Blue Bird Corporation (BLBD) research, news, and more from GeoInvesting

Company description

Wed, 27 Jul 2016 13:12:16 GMT

Blue Bird Corporation designs, engineers, manufactures, and sells school buses and aftermarket parts in the United States and internationally. It offers Type C, Type D, and specialty buses, as well as Sigma, a bus for public transportation. The company sells its products through a network of dealers, as well as directly to fleet operators, the United States government, and state governments. It also distributes aftermarket parts of various makes. The company was founded in 1927 and is headquartered in Fort Valley, Georgia.

Research

Tue, 02 Apr 2024 14:46:16 GMT

Removing BLBD from Buy On Pullback Model Portfolio #11

We are removing Blue Bird Corporation (NASDAQ:BLBD) ($38.38; $1.2B market cap) from our Buy on Pullback Model Portfolio #11 as shares have surpassed our near term price targets of $35. The stock was added to the portfolio on September 25, 2023 when it was trading at $19.29. Shares are now at $38.38 up 98.9%.

Research

Fri, 16 Feb 2024 16:25:40 GMT

Blue Bird Corporation (NASDAQ:BLBD) ($33.89; $1.09B market cap) announced that a selling shareholder intends to offer 4.04 million shares in a secondary offering. This is a non-dilutive event for the company since they are not selling any new shares as part of the offering.

This marks the second such offering from this shareholder (American Securities). In December 2023, they offered 2.5 million shares priced at $25.00. The 4 million shares in this offering represent the remaining shares the fund holds. The offering has not been priced yet, and we believe any meaningful dip in BLBD’s stock price could represent another buying opportunity.

Most importantly, this opportunity might be available because the market could take it as a positive sign that American Securities will no longer be able to put any selling pressure on the stock.

Research

Thu, 08 Feb 2024 18:14:48 GMT

BLBD commentary

As fate would have it, shortly after our February 2024 Open Forum ended yesterday, bus manufacturer and Buy on Pullback #11 holding Blue Bird Corporation (NASDAQ:BLBD) reported a blowout quarter, crushing analyst estimates.

Once again, we want to stress the importance of being on our forums live since we might go a little deeper into a few of our Model Portfolio holdings. In the case of BLBD, there was a bit more to say based on a member comment that was included at the end of the event that presented some compelling ideas about the valuation of the company and that, as suggested by language in one of its SEC filings, it could be an acquisition target based on a new change of control. We also discussed why we did not close out the position from BOP #11, even though shares have exceeded our initial price target.

Research

Wed, 17 Jan 2024 15:21:57 GMT

Blue Bird Corporation (NASDAQ:BLBD) ($24.50; $788.0M market cap) announced a record contract for 180 electric school buses. The company has received the single largest order of electric school buses from a school district in its history. Los Angeles Unified School District (LAUSD) ordered 180 electric, zero-emission school buses through their local Blue Bird dealer, A-Z Bus Sales, Inc.

BLBD is the leader in electric and low-emission school buses.

Research

Tue, 12 Dec 2023 15:02:05 GMT

Blue Bird Corporation (NASDAQ:BLBD) ($21.81; $701.5M market cap) announced strong Q4 and full year 2023 results, exceeding Q4 analyst EPS estimates by 38%:

Sales of $302.9 million vs $257.6 million in the prior year and above analyst estimates of $290.1 million
Non-GAAP EPS of $0.66 vs a loss of $0.66 in the prior year and ahead of analyst estimates of $0.48
Full year sales of $1.13 billion vs $$800.6 million in the prior year
Full year non-GAAP EPS of $1.07 vs loss of $1.15 in the prior year

FY2024 Guidance Increased

“We are very pleased with the FY2023 results, with record Revenues and Adj. EBITDA coming in above guidance,” said Razvan Radulescu, CFO of Blue Bird Corporation. “Our business transformation is already generating record levels of profitability compared with historical levels, and more improvements are still to come. With the strong finish to 2023 and better line-of-sight into 2024, we are raising our fiscal 2024 guidance to Net Revenue to $1.15-1.25 Billion, Adj. EBITDA of $105-125 million and Adj. Free Cash Flow of $50-60 million. Additionally, we are reconfirming our long-term outlook of profitable growth towards $2 billion in revenues and Adjusted EBITDA margins of 12%+.”

The Blue Bird team executed a rigorous transformational plan over the past two years to improve operations and throughput, control fixed costs, recover economics through pricing and expand our leadership position in alternative-powered buses. The market demand for Blue Bird’s school buses remains very strong with approximately 4,600 units in our order backlog.”

Guidance is in line with estimates on revenue and above the adjusted EBITDA estimate of $99.3 million.

BLBD was one of the original four stocks added to our Buy on Pullback Portfolio on 9/24/2023 at $19.29, and as of pre-market trading, eclipsed a 20% return with a price of $23.50.

