Cort Business Services Corp.'s plan to sell to billionaire Warren E. Buffett ran into turbulent waters last week.
But company officials say the sale, in the form of a tender offer, will commence today as planned.
On Jan. 14, Cort, which rents furniture primarily to businesses nationwide, said it would sell to Wesco Financial Corp., a California subsidiary of Buffett's Berkshire Hathaway Inc. But that bid was thrown into turmoil last Monday when Brook Furniture Rental, a competitor and longtime suitor of Cort, offered a higher bid for the Fairfax-based company.
Brook, of Arlington Heights, Ill., offered to pay $29.25 a share for Cort, $1.25 a share more than Wesco said it would pay for the company two days earlier.
Cort officials, led by chief executive Paul Arnold, declined to comment, referring all questions to a Wesco spokeswoman in New York. The spokeswoman would only confirm that the tender offer will proceed as planned.
Wesco, a steel service and insurance company based in Pasadena, Calif., signed a deal with the Cort board of directors to buy the company for $28 a share in cash, or about $467 million, which includes $83 million in assumed debt.
Wesco, a publicly traded company, is 80.1 percent owned by Berkshire Hathaway. Wesco's stock closed on Friday at $261, down from $270 at closing on Jan. 14, the day Wesco announced it intended to buy Cort. Wesco stock traded as high as $281 a share last Tuesday.
News of the Wesco offer and the potential competing bid from Brook sent Cort's stock soaring last week. It closed at $17.12 1/2 a share on Jan. 14, opened at $28 the following Tuesday and hovered just above $28 most of the week. It closed Friday at $28. (For more details, see the weekly roundup of regional stocks on Page 24.)
Wesco said the tender is expected to be completed in late February. The merger must still pass antitrust muster with the Federal Trade Commission.
For his part, Brook Furniture president and chief executive Robert W. Crawford said his company, which is privately owned, will continue to pursue Cort.
"We feel that we had a higher bid and there is just no question here," Crawford said. "The board did an injustice to the shareholders by accepting a lower bid."
Crawford said Brook has been eyeing Cort for 15 years. Brook offered to buy Cort last year for $28 a share, but the company rejected the offer.
Cort has "great opportunities down the road," Crawford said. "I can build Brook to be the size of Cort, but it would just be quicker" to buy it.
But Crawford faces an uphill fight for any deal. Citicorp Venture Capital, which owns 44 percent of Cort, has committed to selling to Wesco at the $28-a-share price.
Preston G. Athey, manager of T. Rowe Price's Small-Cap Value Fund, which owns 10.7 percent of Cort, said Wesco's offer is a solid one. The Baltimore-based mutual fund company is Cort's second-largest shareholder.
"I know they have the cash, and they're good for it," Athey said of Wesco. "Their history is not to back out."
Athey gave stylistic differences between the Brook and Cort management teams as one reason why Cort is ignoring Brook's offer to purchase the company.
He also noted that Brook Furniture has not made a formal tender offer.
Athey's endorsement is significant, especially given his adversarial stance with Cort's management in the past year. T. Rowe Price took the unusual step last year of publicly denouncing Cort management's plans to go private in a leveraged buyout backed by Citigroup's venture capital division and a New York buyout firm, Bruckman, Rosser, Sherrill & Co.
Cort offered to buy back the shares owned by the public for $26.50 per share--$24 cash plus a share of new preferred stock. The $26.50 price was almost 60 percent more than Cort stock was selling for at the time.
But T. Rowe Price argued that the buyout price was too low. Cort stock had been selling for $45 a share a year earlier.
While Cort managers subsequently increased their offer to $28 a share in cash and stock, they later canceled the buyout, citing insufficient support from its public shareholders--most notably T. Rowe--and the weakness of the high-yield debt market.
Cort Business Services went public in 1995 after 25 years in business. It is now the industry's biggest renter of residential and office furniture. The company estimates that more than 80 percent of the Fortune 500 companies rent equipment from it.
The company rents furniture, including conference tables and chairs and sofas, for trade shows and meetings. It also rents to residential customers, primarily business executives who need temporary furnishings.
After three rentals, the office and residential furniture is moved to Cort's discount centers, where it is sold.
For the nine months ending September 1999, revenue increased 12 percent to $264.1 million from the same period the year before. The company has 2,300 employees.
The Courting of Cort
March 1999: Cort agrees to be bought by a management-led buyout group for $24 a share, or $363 million. The offer is immediately criticized by investors.
Aug. 10: T. Rowe Price, a mutual fund company that owns 10 percent of Cort, said it would not vote to sell the company to the management group because it believes the price doesn't reflect Cort's long-term value.
Aug. 18: Cort's management-led buyout group increases offer to $25 a share in cash and $3 in preferred stock. Brook Furniture Rental, a competitor and longtime suitor of Cort, said it offered $28 a share in cash. That month, an independent proxy advisory firm calls the offer "inadequate."
November 1999: Cort terminates the management-led leveraged buyout, citing insufficient support from the company's public shareholders and the weakening high-yeld debt market, which would have financed the $28-a-share deal.
January 2000: Cort agrees to sell to Berkshire Hathaway subsidiary for $28 a share.