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As Of Filer Filing For·On·As Docs:Size Issuer Agent 7/17/07 Shamrock Activist Value Fund LP SC 13D/A 4:1.0M Reddy Ice Holdings Inc RR Donnelley/FA Shamrock Activist Value Fund GP, L.L.C. Shamrock Activist Value Fund II, L.P. Shamrock Activist Value Fund III, L.P. Shamrock Partners Activist Value Fund, L.L.C |
Document/Exhibit Description Pages Size 1: SC 13D/A Amendment No.1 to Schedule 13D HTML 87K 2: EX-3 Leveraged Recapitalization Transactions Analysis HTML 121K 3: EX-4 Schedule of Transactions HTML 35K 4: EX-5 Joint Filing Agreement HTML 16K
Leveraged Recapitalization Transactions Analysis |
Shamrock Capital Advisors,
Inc. Reddy Ice Holdings, Inc. Leveraged Recapitalization Proposal July 2007 Exhibit 3 |
2 I. Leveraged recapitalization proposal II. Packaged ice market characteristics III. Reddy Ice performance IV. Operational improvement opportunities V. Reddy Ice valuation |
3 Leveraged recapitalization is a better option for current shareholders • GSO Capital Partners buyout offer for Reddy Ice substantially undervalues the business; our DCF shows that the intrinsic value of Reddy Ice is ~$42-$44 per share • Our proposal: Pursue a leverage recapitalization Raise $110M of debt Do a self-tender for 3.3M shares (~15% of outstanding shares) at $33 per share Allow some shareholders to exit at a
higher valuation than the GSO offer, while allowing shareholders who appreciate the long-term potential of the business to have the opportunity to capture a significantly higher return |
4 Reddy Ice business is attractive, with significant future valuation creation opportunities • Reddy Ice business is attractive,
as the packaged ice market is stable and has many favorable characteristics Recession proof, market dominance, low price sensitivity, highly accretive acquisition landscape, and high barriers to entry • While Reddy Ice management has grown the business and delivered above average returns to shareholders, significant improvement opportunities still
exist that can be achieved in a relatively short period of time and as a publicly traded company Given pricing dynamics, we believe prices could be raised; a 5% increase above current levels would increase shareholder value by ~15% Internal efficiency opportunities and competitor’s EBITDA margin suggest that Reddy Ice could improve its margins to ~30% in the next several years; this would increase shareholder value by ~28% Value creation opportunity from smaller acquisitions is significant and many accretive deals are still available Monetizing advertising opportunities on the bags and trucks are two other creative ways to increase value |
5 The packaged ice market is stable and has many attractive characteristics (1 of 2) 0 20 40 60 80 100% Market share Rest of players Leading player Typical market share in focus areas 0.0 1.0 2.0 $3.0B 2002 2.0B 2006
2.5B Packaged ice market retail revenue 5.7% (02-05) CAGR $92M $219M Arctic Glacier revenue $236M $333M Reddy Ice revenue Market has consistently grown in recent years; experts think market is recession resistant Three largest players dominate the market in their territories “Packaged ice consumption does not get impacted by recession as people tend to spend
more of their leisure time close to home, which increases demand for ice.” Market expert, International packaged ice association Pricing environment is attractive “Event” driven purchase Ice represents a small cost in overall “event” cost Low price elasticity Highly profitable product for retailers Source: International Packaged Ice Association; Company presentations Low High |
6 0 3 5 8 10 13X Acquisitions since IPO 5.03X 2007 acquisitions 5.65X Reddy Ice valuation (pre deal) 11.00X EV/EBITDA multiple Fragmented market leads to highly accretive tuck-in acquisitions ~200 mom and pop acquisition targets still available ~5.3x
Multiple arbitrage High barriers to entry $300M in PP&E Estimated $400M in replacement cost Long term relationships (10+ years) with high quality customers (Wal- Mart, 7-Eleven, etc.) The packaged ice market is stable and has many attractive characteristics (2 of 2) Source: Company conference calls; Company presentations; Capital IQ |
7 0 100 200 300 $400M 2004 $268M 2005 $305M 2006 $333M Reddy Ice ice revenue 11.5% (04-06) CAGR Revenue grew at 11.5% CAGR since 2004 0 20 40 $60M 2004 $31.8M 2005 $33.9M 2006