Research

Fri, 14 Sep 2018 14:42:57 GMT

Blue Bird Corporation (NASDAQ:BLBD) ($23.25; marked up 14%; $630.3M market cap) , a designer and manufacturer of school buses, announced a tender offer to purchase up to $50 million in stock at $28 per share.

We are excited to leverage again our strong free cash flow generation to return capital to our shareholders through this tender offer,” said Phil Horlock, President and CEO of Blue Bird. “This initiative signifies management's and our Board’s confidence in our long-term growth prospects and our commitment to continually enhancing shareholder value.”

Blue Bird will use up to $50 million of cash and borrowings to purchase shares in the tender offer. “The tender offer represents an efficient mechanism to provide the Company’s stockholders with the opportunity to receive a significant return on some or all of their investment in the Company, if desired,” added Phil Horlock.

On June 15, 2018 we added BLBD to our Buy on Pullback 7.0 Model Portfolio when the stock was trading at $20.75.

Research

Thu, 09 Aug 2018 14:04:27 GMT

Blue Bird Corporation (NASDAQ:BLBD) ($21.45, $579M market cap), a designer and manufacturer of school buses, reported its second quarter earnings this morning, missing revenue estimates but beating adjusted EPS estimates.

Adjusted EPS $0.91 vs. $0.71
Sales of $314.2M vs. $332.6
Company announced repurchase of $50M in outstanding stock via tender offer

Management’s commentary:

“We are pleased with our third quarter performance despite significant steel cost headwinds,” said Phil Horlock, President and Chief Executive Officer of Blue Bird Corporation. “We have begun to achieve cost reductions with the Transformational Initiatives we are implementing to improve quality, reduce cost, increase capacity and ensure that Blue Bird continues its tradition as the innovator in the School Bus industry. We expect gains from implementing these initiatives and pricing for commodity headwinds in the fourth quarter and significantly in FY2019 which supports our Adjusted EBITDA margin target of 10%+ by FY2020. In the near-term, we are tightening our full-year revenue guidance to $1,010 - $1,020 million, and taking our Adjusted EBITDA guidance down to $70 - $72 million.

“Our product focus continues to be the design of differentiated products that customers want and value. We continued our leadership in these expanding market segments and we expect another year of strong growth and leadership in sales of our alternative-fuel powered school buses. Customer reaction to our all-new offerings of electric-powered buses has been very positive, and as previously announced, Blue Bird will begin delivery of electric buses to school districts before the end of this fiscal year.

“Despite investment in our Transformational Initiatives in the third quarter, we continue to generate positive cash flow, with positive net cash provided by operating activities of $40.1 million and Adjusted Free Cash Flow of $35.7 million for the quarter. As we close out the remainder of our fiscal year, we are reducing our full year Adjusted Free Cash Flow guidance to $30 - $34 million as we continue significant investments in our production facility which we expect to complete in mid-FY2019.”

Details on tender offer:

Blue Bird Corporation (“Blue Bird” or the “Company”) intends to repurchase up to $50.0 million in aggregate value of outstanding shares of its common stock, which will be effectuated by means of an issuer tender offer. If commenced, Blue Bird intends to complete this repurchase prior to the end of the first quarter of the 2019 fiscal year with either cash on hand and/or proceeds from its credit facility. Concurrent with this announcement, Blue Bird has suspended its current repurchase program, which was authorized on June 12, 2018, to repurchase up to $25.0 million in value of outstanding shares of the Company’s (i) common stock and (ii) Series A Convertible Preferred Stock.

On June 15, 2018 we stated that BLBD was the last stock to round out our Buy on Pullback 7.0 Model Portfolio on the heels of share repurchase program and the retracement in price on mixed Q2 2018 results, but the reiteration of full 2018 guidance.

Research

Fri, 15 Jun 2018 15:13:25 GMT

**Mock Portfolio Update - BLBD To Round Out Buy on Pullback Mock Portfolio 7.0

Blue Bird Corporation (NASDAQ:BLBD) ($20.75; $560.2M market cap), the leading independent designer and manufacturer of school buses, is our last selection for our Buy on Pullback Mock Portfolio 7.0. Yesterday, we highlighted that shares of BLBD increased by 8% as the company announced a $25 million share repurchase program. Recently, BLBD pulled back on mixed Q2 2018 results. However, the company maintained its full year guidance. This type of scenario typically represents the ideal “buy on pullback” candidate.

We can see shares trading at $27.90 in the near term based on a forward P/E of 15 on analyst 2019 EPS estimates of $1.86.

Research

Thu, 14 Jun 2018 15:12:41 GMT

Blue Bird Corporation (NASDAQ:BLBD) ($19.05; $514.3M market cap), the leading independent designer and manufacturer of school buses, announced that its Board of Directors authorized the company to repurchase up to $25 million in the aggregate of its outstanding common stock and/or series A convertible preferred stock during the next 12 months.

