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Roadrunner's Rights Offering Leaves Elliott Management Owning 90% Of The Company

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Photo: Jim Allen/FreightWaves

Photo: Jim Allen/FreightWaves

Elliott Management to own about 90 percent of Roadrunner Transportation (NYSE: RRTS).

Roadrunner Transportation said in a prepared statement that its rights offering had been completed and that the "backstop commitment" made by Elliott Management resulted in it buying about 721.5 million shares of the company's stock.

That enormous number of common shares is up from the approximately 38,500 shares that the company reported as outstanding in its third quarter 10-Q report filed with the Securities and Exchange Commission. That number turned into hundreds of millions of shares through the rights offering, which gave shareholders the right to purchase 900 million new shares at the rate of about 23.1 shares per share owned. And in case there weren't enough shareholders willing to do that –  which was expected – Elliott Management agreed to "backstop" the purchase and acquire whatever wasn't taken up by other shareholders.

The end result is that Elliott's preferred share holdings will be extinguished. Those preferred shares were acquired in May 2017 for $540 million, and essentially saved Roadrunner but carried a high double-digit interest rate. Roadrunner gets $450 million in proceeds to pay off that debt and will use $30 million of it for other corporate purposes. More importantly, it now has a capital structure that makes sense. Previously, at 50 cents per share, its balance sheet showed minimal shareholder equity and enormous preferred shareholder obligations.

Elliott is a well-known activist investor founded by, and still led by, the legendary Paul Singer.

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"The purpose of the rights offering is to improve and simplify the company's capital structure in a manner that gives the company's existing stockholders the opportunity to participate on a pro rata basis," Roadrunner said in a prepared statement, though the fact that Elliott ended up with 90 percent indicates that few existing shareholders took advantage of the offer and instead let Elliott take most existing shares through its backstop commitment.

"We believe the simplification and improvement of our capital structure accomplished through the rights offering will support our long-term business plans and increase the speed and likelihood of a full operational recovery for Roadrunner," Curt Stoelting, the company's CEO, said in a prepared statement. Stoelting was brought into the company in early 2016, first as president and then as CEO, to clean up a company that had been laid low by accounting scandals.

Still, despite those issues, the company's third quarter results from 2018 – the most recent – showed an increase in revenues to $536.6 million from $521.4 million the prior year. Net losses were attributed primarily to interest payments on the preferred stock, which will no longer exist. EBITDA for the quarter was positive, reversing an EBITDA loss the third quarter of 2017.

The 52-week high on Roadrunner stock was $4.41 per share, recorded almost a year ago. With the price in the rights offering for the new shares set at 50 cents per share, the price of Roadrunner stock has barely budged from that level for weeks.

It recently got back analyst coverage, with Stifel recommending a hold on the stock.

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