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Rangeley files 13-D on $AUTO plus some more game theory on deal mechanics

April 12, 2013 | About:
whopper investments

whopper investments

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On Friday, Rangeley Capital filed a 13-D on Auto. As most of you know, I’ve covered AUTO pretty extensively on this blog, as I think the deal price is much too cheap relative to their intrinsic value. I think the 13-D filing further increases the odds of a higher deal coming through. There are two reasons. Let’s look at both.

1) Rangeley paid a much higher price than deal price for their shares. Here’s just one page from their 13-D. Note the prices the big block trades are going through at

Capture1-300x130.png

2. I’ve mentioned before that I think this is an interesting game theory situation, but let’s review what the current shareholder structure looks like.

  1. Insiders (26.5%)
  2. Kinderhook (18.3%)
  3. James Martin (16.4%)
  4. Rangeley (10.5%)
  5. Ancora (5.92%)
  6. Peter Kamin (5.3%)
  7. Whopper Investments (0.005%)
Here’s where the game theory comes into play. I’ve already mentioned how I would guess management likely reached out to Kinderhook and Martin and got their approval for the deal and deal price. But at this point, if both of them switch, the deal is dead.

What if neither wants to switch? Ancora and Rangeley (from here on known as AR) could , theoretically, offer to buy all of Kinderhook / Martin / Kaman’s shares (from here on known as KMK) for $1.06 or $1.07 per share.

Each party in KMK would then “tip” their hands. If they planned on fighting the deal or saw upside, they would not take the tender. AR would then know they had an ally in that party, and could count on them to break this deal.

If KMK planned on taking the merger payment of $1.05, they’d sell their shares to AR. Doing so would net the a premium (and a penny or two is nothing to sneeze at on a $1.05 stock!), give them cash in hand immediately (time value of money), and take all the risk of the deal falling through of the table.

Following this strategy would allow AR to quickly assess where all parties stood on the deal, as well as give them enough votes to force mgmt back to the negotiating table.

Will this happen? Who knows- I’m sure there are several legal reasons why it couldn’t. But I think it’s an innovative way to force a higher bid price by two investors who clearly (like me) believe the company deserves a higher bid.

Disclosure: Long AUTO


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