We first bought BLBD (and its warrants at $1.20) in July 2016 as a special situation play when the stock was trading $14.00 based on what we perceived as a potential shareholder abuse case, but with substantial upside. We sold the stock on April 11, 2017 at $18.35 and closed out the warrants in early February of 2018. You can see a case study outlining the story here.

Research

Thu, 08 Feb 2018 16:47:19 GMT

Closing out BLBDW

Yesterday we highlighted BLBD’s Q1 2018 earnings results. Shares reacted strongly, reaching a new high of $22.50 in yesterday’s trading session. The BLBD warrants (BLBDW) also reached a new high of $5.44. We have decided to close out our long position in BLBDW since the warrants are callable when the stock reaches $24 a share, capping the upside at $6.25.

We first bought BLBD (and its warrants at $1.20) in July 2016 as a special situation play when the stock was trading $14.00 based on what we perceived as a potential shareholder abuse case, but with substantial upside. We sold the stock on April 11, 2017 at $18.35 , but disclosed we were keeping the warrants. Here is a case study outlining the story.

At current prices, the warrants are up over 340% since our special situation report.

Research

Wed, 07 Feb 2018 18:31:42 GMT

Blue Bird Corporation (NASDAQ:BLBD) ($19.85; $474.1M market cap), a leading school bus designer and manufacturer, announced Q1 2018 results:

Sales of $162.5 million vs $136.6 million in the prior year and ahead of analyst estimates of $139.8 million.
Non-GAAP net loss of $0.10 vs net loss of $0.13 in the prior year and below analyst estimates of EPS of $0.01

Quotes from management:

“We are pleased with our first quarter performance, with improvements in nearly all aspects of the business,” said Phil Horlock, President and Chief Executive Officer of Blue Bird Corporation. “We are excited about the investments we are making to improve quality, reduce cost and increase capacity, which will drive higher profitability and margins. Continuing to invest in differentiated products that customers want and value is a core priority in Blue Bird, as evidenced by another quarter of strong growth and leadership in sales of our alternative-fuel powered school buses. We are pleased to announce that we are raising our full-year fiscal 2018 net revenue guidance to $1,010 million - $1,040 million, Adjusted EBITDA guidance to $80 - $85 million and Adjusted Free Cash Flow guidance to $40 - $45 million.”

The company’s full year revenue guidance of $1.01 billion to $1.04 billion is slightly above analyst estimates of $1.0 billion. We remain long Bluebird via BLBDW.

Research

Thu, 07 Dec 2017 19:01:44 GMT

Blue Bird Corporation (NASDAQ:BLBD) ($18.75; $454.3M market cap), the leading school bus designer and manufacturer, announced Q4 2017 results:

Sales of $312.7 million vs $286.4 million in the prior year and ahead of analyst estimates of $310.7 million
Adjusted EPS of $0.51 vs $0.42 in the prior year and in line with analyst estimates of $0.50

Quotes from management:

“We are pleased with our achievements in fiscal 2017 and are well positioned for profit growth in fiscal 2018," said Phil Horlock, President and Chief Executive Officer of Blue Bird Corporation. “We maintained our strong leadership position in alternative-fuel-powered buses, built a record number of buses in our plant, achieved our highest bus sales in 15 years and put in place key initiatives to drive profit growth. We are pleased to announce our full-year fiscal 2018 net revenue guidance of $1,000 million - $1,030 million, Adjusted EBITDA guidance of $78 - $82 million and Adjusted Free Cash Flow guidance of $36 - $40 million.”

While we closed out our long position in BLBD common stock on April 11, 2017 as shares were hitting new highs at that time, we remain long via BLBD warrants, trading as BLBDW. We bought the BLBD warrants (BLBDW) at $1.20 and they have since increased in price to $4.07. We initiated our position in July 2016 as a special situation play when the stock was trading $14.00, based on what we perceived as a potential shareholder abuse case, but with substantial upside.

Research

Thu, 28 Sep 2017 15:09:07 GMT

BLBD ($19.65) - In yesterday’s note, we stated that this school bus operator started a share repurchase agreement with Coliseum Capital. Shares went on to hit a new 52-week high of $19.85. As we stated yesterday, while we closed out our long position in BLBD common stock on April 11, 2017 as shares were hitting new highs near $18.35, we remained long via BLBD warrants, trading as BLBDW, which also hit a new 52 week high of $4.05. The warrants have more than doubled since our alert on August 2, 2017 when we discussed that they were trading with little to zero premium despite having built-in time value.

While shares are at 52 week highs, we feel there is still room to go up, with 2018 EPS estimates of $1.55. Applying a forward P/E of 15 would equate to a near term BLBD price target of $23.25, and BLBDW near $6.00.

Research

Wed, 27 Sep 2017 15:05:47 GMT

BLBD ($18.85) a school bus manufacturer announced a repurchase agreement with Coliseum Capital.

