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EDMONTON, AB, Dec. 27, 2023 /PRNewswire/ — AutoCanada Inc. (“AutoCanada” or the “Company”) (TSX: ACQ), a multi-location group of North American auto dealers, announced iA Financial Group’s (“iA”) investment of $25 million for a 10% stake in AutoCanada’s business unit that will sell financing, insurance and warranty products to buyers of private automobiles sold through the owner on Kijiji’s online marketplaces (the “Online Business F”
“This transaction increases the company’s ownership in the Used Digital division, while eliminating any potential conflict with other business segments and aligning control with shareholders ahead of a significant increase in Used Digital Kijiji Online’s operations,” said Stephen Green, senior independent. Director of AutoCanada. ” The Board looks forward to working with Mr. Antony and the rest of the AutoCanada team to advance the virtual used vehicle sector, which we have significant prospects for. “
An additional investor filing describing the transactions can be found on AutoCanada’s online page in https://investors. autocan. ca/.
iA is in business F
Company F
iA, a leading provider of passenger vehicle insurance and warranty products to dealers in Canada, has invested $25 million for a 10% stake in a newly created subsidiary of UDLP (“Newco”) that owns and operates the F online business
iA has been the exclusive provider of insurance and warranty products for AutoCanada’s new vehicle dealerships since 2018. AutoCanada has renewed this arrangement on a long-term basis and has also extended it to cover AutoCanada’s used vehicle dealerships and the Online C2C F&I Business.
Consolidation of Ownership of UDLP
UDLP was established in 2020 to own and operate AutoCanada’s non-OEM used vehicle business, subject to certain exceptions, and to facilitate the issuance of UDLP percentage incentives. Currently, UDLP’s business includes used car dealerships, a used car auction, and an online “instant money offer. “” used vehicle procurement solution, in addition to the F business
Prior to the consolidation of UDLP’s ownership, Paul Antony, the Company’s Executive Chairman, and distributors of certain businesses purchased in the future through UDLP (the “Other Sellers”) held a minority interest in UDLP. AutoCanada owned the remaining 80. 9% of UDLP’s usual shares.
AutoCanada UDLP’s minority stake to consolidate its stake in UDLP (the “UDLP Ownership Combination”), thereby expanding its stake in UDLP from 80. 9% to 100%. UDLP’s minority stake through AutoCanada includes:
Bundles of Category D UDLP shares owned by M. Antony representing 15% of UDLP’s common share capital (the “Class D Share Units”), acquired for $22. 5 million in cash and various units of AutoCanada shares (the “Antony Share Units”) equivalent to $7. 5 million divided by the average final value of AutoCanada’s common shares (the “Common Shares”) on the Toronto Securities (the “TSX”) for seven business days following the date of this Privacy Policy. advertisement; and
Sets of Class B UDLPs held through other providers representing 4. 1% of UDLP’s equity (the “Class B Units”), purchased for a total interest of $1. 4 million in cash.
The monetary part of the attention to the consolidation of the UDLP assets was financed with the proceeds of Newco’s investment.
Mr. Antony and the Other Sellers have agreed to use their after-tax cash proceeds from the UDLP Ownership Consolidation to purchase outstanding Common Shares in the market within the next two years. The Common Shares to be purchased by Mr. Antony and the Other Sellers with such proceeds may not be sold until the earlier of (i) two years after the date the applicable person has used all after-tax cash proceeds to purchase Common Shares and (ii) the date following such full application of proceeds on which the 10-day volume weighted average price of the Common Shares on the TSX exceeds $75.
Antony Stock Units are granted 3 years after the factor date or the date on which the 10-day volume-weighted average value of the Common Shares on the TSX exceeds $75, whichever comes first. Antony’s percentage sets are subject to any other acquired status and are transferable.
Assignment of Performance Action Units to Key UDLP Officers and Employees
Certain UDLP employees and members of UDLP management will receive an aggregate grant of such number of performance share units of the Company (the “Performance Share Units”) equal to $11.275 million divided by the average closing price of the Common Shares on the TSX for the seven trading days after the date of this announcement. The Performance Share Units will be issued pursuant to AutoCanada’s existing share unit plan and will vest at the end of the seventh fiscal year following the grant date subject to certain performance conditions (in a performance multiplier range of 0.25x to 1.75x) and the continued employment of the applicable individuals with AutoCanada.
