Advance America fails to find a richer offer

By Dick Hughes  

APRIL 5, 2012 2:45 p.m. (0)

Over several months, executives of Advance America parried with interested buyer Grupo Elektra of Mexico City before accepting an acquisition price 20 percent higher than Grupo’s initial offer, but with an option to shop around for a better deal from someone else.

The 45-day “go-shop” window for entertaining higher offers expired at 12:59 a.m. April 1 without a single rival bid, and Advance America announced it would close on the sale to Grupo Elektra before July 1.

The company scheduled a special meeting of shareholders for April 20 in Spartanburg, where it is based, to get shareholder approval of the sale. Approval is expected.

Grupo Elektra agreed to pay $10.50 per share, or $780 million, for Advance America, the dominant payday lender in the United States. It is the first U.S. venture of the powerful Latin and South American financial services firm.

The purchase price represents a 33 percent premium over Advance America’s per share value of $7.91 in trading before the deal with Grupo Elektra was announced Feb. 15.

A home-grown company, Advance America’s headquarters are to stay in Spartanburg and its top executives are to remain in place, according to the sale agreement. The company has approximately 225 employees in its downtown headquarters.

All told, Advance America has 5,800 employees in nearly 2,600 lending stores in the United States. It also has 56 stores or licensees in Canada and the United Kingdom, which the company says are unprofitable and up for sale.

According to a proxy statement filed with the Securities and Exchange Commission, discussions began with a casual conversation in New York in late May 2011 between J. Patrick O’Shaughnessy, chief executive officer of Advance America, and representatives of Grupo Elektra and its financial advisor Stephens Inc.

William M. Webster IV of Greenville, chairman of the board and a founder of Advance America with financier George Dean Johnson in 1997, joined James A. Ovenden, chief financial officer, and O’Shaughnessy in preliminary discussions with Grupo Elektra representatives, including Ricardo B. Salinas, principal owner.

In late October, Grupo Elektra made a verbal offer of $8.50 per share, which O’Shaughnessy said Advance America “would not consider.”

After Grupo Elektra raised its offer to $9.50, Advance America hired Wells Fargo Securities and K&L Gates as advisors to help determine the value of the company, Grupo Elektra’s offers and other potential alternatives.

On Nov. 22, Advance America’s board rejected the $9.50 offer. Grupo Elektra countered with offers of $10.25 and $10.40, which were rejected.

On Dec. 14, the Advance America board instructed Webster to tell Salinas that $10.50 “might be acceptable to our board,” and a day later Grupo Elektra verbally agreed to the price but indicated “that this was its final offer.”

After multiple exchanges of draft agreements and discussions to resolve outstanding issues, by early February both sides were satisfied with the price and details of the transaction. On February 15, the Advance Board unanimously approved the merger.

After more than six months of discussions, the board concluded “that the $10.50 in cash per share was the highest price Grupo Elektra was willing to offer” and that, absent the sale, it “would take a significant period of time before we would achieve a share price that would be equivalent.”

Also of benefit to shareholders, the board said, is that Grupo Elektra is paying cash “that is not subject to a financing condition and is guaranteed by Grupo Elektra.”

Another factor in favor of accepting the deal, the board said, was a regulatory environment that presented “significant challenges to further expanding” payday lending, which historically Advance America relied on.

The proxy statement given to shareholders and filed with the SEC also provided details on the unsuccessful solicitation to find a better offer for the company than the amount Grupo Elektra agreed to.

During that 45-day window, Wells Fargo Securities contacted 80 entities, including some with product lines similar to payday lending in their portfolios, to determine if they were willing to make a superior offer.

Of the 80, 12 expressed enough interest to request confidentiality agreements. Three parties signed the agreements and requested and received “confidential information” for initial due diligence, but none made an offer, an apparent sign the deal Advance America made with Grupo Elektra was as good as it was going to get.

Once the deal closes, Advance America will be delisted from NASDAQ as a public company.

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