Adesa's largest shareholder questions merger price, process and conflict with private equity funds

By Lisa Kerner

Charlotte, N.C., Jan. 30 - Adesa Inc.'s largest shareholder, Charles M. Royce, president of Royce & Associates LLC, sent a letter to board chairman David G. Gartzke voicing dissatisfaction with the company's proposed merger with a group of private equity funds.

Royce specifically objects to the acquisition price, the auction process and potential conflicts of interest, according to a schedule 13D filing with the Securities and Exchange Commission.

The equity funds include Kelso & Co., GS Capital Partners, an affiliate of Goldman Sachs, ValueAct Capital and Parthenon Capital, which entered into a definitive agreement to purchase Adesa for $27.85 per share cash.

In the letter, Royce, who owns about 6.5 million shares, or 7.22%, of Adesa outstanding common stock, stated, "We wonder why the board seems to have negotiated such an 'attractive deal' for private equity investors and current management, at the expense of current shareholders. This transaction raises more questions than it answers regarding motive."

Royce also points out that "One of the acquiring private equity investors also happens to be one of the largest public shareholders at Sept. 2006."

Royce urged the board to revisit both the price and process by which Adesa will be acquired in order to benefit shareholders.

According to Royce, "using a sum-of-the-parts methodology, a price of $35.00 per share would be more in line with industry comparables, excluding any strategic acquisition premium."

Adesa, based in Carmel, Ind., provides wholesale vehicle auctions and used vehicle dealer floorplan financing services.

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