Each Antony Share Unit and Yield Share Unit will be settled by the delivery of one Common Share, each of which will be purchased on the market (rather than issued from new Shares). The Company intends to cover the obligations of the Antony Share Units and Performance Share Units agreement in the market.
Background and process of the Special Committee
In 2022, it became apparent that the company’s 100 percent owned RightRide business, externally owned by the UDLP, was beginning to overlap with the UDLP business. Although RightRide was created to focus on promoting subprime credit solutions for used vehicle visitors, RightRide’s visitor credit profile has expanded organically to fit the UDLP’s target market. The Company’s Board of Directors (the “Board”) and Mr. Antony began discussing conceivable responses to avoid potential conflicts arising from this situation, adding the move of the RightRide business to the UDLP, as well as the consolidation of the Company’s ownership in the UDLP through the acquisition of the UDLP’s minority stake.
In March 2023, the UDLP reached a key milestone by obtaining the colocation rights for the C2C F Online solution
Given iA’s indication of interest in a direct cash investment in the Online C2C F&I Business, Mr. Antony discussed the possibility of the Company using the proceeds to facilitate consolidation of the UDLP Minority Interest with two of the largest shareholders of AutoCanada, EdgePoint Investment Group Inc. (“EdgePoint”) and BloombergSen Inc. (“BloombergSen”). At a meeting of the Board in August 2023, Mr. Antony updated the Board on all discussions related to UDLP and provided the Board with a proposal that the Company purchase the UDLP Minority Interest along with a draft term sheet reflecting preliminary terms for such proposal.
In August 2023, the Board established a committee of independent administrators (the “Special Committee” or the “Committee”) with a mandate to review the UDLP’s proposed ownership consolidation in the context of UDLP’s Kijiji Market initiatives, the Newco Investment Project, locating a solution to potential conflicts as RightRide and UDLP’s operations continue to evolve, shareholder alignment control, retention, and incentives for key workers who held Class B pools and liquidity provisions for Class B and Class D pools.
The liquidity provisions in the partnership agreement for UDLP (the “LP Agreement”) for the Class D Units held by Mr. Antony were different from those applicable to the Class B Units held by the Other Sellers. During the first 10 years of the LP Agreement, Mr. Antony was entitled to give notice to the Company that he intended to sell his interest at a price of his choosing. The Company had the first right to purchase Mr. Antony’s Class D Units and if the Company declined to do so, he was entitled to sell his Class D Units to a third party. After 10 years, Mr. Antony was entitled to require the Company to purchase his Class D Units and the Company was entitled to require Mr. Antony to sell his Class D Units to the Company, in each case at fair market value.
The Class B Units had other liquidity provisions in addition to the Class D Units, allowing other dealers to require the Company to acquire their Class B Units at a value decided through a formula. The value of the Class B Units, constituted by our minds in accordance with the formula specified in the liquidity provisions of the Limited Partnership Agreement, would have resulted in an unreasonably low acquisition value for the Class B Units. Through the Special Committee we decided that it would be in the Company’s best interest to acquire the Class B Units at a value greater than the amount specified in the formula and to put in place new pay incentives to retain and incentivize key workers who owned Class B Units.
During the process, the ad hoc committee held 15 meetings, without Mr. Antony being granted a hearing at any of those meetings. The members of the Special Committee were Stephen Green (Chair), Barry James, Rhonda English and Lee Matheson. Each member of the committee was found to be independent with the goal of exhausting the committee’s mandate. The Committee has retained experienced staff and independent monetary and legal advisors. The legal representative of the Committee attended all meetings of the Committee. The Committee also obtained the continued monetary recommendation from its monetary advisor.
Discussions between the committee, EdgePoint, BloombergSen, and Mr. Antony resulted in modifications to the initial terms presented through Mr. Antony to the Board of Directors in August 2023. EdgePoint and BloombergSen attended two of the Committee’s meetings and showed it to the Special Committee. that supported the consolidation of the UDLP’s assets under the terms agreed between the parties.
