Cars.com will continue as an independent public company.
The company said Monday that its board of directors has wrapped up its strategic review process, which lasted 10 months and included 29 prospective bidders.
But ultimately, there were “no actionable bids” for Cars.com.
Cars.com board chairman Scott Forbes said in a news release: “The board is fully focused on driving shareholder value. We have conducted an exhaustive strategic review process, engaging with several interested parties to evaluate the relative benefits of various strategic alternatives with the purpose of maximizing value for our shareholders.
“The process did not yield actionable options for a sale of the company,” he said. “As a result, and after consultation with our financial and legal advisors, the board has concluded that the best interests of shareholders are served by continuing to focus on our strategic plan and opportunities to drive growth and shareholder returns as an independent public company. We remain open to all potential value-creating opportunities.”
In the release, Cars.com provided a comprehensive and detailed synopsis of the strategic review process, which it broke down into three stages that began last summer and included potential transaction discussions with a party identified as “Strategic Y” deep into this year.
Much of the recent activity involved three parities identified as Strategic X, Strategic Y and Strategic Z.
A full recap from Cars.com of how everything unfolded is below, but both Strategic X and Strategic Y made final bid offers and revised bid offers this spring and Strategic Z “continued to do substantial work in order to submit a bid.” Based on the timeline provided by Cars.com, it appears discussions with Strategic Y made the most headway, but Cars.com “continued to engage in discussions with Strategic X and Strategic Z” in May.
The following is an outline of the strategic review process provided by Cars.com in a news release, including the aforementioned recent talks of a potential transaction with the “Strategic Y” party that did not end up working out in a deal.
Summary of Strategic Review Process
In the summer of 2018, the Company received unsolicited calls from a number of parties interested in potentially acquiring the Company. In light of these inbound inquiries and after a preliminary internal investigation of strategic alternatives, the Board directed J.P. Morgan to launch a confidential review of strategic alternatives in September 2018. As part of their mandate, J.P. Morgan made outbound calls to 17 potential financial sponsors and strategic buyers in November. Between November and December 2018, 14 NDAs were signed, and 14 management presentations with financial projections were delivered to prospective buyers. By December, four initial non-binding offers were received, including from Sponsor 1. During January, one of the four bidders dropped out of the process and the three remaining bidders were provided access to a data room and management to conduct diligence.
The company remained engaged with these three bidders but determined to expand the process and address speculation by publicly disclosing the strategic review process on January 16, 2019. This disclosure led to additional inbound inquiries. All parties were aware that by February 28 the company would issue its fourth-quarter results as well as three years of financial guidance, and as a result were unwilling to enter into a transaction before that date.
At the end of January, all three bidders from stage 1 announced their decision not to proceed with a second-round bid. Following the January 16announcement of its review of strategic alternatives, the Company received inbound calls from 12 additional bidders. From these parties, the Company received four more initial non-binding bids, including two strategic bidders ("Strategic X" and "Strategic Y") and two financial bidders ("Sponsor 2" and "Sponsor 3"). These bidders were invited to conduct second-round diligence and work towards final transaction terms. In order to avoid the disruption to the ongoing strategic process that could be attendant to a contested annual meeting, on March 25 the Company announced an extension of its director nomination deadline to April 22, 2019 after consultation with Starboard Value.
After detailed discussions, Sponsor 2 and Sponsor 3 withdrew interest. Sponsor 1 returned to the process and indicated an interest in continuing to participate only if it could be partnered with a strategic that was not then part of the process ("Strategic Z"). The Company provided its consent for Sponsor 1 to partner with Strategic Z to explore the opportunity and diligence meetings were conducted. Ultimately during Stage 3, the joint entity representing Sponsor 1 and Strategic Z dropped from the process without submitting an initial non-binding joint proposal, though active discussions with Strategic Z continued through May.
To accommodate the diligence efforts and unrelated timing issues of its bidders, on April 17, the Company extended the nomination deadline to May 15, 2019. Subsequent extensions to the nomination deadline during the process enabled the Company to continue working diligently on the process without the potential disruption of a nomination contest, while at the same time providing any shareholders that would want to nominate directors, an opportunity to do so.
Strategic X and Strategic Y submitted final bids on April 12, 2019 while Strategic Z continued to do substantial work in order to submit a bid. Both final bids involved stock and cash consideration and had a similar transaction value. However, the bid from Strategic X would result in the Company's shareholders owning a majority of the combined entity. The bidders were asked to revisit the terms of their bid and resubmit on April 29, 2019.
The Company received revised bids from both Strategic X and Y by the April 29, 2019 bid deadline. Strategic X increased the stock component of its offer. However, the Board determined that the offer presented certain risks inherent to that bidder that the Board believed were not acceptable and needed to be resolved in order to proceed with Strategic X's offer. Therefore, the Board decided to deprioritize this proposal as it was not actionable until Strategic X addressed these concerns.
Strategic Y clarified its terms and indicated a willingness to enter into definitive transaction documents on May 3. The Board determined to proceed with Strategic Y, subject to improvements to the offer and a signing date of May 9. Strategic Y responded that it was willing to make the requested changes to the offer but communicated that for reasons unrelated to the changes in the terms, Strategic Y could not enter into a transaction until May 28. On May 6, the Company extended the nomination deadline to June 5, 2019.
On May 16, 2019 Strategic Y communicated to the company that it needed more time as it did not have the internal capacity available to enter into a transaction by the end of May, and as a result did not want to sign until the end of June. Throughout May, the Company continued to engage in discussions with Strategic X and Strategic Z.
On June 3, 2019 Strategic Y informed the Company that it would be unable to sign until late July, subject to completion of diligence and negotiation of the final agreements. The Company and Strategic Y engaged in mutual diligence between May 3, 2019 and July 10, 2019. To accommodate Strategic Y's timing issues and to avoid the disruption of the strategic review that might result from a contested election of directors, on June 3, the Company extended the nomination deadline to August 6, 2019.
Ultimately, Strategic Y informed the Company that it was no longer prepared to move forward with the transaction within the Company's timeframe, due to issues related to Strategic Y and unrelated to the Company. The Company and its advisors proposed to Strategic Y changes to the terms of the proposed transaction, which sought to accommodate Strategic Y's concerns, but, Strategic Y reiterated that it was unwilling to proceed under the original terms or under the revised terms proposed by the Company at this time. Strategic Y suggested that if the Company remained independent and certain other factors related to Strategic Y were satisfied, discussions could resume at a later date. The Board concluded that the interests of shareholders would be best served by focusing on continued execution of the Company's strategy rather than continuing to pursue a speculative transaction with Strategic Y.
The strategic review process was public, comprehensive, and deliberate, lasting ten months and ultimately involving 29 parties. After extensive negotiations and discussions, no actionable proposals for a sale were available to the Company. As a result, the Board, which includes two independent Starboard Value director designees, unanimously determined to continue to focus on the execution of the Company's standalone strategic and operational plans and to continue to evaluate opportunities to create shareholder value.