EGL: Private Equity Madness

By Ryan Barnes of 24/7 Wall St.

Second Institutional Holder of EGL Questions Buyout Motive

Federated Kauffman filed suit against EGL Inc. (EAGL) on behalf of their Small Cap Fund this weekend, the second large shareholder to publicly denounce the management-led buyout, spearheaded by CEO James Crane along with private equity groups Centerbridge Partners LP and Woodbridge Company.

Crane announced on March 19 that he and his backers would take the company private at $38 per share.  This was after he had already presented the board with another $38/share offer with General Atlantic as his backer; that deal subsequently was taken off the table after an earnings warning on February 7^th sent the parties away from the table. 

News of Federated’s suit comes after Ramius Capital sent a public letter to EGL’s board on March 21^st questioning the timing of the new offer from Crane, considering that the Apollo Management group was known to be putting a separate private equity offer together for EGL.  The Ramius letter contends that EGL management violated their fiduciary duty by rushing the re-vamped Crane pass the board before allowing Apollo to submit a bid with the proper due diligence.  The letter even contends that the board stonewalled Apollo’s attempts to get records to

Making matters worse is the fact that the CFO resigned a few weeks ago, before the resubmitted buyout offer became public. 

Making things downright ugly are the provisions in the management-led bid that call for a $30 million windfall termination fee to be paid to Crane in the event that another offer is accepted, as well as $15 million in “transaction expenses”. 

Somebody should bring Crane a calculator and help him realize that since he owns just under 18% of the outstanding shares, an offer with a 10% premium to his own $38 bid would be worth over $28 million to Crane personally.

EGL stated that a goal in going private was to “keep our senior management team intact”, shareholders must be asking why that is in any way important, as the company has lagged behind its index for some time.

You can almost hear the professor at Wharton starting his lecture next fall…”Today’s lesson is about how to NOT go about privatizing your company.  One of the best examples we have is that of EGL group, which this spring tried to sidestep the market to protect a few jobs.”

Main competitor UTI Worldwide (UTIW) suffered a mass exodus in its stock on Thursday, when an earnings report filled with margin pressure sent shares down 20%.  The company had been getting a premium valuation up to that point, and the company now trades at a similar valuation to EGL