Shares of McGrath RentCorp (MGRC 10.74%) jumped 10.7% on Monday after the temporary space solutions company agreed to be acquired by WillScot Mobile Mini (WSC 1.04%).
McGrath fetches a tidy acquisition premium
More specifically, WillScot Mobile will acquire McGrath for $123 per share in cash and stock — a roughly 10.1% premium to McGrath’s closing price on Friday and reflecting an enterprise value of $3.8 billion (including roughly $800 million of net debt).
“This combination provides McGrath customers and employees a platform for continued growth and success, while providing McGrath shareholders with immediate cash value as well as participation in the upside potential of the combined company,” stated McGrath CEO Joseph Hanna.
What’s next for McGrath RentCorp shareholders?
Indeed, McGrath shareholders will receive either $123 in cash or 2.8211 shares of WillScot Mobile Mini common stock for each share they own. Per the terms of the agreement, 60% of McGrath’s outstanding shares will be converted into the cash consideration, and 40% will be converted into the stock consideration. McGrath shareholders will also own roughly 12.6% of the combined company after the transaction is finished, and the stock portion of the transaction will be completed as a tax-free reorganization under IRC Section 368.
Both companies’ boards of directors have already approved the agreement. Assuming it also receives the approval of regulators and McGrath shareholders, it’s expected to close sometime in the second quarter of 2024.
With shares now trading at a slight premium to the agreed acquisition price, the market is clearly pricing in some of the post-transaction ownership of the consolidated companies. But if you’re not interested in owning a piece of the post-acquisition business going forward — and unless waiting longer to sell might qualify you for lower long-term capital gains tax rates on your profits — I wouldn’t blame investors for putting their money to work in any number of other promising stocks.