Smith Family Looking To Take SMI Private opening door for sale of NASCAR (2nd Update)

Bruton and son Marcus Smith
Bruton and son Marcus Smith, taking SMI private. The France family did the same with ISC and its tracks. When it comes time for a buyout of the entire bundle of NASCAR and all the tracks, there will be no shareholders in the way.

UPDATE Something interesting is happening in the business of racing. In April, Sonic Financial, the majority owner of racetrack business Speedway Motorsports (NYSE:TRK), offered to take Speedway private. This comes just a few months after NASCAR offered to buy out Speedway Motorsports' rival International Speedway (NASDAQ:ISCA). These buyout offers come after years of disappointing ticket sales from the racetracks and declining NASCAR TV ratings.

Speedway's take-private offer comes from the company's controlling shareholder at a price below where the stock had been trading in the recent past. Are insiders trying to pull one over on shareholders, or does the offer represent a fair deal?

The buyout offer

On April 23, Speedway Motorsports received a letter from Sonic Financial offering $18 per share in cash for the shares not already owned by Sonic Financial, O. Bruton Smith, the founder and executive chairman of Speedway Motorsports, or his family. The stock closed on April 22 at $13.59. Sonic, Smith, and his family already control over 70% of Speedway's voting power.

But the buyout is not a done deal yet. It must be approved by a special board committee and a majority of the selling shareholders. After consulting legal and financial advisors and assessing the offer price, the special committee will recommend in favor of the deal if it concludes that it is fair to the minority owners. In other words, the special committee has an extremely important job, and minority shareholders are counting on it to represent their best interests.

Smith is the executive chairman and founder of Speedway Motorsports and his family owns Sonic Financial. His son Marcus Smith is Speedway's CEO. With so much influence over the company, the buyout of Speedway seems inevitable.

Turning around the business

According to the offer letter, members of the Smith family want to take Speedway Motorsports private because they believe the company needs to be turned around, and it would be easier to make the changes necessary if it were private.

Speedway Motorsports owns eight racetracks across the U.S. that are all hosts to NASCAR events. The company generates most of its revenue from race ticket sales and TV broadcasting rights to NASCAR events. The company's success is closely tied to the success of NASCAR.

Unfortunately, NASCAR has struggled in recent years, and has seen its audience decline. This year's Daytona 500 — NASCAR's most-watched race — was the least watched in the race's history going back to 1979, with just 9.3 million viewers.

As a result of declining interest, Speedway has seen its race ticket sales decline. The declining ticket sales have been offset by increased revenue from NASCAR broadcasting, which is contractually negotiated to produce more revenue over the life of the contract. However, if NASCAR viewership continues to decline, the company could face a decline in broadcast revenue.

Revenue sources 2014 2015 2016 2017 2018
Admissions $100.8 million $100.7 million $90.6 million $86.9 million $78.3 million
NASCAR broadcasting $186.6 million $195.7 million $201.8 million $209.2 million $216.6 million
Total company revenue $469.1 million $480.0 million $495.4 million $458.4 million $461.9 million

DATA SOURCE: SPEEDWAY MOTORSPORTS FINANCIAL REPORTS.

Given the Smith family's long history in the industry and its intimate involvement with Speedway Motorsports, it seems it would be best positioned to turn around the company, although no turnaround plan or objectives were specified in the offer letter. The family must believe in the long-term popularity of NASCAR or it wouldn't be willing to buy out the remaining shareholders, but I'm not convinced the company needs to be private to enact an effective turnaround.

Likely outcomes

As of this writing, Speedway Motorsports is trading above $18 per share,which implies that shareholders believe the company is worth more and could receive a higher offer from Sonic Financial.

It's not clear how much higher the offer would need to be to make all shareholders happy, but if the stock's historical trading levels or International Speedway's ISCA's buyout offer are the reference points, then a price at or slightly above $20 would likely be seen as fair.

It is also possible that the special committee deems the $18 price fair and shareholders go along with it for fear of the stock dropping if the deal is not approved. Remember, before the offer was announced the stock traded around $14 per share. Given NASCAR's recent struggles, the stock could very well be worth a discount to where it traded in the past, even if that price is a bitter pill for investors with a higher cost basis. Luis Sanchez/Motley Fool

04/25/19

UPDATE The Smith family's proposal to take SMI private is worth more than $734M, with SMI President & CEO Marcus Smith citing "financial headwinds facing the racing industry as a reason for the move," according to a front-page piece by Peralta & Marks of the CHARLOTTE OBSERVER.

The Smith family and its Sonic Financial Corp. "already own approximately 29 million shares and control over 70% of the voting power" of SMI. Smith said that the $18.00 per share that his family will pay for the company’s outstanding shares "represents 'a significant premium' of 31% to Monday’s closing price of $13.94."

The company’s shares closed Wednesday at $18.55. Smith: "NASCAR has indicated the sport would benefit from structural change. We believe [SMI] would be more able to compete in this challenging and changing environment as a private company" CHARLOTTE OBSERVER

04/24/19 The Smith family this morning revealed it is looking to take SMI private, announcing that the Sonic Financial that it privately owns has made a bid to acquire all of SMI's shares not already controlled by the family. The announcement this morning indicates that the privately owned Sonic Financial has made a bid to acquire such shares at $18.00 a bid, and that the family intends to keep and carry on the motorsports promoter business should the acquisition be successful.

However, taking the company private could make an eventual sale easier, because the family would now fully own it and would no longer be subject to shareholder consideration.

SMI owns eight speedways and three dragstrips, along with scores of real estate and other auto-focused revenue streams. SMI has formed a special independent committee that will represent non-Smith shareholders during the process. This comes as the France family tries to take ISC private via NASCAR’s bid, and it would be another seismic step for the sport. SMI was trading at $13.94 heading into today’s trading. Adam Stern/SBD

Editor's Note: With ISC being taken private, and SMI, that means NASCAR and all its tracks will be in private hands and ready for the rumored sale of the sport.

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