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Icahn Enterprises’ purchase of Uni-Select raises unanswered questions

Friday, March 27, 2015 - 06:00
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Program groups are merging, independent warehouses are buying each other out, and now manufacturers’ investment groups are buying warehouses, distribution centers and company-owned stores.

I think that Uni-Select USA selling its assets for a mere $340 million was way too low, but maybe that’s all they were worth. Icahn Enterprises LP, the buyer of Uni-Select USA, owns an interest in Federal-Mogul Holdings, which will be operated independently “at arms length” in regards to the operations of Uni-Select USA after the transaction is completed.

This is from Icahn Enterprises’ press release about the merger: “Carl C. Icahn, Chairman of Icahn Enterprises, commented, ‘Icahn Enterprises is constantly looking for companies to own or control (i.e., own over 50%). The assets of the companies we control currently total over $20 billion, up from approximately $1 billion at the beginning of 2000. This does not include the value of the securities held by the funds in our Investment segment, which total over $15 billion. With the advent of the bull market over the last five years, it has become increasingly difficult to find companies that we believe to be undervalued and with growth potential. That is why we were happy when we learned that the United States segment of Uni-Select was available.’”

Taking the above at face value, Icahn Enterprises appears to have $35 billion in buying power.

The quote above also implies that Uni-Select USA was undervalued with growth potential. Let’s look at some raw numbers and draw some conclusions. Uni-Select USA has 39 distribution centers and 240 company-owned stores in the U.S. and has a program group network of more than 2,000 independent jobbers. 39+240+2,000 = 2,279 potential outlets. 340 million divided by 2,279 distribution outlets equals $149,188.24 per location average investment. So, lets assume that each distribution center has a meager inventory of $3 million. That equals $117 million of inventory at WD pricing. 240 company owned stores at a lower than expected inventory totaling $250K each equals $60 million in inventory assets. 2,000 program jobbers buying an average of $10k per month, yields $20 million in jobber sales per month. This produces a minimum of $177 million in inventory assets and a minimum of $20 million in cash flow monthly.

Not to mention the property and fixtures Uni-Select USA has title of, which has got to take care of a large chunk of the remaining $143 million left unjustified. Yes, this is a good deal for Icahn Enterprises.

Having had experience with Uni-Select as a jobber, experience with all things Federal-Mogul, and a general student/observer of our industry, the acquisition leads me to deduce a few things, and offer up a few general questions. The price tag makes me think that Uni-Select did not necessarily want to sell, but needed to sell. The most likely buyer is always the largest debtor as well. And finally, with buying power of $35 billion, why not buy AutoZone, Advance Auto Parts and others? Why stop there?

What is the real motive? It’s very unclear. Icahn is said to be a Wall Street guru and he knows how to turn a profit for his investors. He’s involved with so many different companies as an owner, major shareholder, or as a member of the board of directors, it’s mind-boggling.

The man wears a lot of hats and he has a vast knowledge of things. He is surrounded by a group of experts, and has incredible wealth and financial power. So, why is he buying an automotive distribution group formerly owned by a Canadian company? I see transformation on the horizon.

Do something great Carl. We are all watching and possibly willing to follow when you show us what you’re up to. 

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