VANCOUVER, BRITISH COLUMBIA--(Marketwired - March 26, 2014) - Coast Wholesale Appliances Inc. (TSX:CWA) ("Coast") announced that its board of directors (the "Board") received a formal valuation of Coast's common shares prepared by its financial advisor, CIBC World Markets Inc. ("CIBC"), in response to the offer to acquire the outstanding common shares of Coast at a price $4.55 per share (the "Offer") previously announced by CWAL Investments Ltd. ("CWAL").
Subject to the assumptions, limitations and qualifications noted in the formal valuation, CIBC determined the fair market value of the common shares of Coast, as at March 25, 2014, to be between $5.25 and $5.75 per share.
Coast intends to file its Directors' Circular on Thursday, March 27, 2014 recommending that shareholders of Coast REJECT the Offer by CWAL. The Directors' Circular will also recommend that any shareholders of Coast who have tendered their common shares to the Offer WITHDRAW them immediately.
Key Reasons for Recommending the Rejection of the Offer
The Board has thoroughly reviewed the Offer in consultation with its financial and legal advisors and has determined that the Offer fails to provide adequate value for the common shares of Coast. Accordingly, the Board urges shareholders of Coast to REJECT the Offer and NOT TENDER their common shares for the reasons to be detailed in the Directors' Circular, including the following:
The Offer is Inadequate From a Financial Point of View and is Materially Below the Valuation Range
As previously announced on March 20, 2014, CIBC provided the Board with its Opinion that, subject to the assumptions, limitations and qualifications set forth therein, the consideration offered to shareholders of Coast (other than CWAL and its joint actors) pursuant to the Offer is inadequate, from a financial point of view, to such shareholders. The Offer is also materially below the valuation range of $5.25 to $5.75 per share. The full text of CIBC's Opinion and formal valuation will accompany the Directors' Circular, which the Board urges you to carefully read in their entirety.
The Offer Price Materially Undervalues Coast and Fails to Adequately Compensate Shareholders for Execution of Coast's Business Plan and Associated Cash Flow Generation
As a leading independent supplier of major household appliances and accessories to builders and developers of multi-family and single-family housing, and to retail customers, Coast is well positioned to continue executing on its current business plan to profitably grow sales and increase cash flow.
Coast achieved strong sales momentum in 2013. For the fiscal year ended December 31, 2013, Coast achieved annual sales of $160.1 million, which were up by 10.3% from 2012. During the year, revenues increased across all of Coast's geographic markets except Manitoba, with particularly strong sales growth in the Greater Toronto Area and Alberta. Earnings before interest, income tax provision, and depreciation and amortization ("EBITDA") for the 12 months ended December 31, 2013 increased by $1.2 million, or 15.6%, over 2012 to $9.2 million. Excluding a one-time $0.2 million restructuring charge related to a planned store closure in the first quarter of 2014, adjusted EBITDA reached $9.4 million in 2013. Coast expects continued growth in 2014 as its builder order backlog moves into the final stages of development and as potential increases in retail sales are achieved due to currently contemplated operating initiatives.
Coast's annual dividend payout ratio for 2013 was 48.5%, a significant improvement from the 2012 dividend payout ratio of 70.8%. The dividend payout ratio is that ratio obtained by dividing the annual dividend by adjusted funds from Coast's operations (being "AFFO" as defined the Directors' Circular).
The Board believes that, if successful in its take-over bid or in increasing its ownership position, CWAL may be able to realize significantly more value than what is being offered to shareholders in connection with the Offer. CWAL would be in a position to benefit from Coast's robust cash flow generation and could potentially re-sell Coast to a third party at a higher valuation by offering 100% of the common shares of Coast or a control position.
Certain Significant Shareholders Confirm the Offer is Inadequate
Certain significant shareholders of Coast have confirmed to Coast or CIBC that they consider the Offer to be inadequate.
Coast's Directors and Officers Do Not Intend to Tender Their Shares to the Offer
Each of the directors and officers of Coast intends to reject the Offer and not tender their shares to it.
Important Shareholder Information
The Board's recommendation to shareholders of Coast that they REJECT the Offer and DO NOT TENDER their common shares, as well as a more detailed discussion of the reasons for rejecting the Offer and the Opinion and formal valuation provided by CIBC will be contained in the Directors' Circular.
The Directors' Circular will be available on SEDAR at www.sedar.com and is intended to be mailed to shareholders of Coast on March 27, 2014. Shareholders are advised and encouraged to read the Directors' Circular in its entirety, as it contains important information regarding the Board's recommendation to REJECT the Offer.
Questions and requests for assistance or any other inquiries regarding the Offer may be directed to Coast at:
COAST WHOLESALE APPLIANCES INC.
Contact: Gordon Howie, Chief Financial Officer
Telephone: (604) 301-3400
Forward-Looking Statements and Information
Certain statements herein may contain forward-looking statements and forward-looking information within the meaning of applicable securities laws. Such forward-looking statements and forward-looking information include, but are not limited to: statements concerning the Offer; the intention of directors and officers of Coast to not tender to the Offer; Coast's positioning to continue executing on its current business plan to profitably grow sales and increase cash flow; Coast's expectation of continued growth in 2014 and potential increases in retail sales; CWAL's ability to realize significantly more value than it is offering through the Offer by re-selling Coast to a third party at a higher valuation; and the time of filing and mailing of the Directors' Circular. Such statements and information include statements regarding the expectation and beliefs of management and appear in a number of places and often can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate" or "believes" or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.
Although the forward-looking statements contained herein are based upon what management believes to be reasonable assumptions, Coast cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements reflect management's current beliefs and are based on information currently available to Coast. They speak only as of the date hereof, and reflect current assumptions regarding future events and operating performance. These assumptions include, without limitation: slow economic growth in Coast's current market areas; continued fluctuations in exchange rates; continued low interest rates through 2014; continuing cautious credit markets in which Coast's major builder customers obtain financing for their current and future building activities; weak consumer confidence due to the slow economic recovery, which may be reflected in lower retail sales; and no significant change to the total housing starts in 2014 compared to those recorded in 2013.
Forward-looking statements are subject to known and unknown risks, uncertainties and other factors which could cause actual results of Coast to differ materially from the conclusion, forecast or projection stated in such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to: actions taken by CWAL; actions taken by directors and officers of Coast in respect of the Offer; the possible effect of the Offer on Coast's business; sensitivity to general economic conditions; changes in consumer confidence in the economy; maintenance of profitability and management of changes in Coast's business; competition; increases to interest rates; reliance on suppliers and their ability to supply product for sale on a timely basis; changes in consumer preferences; changes in the mix of product sales; fluctuations in fuel and commodity pricing, which may impact freight and other costs; usage of extended warranty programs and the costs to deliver these services; changes to planning and supply chain processes; lack of long term supplier agreements; reliance on key personnel; foreign exchange rates as they relate to imported products and Coast's suppliers' costs; and other factors referenced in Coast's continuous disclosure filings which are available on SEDAR at www.sedar.com.
These forward-looking statements are made as of the date hereof and Coast assumes no obligation to update or revise them to reflect new events or circumstances, other than as required by law.
Coast is a leading independent supplier of major household appliances and accessories to builders and developers of multi-family and single-family housing, and to retail customers. Founded in 1978, Coast operates stores across the four western provinces and in the Greater Toronto Area of Ontario, as well as a network of warehouse distribution centres strategically situated to serve these locations.