will bring Lampert’s ownership up to 44.2% without him buying another share.
That will leave 5.8% (338 thousand shares) left for him to purchase in order for him to invalidate the agreement and vote his shares as he wishes because he will then own 50% of the shares.
One had to wonder then, what is the point of the agreement? Was Lampert pushing for something now and has decided to back off in return for an 8% ownership increase via the repurchase?
It is the only explanation as the agreement simply by itself, for no alternative reason makes no sense and is meaningless.
Something is going on….
Ideas?
Disclosure (“none” means no position):None
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6 replies on “More on Lampert’s AutoZone (AZO) Agreement”
Lampert was pushing for the share repurchase. He got two board seats. And, he has to buy 10% of the company to void the deal.
“…provided that ESL has acquired subsequent to the date of the agreement additional shares representing above 10% of the then outstanding shares.”
If that clause holds, than ESL would need to accumulate over 54% (assuming the whole repurchase is completed). It doesn’t necessarily cut down the stake he needs to buy up for ESL.
jeff,
where are you in the agreement?
Todd,
Look at the very end of your first post. If that’s not in the full filing, then I’m not sure where you found it…
ok…
so 10% of the “then outstanding shares”
so if Azo buys back 8%, then that leaves 58.24 million shares oustanding.
10% of that is 5.8 million or 9% of the amount oustanding now.
lampert has 22.9 million shares and would need to buy 25% more after the AZO buys to qualify…right?
I would think “then outstanding” would mean the amount of shares outstanding after the completion of the agreement, ie now….
The clause refers to “subsequent to the date of the agreement,” not subsequent to the completion of the buyback.
My best guess is that, if AZO has what 63.3mm shares out now, Lampert would have to buy on the idea of 6.3mm shares, or a 27.5% increase on his today stake.
That would give him 29.2 millon shares total.
So, if they then completed the buyback, he’d have 29.2mm vs. 58mm outstanding (at these prices), giving him a smidge over 50% control if you run the numbers.
Basically, he’d have to fulfill his portion and Autozone would have to complete the buyback for him to gain majority control.