On December 26, 2023, the Special Committee unanimously decided that the consolidation of the assets of the UDLP is in the most productive interest of the Company and advised the Board of Directors to approve it, and the Board of Directors unanimously decided (with the abstention of Mr. Antony) that the consolidation of the assets of the UDLP is in the most productive interest of the Company and has approved the consolidation of the assets of the UDLP.
The points and grounds that the Special Commission and the Council will have when making their decisions and approving the consolidation of the assets of the UDLP are the following:
While it is difficult to value a business before it has at least several years of operating results, the Committee believes that the terms of the UDLP Ownership Consolidation are reasonable, management is committed to UDLP’s success, UDLP has the human and financial resources to succeed and the potential upside in UDLP’s business is significant.
The Newco Investment implies that Newco may have a value of $250,000,0001, reflecting an arm’s length third-party assessment of significant potential value in Newco. UDLP now owns 90% of Newco as well as 100% of its ‘instant cash offer’ used vehicle acquisition business, its used vehicle dealerships and its auction business, which is a substantial increase from AutoCanada’s 80.9% ownership of all of these businesses previously.
The Company has received prior valuations of Class D sets for internal monetary reporting purposes assigning a fair market price of $936,000 to $1,166,000 as of December 31, 2022 and $567,000 to $752,000 as of December 31, 2021. The Panel is of the view that this evidence is applicable in the cases because it was received prior to the UDLP’s Kijiji Market projects and Newco’s investment.
The monetary portion of the care for the UDLP’s ownership mix is funded by the proceeds from Newco and M’s investment. Antony has committed to use all after-tax monetary proceeds earned from the sale of the Class D Units to acquire featured Common Units. I have also agreed that I will retain such Common Stock for at least two years after the after-tax monetary income is applied to the acquisition of the Common Stock, or until the date following the general use of such proceeds, at which time I will restrict it to 10 days after the occurrence of the eventuality. The volume-weighted average value of the Common Stock exceeds $75. Depending on the liquidity provisions applicable to Class D sets, Mr. Antony may have elected to sell the Class D sets to a third party. with no restrictions on how you would use the proceeds of the money. This characteristic of the consolidation of ownership of the UDLP coincides with that of Mr. Antonio and that of the shareholders of the company.
Prior to the sale of his Class D units, Mr. Antony had a direct monetary interest in the UDLP, which prompted him to increase the UDLP’s net worth. The Committee believes that it is strategically vital that Mr. Antony focus only on the most productive interests. of AutoCanada as a whole, with no vested interests in UDLP. In addition, the Company’s non-UDLP operations, adding RightRide, have become increasingly intertwined with UDLP operations, due to the overlap and synergies between the businesses. This can lead to demanding situations when it comes to the allocation of profits and costs, personnel, capital, and other resources among companies. Consolidating UDLP ownership eliminates potential conflicts of interest before they materialize, thus simplifying and achieving better governance.
EdgePoint and BloombergSen, AutoCanada’s two largest shareholders with a combined ownership of approximately 38% of the notable shares not unusual, the combination of ownership of UDLP on the terms that have been implemented.
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1 Based solely on a $25 million investment for a non-unusual 10% stake in Newco.
