Monro to eliminate class C preferred stock, adjusts conversion rate

By Mary-Katherine Stinson

Lexington, Ky., May 18 – Monro Inc. on May 12 reached an agreement to eliminate its class C convertible preferred stock, subject to shareholder approval, according to a news release.

The agreement has been approved by Monro’s board of directors, which will ask shareholders to approve certain amendments to make the plan effective at the company’s annual meeting on Aug. 15.

The agreement implements the automatic conversion by inclusion of a sunset period of approximately three years, after which the company’s dual-class veto-vote share structure will be eliminated if the recapitalization is approved and the class C preferreds have not previously been converted.

The sunset period will run until the earliest of three years and the date on which the class C holders’ ownership dips under 50% of all class C shares issued and outstanding as of May 12. At the end of the sunset period, all outstanding class C shares will be automatically converted into Monro common stock at the adjusted conversion rate.

Each share of class C preferreds will convert into 61.275 shares of common stock, an increase from the current conversion rate of 23.389 shares of common stock per share.

The adjusted conversion rate represents a premium of approximately $36.6 million, based on Monro’s closing stock price on May 12, the date of the agreement.

Assuming all class C preferreds were converted at the adjusted conversion rate, the value of the additional number of shares that the class C holders would receive represents approximately 2.3% of the company’s total equity value.

Under the company’s current structure, at least 60% of the shares of class C preferreds must vote as a separate class or unanimously consent to approve any action taken by the common shareholders, giving the class C holders effective veto power.

The recapitalization is subject to approval by holders of a majority of the outstanding shares of common stock unaffiliated with the class C holders and holders of a majority of the outstanding shares of class C preferreds. Under the terms of the agreement, the class C holders have agreed to vote to approve the recapitalization.

Monro’s board of directors appointed a special committee to evaluate and negotiate a stock recapitalization. Duff & Phelps’ opinions practice of Kroll, LLC provided a fairness opinion to the special committee in connection with the execution of the agreement.

Monro is a Rochester, N.Y.-based provider of automotive undercar repair and tire services.

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