“The Company agreed on an aggregate purchase price of $32.1 million, reflecting a price per share of common stock of $18.65. Blue Bird will fund the repurchase with cash on hand. The share repurchase is made pursuant to Blue Bird’s existing share repurchase program of up to $50 million.”

While we closed out our long position in BLBD common stock on April 11, 2017 as shares were hitting new highs of $18.35, we remain long via BLBD warrants, trading as BLBDW. We bought the BLBD warrants (BLBDW) at $1.20 and they have since increased in price to $3.95. We initiated our position in July 2016 as a special situation play when the stock was trading $14.00, based on what we perceived as a potential shareholder abuse case, but with substantial upside.

Research

Fri, 12 May 2017 16:24:43 GMT

BLBD ($19.35) announced Q2 2017 results:

Sales of $208.7 million vs $191.2 million in the prior year; ahead of analyst estimates of $195.9
EPS of $0.07 vs $0.02 in the prior year; below analyst estimates of $0.15
Reaffirmed full year 2017 guidance (see in management quotes)

Quotes from management:

“Our second quarter sales were strong with double-digit growth in unit volume and we secured a number of first-time accounts,” said Phil Horlock, President and Chief Executive Officer of Blue Bird Corporation. “We maintained our strong leadership position in alternative-fuel-powered buses, with year-to-date orders 43% higher than at the same time last year. With a strong backlog of new bus orders that take us into the fourth quarter, we are pleased to reaffirm our full-year fiscal 2017 net revenue guidance of $980 million - 1,010 million, Adjusted EBITDA guidance of $72 - 76 million and Adjusted Free Cash Flow guidance of $38 - 42 million.”

Research

Tue, 11 Apr 2017 15:57:01 GMT

Locked in nice gains in BLBD common shares, remain long warrants.

Shares of BLBD hit a new 52 week high of $18.35 in yesterday’s trading session. We have closed out our long-held position of BLBD common stock. We initiated our position in July 2016 as a special situation play (not a growth play) when the stock was trading $14.00, based on what we perceived as a potential shareholder abuse case, but with substantial upside. You can see our full coverage on BLBD here.

We remain long the stock via its warrants, trading as symbol BLBDW.

Research

Fri, 10 Feb 2017 16:01:55 GMT

BLBD ($16.65) reported Q1 2017 results:

Sales of $136.7 million vs $131.3 million in the prior year and ahead of analyst estimates of $131.6
Non-Gaap net loss of $0.13 vs a loss of $0.12 in the prior year and missed analyst estimates of a loss of $0.09
BLBD reaffirmed its 2017 guidance of $980 million - $1,010 million sales, Adjusted EBITDA of $72 - $76 million and Adjusted Free Cash Flow of $38 - 42 million.

CEO Phil Horlock stated on the Conference Call:

“And finally, all industry data, or registrations of net new orders received together with higher core activity that we are seeing supports our position that new school bus industry should grow by between 3% to 4% this year and reach around 33,534,000 buses this year. All-in-all a solid first quarter Blue Bird and in line with our expectations.”

We initiated our position in BLBD in July 2016 as a special situation play (not a growth play) when the stock was trading $14.00 based on what we perceived as a potential shareholder abuse case, but with substantial upside for shareholders. You can see our full coverage on BLBDhere. Notably, the company did not comment on the status of the relationship with majority owner American Securities.

Research

Wed, 04 Jan 2017 19:44:07 GMT

BLBD ($15.50) - Tappan Street Partners files a 13G showing a 5.8% stake.

Research

Tue, 13 Dec 2016 16:04:55 GMT

BLBD ($17.05) reported Q4 2016 results:

Sales of $286.4 million vs $307.6 in the prior year and below analyst estimates of $293.0 million
Non-GAAP EPS of $0.49 vs $0.68 in the prior year and ahead of analyst estimates of $0.43
Achieved full year guidance for Revenue, adjusted EBITDA, and adjusted FCF

2017 Guidance:

Expects 2017 revenue to be $980 million to $1 billion; analyst estimates are for $1.01 billion
Expects 2017 EBITDA to be $72 to $76 million; analyst estimates call for $80.2

The company was able to refinance its $160 million term loan:

“On December 12, 2016, the Company successfully refinanced its $160 million term loan and $75 million revolving line of credit. The new credit facility, led by Bank of Montreal as Administrative Agent and an Issuing Bank, reduces the Company’s effective interest rate paid by approximately 4 pts.”

BLBD indicates that the annual savings from the refinancing are approximately $4m, which translates to $0.13 boost to fully diluted EPS.

