Cybex International’s announcement last month that its board of directors had approved a plan to take the company private may not have come as a surprise.
For much of 2011 and part of 2012, the Medway, MA-based company had difficulty complying with NASDAQ’s requirements to remain listed, which included having a minimum stockholders’ equity of $10 million, a minimum bid price for its common stock of $1 per share and a minimum market value of publicly held shares of $5 million. The company’s stock rose above $1 on Feb. 6, remaining there for the rest of the year, but getting no higher than $2.97 per share.
In addition, Cybex was found 75 percent liable in a $66 million product liability lawsuit at the end of 2010 and then spent much of 2011—and considerable dollars—appealing that verdict, finally settling it for $19.5 million in February.
Even without these issues, some market analysts have noted in the past that Cybex is small for a public company. Its 2011 sales were $140.1 million. By comparison, Life Fitness, Schiller Park, IL, had 2011 revenue of $635.2 million, just part of the revenue for its public parent company Brunswick Corp., Lake Forest, IL.
“There was little benefit to being public,” says Arthur Hicks, Cybex International’s president, chief operating officer and chief financial officer. “[It’s] different than 30 or so years ago when Cybex became public. There are more ways to access capital now. There are much higher levels of regulation and costs of being public. From the cost/benefit standpoint, it doesn’t really make sense. And from the shareholder standpoint, there is less liquidity in the stock, so it’s difficult to attract mutual funds or institutional investors or research groups. It makes sense all around.”
Is Public Too Public?
Hicks says that being a public company is distracting and expensive, which is not good for the company, its employees, its customers or its shareholders.
As of press time, at least four law firms were looking at whether they would file lawsuits related to any possible breaches of fiduciary duties and whether the acquisition was purposely timed to take advantage of what the firms called a temporary drop in the share price of Cybex.
Under the terms of the deal, which is being called a merger agreement to go private, Cybex would be wholly owned by UM Holdings Ltd., which is owned by John Aglialoro, Cybex’s chairman and CEO, and his wife, Joan Carter, who is on the Cybex board. UM, Aglialoro and Carter own approximately 49.5 percent of Cybex’s stock.
Cybex shareholders will receive $2.55 payable in cash for each share of Cybex stock they own. The merger price reflects an 89 percent premium over the closing price of the company’s common stock on Oct. 16, the day before the merger announcement. The transaction has a total approximate value of $22 million. Hicks says the process was above reproach. “We’re very proud of the process,” Hicks says. “We’re very proud that John did not try to just make the minimum offer. He’s been conscious about trying to serve the shareholders all along since he’s been involved since 1997.”
The plan will be presented to shareholders at a meeting in January. Two-thirds of all shareholders and 50 percent of the non-interested shareholders (those who are not UM Holdings or Aglialoro and Carter) must approve the plan, according to Hicks. If approved at the meeting, the company could go private within a matter of weeks. Until then, Cybex must still act as a public company, which means reporting its quarterly financials.
Its third quarter results, released a week after the deal was announced, put the company’s net sales at $34.4 million, a slight increase from the $33.5 million it reported in third quarter 2011. Its net income was $1.1 million.