Morning Flash: DMC Global CEO steps down, Emerson Electric goes hostile with bid for National Instruments, Carvana’s poison pill

News Analysis 17 January

Morning Flash: DMC Global CEO steps down, Emerson Electric goes hostile with bid for National Instruments, Carvana’s poison pill

Our analysts pick out hints of future material developments in M&A, ECM and Event-driven situations by combing through transcripts, stock exchange filings, analyst reports and news stories. This raw data is combined with proprietary insights and commentary to produce an exclusive report that offers short and long-term actionable ideas (no investment action should be taken without further investigation).  If you have any ideas for coverage, please email morningflash@iongroup.com.

Names discussed: BOOM, NATI, EMR, CVNA, VRE

DMC’s Longe steps down as part of curious leadership change

DMC Global [NASDAQ:BOOM] warrants a spot on the watchlist over the next couple of weeks to see if there is anything more behind a major leadership change announced this morning. The diversified industrial company announced that Kevin Longe has stepped down as CEO effective immediately, though didn’t reveal any additional details surrounding the departure, which comes after almost 10 years in the role.

This past summer, CFO Michael Kuta disclosed his plans to retire on 5 March 2023. However, given today’s news, Kuta has agreed to postpone his retirement to act as co-interim CEO along with director David Aldous. While Aldous has served as BOOM’s chairman since 2018, current director Richard Graff has been named interim chairman will Aldous serves as co-CEO. That shuffle isn’t the only imminent board change: a month ago, director Andrea Bertone notified BOOM that she didn’t plan to stand for re-election at the upcoming AGM.

The abrupt CEO departure and Kuta’s delayed retirement suggests that this wasn’t part of a planned succession process, so we wonder what sparked the change.

The Vernon, California-based company added a small warning tied to stockholder activism in its 10-K two years ago, though nothing has materialized on the activist front. While BOOM was likely just covering its bases, it’s interesting that the company at least felt the need to debut the mention. Since then, the stock has lost 65% of its value.

Just over a year ago, BOOM acquired a 60% interest in high-end residential architectural products company Arcadia, diversifying away from oil and gas. The company’s remaining two segments are DynaEnergetics, which makes products for oil and gas well perforation, and explosion-welded clad metal plate producer NobelClad.

Most directors breezed by their re-election at last year’s meeting, though board member Michael Kelly saw 32% of votes go against him. With Longe out and Bertone’s upcoming exit, that leaves the remaining directors with an average age of well over 69 and average tenure of about eight years. With just over three weeks until BOOM’s nomination window opens up, we’ll be watching a little bit closer.

EMR makes USD 7.6bn bid for NATI public after rebuffed approaches

Emerson Electric [NYSE:EMR] has taken its takeover interest in National Instruments [NASDAQ:NATI] right to its shareholders, announcing an offer this morning valuing the company at USD 7.6bn, and saying the target refuses to “meaningfully" engage with them.

The USD 53 per share offer represents a 32% premium to NATI's closing share price on 12 January, the day before it announced a strategic review after citing an approach from potential acquirers.

EMR said in the release that it first reached out to NATI on 16 May, and made a formal offer days later of USD 48 per share, but a deal never materialized. The company re-engaged with NATI in November, offering its latest USD 53 per share offer but said NATI refused to respond to key diligence questions provided ahead of a 4 January meeting, and during which only shared "very limited, high-level information.”

There's only one real reason why a publicly traded company would refuse to engage with an acquirer after it's submitted a formal offer: The bid’s not high enough, as seems to be the case here. That is seen clearly in how NATI is trading this morning, too, with shares already above USD 55 in the pre-market this morning as investors look for a bump or an over-the-top offer.

As part of its strategic review announcement on Friday, NATI announced a poison pill capping ownership at 10%. EMR said today that it has already acquired 2.3 million NATI shares, working out to a 1.76% stake as of NATI's 24 October outstanding share count.

EMR said it is now prepared to nominate directors to NATI's board, and there would seem to be some shareholder dissent for it to tap into. The past two NATI shareholder meetings have seen a significant amount of votes withheld from directors up for re-election.

The nomination deadline is fast approaching, coming in just 10 days, and setting a line in the sand for any potential constructive engagement between the two companies.

CVNA rises in premarket on poison pill adoption

With shares of Carvana [NYSE:CVNA] driving off a cliff the past year, the board has opted for a poison pill.

This morning, the Tempe, Arizona-based used car platform announced the adoption of a poison pill to help preserve its valuable tax-loss carryforwards. The plan carries a 4.9% trigger and is scheduled to expire in three years. CVNA had USD 801m in federal NOLs as of 31 December 2021.

CVNA shares had a substantial rally during the pandemic amid a hot market for used cars. However, the current used car slowdown has really weighed on the company. CVNA also had an ill-timed acquisition earlier this year, picking up ADESA’s US physical auction business for USD 2.2bn in cash. Shares of CVNA have lost 95% of their value over the last year.

Liquidity concerns have begun creeping in amid CVNA’s difficulties and in early December there were reports that the company was in talks with advisers for potential debt restructuring. CVNA last reported about USD 6.5bn in net debt.

Adding volatility to the situation is the fact that there are about 54m shares short at the moment – over half of all outstanding Class A stock. Shares of CVNA are up about 3% in premarket trading.

VRE has Madison’s support amid Kushner Companies interest

Veris Residential's [NYSE:VRE] board seems to have found an ally in one of its shareholders.

Madison International Realty disclosed in a recent 13D filing that it supports management and VRE's strategic direction, and recently met with the company's nominating and governance committee to discuss potential board representation. The fund reported a stake of 6.7% in VRE.

Further, Madison said it continues to have further discussions about potentially joining the board, "opportunities to continue to support" VRE's current business plan and "approach to acquisition interest from prospective third parties."

Recall, VRE received an unsolicited offer from the Kushner Companies of USD 18.50 per share last year. The company batted down this latest offer on 12 December, but seemed to signal that it was at least in shooting distance of an offer it might agree to, saying it was ready to prepare a non-disclosure agreement following a better understanding of Kushner’s financing sources.

This latest missive of support would seem to take off some of the pressure off VRE should Kushner elect to come back with another bid.

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