Comments from management:

“Overall, we had a great year at Blue Bird. We successfully launched four, all-new powertrains while delivering solid growth in top-line revenue and Adjusted EBITDA,” said Phil Horlock, President and Chief Executive Officer of Blue Bird Corporation. “Our propane-powered bus offering continues to be the undisputed leader in alternative fuels with sales up 33% over the prior year. We shipped 406 new gasoline-powered Vision school buses in September, following an unexpected delay in CARB certification for the product. Overcoming this obstacle was a testament to our strong relationship with The Ford Motor Company and Roush CleanTech. With the broadest product range and engine choice in the industry, we are well-positioned for growth next year. Consequently, we are forecasting continued growth in fiscal 2017 with full year net revenue guidance of $980 million -1.0 billion, Adjusted EBITDA of $72-76 million and Adjusted Free Cash Flow of $38-42 million.”

Being that guidance and growth is weak for 2017, we are viewing this as a special situation play on the possible takeover angle. The adjusted EV/EBITDA for 2016 is 9.5 and 8.6 for 2017. We plan to continue offer BLBD management further guidance on how to maximize shareholder value.

Research

Wed, 16 Nov 2016 19:35:58 GMT

BLBD ($14.95) is presenting at the Craig-Hallum Select Conference in New York today. The company confirmed and narrowed its guidance range for fiscal 2016 (in millions):

Revenue: $931-935 (midpoint $933)
Adj. EBITDA: $70-72 (midpoint ($71)
Free Cash Flow: $32-34 (midpoint $33)

As of Q3, the guidance was:

Revenue: $930-950
Adj. EBITDA: $70-72
Free Cash Flow: $30-35

We assume the reduction in the high end of revenue guidance is due to the delay in the launch of its new Type C gasoline-powered buses which it discussed in it Q3 conference call. The full presentation can be viewed here.

Research

Mon, 26 Sep 2016 16:01:26 GMT

BLBD ($14.60) announced that it commenced the shipment of all new gasoline-powered type-C buses. The company plans to sell over 400 prior to its fiscal year ending in September. As announced in the third quarter earnings call, BLBD plans to deliver 300 fewer buses in fiscal 2016 because of a delay in engine certification. The announcement of the shipment does not come as a great surprise, but is additional proof that BLBD is making progress in natural gas-powered buses.

“Both Blue Bird and our customers are very excited about our all-new, gasoline-powered Type C school bus," said Phil Horlock, president and CEO of Blue Bird Corporation. "This bus has the lowest acquisition price compared with other fuel types, while requiring simpler maintenance and providing outstanding cold weather performance. The proven and modern 320 HP 6.8 liter V10 engine delivers outstanding performance and is another great example of our goal to provide innovative, affordable and differentiated products that customers want and value.”

Shares of BLBD have recovered all the losses from the September 19, 2016 13D/A filing which showed American Securities formally withdrew its non-binding offer of $13 per share. See our full update from that day here.

Research

Wed, 21 Sep 2016 14:07:49 GMT

**Special Situation Update

Shares of $BLBD fell 8% during yesterday’s trading session on the heels of a 13D/A filed by American Securities (AMIC).

On September 19, 2016, after the close, American Securities, the private equity with intentions to take BLBD private, formallywithdrew the non-binding indication of interest letter submitted to the Special Committee on July 20, 2016 for the acquisition of BLBD. The original letter indicated a transaction price of around $13.00 per share.

After receiving the non-binding letter of interest, BLBD’s board formed a special committee to evaluate the proposal. On September 1, 2016 the special committeeannounced that it found American Securities’ proposal inadequate.

The possibility that American Securities was not going to increase its bid was one of the scenarios GeoInvesting Analyst Siegfried Eggert laid out on August 30, 2016. We think American Securities does not want to show its cards and will maybe come back with a revised offer at a later time. The PE firm’s governing documents may stipulate when AMIC has to wind down its fund. An extended timeframe may result in a more favorable position (lower market price) to bid for the company, for example if market conditions turn negative or if financial markets crash.

We want to reiterate our basic stance: with a 50%+ position in the stock, it will be very difficult for American Securities to liquidate its position in the open market without sending shares under their cost basis. The most viable options for them to get out of the stock are to sell the entire block to a third party or to take the company private and then issue the shares to the public again later. We believe that American Securities will eventually force a liquidation event. Remember, PE firms are not in the business to make meager returns. Thus, they need to make their investments at extremely low valuations. We find it absurd that AMIC is stating that it feels $13.00 is a fair bid for BLBD when it’s safe to assume that they would plan to sell the stock at much higher prices if they were successful in acquiring the company.

Research

Fri, 02 Sep 2016 19:05:13 GMT

BLBD ($14.52; marked up to $14.80 pre market)

On July 27, 2016 we issued an alert that we were buying shares BLBD. The stock was trading around $13.95 at this time. We believed and continue to believe that a private equity company’s bid to acquire the school bus manufacturer for around $13.00 is way too low. We followed up our initial alert with various valuation scenarios in an article published on July 28, 2016 detailing our bullish thesis on BLBD. Our valuation scenarios ranged from $16.04 to $20.10. Our outlier scenario put BLBD north of $40.00.

