Largest Shareholder Opposes Metalico Purchase

CRANFORD, N.J. – Total Merchant Ltd.’s proposed $105 million purchase of Metalico Inc. is facing opposition from its largest shareholder and an investigation by a shareholder rights law firm into whether members of Metalico’s board of directors breached their fiduciary responsibilities to shareholders.

Metalico announced Tuesday that its board agreed to sell the company to Total Merchant for $105 million. The company operates scrap metal recycling centers primarily along the eastern Great Lakes corridor, including in Youngstown and Warren, Ohio, and Sharon, Pa.

Total Merchant, controlled by Chung Sheng Huang, the chairman and managing director of Asia-based recycler Ye Chiu Group, is an investment vehicle formed to seek opportunities in the U.S. metals and commodities market.

The all-cash deal will include a payment to Metalico’s stockholders of 60 cents per share of Metalico common stock owned by them as of the date of closing. The price includes roughly $44 million for Metalico’s outstanding equity plus the cost of retiring the company’s primary term and institutional senior and convertible debt, estimated at $45 million and the assumption of $16 million of additional debt as of June 15.

Under the terms of the merger agreement, a subsidiary of Total Merchant will merge with Metalico, making Metalico a wholly owned subsidiary of Total Merchant. Total Merchant indicated it intends to retain Metalico’s management and other personnel.

A request for comment at the Youngstown office was referred to the company headquarters. Metalico officials there did not respond to requests for comment .

Metalico’s board, which has been investigating an evaluating strategic opportunities since January, selected Total Merchant’s offer after reviewing several strategies, including remaining independent among the options, according to the company news release.

The merger is subject to closing conditions, including approval of the merger agreement by holders of a majority of Metalico’s outstanding common stock and other customary conditions. No regulatory approval is required.

In an email to Platts, a news service of McGraw Hill Financial, Adam Weitzman, CEO of Upstate Shredding, said that as Metalico’s largest shareholder he does not intend to vote in favor of the deal, even though it represents a gain of approximately 50% in his total investment in the company. He urged Huang to reevaluate his offer “to give full value to all Metalico’s shareholders.”

In addition, Johnson & Weaver LLP announced Tuesday that it launched an investigation into whether Metalico’s board members breached their fiduciary duty in connection with the sale.

“The investigation concerns whether Metalico’s board failed to satisfy [its] duties to the company shareholders, including whether the board adequately pursued alternatives to the acquisition and whether the board obtained the best price possible for Metalico’s shares of common stock,” according to a statement from the law firm.

The media statement cited a $1 price target by a Wall Street analyst on Metalico stock, and a $1.67 trading price last year.

The transaction is expected to close in the third quarter, but no date has been set on a shareholder vote on the merger agreement. The merger agreement has a Sept. 21 termination date and Metalico board members have agreed with senior lenders that the merger should be completed by Aug. 31.

Under the terms of the merger agreement, Metalico has agreed not to solicit alternative acquisition proposals, although it is able to consider unsolicited proposals, with Total Merchant having the right to match any proposal. Metalico would be required to pay Total Merchant a termination fee if Metalico terminates the agreement to accept a superior proposal, and Total Merchant likewise would pay a penalty if it fails to close the transaction, assuming all closing conditions have been satisfied.

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