Rush Enterprises RUSHA/RUSHB
February 15, 2013 - 11:46am EST by
bowd57
2013 2014
Price: 24.50 EPS $0.00 $0.00
Shares Out. (in M): 39 P/E 0.0x 0.0x
Market Cap (in $M): 685 P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0.0x 0.0x

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  • Auto Dealer
  • Buybacks
  • Pair trade

Description

 
Hi, guys --
 
I'm resubmitting this instead of updating my old idea, because I think it's that
worthy. The trade is long RUSHB/short RUSHA. The B shares have 10x the voting
rights of the A shares, but currently trade ~$4 below the A shares, despite the
company having announced a $40MM share repurchase program that will
be concentrated on the B class. I expect the spread to go away over the
next, I dunno, three months, producing a phenomenal IRR no matter how
you calculate it.
 
Will the company actually execute the buyback? Yeah, I'd expect so. They've been
grossly overcapitalized since 2005; they're making money; the controlling
shareholders have agreements with their OEMs that incentives them
to shrink the voting stock; at around $20, the B shares are not expensive;
and they followed through on their last repurchase plan during the financial
crisis.
 
I also think there's a good chance that the Bs trade right through the As. A
3%-5% control premium is not unreasonable -- I don't see how anyone
could file a derivative suit if the company repurchases stock at those levels --
and, because it provides liquidity to the Rush family, the premium might
even go higher than that.
 
I've put this on with a long bias, long 2B/short 1A, because I think the Bs
are pretty cheap and, thanks to the buyback, expect the spread to narrow
through B price appreciation. My downside breakeven is $16, around book,
at which point the company has strong fundamental reasons to repurchase
shares, because it's worth more than book.
 
Yours,
Bowd
 
I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Share repurchase.
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