On August 20, 2016, Geo Co-Founder Maj Soueidan spoke with Barron’s detailing why Geo believed the private equity bid for BLBD was too low. See the full Barron’s write uphere.

Yesterday (9/1/2016) after the close, BLBD announced that its special committee rejected the offer from American Securities, stating:

“After careful review, and based in part on the advice and analysis of its financial advisor, the Special Committee determined that American Securities’ proposed valuation is inadequate and undervalues the Company.

The Special Committee, with the assistance of its financial advisor, is prepared to enter into discussions with American Securities to determine if the proposed valuation can be increased to adequately reflect the full value of the Company. The Special Committee is willing to consider any amended proposal from American Securities and any proposals that any third parties might put forward.”

Investors should note, in the latest 13D/A filed by Spitfire Capital (activist investor) on August 2, 2016, Spitfire's financial analysis implies a price target ranging from $21.85 to $27.60.

Research

Tue, 30 Aug 2016 14:30:23 GMT

Scenario Analysis

If you are not familiar with BLBD, its history and its current situation, you can read our ongoing coverage of the stock here .

Introduction

American Securities is a private equity firm, their intention is to make changes on an operational level to increase the value of their holdings. Their LPs do not want them to have positions in publicly listed equities for an extended period of time. American Securities already owns 57% of the shares; a position that is not easy to unwind in the public markets – it seems as if there is no reasonable way for them to step back from a takeover. One could easily argue that they are in a long squeeze of sorts.

Private equity funds have a limited lifespan, meaning that American Securities cannot waste too much time before taking over BLBD because it limits the time they have to make operational improvements and exit the position once the fund nears the end of its lifetime. Additionally, private equity funds typically have stipulations that require LP approval in case the fund invests in publicly traded equity for an extended period of time – after all public market investment is not what the LPs signed up for.

The specific fund of American Securities that invested in BLBD is American Securities Partners VII (ASP VII), a fund that opened in January 2015 with $5 billion committed. American Securities’ funds are somewhat different from normal private equity funds in that they have an unusual long lifetime of 25 years. Since we do not have the LP agreement of ASP VII, we cannot determine the exact timeline and requirements ASP VII has to follow in its public market investments.

We believe American Securities understands the dynamic of the situation and this is why they “low balled” their offer to begin with. We reiterate the crux of the situation: the best buyer is one that is already committed to a purchase, and American Securities fits this bill easily.

Special Circumstances of the Bid

The bid is somewhat special in that the potential acquirer already owns a majority of the shares. This is clearly a conflict of interest situation. Under these circumstances Delaware law typically applies “Entire Fairness” principles.

There are two procedural steps when a conflict of interest situation arises.

First the proposed transaction has to be approved by a special committee, which is typically formed from the members board that do not have a direct affiliation with the potential acquirer.

Second the transaction is typically subjected to a non-‐waivable condition that the majority of the unaffiliated shareholders has to adopt the merger or tender into the offer. This is called the majority of minority condition.

In the case that an offer is accepted and the private equity firm can take BLBD private, no-‐voting shareholders stand a good chance of getting additional money in a litigation process. The bidding process in this situation is inherently flawed as a price-‐ discovery tool, and one could argue that ASP VII created the situation on purpose. After all a successful take over by a third party would require approval by ASP VII, who happens to be the bidding opponent.

There are several scenarios that have to be considered going forward. The graphic below explains scenarios and the outcomes for shareholders.

The Alternatives

Research

Wed, 17 Aug 2016 15:05:33 GMT

Will Look To Add BLBD On Possible Dip

We will look to add $BLBD ($14.46) if shares fall under $14 due to investors misinterpretation of yesterday’s news release. After the close, BLBD announced an adjustment to its fiscal Q3 2016 results relating to a non-cash compensation expense. The adjustments do not impact the non-GAAP operating results.

See our recent article on why we feel BLBD offers a compelling arbitrage opportunity.

Research

Fri, 05 Aug 2016 15:40:48 GMT

Added To Our BLBD Long Position

In yesterday’s email, we stated we would look to add to our $BLBD ($14.10) position if shares pulled back due to the slight decrease in its annual revenue guidance. Shares fell 6% in the trading session, reaching a low of $13.75. We added to our position under $14.

In related news, Craig-Hallum raised its price target to $23 from $19.

Research

Thu, 04 Aug 2016 15:48:29 GMT

Will Look To Add to BLBD Position If Shares Pullback

On July 27, 2016 we initiated a long position in $BLBD ($13.69) when shares were trading at $13.98. We stated BLBD qualifies as special situation we perceive as a potential shareholder abuse case, but with substantial upside for shareholders.

On August 2, 2016 we issued an update with more support for our bullish case and added to our position via stock and warrants

Yesterday after the close, the company issued a press release announcing the Board of Directors has formed a special committee to consider the proposal from American Securities.

