Bryant Riley, co-founder and co-CEO of B. Riley Financial, said on Friday Suggested The company’s acquisition of the investment bank marked a dramatic end to a tough week that saw its market value wiped out nearly $360 million.
The privatization proposal comes after months of turmoil stemming from banks’ relationships with The Vitamin Shoppe’s owner, Franchise Group, and drew scrutiny from investors and regulators.
Riley, who is also the largest shareholder with a 24% stake, is buying the shares he doesn’t currently own for $7 a share, valuing the bank at $212 million.
The offer represents a 39 percent premium to the shares’ most recent closing price but a far cry from last week’s nearly $17 price, highlighting the extent of the turmoil the Los Angeles-based bank has faced since Monday, when it warned of major hits to its investment in the franchise.
The bank’s market capitalization has topped $1 billion this year. Its shares rose 16 percent to $5.85 on Friday after falling nearly 70 percent this week.
Conditional Offer
A special committee of independent directors will review the proposal, and Mr. Reilly said the company wouldn’t move forward with the deal unless it received the committee’s approval.
“The current public company paradigm requires us to focus on short-term goals and devote unnecessary attention and time to constituencies that are not aligned with the owners of the business,” the co-founders said in Friday’s letter.
The bank will continue to report its financials to the Securities and Exchange Commission, and its bonds and preferred stock will remain publicly traded.
“Bryant Riley’s proposal seems like a vote of confidence, but he’s already over-leveraged, so there may be questions about whether he can raise the capital and whether the board will approve it,” said Michael Ashley Shulman, chief investment officer at Running Point Capital.
Mr. Reilly has said raising capital won’t be an issue. In a filing, he said the acquisition would be funded with debt and possibly equity from third-party capital providers “with whom I have deep, long-standing relationships.”
B. Riley participated in a management-led acquisition of Franchise last year after the company and its dealings with former CEO Brian Kahn came under scrutiny after Bloomberg News reported that Kahn was a co-conspirator in a securities fraud scheme involving Prophecy Asset Management.
Khan denied the allegations, saying he had no knowledge that Prophecy was defrauding investors.
An external investigation and an internal investigation conducted earlier this year cleared B. Reilly of any wrongdoing.