Financial impact
AutoCanada provides the following initial unaudited estimate regarding the monetary effect of the consolidation of UDLP’s assets with respect to its fourth quarter 2023 results. For the consecutive three-month period ended December 31, 2023, on an initial unaudited basis (as explained in more detail below), Control estimates that the ownership combination of the UDLP is expected to generate an expense of approximately $36. 7 million (to be allocated to the consistent percentages of the original UDLP Units). with any balance allocated to a new payment award) and is expected to minimize diluted earnings consistently with the percentage up to approximately $1. 50. Only the amounts allocated to the remeasurement of the Class D and Class B sets at the fair price will be returned to earnings for the target. of the calculation of Adjusted EBITDA. 2
The Company has not yet completed its financial statements for the quarter or year ended December 31, 2023, and the Company’s unaudited estimate of the financial impact of the UDLP Ownership Consolidation is a preliminary estimate. Actual results may differ materially from the estimate upon the completion of the Company’s financial statements, final adjustments, review by the Company’s auditors and other developments that may arise between now and the time the financial statements are completed. The estimate is not a comprehensive statement of the Company’s financial results for the quarter or year ended December 31, 2023 or for any other period and should not be viewed as a substitute for full financial statements prepared in accordance with International Financial Reporting Standards, and the estimate is not necessarily indicative of the results to be achieved during the quarter or year ended December 31, 2023. The preliminary estimate of the financial impact of the UDLP Ownership Consolidation provided in this press release constitutes a forward-looking statement within the meaning of applicable securities laws, is based on a number of assumptions and is subject to a number of risks and uncertainties. Please see the section below entitled “Forward-Looking Statements”. The preliminary estimate of the financial impact of the UDLP Ownership Consolidation has been prepared by, and is the responsibility of, management of the Company. The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has not reviewed the preliminary estimate of the financial impact of the UDLP Ownership Consolidation. Neither PricewaterhouseCoopers LLP nor any other independent accountants express an opinion or any other form of assurance with respect to the preliminary estimate.
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2 See “Non-GAAP and Other Financial Measures” below
MI 61-101
As Mr. Antony is Executive Chairman and Chief Executive Officer of the Company, the acquisition of the Class D Units through AutoCanada is considered a “similar inter-party transaction” within the meaning of Multilateral Instrument 61-101 Protection of Holders of Minority Securities in Special Transactions. (“MI 61-101”). This similar interparty transaction is exempt from the formal valuation and minority approval requirements of NI 61-101 pursuant to sections 5. 5(a) and 5. 7(1)(a) of NI 61-101, as developed by the Special Committee and the Board. We believe that neither the fair market price of the subject of the transaction nor the fair market price of the transaction, to the extent that they are like parties, does not exceed 25% of the Company’s market capitalization. failed to record the Material Change Report with respect to the Related Party Transaction at least 21 days prior to the completion of the Transaction, which the Company considers moderate in cases to facilitate the simultaneous completion of the UDLP Ownership Combination and the Transactions. I a.
The curtain replacement report to be submitted in connection with this press release will include certain data required under NI 61-101, in addition to the data involved in this press release. Any shareholder of the Company who wishes to obtain a copy of the curtain replacement report. To be submitted in connection with this press release, you may download a copy of the curtain replacement report at no cost by contacting the company’s Chief Financial Officer, Azim Lalani, at the address listed below.
About AutoCanada
AutoCanada is a leading multi-location automotive dealer organization in North America that currently operates 83 franchised dealerships, comprised of 28 logos, in eight provinces across Canada, as well as one organization in Illinois, United States. AutoCanada has lately sold Chrysler, Dodge, Jeep, Ram, FIAT, Alfa Romeo, Chevrolet, GMC, Buick, Cadillac, Ford, Infiniti, Nissan, Hyundai, Subaru, Audi, Volkswagen, Kia, Mazda, Mercedes-Benz, BMW, MINI, Cars with the Volvo logo, Toyota, Lincoln, Acura, Honda and Porsche. In addition, AutoCanada’s Canadian Operations segment currently operates three used car dealerships and a used car auction company that supports the virtual used department, 12 RightRide departments, and 11 autonomous collision centers within our 27-collision center organization. In 2022, our dealers sold approximately 100,000 cars and processed more than 900,000 service and collision repair orders at our 1367 service locations, generating profits of more than $6 billion.
All dollar amounts referred to in this press release are Canadian dollars.
Additional information about AutoCanada can be found on www. sedarplus. ca and on the company’s website in www. autocan. ca.