Quote from the press release:

The special committee of independent directors will consider the proposal and, if it deems advisable, solicit and consider any alternative transactions involving the potential sale of the Company. The special committee is comprised of Daniel J. Hennessy, Gurminder S. Bedi and Alan H. Schumacher. In connection with its review of the proposal, the special committee has engaged Evercore to act as its financial advisor and has retained Sidley Austin LLP as its legal counsel.

This morning, the Company reported Q3 2016 results:

Sales of $323.1 million vs $262.6 million in the prior year and ahead of analyst estimates of $312.0 million
Non-GAAP EPS of $0.64 vs $0.46 in the prior year and ahead of analyst estimates of $0.50.

Slight delay due to later than expected EPA approval leads to slight decrease in annual revenue guidance:

“We began production of our new gasoline-powered Vision school bus and plan to start shipping buses with this powertrain in our fiscal fourth quarter, pending final certification from the EPA. Due to later-than-expected EPA approval of our exclusive gasoline bus, we see potential for slightly lower volume in the fourth quarter. As such, we are adjusting our full year net revenue guidance downward to $930-950 million and revising Adjusted EBITDA to $70-72 million. Due to our ongoing focus on cash management, we are able to maintain Adjusted Free Cash Flow at $30-35 million.”

If shares pullback due to the slight decrease in annual revenue guidance, we will look to add to our long position.

Research

Tue, 02 Aug 2016 19:56:09 GMT

We noticed that Blue Bird Corp (NASDAQ:BLBD) warrants are publicly traded under the symbol BLBDW ( $1.60). . Please note that the warrants convert into half a share of stock at an exercise price of $5.75 per half share and that they expire in 2020. You can read about the terms of the warrants on page 22 of the 2015 10-K.

“Each warrant entitles the holder thereof to purchase one-half of one share of our Common Stock at a price of $5.75 per half share ($11.50 per whole share), subject to adjustment. Warrants may be exercised only for a whole number of shares of our Common Stock.”

Per our analysis, the current price of the warrants of around $1.60 are trading with little to zero premium. Because the warrants trade with little premium, they should at least move in lockstep with the stock (the warrants should move 50 cents for every dollar move in the stock). For this reason, we added to our BLBD position via warrants.

Update

Spitfire Management holds about 7.3% of BLBD. This morning, Spitfire filed a new 13D, offering its analysis of the saga concerning a non-binding letter to acquire BLBD for around $13.00 by an affiliate of American Securities (PE Firm). Spitfire's financial analysis implies a price target ranging from $21.85 to $27.60.

Other Highlights of the Report

BLBD is an iconic and the fastest growing school bus brand
It is the undisputed leader in alternative fuel-powered school bus sales
There is significant upside through industry recovery and accelerating propane-powered bus sales
The Company has an experienced and committed management team.

On The Same Page

We agree with Spitfire on key aspects of their opposition of the "Affiliate's" offer, and keep our previous stance of demanding a high market premium in a take-over offer. We would add that in a fair-value appraisal, the preferred valuation method should be a Discounted-Cash-Flow analysis as it has proven to be perceived as more credible by Delaware judges than other methods.

We prepared various valuation scenarios in an article published last week detailing our bullish thesis on BLBD. Our reasonable valuation scenarios ranged from $16.04 to $20.10. Our outlier scenario put BLBD north of $40.00.

More Support for Our Thesis

We found additional support for our initial thesis, which is that American Securities is committed to an acquisition. American Securities is a private equity firm with $15 billion under management invested through various funds it owns and operates. These funds have limited partnership agreements between the fund(s) and the investors that put up money in a fund.

The Limited Partnership agreement forms the basis of the relationship between LPs and General Partners (the people that manage the fund), and defines scope and type of investments the fund is supposed to undertake. Two critical aspect of a Limited Partnership (LP) agreement are:

The fund will have a finite term. At the end of the term the capital is distributed to the limited partners and the private equity firm. Thus, there is pressure on the fund to consummate deals and liquidate the investments before the end of its term. Otherwise investors will be upset that they tied up their money for little to no return and the PE firm will sacrifice its reputation.
The fund should not invest in publicly traded companies just for investment purposes and liquidate later on the open market. That is not what the LPs signed up for. That basically means that a private equity fund has to pursue go-private transactions in publicly traded stocks that it's already invested in, aggressively.

We were able to get our hands on a few standard private equity LP agreements. We believe the funds of American Securities are highly likely to have similar stipulations. The sections below are from a Carlyle Partners private equity fund.

Research

Mon, 01 Aug 2016 14:02:53 GMT

Update On BLBD ($14.08)

On friday we issued the following tweet concerning BLBD:

ICYMI our update on $BLBD with more detailed explanation of a significant activist arbitrage opportunity we see.

See our full updatehere.

