Patrick Industries shares rose about 8% after third-quarter results, lifting the value of its all-stock deal for LCI to about $94 a share. Monomoy's $101 cash proposal is now about 8% higher, down from 16% a day earlier. Both companies vote on Nov. 18.
A day after a buyout firm made LCI Industries a cash offer, the stock half of the competing deal fought back.
Patrick Industries, which has a signed agreement to buy LCI in an all-stock merger, rose about 7.9% to about $75.43 in early afternoon on Thursday after reporting third-quarter net sales of $975 million. Under the agreement, LCI holders receive 1.244 Patrick shares for each LCI share. At Thursday's price, that is worth about $93.83 per LCI share, by our arithmetic.
Monomoy Capital Partners' unsolicited, non-binding proposal of $101 a share in cash is now about 7.6% higher than the stock deal. At Wednesday's close, the gap was about 16%.
LCI shares rose about 1.2% to about $98.77, about 2.2% below Monomoy's price and well above the value of the Patrick deal.
Where things stand
Nothing has changed in the formal process. LCI's board has not changed its recommendation of the Patrick merger, and Patrick reaffirmed the agreement on Wednesday. Special meetings for both companies' shareholders are set for Nov. 18, Patrick confirmed in its results.
The merger agreement carries a termination fee of $94.2 million, payable in specified circumstances, including a change in the LCI board's recommendation.
What the prices say
LCI is trading closer to the cash proposal than to the stock deal. That suggests investors either expect Monomoy's interest to lead to a higher price for LCI holders, or expect Patrick's shares to keep recovering. Either way, the market is not pricing LCI on the signed deal alone.
The narrowing gap also shifts the board's calculation. With the stock deal worth about $116 on Patrick's price the day before the June signing, $87 at Wednesday's close and $94 on Thursday, the comparison with a fixed cash price changes daily. A smaller gap strengthens the board's case for staying with Patrick. A non-binding proposal with no disclosed financing remains a harder thing to weigh than a signed merger.
Cash or combination?
The case for the cash: it is still worth more than the stock deal, it removes exposure to Patrick's share price, and LCI's own stock is trading near it.
The case for the combination: the gap has halved in a day, Patrick's results lifted the deal's value, LCI holders keep a 48% share of a combined company, and Monomoy's proposal is neither binding nor financed on the record.
What to watch
Any LCI board decision on the Monomoy proposal, a binding offer or financing disclosure from Monomoy, Patrick's share price into the vote, and the Nov. 18 special meetings.