Forward-Looking Statements
Certain announcements contained in this press release are forward-looking information and announcements (collectively “prospects”), within the meaning of applicable Canadian securities legislation. We hereby provide warnings that identify vital points that may also cause our actual results to differ materially from those projected in such forward-looking announcements. Anyone who expresses or enters into discussions related to long-term expectations, beliefs, plans, objectives, assumptions or occasions or functionalities (often, but not always, through the use of words or words such as “most likely will result”, “are expected”). and similar expressions) are not ancient facts. and are forward-looking and likely to involve estimates and assumptions and are subject to risks, uncertainties and other matters, some of which are beyond our control and difficult to predict. Forward-looking announcements included in this release include those related to: the significant upside outlook for the online F&I C2C business and the UDLP business; management’s estimate of the effect of the consolidation of UDLP assets on expenses, diluted earnings consistent with consistent percentage and adjusted EBITDA; the issuance of percentage sets compatible with Paul Antony and functionalities compatible with percentage sets for other distributors; and Mr. Antony and the other dealers use the net monetary proceeds from the UDLP property combination to earn percentages of common inventory in the market, which will be subject to agreed contractual participation for a period after their acquisition.
The Company’s Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website at www.sedarplus.ca) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. The assumptions underlying forward looking statements in this press release include assumptions relating to the current value, prospects and growth profile of the Online C2C F&I Business and the business of UDLP and those set out above under “Financial Impact”.
As a result, those points may cause actual effects to differ materially from those expressed in the forward-looking statements. Accordingly, these forward-looking statements are qualified in their entirety by reference to the points discussed in this press release and in the Company’s document. Annual Information Form and other filings with securities regulatory authorities.
Furthermore, any forward-looking statement speaks only as of the date on which it is made and, unless required by applicable law, we undertake no legal responsibility to update any forward-looking statement to reflect occasions or events subsequent to the date on which it is made. performs or to reflect the occurrence of unforeseen events. New problems arise from time to time, and it is not imaginable that control is waiting for all those points and evaluating in advance the effect of each of those points on our business or the extent to which any factor, or combination of points, could have real consequences. The results differ materially from those contained in any forward-looking announcement.
Monetary and non-GAAP measures
This press release includes certain monetary measures that do not have a standardized meaning prescribed through Canadian GAAP. As a result, such monetary measures would possibly not be comparable to similar measures presented through other issuers. Investors are cautioned that such measures do not deserve to be interpreted. as an option for the net source of income (loss) or money derived from (used in) operations, investments, financing, treasury and indebtedness as decided in accordance with Canadian GAAP, as signs of our performance. We provide those non-GAAP non-GAAP Measures (“Non-GAAP Measures”), capital control measures, and supplemental monetary measures to help investors discover our ability to generate earnings and money from (used in) operating activities and to provide further data on how such money resources are used.
Adjusted EBITDA is not a measure of earnings identified through Canadian GAAP and does not have a prescribed standardized meaning through Canadian GAAP. Investors are cautioned that this non-GAAP measure does not deserve to be used as a replacement for a net source of income or loss (as we decide in accordance with Canadian GAAP) as an indicator of the Company’s performance, cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows. The strategies used through the Company to calculate the non-GAAP measure would possibly differ from the strategies used through other issuers. As a result, this measure would possibly not be comparable to similar measures submitted through other issuers. Further main points on this non-GAAP measure are provided in the Management Discussion and Analysis. accompanying the Company’s monetary statements filed periodically on SEDAR in www. sedarplus. com.
The definition of Adjusted EBITDA is as follows:
Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is an indicator of a company’s operational functionality over a period of time and its ability to contract and repay its debts. Adjusted EBITDA provides an indication of the effects generated through our core business. Activities before:
Interest expense (other than interest expense on land plan financing), source of income taxes, depreciation and amortization;
Expenses that introduce volatility unrelated to operational functionality due to the effect of external issues (such as percentage-based rebate amounts attributed to certain percentage issuances under the Used Vehicle Digital Retail Division);
Non-cash charges (such as impairment, recoveries, gains or losses on derivatives, revaluation of contingent consideration and revaluation of redemption liabilities);
Charges outside the normal course of business (such as restructuring, gains and losses on dealership divestitures and real estate transactions); and
Non-recurring expenses (such as provisions for income from agreements).
The Company believes Adjusted EBITDA provides improved continuity with respect to the comparison of our operating performance over a period of time.
SOURCE AutoCanada Inc.
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