Research

Wed, 27 Jul 2016 14:37:18 GMT

Taking small long position in BLBD ($13.98)

BLBD qualifies as special situation we perceive as a potential shareholder abuse case, but with substantial upside for shareholders

Cerberus Capital Management affiliated funds sold the operating assets now named Blue Bird Corporation to the public through a reverse merger with a shell company called Hennessy Capital Acquisition Corp in February 2015. The intention is to have Blue Bird taken private not even one-and-a-half years later at a favorable valuation for the acquirer, another private equity firm called American Securities.
Private equity firm American Securities Corporation, recently announced the completion of the acquisition of 57% of the outstanding shares of Blue Bird Corporation from Cerberus.
On July 20th American Securities sent a non-binding letter of intent, to acquire the rest of the outstanding shares not currently owned by American Securities Corporation.
The letter implied a take-over price in the range of $12.80 to $13.10 per share; the stock currently trades above $13.90 per share.
A conservative Discounted Cash Flow (DCF) model yields a stock price of $16.04, which is 25% over the low end of the proposed bid.
Valuation multiples support the DCF conclusion.
Analyst estimates show strong growth in sales and EPS. If we use a P/E of 15x on 2017 estimates we get an even higher valuation of $20.10 (analyst EPS estimate of $1.34 x forward PE of 15x). Note that our DCF used very conservative assumptions, even below company guidance in some areas.

The valuation method offered by American Securities is flawed and we do not expect it to hold up in a Delaware court (see link to letter above).
Spitfire Capital Management filed a13D, voicing their intention to fight the proposed “takeunder”.

From the 13D:

“On July 20, 2016, American Securities LLC submitted a non-binding indication of interest letter to the special committee of the board of directors of the Issuer for the acquisition by ASP BB Holdings LLC ("Holdings") of all of the outstanding fully-diluted equity of the Issuer not currently owned by Holdings and its affiliates (the "Transaction"). The Reporting Persons currently intend tooppose the Transaction”

Why we perceive it as potentially interesting:

There are several ingredients that make for a potentially rewarding investment, the most important being that we believe American Securities is committed to taking BLBD private. American Securities is a private equity firm, their intention is to make changes on an operational level to increase the value of their holdings. American Securities already owns 57% of the shares; a position that is not easy to unwind in the public markets – it seems as if there is no reasonable way for them to step back from a takeover. Additionally private equity funds have a limited lifespan, meaning that American Securities cannot waste too much time before taking over BLBD because it limits the time they have to make operational improvements and exit the position once the fund nears the end of its lifetime.
We believe American Securities understands the dynamic of the situation, this is why they proposed the “low-ball” offer. We reiterate the core of the situation: the best buyer is one that is already committed to a purchase.

Reasons For Tracking

Wed, 27 Jul 2016 04:00:00 GMT

Taking small long position in BLBD ($13.98)

BLBD qualifies as special situation we perceive as a potential shareholder abuse case, but with substantial upside for shareholders

Cerberus Capital Management affiliated funds sold the operating assets now named Blue Bird Corporation to the public through a reverse merger with a shell company called Hennessy Capital Acquisition Corp in February 2015. The intention is to have Blue Bird taken private not even one-and-a-half years later at a favorable valuation for the acquirer, another private equity firm called American Securities
Private equity firm American Securities Corporation, recently announced thecompletion of the acquisition of 57% of the outstanding shares of Blue Bird Corporation from Cerberus
On July 20th American Securities sent a non-bindingletter of intent, to acquire the rest of the outstanding shares not currently owned by American Securities Corporation
The letter implied a take-over price in the range of $12.80 to $13.10 per share; the stock currently trades above $13.90 per share
A conservative Discounted Cash Flow (DCF) model yields a stock price of $16.04, which is 25% over the low end of the proposed bid
Valuation multiples support the DCF conclusion
Analyst estimates show strong growth in sales and EPS. If we used a P/E of 15x on 2017 estimates we get an even higher valuation of $20.10 (analyst EPS estimate of $1.34 x forward PE of 15x). Note that our DCF used very conservative assumptions, even below company guidance in some areas.

The valuation method offered by American Securities is flawed and we do not expect it to hold up in a Delaware court (see link to letter above)
Spitfire Capital Management filed a13D, voicing their intention to fight the proposed “takeunder”

From the 13D:

Why we perceive it as potentially interesting:

There are several ingredients that make for a potentially rewarding investment, the most important being that we believe American Securities is committed to taking BLBD private. American Securities is a private equity firm, their intention is to make changes on an operational level to increase the value of their holdings. American Securities already owns 57% of the shares; a position that is not easy to unwind in the public markets – it seems as if there is no reasonable way for them to step back from a takeover. Additionally private equity funds have a limited lifespan, meaning that American Securities cannot waste too much time before taking over BLBD because it limits the time they have to make operational improvements and exit the position once the fund nears the end of its lifetime.
We believe American Securities understands the dynamic of the situation, this is why they proposed the “low-ball” offer. We reiterate the core of the situation: the best buyer is one that is already committed to a purchase.