NASCAR Offers Paltry Premium for International Speedway
Despite the Frances holding more than 70% of the voting power to affect the transaction, we believe there are a few mitigating factors that could delay a formal bid.
Narrow-moat International Speedway (ISCA) received a nonbinding cash bid for the acquisition of its Class A and B shares of $42 per share on Oct. 9, representing an 8% premium on ISC’s prior market closing price ($39.06). While an offer at 11 times 2018 EV/EBITDA is generally lower than the multiples we have seen offered on recent acquisitions, we believe there are two reasons for a depressed offer. First, with the Frances implicitly agreeing to the offer and as the owners of NASCAR, the impetus to pay a significant premium is low. Second, the returns on invested capital on the business remain weak, at a mid-single-digit level (below our 8% weighted average cost of capital estimate), which we believe would limit the premium any buyer would want to pay up on a business capturing negative economic rents.
Despite the Frances holding more than 70% of the voting power to affect the transaction, we believe there are a few mitigating factors that could delay a formal bid. Importantly, ISC has initiated a special committee of independent directors to consider the proposal. We think this alone could push the share price offered modestly higher to complete the deal, representing closer to a midteen EV/EBITDA range that has recently been paid for other consumer discretionary companies, in order to be deemed favorable for shareholders. Additionally, for the transaction to be successful it would have to be approved by a majority of ISC’s shareholders other than the France family, representing outsiders that may have invested close to the offer price (since shares rallied to $47 earlier this year). Furthermore, competitors could view the transaction unfavorably. Leadership at peers Speedway Motorsports and Dover could raise competitive concerns given that their negotiating positions could deteriorate with NASCAR if the current transaction proceeds. Given the nonbinding nature of the offer and the above mentioned issues, we plan to maintain our $37 fair value estimate for now.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.