$51.7M Reddy Ice free cash flow* 27.5% (04-06) CAGR Reddy Ice management has significantly grown the business since 2004 With free cash flow also showing growth of 27.5% CAGR Source: Capital IQ; Yahoo finance; * Free cash flow = cash flow from operations - CAPEX |
8 There are still significant improvement opportunities that can be achieved and create significant value for public shareholders Pricing Operational efficiencies Asset monetization 1 2 3 |
9 Price increase could increase revenue and EBITDA, and create significant additional shareholder value; given pricing dynamics, this can be achieved in the next 12-18 months 23% 15% 10% Share price delta (%) $38.41 $35.86 $34.38 $31.25 Implied share price 21.8 21.8 21.8 21.8 Shares outstanding (M) $837.3 $781.8
$749.5 $681.2 Implied market capitalization (M) 11.9 11.9 11.9 11.9 Deal Multiple $101.1 $96.5 $93.8 $88.0 EBITDA (M) $339.1 $333.9 $330.9 $324.5 Total Ice Revenue (M) 10% Price increase 5% Price increase 3% Price increase 2006 1 Assumptions Volume decline of 1, 2, and 5% in the 3, 5,
and 10% price increase scenarios respectively Incremental revenue margin of 90% |
10 EBITDA margin comparison suggests significant improvement opportunity exists to increase EBITDA margin; we think improvements can be achieved in the next 24-36 months 0.0 10.0 20.0 30.0% Reddy Ice 25.4% Arctic Glacier 27.0% Arctic Glacier (3 year goal) 30.0% EBITDA margin Cross plant utilization of best practices could result
in significant value creation Reaching Arctic Glacier margin goal could result in additional value of ~$8.50 per share (~28%) Production process opportunities: Production cost and packaging speeds per bag ranges significantly between plants Up to 150% and 35% improvement opportunity respectively Plant automation is in early stages Delivery routing is not as sophisticated as can be, as decisions are based on driver feedback and the process is not systemized or computerized ~450 BPS opportunity 2 Source: Capital IQ; Interviews
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11 Other asset monetization opportunities also exist to create additional shareholder value Opportunity: Bag monetization Truck monetization Rationale: Potential partners: Sell advertising on ice bags Sell advertising on trucks Large reach at low cost Attractive “shelf space” as packages located behind the glass freezer door, making impressions even to consumers not buying ice Attractive target demographics Low
cost mobile billboard that generates high number of impressions Allows partner to brand itself with a high quality related product Beverage companies Theme parks Sports teams 3 Grocery stores Entertainment companies Other national advertisers |
12 Our analysis shows that Reddy Ice intrinsic value is $42-$44 per share Current deal value does not maximize shareholder value and transfers majority of the upside potential to GSO Capital Partners Assumptions: Organic Ice revenue growth of 6.5% CAGR through 2011 Pricing increase of 6% in 2008 and 2009, 2.5% after Volume growth of 2.5% CAGR $60M of revenue and $15M of EBITDA purchased through 2011 at 7x EV/EBITDA multiple EBITDA margin improving to 30% by 2010 Debt
at 5.3x 2007 EBITDA, 4.5x 2008 EBITDA Terminal year 2011; exit multiple 10x EBITDA, Discount rate 10% DCF: 20 2007 2008 2009 2010 2011 Revenue 360.30 $ 403.73 $ 451.91 $ 488.80 $ 527.55 $ Growth 4.1% 12.1% 11.9% 8.2% 7.9% EBITDA 94.87 115.06 134.22 146.64 158.26 Margin 26.3% 28.5% 29.7% 30.0% 30.0% Net Income 24.81 39.18 44.31 49.25 56.30 Margin 6.9% 9.7% 9.8% 10.1% 10.7% Free Cash Flow 53.59 84.75 60.37 53.18 58.66 Growth 58.1% -28.8% -11.9% 10.3% Equity Value 805.04 $ Outstanding Shares 18.53 Implied Share Value 43.44 $ Deal share price 31.25 $ % Upside 39.0% |
13 0 10 20 30 $40 30 day average $29.46 Pre announ- cement $28.52 Deal price $31.25 Reddy Ice share price 6.1% (30 day average) 9.6% (Pre announ- cement) In addition, deal timing
resulted in a small deal premium while long-term prospect of business are still strong Q2 2007 weather was weaker than 2006, but inline with 2005 GSO Capital leveraged the soft weather to pay a small premium While weather impacts short term sales, it is not a big driver of long term value Long term temperatures are expected to be stable Source: University of Dayton, Yahoo finance 0% 78.3 78.6 78.5 77.8 Jun -3% 71.1 73.3 70.8
72.2 Avg. 0% 72.1 72.4 70.1 74.2 May -9% 63.0 68.9 63.9 64.6 Apr 07 to 06 variance 2007 2006 2005 2004 Additionally, precipitation was higher in 2007 than 2006, further impacting outdoor events |