Prof. Ian Giddy, New York University
RoadShow Ltd. is a South African retailer of
accessories, including audio and wireless products. With outlets
located at major transportation hubs and truck stops in Southern
Africa, the company provides "lifestyle" products for long-distance
owner-operator truck drivers. The company opened its first
in Port Elizabeth in 1997 and went public in 2003.
Recently the founder and CEO of RoadShow had been
options for a change in the company's ownership structure. He was
that would offer greater liquidity and diversification of his and his
family's investment in the company, and at the same time giving key
black officers a greater stake and control. He was also concerned about
share price, which was well below its 2005 peak of R41. The company had
excess debt capacity and was growing steadily at 6% per annum.
options he was considering were a leveraged recapitalization, a share
repurchase, an exchange of common stock for debt, and a dual-class
recapitalization. At this time 30% of the 10 million shares outstanding
were held by the founder and his family, 10% by black senior
management, 20% by
a black-owned venture capital firms, and the remainder was fairly
The shares were trading at R24. Net operating income was R30 million.
Other key indicators are listed below.
New Africa Capital, a private equity firm, had teamed up
a South African bank to propose a leveraged recapitalization to
proposal involved paying a large dividend to outside shareholders. The
dividend would be R24 per share. Discussions with investors suggested
post-dividend share price would fall to R4. In lieu of cash, black
would receive six additional shares of common stock. The firm's
advisors had calculated that of the R216 million needed for the special
dividend, R40 million could come from cash, R100 million from senior
debt issuance provided by the bank, and the remainder from
1. What would be the value of what outside investors received? Of what black management received?
2. What would be the percentage of ownership held by black owners after the recapitalization?
3. How receptive do you think senior and subordinated investors would be to this? Develop a pro-forma balance sheet and interest coverage analysis, after the recap, assuming senior debt pays 12% and subordinated debt pays 15%. How soon would the company be able to pay down its senior and subordinated debt?
4. Can you suggest
any alternatives means of providing
empowerment ownership? Suggest, with a numerical example, how (a) a
share repurchase, (b) an exchange of common stock
for debt, or (c) a dual-class recapitalization might be structured for
firm. Which would be appropriate for this situation?