05-07-02
RTO Online
We have received many emails over the past few weeks concerning the deal between
Rent Way and Calm Waters Partnership. We have laid out the deal as
plainly as we know how based on public information and data gathered through
research. Disclaimer: We are not, by any stretch
of the imagination, stock market experts.
On April 18th Rent Way reported the sale of $6 million dollars of common stock
to a Company named Calm Waters Partnership. According to our research, Calm
Waters is a Wisconsin based privately held investment company owned by
Richard
S. Strong. While Calm Waters is listed with the SEC as owned by 'Richard Strong and
Family Members', the company appears to be controlled solely by Mr. Strong.
Other companies controlled by Mr. Strong are Strong Capital
Management, Inc., a registered investment adviser and wholly-owned
subsidiary of Strong Financial Corporation.
The Math
The deal was consummated on April 17th. Calm Waters purchased the 1 million
shares at a discount of 32% (below the 4-17 closing price).
| Shares Purchased |
Price Paid
per share |
Actual Share Value |
Single Day Profit |
| 1,000,000 |
$6 |
$8.9 |
$2,900,000 |
Calm Waters has the right to purchase additional shares in the future, at $6.25
regardless of the current share price. They are not obligated to do so unless
certain criteria are met. The criteria include Rent Ways ability to refinance
their debt at a 'more favorable rate'. The remaining criteria were not defined
in the public release, but this is clearly the 'meat and potatoes' part of the
deal from Calm Waters perspective.
| Number of Shares |
Price per share |
Actual Share Value (as of Friday 5-3-02) |
Profit if price holds |
| 2,640,000 |
$6.25 |
$9.36 |
$8,210,400 |
Calm Waters also hold warrants to purchase additional shares...
| Number of Shares |
Price per share |
Actual Share Value (as of Friday 5-3-02) |
Profit if price holds |
| 100,000 |
$6.56 |
$9.36 |
$280,000 |
Calm Waters hold an additional warrant to purchase 250,000 common shares at a 5%
premium over the closing price the day they exercise the first warrant. For
example: If Calm Waters exercises the first warrant to purchase 100,000 shares,
at $9.36, the second warrant price is fixed at $9.82 per share (5% over the
closing price of $9.36).
The following table assumes...
1. Calm Waters exercises the first warrant at Fridays close of $9.36
(They can exercise this warrant at any time...we have no way of knowing the
actual date...but it is in their best interest to exercise this warrant at the
lowest possible price)
2. Rent Way stock meets its 12 month price target of $10 per share.
| Number of Shares |
Price per share |
Actual Share Value (assuming price target met) |
Profit if price holds |
| 250,000 |
$9.82 |
$10.00 |
$45,000 |
Summary
| Number of Shares Calm Waters will own if all warrants are
exercised |
Price paid per share |
Total Paid by
Calm Waters |
Actual Share Value (assuming price target met) |
Profit in 7 months if assumptions are met |
| 3,990,000 |
1,000,000 @ 6.00
2,640,000 @ 6.25
*100,000 @ 6.56
*250,000 @ 9.82 |
$25,861,000 |
$39,900,000 |
$14,039,000 |
*Share purchase price is pure speculation. It is dependent upon
the timing of the warrants.
4 million shares would give Calm Waters Partnership nearly control of 15% of all
Rent Way stock. To the best of our knowledge, this makes Mr. Strong the largest
single holder of Rent Way Stock.
Calm Waters Partnership's motivation is clear. The only remaining question is
Rent Way's motivation. What will Rent Way gain from this transaction?
An additional $25 million in equity to be sure. But at what cost?
The market has taken this transaction in stride. Rent Way's stock continues to
climb. At press time $9.75 per share, up nearly 4% for the day!
MORE INFO
Read our follow-up story HERE
Don't forget to listen to the Rent Way conference call online...more
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